Federal Register, Volume 76 Issue 160 (Thursday, August 18, 2011)

[Federal Register Volume 76, Number 160 (Thursday, August 18, 2011)]
[Rules and Regulations]
[Pages 51476-51846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-19719]

[[Page 51475]]

Vol. 76

Thursday,

No. 160

August 18, 2011

Part II

Department of Health and Human Services

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

Centers for Medicare & Medicaid Services

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

42 CFR Parts 412, 413 and 476

Medicare Program; Hospital Inpatient Prospective Payment Systems for
Acute Care Hospitals and the Long-Term Care Hospital Prospective
Payment System and FY 2012 Rates; Hospitals' FTE Resident Caps for
Graduate Medical Education Payment; Final Rule

Federal Register / Vol. 76 , No. 160 / Thursday, August 18, 2011 /
Rules and Regulations

[[Page 51476]]

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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, and 476

[CMS-1518-F; CMS-1430-F]
RIN 0938-AQ24; RIN 0938-AQ92

Medicare Program; Hospital Inpatient Prospective Payment Systems
for Acute Care Hospitals and the Long-Term Care Hospital Prospective
Payment System and FY 2012 Rates; Hospitals' FTE Resident Caps for
Graduate Medical Education Payment

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

ACTION: Final rules.

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

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 statutory
provisions contained in the Patient Protection and Affordable Care Act
and the Health Care and Education Reconciliation Act of 2010
(collectively known as the Affordable Care Act) and other legislation.
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.
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) and implementing
certain statutory changes made by the Affordable Care Act. In addition,
we are finalizing an interim final rule with comment period that
implements section 203 of the Medicare and Medicaid Extenders Act of
2010 relating to the treatment of teaching hospitals that are members
of the same Medicare graduate medical education affiliated groups for
the purpose of determining possible full-time equivalent (FTE) resident
cap reductions.

DATES: Effective dates: These final rules are effective on October 1,
2011, except for the provisions of Sec. 412.230(d)(5), which are
effective September 1, 2011. Effective July 29, 2011, the interim rule
published March 14, 2011, at 76 FR 13515, is confirmed as final without
change.
Applicability dates: 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 is applicable beginning on or after
October 1, 2011. The payment policy and the annual payment rates for
inpatient hospital services provided by IPPS hospitals and by long-term
care hospitals (LTCHs) and for implementing certain statutory changes
made by the Affordable Care Act and other legislation are applicable to
discharges occurring on or after October 1, 2011 unless otherwise
specified in this final rule.

FOR FURTHER INFORMATION CONTACT:

Tzvi Hefter, (410) 786-4487, and Ing-Jye Cheng, (410) 786-4548,
Operating Prospective Payment, MS-DRGs, Hospital Acquired Conditions
(HAC), Wage Index, New Medical Service and Technology Add-On Payments,
Hospital Geographic Reclassifications, Graduate Medical Education,
Capital Prospective Payment, Excluded Hospitals, Medicare
Disproportionate Share Hospital (DSH), and Postacute Care Transfer
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 Issues.
Bridget Dickensheets, (410) 786-8670, Rebasing and Revising of the
Market Basket for LTCHs Issues.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital
Demonstration Program Issues.
James Poyer, (410) 786-2261, Inpatient Quality Reporting--Program
Administration, Validation, and Reconsideration Issues.
Shaheen Halim, (410) 786-0641, Inpatient Quality Reporting--Measures
Issues Except Hospital Consumer Assessment of Healthcare Providers and
Systems Issues; and Readmission Measures for Hospitals Issues.
Elizabeth Goldstein, (410) 786-6665, Inpatient Quality Reporting--
Hospital Consumer Assessment of Healthcare Providers and Systems
Measures Issues.
Mary Pratt, (410) 786-6867, LTCH Quality Data Reporting Issues.
Kim Spaulding Bush, (410) 786-3232, Hospital Value-Based Purchasing
Efficiency Measures Issues.

SUPPLEMENTARY INFORMATION:

Electronic Access

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

Tables Available Only Through the Internet on the CMS Web Site

In the past, a majority of the tables referred to throughout this
preamble and in the Addendum to this final rule were published in the
Federal Register as part of the annual proposed and final rules.
However, beginning in FY 2012, some of the IPPS tables and LTCH PPS
tables will no longer be published as part of the annual IPPS and LTCH
PPS proposed and final rules. Instead, these tables will be available
only through the Internet. The IPPS tables for this final rule are
available only through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp. Click on the link
on the left side of the screen titled, ``FY 2012 IPPS Final Rule Home
Page'' or ``Acute Inpatient--Files for Download.'' The LTCH PPS tables
for this FY 2012 final rule are available only through the Internet on
the CMS Web site at: http://www.cms.gov/LongTermCareHospitalPPS/LTCHPPSRN/list.asp under the list item for Regulation Number CMS-1518-
F. For complete details on the availability of the tables referenced in
this final rule, we refer readers to section VI. of the Addendum to
this final rule.
Readers who experience any problems accessing any of the tables
that are posted on the CMS Web sites identified above should contact
Nisha Bhat at (410) 786-4487.

Acronyms

3M 3M Health Information System
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

[[Page 51477]]

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
CRNA Certified Registered Nurse Anesthetist
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
EDB [Medicare] Enrollment Database
EHR Electronic health record
EMR Electronic medical record
FAH Federation of Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
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
HICAN Health Insurance Claims Account Number
HIPAA Health Insurance Portability and Accountability Act of 1996,
Public Law 104-191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HPMP Hospital Payment Monitoring Program
HSA Health savings account
HSCRC [Maryland] Health Services Cost Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
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
IGI IHS Global Insight, Inc.
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
IQR Inpatient Quality Reporting
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
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
MMEA Medicare and Medicaid Extenders Act of 2010, Public Law 111-309
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public
Law 110-173
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]
PMSAs Primary metropolitan statistical areas
POA Present on admission
PPACA Patient Protection and Affordable Care Act, Public Law 111-148
PPI Producer price index
PPS Prospective payment system
PRM Provider Reimbursement Manual
ProPAC Prospective Payment Assessment Commission
PRRB Provider Reimbursement Review Board
PRTFs Psychiatric residential treatment facilities
PSF Provider-Specific File
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

[[Page 51478]]

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
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 Patient Protection and Affordable Care Act
(Pub. L. 111-148) and the Health Care and Education Reconciliation
Act of 2010 (Pub. L. 111-152) Applicable to FY 2012
C. 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. Other Decisions and Proposed Changes to the IPPS for
Operating Costs and GME Costs
4. Proposed FY 2012 Policy Governing the IPPS for Capital-
Related Costs
5. Proposed Changes to the Payment Rates for Certain Excluded
Hospitals: Rate-of-Increase Percentages
6. Proposed Changes to the LTCH PPS
7. Determining Proposed Prospective Payment Operating and
Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals
8. Determining Proposed Prospective Payments Rates for LTCHs
9. Impact Analysis
10. Recommendation of Update Factors for Operating Cost Rates of
Payment for Hospital Inpatient Services
11. Discussion of Medicare Payment Advisory Commission
Recommendations
D. Public Comments Received in Response to the FY 2012 IPPS/LTCH
PPS Proposed Rule
E. Finalization of Interim Final Rule With Comment Period on
Revisions to the Reductions and Increases to Hospitals' FTE Resident
Caps for Graduate Medical Education Payment Purposes
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 2012 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 and FY 2009 Claims Data
5. Prospective Adjustment 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. Recoupment or Repayment 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 2011 and Subsequent Fiscal Years
9. Application of the Documentation and Coding Adjustment to the
Puerto Rico-Specific Standardized Amount
a. Background
b. Documentation and Coding Adjustment to the Puerto Rico-
Specific Standardized Amount
E. Refinement of the MS-DRG Relative Weight Calculation
1. Background
2. Summary of the RTI Study of Charge Compression and CCR
Refinement
3. Summary of Policy Changes Made in FY 2011
4. Discussion for FY 2012
F. Preventable Hospital-Acquired Conditions (HACs), Including
Infections
1. Background
a. Statutory Authority
b. HAC Selection
c. Collaborative Process
d. Application of HAC Payment Policy to MS-DRG Classifications
e. Public Input Regarding Selected and Potential Candidate HACs
f. POA Indicator Reporting
2. Additions and Revisions to the HAC Policy for FY 2012
a. Contrast-Induced Acute Kidney Injury
b. New Diagnosis Codes Added to Existing HACs
c. Revision to HAC Subcategory Title
d. Conclusion
3. RTI Program Evaluation Summary
a. Background
b. FY 2009 Data Analysis
c. FY 2010 Data Analysis
d. FY 2010 RTI Analysis on POA Indicator Reporting of Current
HACs.
e. FY 2010 RTI Analysis of Frequency of Discharges and POA
Indicator Reporting for Current HACs
f. RTI Analysis of Circumstances When Application of HAC
Provisions Would Not Result in MS-DRG Reassignment for Current HACs
g. RTI Analysis of Coding Changes for HAC-Associated Secondary
Diagnoses for Current HACs
h. RTI Analysis of Estimated Net Savings for Current HACs
i. Previously Considered Candidate HACs--RTI Analysis of
Frequency of Discharges and POA Indicator Reporting
j. Current and Previously Considered Candidate HACs--RTI Report
on Evidence-Based Guidelines
k. Final Policy Regarding Current HACs and Previously Considered
Candidate HACs
G. Changes to Specific MS-DRG Classifications
1. Pre-Major Diagnostic Categories (Pre-MDCs)
a. Noninvasive Mechanical Ventilation
b. Debridement With Mechanical Ventilation Greater Than 96 Hours
With Major Operating Room (O.R.) Procedure
c. Autologous Bone Marrow Transplant
2. MDC 1 (Diseases and Disorders of the Nervous System):
Rechargeable Dual Array Deep Brain Stimulation System
3. MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and
Throat): Skull Based Surgeries
4. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Percutaneous Mitral Valve Repair With Implant
b. Aneurysm Repair Procedure Codes
5. MDC 8 (Diseases and Disorders of the Musculoskeletal System
and Connective Tissue)
a. Artificial Discs
b. Major Joint Replacement or Reattachment of Lower Extremities
c. Combined Anterior/Posterior Spinal Fusion
6. MDC 9 (Diseases and Disorders of the Skin, Subcutaneous
Tissue, and Breast): Excisional Debridement of Wound, Infection, or
Burn
7. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and
Disorders)
a. Nutritional and Metabolic Diseases: Update of MS-DRG Titles
b. Sleeve Gastrectomy Procedure for Morbid Obesity
8. MDC 15 (Newborns and Other Neonates with Conditions
Originating in the Perinatal Period): Discharge Status Code 66
(Discharged/Transferred to Critical Access Hospital (CAH))
9. Medicare Code Editor (MCE) Changes
10. Surgical Hierarchies
11. Complications or Comorbidity (CC) Exclusions List
a. Background
b. CC Exclusions List for FY 2012
12. Review of Procedure Codes in MS-DRGs 981 Through 983, 984
Through 986, and 987 Through 989
a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-
DRGs 987 Through 989 Into MDCs
b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984
Through 986, and 987 Through 989
c. Adding Diagnosis or Procedure Codes to MDCs
13. Changes to the ICD-9-CM Coding System, Including Discussion
of the

[[Page 51479]]

Replacement of the ICD-9-CM System With the ICD-10-CM and ICD-10-PCS
Systems in FY 2014
a. ICD-9-CM Coding System
b. Code Freeze
c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on
Hospital Inpatient Claims
d. ICD-10 MS-DRGs
14. Other Issues
a. O.R./Non-O.R. Status of Procedures
b. IPPS Recalled Device Policy Clarification
15. Public Comments on Issues Not Addressed in Proposed Rule
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 2012 Status of Technologies Approved for FY 2011 Add-On
Payments
a. Spiration[supreg] IBV Valve System
b. Cardio West\TM\ Temporary Artificial Heart System (Cardio
West\TM\ TAH-t)
c. Auto Laser Interstitial Thermal Therapy (AutoLITT\TM\) System
4. FY 2012 Applications for New Technology Add-On Payments
a. AxiaLIF[supreg] 2L+\TM\ System
b. PerfectCLEAN with Micrillon[supreg]
III. Changes to the Hospital Wage Index for Acute Care Hospitals
A. Background
B. Core-Based Statistical Areas for the Hospital Wage Index
C. Occupational Mix Adjustment to the FY 2012 Wage Index
1. Development of Data for the FY 2012 Occupational Mix
Adjustment Based on the 2007-2008 Occupational Mix Survey
2. New 2010 Occupational Mix Survey for the FY 2013 Wage Index
3. Calculation of the Occupational Mix Adjustment for FY 2012
D. Worksheet S-3 Wage Data for the FY 2012 Wage Index
1. Included Categories of Costs
2. Changes to the Reporting Requirements for Pension Costs for
the Medicare Wage Index
a. Background
b. Allowable Pension Cost for the Medicare Wage Index
3. Excluded Categories of Costs
4. Use of Wage Index Data by Providers Other Than Acute Care
Hospitals under the IPPS
E. Verification of Worksheet S-3 Wage Data
F. Method for Computing the FY 2012 Unadjusted Wage Index
1. Steps for Computation
2. Imputed Floor Policy
3. FY 2012 Puerto Rico Wage Index
G. Analysis and Implementation of the Occupational Mix
Adjustment and the FY 2012 Occupational Mix Adjusted Wage Index
H. Revisions to the Wage Index Based on Hospital Redesignations
and Reclassifications
1. General
2. Effects of Reclassification/Redesignation
3. FY 2012 MGCRB Reclassifications
a. FY 2012 Reclassification Requirements and Approvals
b. Applications for Reclassifications for FY 2013
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
7. Waiving Lugar Redesignation for the Out-Migration Adjustment
8. Other Geographic Reclassification Issues
a. Requested Reclassification for Single Hospital MSAs
b. Requests for Exceptions to Geographic Reclassification Rules
I. FY 2012 Wage Index Adjustment Based on Commuting Patterns of
Hospital Employees
J. Process for Requests for Wage Index Data Corrections
K. Labor-Related Share for the FY 2012 Wage Index
IV. Other Decisions and Changes to the IPPS for Operating Costs and
GME Costs
A. Hospital Inpatient Quality Reporting Program
1. Background
a. Overview
b. Statutory History and History of Measures Adopted for the
Hospital IQR Program
c. Maintenance of Technical Specifications for Quality Measures
d. Public Display of Quality Measures
2. Retirement of Hospital IQR Program Measures
a. Considerations in Retiring Quality Measures from the Hospital
IQR Program
b. Retirement of Hospital IQR Program Measures for the FY 2014
Payment Determination and Subsequent Years
3. Measures for the FY 2014 and FY 2015 Hospital IQR Payment
Determinations
a. Considerations in Expanding and Updating Quality Measures
Under the Hospital IQR Program
b. Hospital IQR Program Measures for the FY 2014 Hospital IQR
Payment Determination
c. Hospital IQR Program Quality Measures for the FY 2015 Payment
Determination
4. Possible New Quality Measures and Measure Topics for Future
Years
5. Form, Manner, and Timing of Quality Data Submission
a. Background
b. Procedural Requirements for the FY 2012 Payment
Determinations and Subsequent Years
c. Procedural Requirements for FY 2013 and Subsequent Years
d. Data Submission Requirements for Chart-Abstracted Measures
e. Sampling and Case Thresholds Beginning With the FY 2015
Payment Determination
f. HCAHPS Requirements for the FY 2013, FY 2014, and FY 2015
Payment Determinations
g. Procedures for Claims-Based Measures
h. Data Submission Requirements for Structural Measures
i. Data Submission and Reporting Requirements for Healthcare-
Associated Infection (HAI) Measures Reported via NHSN
6. Chart Validation Requirements for Chart-Abstracted Measures
a. Changes to the Chart Validation Requirements and Methods for
the FY 2012 Payment Determination and Subsequent Years
b. Supplements to the Chart Validation Process for the FY 2014
Payment Determination and Subsequent Years
7. QIO Regulation Changes for Provider Medical Record Deadlines
Possibly Including Serious Reportable Events
8. Data Accuracy and Completeness Acknowledgement Requirements
for the FY 2012 Payment Determination and Subsequent Years
9. Public Display Requirements for the FY 2014 Payment
Determination and Subsequent Years
10. Reconsideration and Appeal Procedures for the FY 2012
Payment Determination
11. Hospital IQR Program Disaster Waivers
12. Electronic Health Records (EHRs)
a. Background
b. HITECH Act EHR Provisions
B. Hospital Value-Based Purchasing (VBP) Program
1. Background
2. Overview of the Hospital VBP Program Proposed Rule
3. FY 2014 Hospital VBP Program Measures
a. Background
b. Efficiency Measure--Medicare Spending per Beneficiary
Measure--for the FY 2014 Hospital VBP Program
4. Efficiency Domain (Medicare Spending per Beneficiary Measure)
Performance Period and Baseline Period
5. Simultaneous Specification of Additional Measures for the
Hospital VBP Program and the Hospital IQR Program
6. Responses to Additional Hospital VBP Program Comments
C. Hospital Readmissions Reduction Program
1. Background
a. Overview
b. Statutory Basis for the Hospital Readmissions Reduction
Program
2. Implementation of the Hospital Readmissions Reduction Program
a. Overview
b. Provisions in the FY 2012 IPPS/LTCH PPS Rulemaking
c. Provisions to be Included in the FY 2013 IPPS/LTCH PPS
Proposed Rule
d. Expansion of the Applicable Conditions To Be Included in the
Future Rulemaking
3. Provisions of the Hospital Readmissions Reduction Program
a. Applicable Conditions for FY 2013 Hospital Readmissions
Reduction Program
b. Definition of ``Readmissions''
c. Readmission Measures and Related Methodology
D. Rural Referral Centers (RRCs) (Sec. 412.96)
1. Case-Mix Index (CMI)
2. Discharges
E. Payment Adjustment for Low-Volume Hospitals (Sec. 412.101)

[[Page 51480]]

1. Background
2. Temporary Changes for FYs 2011 and 2012
3. Discharge Data Source Used to Identify Qualifying Low-Volume
Hospitals and Calculate the Payment Adjustment (Percentage Increase)
for FY 2012
F. Indirect Medical Education (IME) Adjustment
1. Background
2. IME Adjustment Factor for FY 2012
G. Payment Adjustment for Medicare Disproportionate Share
Hospitals (DSHs) and Indirect Medical Education (IME) (Sec. Sec.
412.105 and 412.106)
1. Background
2. Policy Change Relating to the Exclusion of Hospice Beds and
Patient Days From the Calculation of the Medicare DSH Payment
Adjustment and the IME Payment Adjustment
a. Background
b. Hospice Inpatient Services
H. Medicare-Dependent, Small Rural Hospitals (MDHs) (Sec.
412.108)
1. Background
2. Extension of the MDH Program
I. Certified Register Nurse Anesthetists (CRNA) Services
Furnished in Rural Hospitals and CAHs (Sec. 412.113)
J. Additional Payments for Qualifying Hospitals With Lowest per
Enrollee Medicare Spending
1. Background
2. Method for Identifying Qualifying Hospitals and Eligible
Counties
3. Determination of Annual Payment Amounts
4. Eligible Counties and Qualifying Hospitals
5. Payment Determination and Distributions for FY 2011 and FY
2012
K. Changes in the Inpatient Hospital Update
1. FY 2012 Inpatient Hospital Update
2. FY 2012 Puerto Rico Hospital Update
3. Productivity Adjustment
L. Additional Payments to Hospitals With High Percentage of End-
Stage Renal Disease (ESRD) Discharges (Sec. 412.104)
M. Changes to the Reporting Requirements for Pension Costs for
Medicare Cost-Finding Purposes
1. Background
2. Allowable Defined Benefit Pension Plan Cost for Medicare
Cost-Finding Purposes
N. Rural Community Hospital Demonstration Program
1. Background
2. Changes to the Demonstration Program Made by the Affordable
Care Act
3. FY 2012 Budget Neutrality Adjustment
a. Component of the FY 2012 Budget Neutrality Adjustment that
Accounts for Estimated Demonstration Program Costs of the ``Pre-
Expansion'' Participating Hospitals
b. Portion of the FY 2012 Budget Neutrality Adjustment That
Accounts for Estimated FY 2012 Demonstration Program Costs for
Hospitals Newly Selected to Participate in the Demonstration Program
c. Portion of the FY 2012 Budget Neutrality Adjustment to Offset
the Amount by Which the Costs of the Demonstration Program in FYs
2007 and 2008 Exceeded the Amount That Was Identified in the FYs
2007 and 2008 IPPS Final Rules as the Budget Neutrality Offset for
FYs 2007 and 2008
O. Bundling of Payments for Services Provided to Outpatients Who
Later Are Admitted as Inpatients: 3-Day Payment Window
1. Background
2. Establishment of Condition Code 51 (Attestation of Unrelated
Outpatient Nondiagnostic Services)
3. Applicability of the Payment Window Policy to Services
Furnished at Physicians' Practices
P. Changes to MS-DRGs Subject to the Postacute Care Transfer
Policy
1. Background
2. Changes to the Postacute Care Transfer MS-DRGs
Q. Hospital Services Furnished Under Arrangements
R. Finalization of Interim Final Rule With Comment Period on
Revisions to the Reductions and Increases to Hospitals' FTE Resident
Caps for Graduate Medical Education Purposes
1. Background and Provisions of the Interim Final Rule With
Comment Period
a. Statutory Authority
b. Reductions and Increases to Hospitals' FTE Resident Caps for
GME Payment Purposes Under Section 5503 of the Affordable Care Act
c. Treatment of Affiliated Groups Under Section 5503 of the
Affordable Care Act
d. Section 203 of the Medicare and Medicaid Extenders Act of
2010 (Pub. L. 111-309)
2. Summary of the Provisions of the Interim Final Rule With
Comment Period
3. Summary of Public Comments, Departmental Responses, and
Statements of Final Policies
a. Summary of Public Comments and Departmental Responses
b. Final Policies
4. Collection of Information Requirements
5. Regulatory Impact Statement
a. Statement of Need
b. Overall Impact
c. Anticipated Effects
d. Alternatives Considered
e. Conclusion
6. Comment on Issues Outside of the Scope of the Interim Final
Rule With Comment Period
V. Changes to the IPPS for Capital-Related Costs
A. Overview
B. Exception Payments
C. New Hospitals
D. Hospitals Located in Puerto Rico
E. Changes for FY 2012: MS-DRG Documentation and Coding
Adjustment
1. Background
2. Prospsective MS-DRG Documentation and Coding Adjustment to
the National Capital Federal Rate for FY 2012 and Subsequent Years
3. Documentation and Coding Adjustment to the Puerto Rico-
Specific Capital Rate
F. Other Proposed Changes for FY 2012
VI. Changes for Hospitals Excluded From the IPPS
A. Excluded Hospitals
B. Critical Access Hospital (CAH) Payment for Ambulance Services
1. Background
2. Requirement for CAH Ambulance Within a 35-Mile Location of a
CAH or Entity
C. Report of Adjustment (Exceptions) Payments
VII. Changes to the Long-Term Care Hospital Prospective Payment
System (LTCH PPS) for FY 2012
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 FY 2012
3. Development of the FY 2012 MS-LTC-DRG Relative Weights
a. General Overview of the Development of the MS-LTC-DRG
Relative Weights
b. Development of the MS-LTC-DRG Relative Weights for FY 2012
c. Data
d. Hospital-Specific Relative Value (HSRV) Methodology
e. Treatment of Severity Levels in Developing the MS-LTC-DRG
Relative Weights
f. Low-Volume MS-LTC-DRGs
g. Steps for Determining the Proposed FY 2012 MS-LTC-DRG
Relative Weights
C. Quality Reporting Program for LTCHs
1. Background and Statutory Authority
2. Quality Measures for the LTCH Quality Reporting Program for
FY 2014
a. Considerations in the Selection of the Quality Measures
b. LTCH Quality Measures for FY 2014 Payment Determination
3. Possible LTCH Quality Measures Under Consideration for Future
Years
4. Data Submission Methods and Timelines
a. Method of Data Submission for HAIs
b. Timeline for Data Reporting Related to HAIs
c. Method of Data Collection and Submission for the Pressure
Ulcer Measure Data
d. Timeline for Data Reporting Related to Pressure Ulcers
5. Public Reporting and Availability of Data Submitted
D. Rebasing and Revising of the Market Basket Used Under the
LTCH PPS
1. Background
2. Overview of the FY 2008-Based RPL Market Basket
3. Rebasing and Revising of the RPL Market Basket
a. Development of Cost Categories

[[Page 51481]]

b. Final Cost Category Computation
c. Selection of Price Proxies
d. Methodology for Capital Portion of the RPL Market Basket
e. FY 2012 Market Basket Update for LTCHs
f. Labor-Related Share
E. Changes to the LTCH Payment Rates and Other Changes to the FY
2012 LTCH PPS
1. Overview of Development of the LTCH Payment Rates
2. FY 2012 LTCH PPS Annual Market Basket Update
a. Overview
b. Revision of Certain Market Basket Updates as Required by the
Affordable Care Act
c. Market Basket Under the LTCH PPS for FY 2012
d. Productivity Adjustment
e. Annual Market Basket Update for LTCHs for FY 2012
3. Budget Neutrality Adjustment for the Changes to the Area Wage
Level Adjustment
4. Greater Than 25 Day Average Length of Stay Requirement for
LTCHs
a. Determining the Average Length of Stay When There is a Change
of Ownership
b. Inclusion of Medicare Advantage (MA) Days in the Average
Length of Stay Calculation
F. Application of LTCH Moratorium on the Increase in Beds at
Section 114(d)(1)(B) of Public Law 110-173 (MMSEA) to LTCHs and LTCH
Satellite Facilities Established or Classified as Such Under Section
114(d)(2) of Public Law 110-173
VIII. MedPAC Recommendations
IX. Other Required Information
A. Requests for Data From the Public
B. Collection of Information Requirements
1. Statutory Requirement for Solicitation of Comments
2. ICRs for Add-On Payments for New Services and Technologies
3. ICRs for the Hospital Inpatient Quality Reporting (IQR)
Program
4. ICRs for the Occupational Mix Adjustment to the FY 2012 Index
(Hospital Wage Index Occupational Mix Survey)
5. Hospital Applications for Geographic Reclassifications by the
MGCRB
6. ICRs for the Quality Reporting Program for LTCHs
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, 2011
I. Summary and Background
II. Changes to the Prospective Payment Rates for Hospital Inpatient
Operating Costs for Acute Care Hospitals for FY 2012
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 2012
A. Determination of Federal Hospital Inpatient Capital-Related
Prospective Payment Rate Update
B. Calculation of the Inpatient Capital-Related Prospective
Payments for FY 2012
C. Capital Input Price Index
IV. Changes to Payment Rates for Certain Excluded Hospitals: Rate-
of-Increase Percentages for FY 2012
V. Changes to the Payment Rates for the LTCH PPS for FY 2012
A. LTCH PPS Standard Federal Rate for FY 2012
B. Adjustment for Area Wage Levels Under the LTCH PPS for FY
2012
C. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases
D. Computing the Adjusted LTCH PPS Federal Prospective Payments
for FY 2012
VI. Tables Referenced in This Final Rulemaking and Available Through
the Internet on the CMS Web Site
Appendix A--Economic Analyses
I. Regulatory Impact Analysis
A. Introduction
B. Need
C. Objectives of the IPPS
D. Limitations of Our Analysis for the IPPS
E. Hospitals Included in and Excluded From the IPPS
F. Effects on Hospitals and Hospital Units Excluded From the
IPPS
G. Quantitative Effects of the Policy Changes Under the IPPS for
Operating Costs
1. Basis and Methodology of Estimates
2. Analysis of Table I
3. Impact Analysis of Table II
H. Effects of Other Policy Changes
1. Effects of Policy on HACs, Including Infections
2. Effects of Policy Changes Relating to New Medical Service and
Technology Add-On Payments
3. Effects of Requirements for Hospital Inpatient Quality
Reporting (IQR) Program
4. Effects of Additional Hospital Value-Based Purchasing (VBP)
Program Requirements
5. Effects of Requirements for Hospital Readmissions Reduction
Program
6. Effects of Policy Changes Relating to Payment Adjustments for
Medicare Disproportionate Share Hospitals (DSHs) and Indirect
Medical Education (IME)
7. Effects of the FY 2012 Low-Volume Hospital Payment Adjustment
8. Effects of Changes Relating to MDHs
9. Effects of Policy Relating to CRNA Services Furnished in
Rural Hospitals and CAHs
10. Effects of Changes Relating to ESRD Add-On Payment
11. Effects of Changes Relating to the Reporting Requirements
for Pension Costs for Medicare Cost-Finding and Wage Reporting
Purposes
12. Effects of Implementation of Rural Community Hospital
Demonstration Program
13. Effects of Changes to List of MS-DRGs Subject to the
Postacute Care Transfer and DRG Special Pay Policy
14. Effects of Changes Relating to Hospital Services Furnished
Under Arrangements
15. Effects of Change Relating to CAH Payment for Ambulance
Services
16. Effects of Finalization of Revisions to the Reductions and
Increases to Hospitals' FTE Resident Caps for Graduate Medical
Education Payment Purposes
I. Effects of Changes in the Capital IPPS
1. General Considerations
2. Results
J. Effects of Payment Rate Changes and Policy Changes Under the
LTCH PPS
1. Introduction and General Considerations
2. Impact on Rural Hospitals
3. Anticipated Effects of LTCH PPS Payment Rate Change and
Policy Changes
4. Effect on the Medicare Program
5. Effect on Medicare Beneficiaries
K. Alternatives Considered
L. Overall Conclusion
1. Acute Care Hospitals
2. LTCHs
M. Accounting Statements and Tables
1. Acute Care Hospitals
2. LTCHs
II. Regulatory Flexibility Act (RFA) Analysis
III. Unfunded Mandate Reform Act (UMRA) Analysis
IV. 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 2012
A. Final FY 2012 Inpatient Hospital Update
B. Final Update for SCHs and MDHs for FY 2012
C. Final FY 2012 Puerto Rico Hospital Update
D. Final Update for Hospitals Excluded From the IPPS
III. Secretary's 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

[[Page 51482]]

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 certain low-income
patients, it receives a percentage add-on payment applied to the DRG-
adjusted base payment rate. This add-on payment, known as the
disproportionate share 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 varies 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, which
is determined from their costs in a base year. For example, sole
community hospitals (SCHs) receive the higher of a hospital-specific
rate based on their costs in a base year (the highest of FY 1982, FY
1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the
standardized amount. 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, 2012, 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, Public Law 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. 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 (as
codified under section 1886(m)(1) of the Act). During the 5-year
(optional) transition period, a LTCH's payment under the PPS was based
on an increasing proportion of the LTCH Federal rate with a
corresponding decreasing proportion based on reasonable cost
principles. Effective for cost reporting periods beginning on or after
October 1, 2006, all LTCHs are paid 100 percent of the Federal rate.
The existing regulations governing payment under the LTCH PPS are
located in 42 CFR Part 412, Subpart O. Beginning

[[Page 51483]]

October 1, 2009, we issue the annual updates to the LTCH PPS in the
same documents that update the IPPS (73 FR 26797 through 26798).
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 Patient Protection and Affordable Care Act (Pub.
L. 111-148) and the Health Care and Education Reconciliation Act of
2010 (Pub. L. 111-152) Applicable to FY 2012

The Patient Protection and Affordable Care Act (Pub. L. 111-148),
enacted on March 23, 2010, and the Health Care and Education
Reconciliation Act of 2010 (Pub. L. 111-152), enacted on March 30,
2010, made a number of changes that affect the IPPS and the LTCH PPS.
(Pub. L. 111-148 and Pub. L. 111-152 are collectively referred to as
the ``Affordable Care Act.'') A number of the provisions of the
Affordable Care Act affect the updates to the IPPS and the LTCH PPS and
providers and suppliers. The provisions of the Affordable Care Act that
were applicable to the IPPS and the LTCH PPS for FYs 2010 and 2011 were
implemented in the following documents:
On June 2, 2010, we issued in the Federal Register a notice (75 FR
31118) that contained the final wage indices, hospital
reclassifications, payment rates, impacts, and other related tables,
effective for the FY 2010 IPPS and the RY 2010 LTCH PPS, which were
required by or directly resulted from implementation of provisions of
the Affordable Care Act.
On August 16, 2010, we issued in the Federal Register a final rule
(75 FR 50042) that implemented provisions of the Affordable Care Act
applicable to the IPPS and LTCH/PPS for FY 2011.
In this final rule, we are implementing the following provisions
(or portions of the following provisions) of the Affordable Care Act
that are applicable to the IPPS and LTCH PPS for FY 2012:
Section 3001 of Public Law 111-148, which provides for
establishment of a hospital value-based purchasing program and
applicable measures for value-based incentive payments with respect to
discharges occurring during FY 2013.
Section 3004 of Public Law 111-148, which provides for the
submission of quality data for LTCHs beginning in FY 2013 in order to
receive the full annual update to the payment rates beginning with FY
2014 and the establishment of quality data measures by FY 2012 for the
FY 2014 payment determination.
Section 3025 of Public Law 111-148, which provides for a
hospital readmissions reduction program and related quality data
reporting measures.
Section 3124 of Public Law 111-148, which provides for
extension of the Medicare-dependent, small rural hospital (MDH) program
through FY 2012.
Section 3401 of Public Law 111-148, which provides for the
incorporation of productivity improvements into the market basket
updates for IPPS hospitals and LTCHs.
In addition, we are continuing in FY 2012 to implement the
following provisions, which were initiated in FY 2011:
Section 10324 of Public Law 111-148, which provided for a
wage adjustment for hospitals located in frontier States.
Sections 3401 and 10319 of Public Law 111-148 and section
1105 of Public Law 111-152, which revise certain market basket update
percentages for IPPS and LTCH PPS payment rates for FY 2012.
Sections 3125 and 10314 of Public Law 111-148, which
provide for temporary percentage increases in payment adjustments to
low-volume hospitals for discharges occurring in FY 2012.
Section 1109 of Public Law 111-152, which provides for
additional payments in FY 2012 for qualifying hospitals in the lowest
quartile of per capita Medicare spending.
Section 5503 of Public Law 111-148, as amended by Public
Law 111-152 and section 203 of Public Law 111-309, which provides for
the reduction in FTE resident caps for direct GME under Medicare for
certain hospitals, and to authorize the ``redistribution'' of the
estimated number of FTE resident slots to other qualified hospitals. In
addition, section 5503 requires the application of these provisions to
IME in the same manner as the FTE resident caps for direct GME.

C. Issuance of a Notice of Proposed Rulemaking

The May 5, 2011 Federal Register (76 FR 25788) included the
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 2012. We also set forth proposed changes relating to payments for
IME costs and payments to certain hospitals 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 FY 2012.
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 the proposed rule, we included--
Proposed changes to MS-DRG classifications based on our
yearly review.
Proposed application of the documentation and coding
adjustment for FY 2012 resulting from implementation of the MS-DRG
system.
A discussion of the Research Triangle Institute,
International (RTI) reports and recommendations relating to charge
compression.
Proposed recalibrations of the MS-DRG relative weights.
Proposed changes to hospital-acquired conditions (HACs)
and a listing and discussion of HACs, including infections, that would
be subject to the statutorily required quality adjustment in MS-DRG
payments for FY 2012.
We discussed the FY 2012 status of new technologies approved for
add-on payments for FY 2011 and presented our evaluation and analysis
of the FY 2012 applicants for add-on payments for high-cost new medical
services and technologies (including public input, as directed by
Public Law 108-173, obtained in a town hall meeting).

[[Page 51484]]

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 included the
following:
The proposed FY 2012 wage index update using wage data
from cost reporting periods beginning in FY 2008.
Analysis and implementation of the proposed FY 2012
occupational mix adjustment to the wage index for acute care hospitals,
including discussion of the 2010 occupational mix survey.
A proposal to change the reporting requirements for
pension costs for the Medicare wage index.
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 2012 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 2012 hospital wage index.
Determination of the labor-related share for the proposed
FY 2012 wage index.
3. Other Decisions and Proposed Changes to the IPPS for Operating Costs
and GME Costs
In section IV. of the preamble of the proposed rule, we discussed a
number of the provisions of the regulations in 42 CFR Parts 412, 413,
and 476, including the following:
The reporting of hospital quality data under the Hospital
Inpatient Quality Reporting (IQR) Program as a condition for receiving
the full annual payment update increase.
The proposed implementation of the Hospital Value-Based
Purchasing Program measures.
The proposed establishment of hospital readmission
measures for reporting of hospital quality data.
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
2012.
Proposed payment adjustment for low-volume hospitals.
Proposal for counting hospice days in the formula for
determining the payment adjustment for disproportionate share
hospitals.
Proposal for making additional payments for qualifying
hospitals with lowest per enrollee Medicare spending for FY 2012.
Proposal to clarify ESRD add-on payment requirements based
on cost report requirements.
Proposal relating to changes to the reporting requirements
for pension costs for Medicare cost-finding purposes.
Proposal to implement statutory change to the hospital
payment update, including incorporation of a productivity adjustment.
Discussion of the Rural Community Hospital Demonstration
Program and a proposal for making a budget neutrality adjustment for
the demonstration program.
Discussion of August 2010 interim final rule with comment
period and further proposed changes relating to the 3-day payment
window for payments for services provided to outpatients who are later
admitted as inpatients.
4. Proposed FY 2012 Policy Governing the IPPS for Capital-Related Costs
In section V. of the preamble to the proposed rule, we discussed
the proposed payment policy requirements for capital-related costs and
capital payments to hospitals for FY 2012 and the proposed MS-DRG
documentation and coding adjustment for FY 2012.
5. Proposed Changes to the Payment Rates for Certain Excluded
Hospitals: Rate-of-Increase Percentages
In section VI. of the preamble of the proposed rule, we discussed
proposed changes to payments to certain excluded hospitals. In
addition, we discussed proposed changes relating to payment for TEFRA
services furnished under arrangements and payment for ambulance
services furnished by CAH-owned and operated entities.
6. Proposed Changes to the LTCH PPS
In section VII. 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 FY 2012, including the annual update of
the MS-LTC-DRG classifications and relative weights for use under the
LTCH PPS for FY 2012 and the proposed rebasing and revising of the
market basket for LTCHs. In addition, we set forth proposals for
implementing the quality data reporting program for LTCHs. We also
proposed to clarify two policies regarding the calculation of the
average length of stay requirement for LTCHs, and proposed a policy to
address a LTCH moratorium issue.
7. 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 2012
prospective payment rates for operating costs and capital-related costs
for acute care hospitals. We also proposed to establish the 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 2012 for certain hospitals excluded
from the IPPS.
8. 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 FY 2012
prospective standard Federal rate. We also proposed to establish 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.
9. 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.
10. 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 2012 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.
11. 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

[[Page 51485]]

and makes recommendations on Medicare payment policies. MedPAC's March
2011 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. We addressed these
recommendations in Appendix B of the proposed rule. For further
information relating specifically to the MedPAC March 2011 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.

D. Public Comments Received in Response to the FY 2012 IPPS/LTCH PPS
Proposed Rule

We received approximately 385 timely pieces of correspondence
containing multiple comments on the FY 2012 IPPS/LTCH PPS proposed
rule. We note that some of these public comments were outside of the
scope of the proposed rule. These out-of-scope public comments are not
addressed with policy responses in this final rule. Summaries of the
public comments that are within the scope of the proposed rule and our
responses to those comments are set forth in the various sections of
this final rule under the appropriate heading.

E. Finalization of Interim Final Rule With Comment Period on Revisions
to the Reductions and Increases to Hospitals' FTE Resident Caps for
Graduate Medical Education Payment Purposes

On March 14, 2011, we issued in the Federal Register (76 FR 13515)
an interim final rule with comment period to implement section 203 of
the Medicare and Medicaid Extenders Act of 2010 (MMEA), Public Law 111-
309, relating to the treatment of teaching hospitals that are members
of the same Medicare graduate medical education (GME) affiliated groups
for the purpose of determining possible full-time equivalent (FTE)
resident cap reductions. We received nine timely pieces of
correspondence in response this interim final rule with comment period.
In section IV.R. of this document, we are summarizing and responding to
these public comments and are finalizing the policies contained in the
interim final rule with comment period without modification.

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,
Medicare pays for inpatient hospital services on a rate per discharge
basis that varies according to the DRG to which a beneficiary's stay is
assigned. The formula used to calculate payment for a specific case
multiplies an individual hospital's payment rate per case by the weight
of the DRG to which the case is assigned. Each DRG weight represents
the average resources required to care for cases in that particular
DRG, relative to the average resources used to treat cases in all DRGs.
Congress recognized that it would be necessary to recalculate the
DRG relative weights periodically to account for changes in resource
consumption. Accordingly, section 1886(d)(4)(C) of 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. (We refer readers to section
II.G.11.c. of this final rule for a discussion of our efforts to
increase our internal systems capacity to process diagnosis and
procedures on hospital claims to 25 diagnosis codes and 25 procedure
codes prior to the use of the International Classification of Diseases,
10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding
and the International Classification of Diseases, 10th Revision,
Procedure Coding System (ICD-10 PCS) for inpatient hospital procedure
coding, effective October 1, 2013.) 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) prior to October 1,
2013. We refer readers to section II.G.11.b. of this final rule for a
reference to the replacement of ICD-9-CM, Volumes 1 and 2, including
the Official ICD-9-CM Guidelines for Coding and Reporting, Volume 3,
with the ICD-10-CM and ICD-10-PCS, including the Official ICD-10-CM and
ICD-10-PCS Guidelines for Coding and Reporting, effective October 1,
2013 (FY 2014).
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

[[Page 51486]]

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 2012, cases will be assigned to
one of 751 MS-DRGs in 25 MDCs. The table below lists the 25 MDCs.

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

------------------------------------------------------------------------
1............................ Diseases and Disorders of the Nervous
System.
2............................ Diseases and Disorders of the Eye.
3............................ Diseases and Disorders of the Ear, Nose,
Mouth, and Throat.
4............................ Diseases and Disorders of the Respiratory
System.
5............................ Diseases and Disorders of the Circulatory
System.
6............................ Diseases and Disorders of the Digestive
System.
7............................ Diseases and Disorders of the
Hepatobiliary System and Pancreas.
8............................ Diseases and Disorders of the
Musculoskeletal System and Connective
Tissue.
9............................ Diseases and Disorders of the Skin,
Subcutaneous Tissue and Breast.
10........................... Endocrine, Nutritional and Metabolic
Diseases and Disorders.
11........................... Diseases and Disorders of the Kidney and
Urinary Tract.
12........................... Diseases and Disorders of the Male
Reproductive System.
13........................... Diseases and Disorders of the Female
Reproductive System.
14........................... Pregnancy, Childbirth, and the
Puerperium.
15........................... Newborns and Other Neonates with
Conditions Originating in the Perinatal
Period.
16........................... Diseases and Disorders of the Blood and
Blood Forming Organs and Immunological
Disorders.
17........................... Myeloproliferative Diseases and Disorders
and Poorly Differentiated Neoplasms.
18........................... Infectious and Parasitic Diseases
(Systemic or Unspecified Sites).
19........................... Mental Diseases and Disorders.
20........................... Alcohol/Drug Use and Alcohol/Drug Induced
Organic Mental Disorders.
21........................... Injuries, Poisonings, and Toxic Effects
of Drugs.
22........................... Burns.
23........................... Factors Influencing Health Status and
Other Contacts with Health Services.
24........................... Multiple Significant Trauma.
25........................... Human Immunodeficiency Virus Infections.
------------------------------------------------------------------------

In general, cases are assigned to an MDC based on the patient's
principal diagnosis before assignment to an MS-DRG. However, under the
most recent version of the Medicare GROUPER (Version 28.0), 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

[[Page 51487]]

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 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 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 41499 and 41500), we discussed a
process for considering non-MedPAR data in the recalibration process.
We stated that for use of non-MedPAR data to be feasible for purposes
of DRG recalibration and reclassification, the data must, among other
things: (1) Be independently verified; (2) reflect a complete set of
cases (or a representative sample of cases); and (3) enable us to
calculate appropriate DRG relative weights and ensure that cases are
classified to the ``correct'' DRG, and to one DRG only, in the
recalibration process. Further, 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 depend 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 non-MedPAR 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 2012 proposed
rule was based on data from the September 2010 update of the FY 2010
MedPAR file, which contained hospital bills received through September
30, 2010, for discharges occurring through September 30, 2010. For this
FY 2012 final rule, our MS-DRG analysis is based on data from the March
2011 update of the FY 2010 MedPAR file, which contained hospital bills
received through March 31, 2011, for discharges occurring through
September 30, 2010.
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

[[Page 51488]]

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 public commenters regarding the proposal to adopt CS
DRGs. We acknowledged the many public 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 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, 2010, and 2011, and our proposed and
final actions for FY 2012 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 2012 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 reports 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 the extent, if any, to which 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 a
discussion of the issue of charge compression and the cost-weighting
methodology for FY 2012.
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 proposing to make in this proposed rule for FY 2012 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

[[Page 51489]]

on severity levels of illness (72 FR 47141).

D. FY 2012 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, there are 751 MS-DRGs, which include 4 additional MS-DRGs
that we are adopting for FY 2012.) By increasing the number of MS-DRGs
and more fully taking into account patient severity of illness in
Medicare payment rates for acute care hospitals, MS-DRGs encourage
hospitals to improve their documentation and coding of patient
diagnoses.
In the FY 2008 IPPS final rule with comment period (72 FR 47175
through 47186), we indicated that the adoption of the MS-DRGs had the
potential to lead to increases in aggregate payments without a
corresponding increase in actual patient severity of illness due to the
incentives for additional documentation and coding. In that final rule
with comment period, we exercised our authority under section
1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget
neutrality by adjusting the national standardized amount, to eliminate
the estimated effect of changes in coding or classification that do not
reflect real changes in case-mix. Our actuaries estimated that
maintaining budget neutrality required an adjustment of -4.8 percent to
the national standardized amount. We provided for phasing in this -4.8
percent adjustment over 3 years. Specifically, we established
prospective documentation and coding adjustments of -1.2 percent for FY
2008, -1.8 percent for FY 2009, and -1.8 percent for FY 2010.
On September 29, 2007, Congress enacted the TMA [Transitional
Medical Assistance], Abstinence Education, and QI [Qualifying
Individuals] Programs Extension Act of 2007, 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, in the case of underpayments) spending in excess of (or less
than) spending that would have occurred had the prospective adjustments
for changes in documentation and coding applied in FY 2008 and FY 2009
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 and FY 2009 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 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

[[Page 51490]]

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 of illness 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 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 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 patient 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, and in the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24092 through 24101), we 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 PPS final rule, we
updated this analysis with FY 2008 data for claims paid through March
2009, and we noted that the estimates for all IPPS remained essentially
the same to those in the proposed rule (42 FR 43770, 43775). Also, in
the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43768 through
43772), we responded to comments on our methodology for the
retrospective evaluation of FY 2008 claims data. We refer readers to
that final rule for a detailed description of our analysis and prior
responses to comments.
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50057 through
50068), we performed the same analysis for FY 2009 claims data using
the same methodology as we did for FY 2008 claims. We note that, in the
FY 2011 IPPS/LTCH PPS proposed rule, we performed this analysis using
FY 2009 claims paid through December 2009. In the FY 2011 IPPS/LTCH PPS
final rule, we updated the analysis with FY 2009 claims paid through
March 2010, as we discussed in the proposed rule. We note that, for all
IPPS hospitals, other than those in Puerto Rico, the estimates were
unchanged from those in the proposed rule. We refer readers to the FY
2011 IPPS/LTCH PPS final rule (75 FR 50057 through 50068) for a
detailed description of our analysis and prior responses to comments.
The results of the analysis for the FY 2011 proposed and final rules
provided additional support for our conclusion that the proposed 5.4
percent estimate accurately reflected the FY 2009 increases in
documentation and coding under the MS-DRG system.
As in prior years, the FY 2008 and FY 2009 MedPAR files are
available to the public to allow independent analysis of the FY 2008
and FY 2009 documentation and coding effect. Interested individuals may
still order these files through the Web site at: http://www.cms.hhs.gov/LimitedDataSets/ by 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.
5. Prospective Adjustment 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 evaluation of FY 2008 Medicare claims data that were
most current at the time of the FY 2010 IPPS/RY 2010 LTCH PPS proposed
rule, the estimated 2.5 percent change in FY 2008 case-mix due to
changes in

[[Page 51491]]

documentation and coding that did not reflect real changes in case-mix
for discharges occurring during FY 2008 exceeded the -0.6 percent
prospective documentation and coding adjustment applied under section
7(a) of Public Law 110-90 by 1.9 percentage points. In the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24096), we solicited public
comment on our proposal to make a -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 the FY 2010 IPPS/RY 2010 LTCH PPS final
rule, in response to public comments, we indicated that we fully
understood 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, and we 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 could be completed. We refer readers to the FY 2010 IPPS/LTCH
PPS final rule (74 FR 43767 through 43777) for a detailed description
of our proposal, responses to comments, and finalized policy.
After analysis of the FY 2009 claims data for the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50057 through 50073), we found a total
prospective documentation and coding effect of 1.054. After accounting
for the -0.6 percent and the -0.9 percent documentation and coding
adjustments in FYs 2008 and 2009, we found a remaining documentation
and coding effect of 3.9 percent. As we have discussed, an additional
cumulative adjustment of -3.9 percent would be necessary to meet the
requirements of section 7(b)(1)(A) of Public Law 110-90 to make an
adjustment to the average standardized amounts in order to eliminate
the full effect of the documentation and coding changes on future
payments. Unlike section 7(b)(1)(B) of Public Law 110-90, section
7(b)(1)(A) does not specify when we must apply the prospective
adjustment, but merely requires us to make an ``appropriate''
adjustment. Therefore, as we stated in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50061), we believe we have some discretion as to the manner
in which we apply the prospective adjustment of -3.9 percent. We
indicated that applying the full prospective adjustment of -3.9 percent
for FY 2011, in combination with the proposed recoupment adjustment of
-2.9 percent in FY 2011 (discussed below) would require an aggregate
adjustment of -6.8 percent. As we discuss elsewhere in this section
II.D., and more extensively in the FY 2011 IPPS/LTCH PPS final rule, it
has been our practice to moderate payment adjustments when necessary to
mitigate the effects of significant downward adjustments on hospitals,
to avoid what could be widespread, disruptive effects of such
adjustments on hospitals. As we also discuss below in this section
II.D., we are required to implement the remaining adjustment in section
7(b)(1)(B) of Public Law 110-90 no later than the FY 2012 rulemaking
period, and accordingly, in the FY 2011 IPPS/LTCH PPS proposed rule, we
proposed a recoupment adjustment under section 7(b)(1)(B) of -2.9
percent for FY 2011 (75 FR 23870 and 23871). Therefore, we stated that
we believed it was appropriate to not implement any or all of the -3.9
percent prospective adjustment in FY 2011. Accordingly, we did not
propose a prospective adjustment under section 7(b)(1)(A) of Public Law
110-90 for FY 2011 (75 FR 23868 through 23870) for FY 2011. We note
that, as a result, payments in FY 2011 (and in each future year until
we implement the requisite adjustment) would be 3.9 percent higher than
they would have been if we had implemented an adjustment under section
7(b)(1)(A) of Public Law 110-90. Our actuaries estimate that this 3.9
percentage point increase will result in an aggregate payment of
approximately $4 billion. We also noted that payments in FY 2010 were
also expected to be 3.9 percent higher than they would have been if we
had implemented an adjustment under section 7(b)(1)(A) of Public Law
110-90, which our actuaries estimated increased aggregate payments by
approximately $4 billion in FY 2010.
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25803 and 25804),
we indicated that because further delay of this prospective adjustment
will result in a continued accrual of unrecoverable overpayments, it
was imperative that we proposed a prospective adjustment for FY 2012,
while recognizing CMS' continued desire to mitigate the effects of any
significant downward adjustments to hospitals. Therefore, we proposed a
-3.15 percent prospective adjustment to the standardized amount to
partially eliminate the full effect of the documentation and coding
changes on future payments. Due to the offsetting nature of the
remaining recoupment adjustment under section 7(b)(1)(B) of Public Law
110-90 (described below in section II.D.6. of this preamble), and after
considering other payment adjustments to FY 2012 rates proposed
elsewhere within the proposed rule, we indicated that we believe the
proposed -3.15 percent adjustment would allow for a significant
reduction in potential unrecoverable overpayments, yet would maintain a
comparable adjustment level between FY 2011 and FY 2012, reflecting the
applicable percentage increase with a documentation and coding
adjustment. We stated that we recognize that an additional adjustment
of -0.75 (3.9 minus 3.15) percent would be required in future rule
making to complete the necessary -3.9 adjustment to meet CMS' statutory
requirement under section 7(b)(1)(A) of Public Law 110-90. In the
proposed rule, we indicated that we were not at that time proposing a
timeline to implement the remainder of this prospective adjustment.
6. Recoupment or Repayment Adjustment for FY 2010 Authorized by Section
7(b)(1)(B) of Public Law 110-90
As discussed in section II.D.1. of this preamble, section
7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an
adjustment to the standardized amounts under section 1886(d) of the Act
to offset the estimated increase or decrease in aggregate payments for
FY 2008 and FY 2009 (including interest) resulting from the difference
between the estimated actual documentation and coding effect and the
documentation and coding adjustments applied under section 7(a) of
Public Law 110-90. This determination must be based on a retrospective
evaluation of claims data.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule with comment period
(74 FR 43773), we estimated 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, exceeding the -0.6 percent prospective
documentation and coding adjustment applied under section 7(a) of
Public Law 110-90 by 1.9 percentage points. We stated that our
actuaries had estimated that this 1.9 percentage point increase
resulted in an increase in aggregate payments of approximately $2.2
billion in FY 2008. 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. In the FY 2010 IPPS/RY 2010 LTCH PPS

[[Page 51492]]

final rule (74 FR 43774), we stated that because we would not receive
all FY 2009 claims data prior to publication of the final rule, we
would address any increase or decrease in FY 2009 payments in future
rulemaking for FY 2011 and 2012 after we performed a retrospective
evaluation of the FY 2009 claims data. In response to public comments
in FY 2010, we indicated that we recognized 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
reductions for providers. However, we indicated that we are required
under section 7(b)(1)(B) of Public Law 110-90 to recover the difference
of actual documentation and coding effect in FY 2008 and FY 2009 that
is greater than the prior adjustments. We agreed with the commenters
who requested that CMS delay any adjustment and, for the reasons stated
above, indicated that we expected to address this issue in the FY 2011
rulemaking. We refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final
rule (74 FR 43767 through 43777) for a detailed description of our
proposal, responses to comments, and finalized policy.
As we indicated in the FY 2011 IPPS/LTCH PPS final rule, the change
due to documentation and coding that did not reflect real changes in
case-mix for discharges occurring during FY 2008 and FY 2009 exceeded
the -0.6 and -0.9 percent prospective documentation and coding
adjustments applied under section 7(a) of Public Law 110-90 for those 2
years, respectively, by 1.9 percentage points in FY 2008 and 3.9
percentage points in FY 2009. In total, this change exceeded the
cumulative prospective adjustments by 5.8 (1.9 plus 3.9) percentage
points. Our actuaries estimated that this 5.8 percentage point increase
resulted in an increase in aggregate payments of approximately $6.9
billion. In the FY 2011 IPPS/LTCH PPS final rule, we noted that there
may be a need to actuarially adjust the recoupment adjustment to
accurately reflect accumulated interest. Therefore, we determined that
an aggregate adjustment of -5.8 percent in FYs 2011 and 2012, subject
to actuarial adjustment to reflect accumulated interest, would be
necessary in order to meet the requirements of section 7(b)(1)(B) of
Public Law 110-90 to adjust the standardized amounts for discharges
occurring in FYs 2010, 2011, and/or 2012 to offset the estimated amount
of the increase in aggregate payments (including interest) in FYs 2008
and 2009. In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23871), we
stated that we intended to take into account the need to reflect
accumulated interest in proposing a recoupment adjustment under section
7(b)(1)(B) of Public Law 110-90 for FY 2012.
It is often our practice to phase in rate adjustments over more
than one year in order to moderate the effect on rates in any one year.
Therefore, consistent with the policies that we have adopted in many
similar cases, in the FY 2011 IPPS/LTCH PPS proposed rule, we proposed
to make an adjustment to the standardized amount of -2.9 percent,
representing approximately half of the aggregate adjustment required
under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. An
adjustment of this magnitude would allow us to moderate the effects on
hospitals in one year while simultaneously making it possible to
implement the entire adjustment within the timeframe required under
section 7(b)(1)(B) of Public Law 110-90 (that is, no later than FY
2012).
Unlike the permanent prospective adjustment to the standardized
amounts under section 7(b)(1)(A) of Public Law 110-90 described
earlier, the recoupment adjustment to the standardized amounts under
section 7(b)(1)(B) of Public Law 110-90 is not cumulative, and,
therefore, would be removed for subsequent fiscal years once we have
completely offset the increase in aggregate payments for discharges for
FY 2008 and FY 2009 expenditures. In keeping with our practice of
moderating payment adjustments when necessary, we stated that we
anticipated that the proposal of phasing in the recoupment adjustment
will have an additional, and significant, moderating effect on
implementing the requirements of section 7(b)(1)(B) of Public Law 110-
90 for FY 2012.
In the FY 2011 IPPS/LTCH PPS proposed rule, we sought public
comment on our proposal to offset part of the total 5.8 percent
increase in aggregate payments (including interest) for discharges
occurring in FY 2008 and FY 2009 resulting from the adoption of the MS-
DRGs in FY 2011, noting that this proposal would result in a -2.9
percent adjustment to the standardized amount. We received numerous
comments on our proposal, especially from national and regional
hospital associations, hospital systems, and individual hospitals.
MedPAC also commented on our proposal. We refer readers to the FY 2011
IPPS/LTCH PPS final rule with comment period (75 FR 50055 through
50073) for a detailed description of our analysis and prior responses
to comments, and finalized policy.
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50062 through
50068), we finalized the proposed adjustment to the standardized amount
of -2.9 percent, which represented approximately half of the aggregate
recoupment adjustment required under section 7(b)(1)(B) of Public Law
110-90, for FY 2011. We were persuaded by both the MedPAC's analysis,
and our own review of the methodologies recommended by various
commenters, that the methodology we employed to determine the required
recoupment adjustment was sound. Since the statute required that we
implement the entire recoupment adjustment no later than FY 2012, we
have sought, as we commonly do, to moderate the potential impact on
hospitals by phasing in the required adjustment over more than one
year. As we stated in prior rulemaking, a major advantage of making the
-2.9 percent adjustment to the standardized amount in FY 2011 was that,
because the required recoupment adjustment is not cumulative, we
anticipated removing the FY 2011 -2.9 percent adjustment from the rates
(in other words, making a positive 2.9 percent adjustment to the rates)
in FY 2012, at the same time that the law required us to apply the
remaining approximately -2.9 percent adjustment required by section
7(b)(1)(B) of Public Law 110-90. These two steps in FY 2012, restoring
the FY 2011 -2.9 percent adjustment and then applying the remaining
adjustment of approximately -2.9 percent, would effectively cancel each
other out. The result of these two steps would be an aggregate
adjustment of approximately 0.0 percent. While we stated in the FY 2011
IPPS/LTCH PPS final rule the need to potentially adjust the remaining -
2.9 percent estimate to account for accumulated interest, our actuaries
have determined that there has been no significant interest
accumulation and that no additional adjustment will be required.
Therefore, for FY 2012, pursuant to the timeframes set forth by section
7(b)(1)(B) of Public Law 110-90, and consistent with the discussion in
the FY 2011 IPPS/LTCH PPS final rule, we proposed to complete the
recoupment adjustment by implementing the remaining -2.9 percent
adjustment, in addition to removing the effect of the -2.9 percent
adjustment to the standardized amount finalized for FY 2011. Because
these adjustments will, in effect, balance out, there will be no year-
to-year change in the standardized amount due to this recoupment
adjustment. As this

[[Page 51493]]

adjustment will complete the required recoupment for overpayments due
to documentation and coding effects on discharges occurring in FYs 2008
and 2009, we anticipate removing the effect of this adjustment by
adding 2.9 percent to the standardized amount in FY 2013. We continue
to believe that this is a reasonable and fair approach that satisfies
the requirements of the statute while substantially moderating the
financial impact on hospitals.
Comment: One commenter, MedPAC, reiterated its general support for
the methodology used by our actuaries to estimate the magnitude of
documentation and coding effect on IPPS payments due to the adoption of
the MS-DRG system. In its letter, MedPAC explained that the methodology
used by our actuaries ``is akin to comparing two sets of payments: What
payments actually were in fiscal year 2009 under the 2009 MS-DRGs and
relative weights; and what payments would have been in 2009 if MS-DRGs
had not been adopted and CMS had continued to use the prior (2007) CMS
DRGs and weights.'' MedPAC noted that by taking the difference between
these two sets of payments, the methodology is designed to capture
``the new GROUPER's interaction with how hospitals changed their
documentation and coding. After the adoption of MS-DRGs in 2008,
hospitals switched from recording general descriptions of patients'
chronic conditions--which no longer affect payments under MS-DRGs--to
recording the specific acute manifestations of patients' chronic
conditions, which trigger higher payments under MS-DRGs. However, the
same changes in diagnosis documentation and coding have little or no
effect on the CMI measured using the 2007 CMS-DRGs and weights. This is
because in that version of the GROUPER, both acute manifestations of
chronic conditions and general descriptions of chronic conditions
trigger higher payments. In contrast, when hospitals had little
incentive to change documentation and coding--in 2007, for example--the
two CMIs are approximately equal.''
Consistent with its comments in prior years, MedPAC's comment noted
that its analysis of Medicare hospital inpatient claims for 2007-2009
yielded similar estimates of the documentation and coding effect.
MedPAC concluded that ``CMS would need to reduce IPPS payments
temporarily by 5.8 percent to recover overpayments that occurred in
2008 and 2009. CMS also expected that overpayments equal to 3.9 percent
of annual IPPS payments would continue through 2010, 2011, and future
years until CMS makes a prospective offsetting adjustment (-3.9
percent) to the IPPS payments rates.''
MedPAC's comment described potential circumstances in which the
methodology used both by our actuaries and MedPAC could overestimate
the documentation and coding effect, noting that these possible
circumstances ``could cause only a small change in the estimated effect
of documentation changes.''
MedPAC stated, ``In response to the new MS-DRGs, hospitals had an
incentive to report diagnoses that count as CCs in the new system.
MedPAC's argument is that hospitals may also have stopped reporting
diagnoses that counted as CCs in the old system, but do not count in
the new one.'' In short, MedPAC argued that the disappearance of the
general chronic condition codes could have caused the CMIs based on the
old FY 2007 GROUPER and weights to be understated in FYs 2008 and 2009.
Thus, because CMIs based on the 2007 GROUPER and weights are the
denominators of the documentation change estimates, understatement
would bias the estimates upward. However, understatement would occur
only to the extent that hospitals, when coding: (1) Did not replace
such general chronic condition codes with corresponding acute
manifestation codes and (2) the patient had no other secondary
diagnosis code that qualified as a CC in the old GROUPER and are now
CCs or MCCs under the MS-DRGs.
MedPAC's analysis concluded that the maximum possible effect of
this potential overestimation is 0.36 percent, and ``that total
overpayments due to documentation changes in 2008 and 2009 may have
ranged from 5.1 to 5.8 percent of IPPS payments ($6.0 to $6.9
billion).''
MedPAC recommended that CMS slow the pace of the payment
adjustments so that hospitals would receive a net 1 percent update in
FY 2012, as it recommend in its March 2011 Report to Congress.
Furthermore, MedPAC stated that legislation should be enacted to
require the Secretary of Health and Human Services to adjust payments
further to recover all overpayments that have occurred or will occur in
FYs 2010, 2011, and 2012 because the prospective adjustment was not
completed. MedPAC asserted that:
``To allow payments to increase due to documentation and coding
changes would undermine Congressional policy on updates. If Congress
wants more money to flow into the hospital sector, a higher update is
the appropriate mechanism, not cumulative changes in documentation and
coding. Indeed, allowing those changes to increase hospital payments
through the back door could eventually discourage needed refinements to
the case-mix system in a tight budget era. In other words, if more
money inevitably leaks into the system every time case-mix is refined,
then there may be pressure to stop refining. That would lead to
inequities for both providers and patients.''
Response: We appreciate MedPAC's analysis and continued support of
the methodology used to determine the documentation and coding effect,
and we agree that this methodology appropriately isolates the
documentation and coding effect from real case-mix. With the exception
of the possible overstatement described above, we note that MedPAC's
analysis yielded results similar to CMS' determination of the
documentation and coding effect. Based on our evaluation of FY 2008 and
FY 2009 claims, we continue to believe that $6.9 billion dollars in
overpayments were made during the period of FY 2008 and 2009. We
estimate that a recoupment adjustment totaling 5.8 percent is necessary
to recover these overpayments, and that operating IPPS rates are
currently overstated by 3.9 percent. We also note that section
7(b)(1)(B) of the TMA requires the agency to recover these overpayments
by FY 2012 and that section 7(b)(1)(A) of the TMA requires the agency
to adjust rates to ensure that aggregate payments do not continue to be
overstated.
With regard to MedPAC's analysis regarding the possible
overestimate of the documentation and coding effect, we note that
MedPAC characterized the potential effect as ``small'' and provided no
corroborating analysis or specific examples of when this scenario may
have occurred. We consulted with our medical coding experts and were
unable to identify specific examples to support MedPAC's hypothesis. We
note that MedPAC stated in its comment letter that the potential for
overestimation exists only to the extent that ``hospitals (1) did not
replace such general chronic condition codes with corresponding acute
manifestation codes and (2) the patient had no other secondary
diagnosis code that qualified as a CC in the old grouper.'' We reviewed
coding changes that occurred during the transition to MS-DRGs and were
able to identify codes that would result in a CC prior to MS-DRGs but
would not result in a CC in the MS-DRG system. However, we were unable
to identify an instance where this would necessarily result in a lower
MS-DRG assignment because more specific codes were

[[Page 51494]]

developed to support the more refined MS-DRG system and we would expect
hospitals to use the more specific codes. For instance, congestive
heart failure was a CC under CMS DRGs, but is not a CC under MS-DRGs.
Under MS-DRGs, we started requiring more specific information on the
type of heart failure in order to count this as a CC or MCC. Generally,
under the MS-DRG system, the ``unspecified'' codes in a category no
longer result in CCs.
We did not receive any other public comments regarding MedPAC's
statements that we may have overestimated the effect of the
documentation and coding by considering cases grouped under the MS-DRG
system as having a higher severity due to being coded without
appropriate CCs under the pre-MS-DRG system.
At this time, we believe it would not be appropriate to revise our
estimates based solely on MedPAC's analysis without knowing of any
specific examples of the scenario described above. Without this
information, we cannot determine whether there was a sufficient volume
of cases to cause a potential documentation and coding overestimate.
However, we welcome specific examples from the public to possibly
inform future rulemaking.
We acknowledge MedPAC's recommendation to provide hospitals with a
net 1 percent update. As noted above, the comment restates MedPAC's
recommendation from its March 2011 Report to Congress. We address this
issue below in our response to comments by the provider community that
expressed concern regarding the impact of various payment adjustments
on hospitals.
We also acknowledge MedPAC's request that additional statutory
authority be granted to the Secretary of Health and Human Services to
recover overpayments made during subsequent fiscal years.
Lastly, we agree with MedPAC that it is important to continue
refining the methodology of how case mix is measured to ensure payment
accuracy. We note that in this final rule we discuss potential
refinements to the MS-DRG relative weight system, and CMS' active
engagement in implementing the ICD-10 system. These discussions
illustrate the efforts the agency is undertaking to improve the ability
to measure case mix precisely and to pay hospitals for inpatient
services more accurately.
Comment: Most commenters, including national hospital associations,
continued to acknowledge that there were documentation and coding
increases in FY 2008 and FY 2009 that were in excess of the statutory
0.6 percent and 0.9 percent adjustments specified in section 7(a) of
the TMA. However, as in prior rulemakings on this issue, most
commenters again questioned the methodology employed by MedPAC and our
actuaries to determine the magnitude of the excess.
We also received Congressional correspondence from numerous members
of Congress stating that hospitals had expressed concerns regarding the
CMS Actuary's methodology and requesting that CMS ensure that its
methodology accurately reflects changes in patient severity prior to
finalizing adjustments for documentation and coding in response to
hospitals' concerns. Specifically, the correspondence suggested that
CMS could consider alternative methodologies for estimating the effect
of documentation and coding, including trend-based analysis and chart
abstraction.
Several commenters stated that historical case mix trend is
inconsistent with our estimate of the effect of the FY 2008 and FY 2009
documentation and coding changes due to the implementation of the MS-
DRGs. One commenter stated ``Our analysis, which used multiple years of
patient claims, clearly shows that a significant portion of the change
CMS found is actually the continuation of historical trends, rather
than the effect of documentation and coding changes due to
implementation of MS-DRGs. This analysis found a cumulative
documentation and coding effect of 3.6 percent for FYs 2008 and 2009,
as opposed to the 5.4 percent that CMS found.''
Several commenters submitted an historical case-mix trend analysis
last year, which showed a documentation and coding effect of 2.3
percent. An analysis submitted by the same commenters this year showed
a cumulative documentation and coding increase through FY 2009 of 3.6
percent. The commenters revised their analysis to respond to CMS
comments made in last year's rule. Specifically, the national hospital
associations stated that, ``This year we make several modifications to
that trend-based analysis to respond to CMS' critiques as enumerated in
the FY 2011 inpatient PPS final rule. Given that we have addressed the
agency's concerns, we are hopeful that it will give our methodology
fresh consideration.'' One hospital association also pointed out that
CMS included an assumption regarding real case-mix growth in the
adjustment for ``changes in case-mix'' in the capital update framework
at Sec. 412.308(c)(1)(ii) and suggested that the estimate made by our
actuaries regarding documentation and coding be reduced by this
assumption in order to maintain consistency with the capital update
framework.
Commenters also examined the methodology used by our actuaries and
MedPAC using index number theory. As stated by these commenters, ``the
relative case weights in a given grouper are like relative prices in a
price index calculation (in fact they are relative prices for the
different MS-DRGs) and the quantities of discharges in various MS-DRGs
are like the quantities of goods in the price index calculation.''
Commenters claimed that, based on index number theory, the methodology
employed by MedPAC and our actuaries can only provide upper and lower
bounds of the combined effect of documentation and coding and real
case-mix change. MedPAC, however, indicated that knowledge of the 2007
MS-DRG GROUPER, the new MS-DRG GROUPER, historical documentation of
patients' diagnoses, and the changes CMS made when it created the MS-
DRGs can be used to narrow the range of the potential documentation and
coding effect as described above, although they noted that these
``could cause only a small change in the estimated effect of
documentation changes.''
As in past years, several commenters indicated that CMS should use
medical records data to distinguish documentation and coding changes
from real case-mix changes. MedPAC disagreed with the commenters'
rationale that the use of medical records data could determine the
effect of both documentation and coding, and stated the following:
``Gold-standard coders, however, only see the diagnoses written in the
record and therefore are not able to distinguish changes in
documentation from real changes in patients' diagnoses. This method of
recoding existing documentation only works in situations where
hospitals have no incentive to change documentation. That is clearly
not the case with the transition to MS-DRGs.''
Response: We disagree that the new analysis presented by the
national hospital associations has addressed our concerns with the use
of a trend analysis to determine the documentation and coding increase
when a more direct measurement of the relevant increase can be obtained
using our proposed methodology. In last year's rule, we expressed
several concerns with regard to the use of a trend analysis, stating,
``We believe that the determination of an appropriate

[[Page 51495]]

historical trend is less straightforward than our methodology, which,
as described above, simply removes real case-mix growth from the
calculation'' (75 FR 50066). While we pointed out certain analytical
flaws in the trend analysis used last year (for a full discussion, we
refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50065
through 50066)), we did not state the correction of those flaws would
yield a better documentation and coding estimate than the direct
estimate obtained under our proposed methodology. In fact, we noted
that ``changes in case-mix do not necessarily follow a consistent
pattern over time.'' MedPAC provided analysis in its comment letter
which supported CMS' position. MedPAC's analysis demonstrated that CMI
growth was modest at best, never exceeding plus or minus 1 percent the
decade prior to the introduction of MS-DRGs, and in some years was
negative.
[GRAPHIC] [TIFF OMITTED] TR18AU11.000

The national hospital associations' most significant response to
our critique of their previous analysis in the FY 2011 IPPS/LTCH PPS
final rule was to expand the time period upon which its trend analysis
is based to include years where there were sustained negative changes
in actual CMI. This raised their estimate of documentation and coding
from 2.3 percent to 3.6 percent. We believe that this increase
demonstrates the variability in the estimates that can be obtained
using trend analyses. We also stated in last year's final rule that
``despite our position that our methodology more directly measures the
relevant increase, we did examine the alternative approach favored by
commenters for calculating the documentation and classification
increase. As a general statement, the approach of examining historical
trends to estimate what case-mix would have been in the absence of the
adoption of the MS-DRGs should not necessarily yield significantly
different results from the analysis done by our actuaries and the
MedPAC, if an appropriate historical trend can be determined.''
We reiterate our concerns with the use of historical trends to
determine documentation and coding this year, and we do not believe
that the modifications to the commenters' analysis address all of these
concerns. In particular, we agree with MedPAC that ``absent changes in
documentation and coding and the shift away from inpatient surgeries,
real changes in the CMI in 2008 through 2010 would be completely
consistent with historical CMI changes since 2001.'' In performing its
analysis, MedPAC adjusted for changes in the share of cases with
surgery, share of cases with CCs, and the estimated effects of changes
in documentation and coding. MedPAC summarized the results of its
analysis in the following graph.

[[Page 51496]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.001

In summary, with respect to trend analysis, we continue to believe
that the determination of an appropriate historical trend is less
straightforward than our proposed methodology, which simply removes
real case-mix growth from the calculation. In addition, the estimates
obtained using our proposed methodology are consistent with the
historical case-mix growth, as demonstrated by MedPAC.
We also disagree with commenters who stated that the methodology
employed by MedPAC and our actuaries can only provide upper and lower
bounds of the combined effect of documentation and coding and real
case-mix change and cannot separate documentation and coding effects
from real case-mix change. While MedPAC recognized that the potential
for a range of estimates may exist, MedPAC disagreed with the
conclusion that index number theory, as described above, should be used
to determine this range. MedPAC stated that ``in this instance at
least, the estimated range between the lower and upper bounds based on
this approach is so wide that the estimates are useless for policy
making.'' We agree with MedPAC that the wide range resulting from an
index number theory approach renders such an approach useless in this
context.
In response to commenters' support for using hospital records to
distinguish documentation and coding effect from real case-mix changes,
we agree with MedPAC's rationale that such an analysis would fail to
capture changes in documentation. MedPAC stated: ``In our view, this
approach does not work. The reason is that hospitals had an incentive
to persuade attending physicians to be more specific in describing
patients' acute manifestations of chronic conditions in their medical
records. Some hospitals hired documentation specialists with the goal
of changing physicians' medical record documentation, not simply to do
a better job of coding what they wrote in the record (Hahey 2008).
Gold-standard coders, however, only see the diagnoses written in the
record and therefore are not able to distinguish changes in
documentation from real changes in patients' diagnoses. This method of
recoding existing documentation only works in situations where
hospitals have no incentive to change documentation. That is clearly
not the case with the transition to MS-DRGs. Thus, a very important
part of the effect of changes in documentation and coding cannot be
detected by the proposed method.''
We also note that as one part of our initial documentation and
coding analysis, we attempted to examine coding changes based on
hospital chart data from the Medicare Clinical Data Abstraction Center
(CDAC). However, as we described in the FY 2010 IPPS/LTCH PPS final
rule, it was not possible to perform this analysis due to aberrant CDAC
data. We stated, ``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.'' (74 FR 43769)
Finally, we disagree with the commenters' suggestion that the
assumptions in the capital update framework should be applied in our
actuaries' estimate of documentation and coding, because the capital
update framework is intended for projection purposes and would be
inappropriate to use as a proxy for historical trends.
After careful consideration of all of the public comments we
received, including alternatives suggested by commenters, we remain
confident in the accuracy of our methodology and its appropriateness in
determining the required adjustment amounts.
Comment: Numerous commenters expressed concern regarding the
potentially severe negative fiscal impact that would be experienced by
providers if the proposed documentation and coding improvement
adjustment were to

[[Page 51497]]

be implemented. As noted above, MedPAC recommended that CMS reduce its
proposed -3.15 percent adjustment to be consistent with a net update
factor of +1.0 percent, as it recommended in its March 2011 Report to
Congress.
As noted previously, we also received Congressional correspondence
from numerous members of Congress that requested CMS to reconsider what
would be an appropriate adjustment to hospital payments and also
requested that CMS reexamine its methodology. This correspondence noted
that hospitals would experience payment reductions if the proposed rule
were finalized without modification and further stated that hospitals
needed ``adequate Medicare reimbursement to ensure that patients and
communities receive the care they need.''
Response: We recognize the concerns regarding possible financial
disruption that may be caused by the proposed documentation and coding
improvement payment adjustment. We note, however, that these payment
adjustments are necessary to correct past overpayments due solely to
documentation and coding improvements. We have already delayed
implementation of the required prospective adjustment amount, and we
proposed only a portion of the remaining required adjustment to allow
hospitals time to adjust to future payment differences and to moderate
the effect of this adjustment in any given year. We are required under
section 7(b)(1)(B) of the TMA to complete the remaining one-time -2.9
percent recoupment adjustment for FY 2008 and FY 2009 overpayments in
FY 2012, and we believe the impact of completing this adjustment to be
reasonable considering it will be completely offset by removing the FY
2011 recoupment adjustment by placing a +2.9 percent adjustment back to
the standardized amount. In FY 2013, a positive +2.9 percent adjustment
will be made, completing the recoupment process.
In the proposed rule, we stated it was imperative that CMS make a
significant prospective adjustment amount in FY 2012 to prevent the
accumulation of unrecoverable overpayments. As stated in previous
responses to comments, we remain confident in the accuracy of the
overall methodology and its appropriateness in determining the required
adjustment amount. However, after consideration of the public comments,
and in keeping with our longstanding policy to mitigate, when possible,
the effects of significant downward adjustments on hospitals, we are
finalizing a prospective adjustment of -2.0 percent, which is a
reduction from our proposed adjustment of -3.15 percent. We note that
this adjustment will result in a total update of +1.0 percent, in
accordance with MedPAC's recommendation in its March 2011 Report to
Congress for hospitals that report quality data consistent with the
requirements of the Hospital IQR Program. Specifically, as discussed
elsewhere in this final rule, the applicable percentage increase for FY
2012 is +1.9 percent (based on a market basket of +3.0 percent, a
multifactor productivity adjustment of -1.0 percentage point, and a
statutory adjustment of -0.1 percentage point in accordance with
section 3401 of the Affordable Care Act). When combined with the +1.1
adjustment in light of Cape Cod v. Sebelius, 630 F.3d 203 (D.C. Cir.
2011) discussed elsewhere in this final rule, the applicable percentage
increase of +1.9 percent and this proposed prospective adjustment of -
2.0 percent results in a net total update of +1.0 percent, prior to
additional adjustments for budget neutrality and other policy
adjustments. We believe that this level of adjustment will help to
minimize year to year volatility in payment rates due to the required
documentation and coding adjustment. As we stated in the proposed rule,
our analysis found that a prospective adjustment of -3.9 percent
continues to be necessary. Because we are making a -2.0 percent
prospective adjustment for FY 2012, a remaining prospective of
adjustment of -1.9 percent will be necessary. While we are not at this
time stating when we will make the remaining required -1.9 percent
prospective adjustment, we consider it feasible to make all or most of
the adjustment in FY 2013, when a +2.9 percent adjustment will be
factored into rates to offset the one-time FY 2012 recoupment
adjustment.
The table below summarizes the adjustments for FY 2012 for
documentation and coding for IPPS hospitals.

FY 2012 MS-DRG Documentation and Coding Adjustment
--------------------------------------------------------------------------------------------------------------------------------------------------------
Remaining
Required required Prospective Recoupment Remaining
prospective recoupment Total remaining adjustment for adjustment to prospective
adjustment for adjustment for adjustment FY 2012 FY 2012 adjustment
FYs 2008-2009 FYs 2008-2009 payments
--------------------------------------------------------------------------------------------------------------------------------------------------------
Level of Adjustments.............................. -3.9% -2.9% -6.8% -2.0% -2.9% -1.9%
--------------------------------------------------------------------------------------------------------------------------------------------------------

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

[[Page 51498]]

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 patient 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 patient 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 was 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 was warranted, we indicated that we would propose to make
such an adjustment in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule.
8. Documentation and Coding Adjustment to the Hospital-Specific Rates
for FY 2011 and Subsequent Fiscal Years
In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule and final rule
(74 FR 24098 through 24100 and 74 FR 43775 through 43776,
respectively), we discussed our 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 for other IPPS hospitals, but did not significantly differ from
that result. We refer readers to those rules for a more complete
discussion.
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 solicited public comment on this proposal. Consistent with our
approach for IPPS hospitals discussed earlier, in the FY 2010 IPPS/RY
2010 LTCH PPS final rule, we also delayed adoption of a documentation
and coding adjustment to the hospital-specific rate until FY 2011. We
refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule for a
more detailed discussion of our proposal, responses to comments, and
finalized policy.
As we have noted previously, because SCHs and MDHs use the same MS-
DRG system as all other IPPS hospitals, we believe they have the
potential to realize increased payments from documentation and coding
changes that do not reflect real increases in patient severity of
illness. Therefore, we believe they should be equally subject to a
prospective budget neutrality adjustment that we are applying for
adoption of the MS-DRGs to all other hospitals. We believe the
documentation and coding estimates for all subsection (d) hospitals
should be the same. While the findings for the documentation and coding
effect for all IPPS hospitals are similar to the effect for SCHs and
slightly different to the effect for MDHs, we continue to believe that
this is the appropriate policy so as to neither advantage or
disadvantage different types of providers. As we discuss in section
II.D.4. of this preamble, our best estimate, based on the most recently
available data, is that a cumulative adjustment of -5.4 percent is
required to eliminate the full effect of the documentation and coding
changes on future payments to SCHs and MDHs. Unlike the case of
standardized amounts paid to IPPS hospitals, prior to FY 2011, we had
not made any previous adjustments to the hospital-specific rates paid
to SCHs and MDHs to account for documentation and coding changes.
Therefore, the entire -5.4 percent recoupment adjustment needed to be
made, as opposed to a -3.9 percent remaining adjustment for IPPS
hospitals.
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50068 through
50071), we made an adjustment to the standardized

[[Page 51499]]

amount for IPPS hospitals of -2.9 percent under section 7(b)(1)(B) of
Public Law 110-90, for FY 2011. As we noted in the FY 2011 IPPS/LTCH
PPS final rule, in determining the level and pace of adjustments to
account for such documentation and coding changes, we believe that it
is important to maintain, as much as possible, both consistency and
equity among these classes of hospitals. Therefore, we finalized a
prospective adjustment of -2.9 percent to the hospital-specific rates
paid to SCHs and MDHs. We refer readers to the FY 2011 IPPS/LTCH PPS
final rule for a more detailed discussion of our proposal, responses to
comments, and finalized policy.
As discussed earlier in this section II.D., in the FY 2012 IPPS/
LTCH PPS proposed rule, we proposed a net -3.15 percent documentation
and coding adjustment for IPPS hospitals in FY 2012 (-3.15 percent
prospective adjustment plus a -2.9 percent recoupment adjustment in FY
2012, offset by the removal of the -2.9 percent recoupment adjustment
for FY 2010). The proposed IPPS adjustment exceeded the remaining -2.5
percent documentation and coding adjustment for hospitals receiving a
hospital-specific rate (that is, the entire -5.4 percent adjustment,
minus the -2.9 percent adjustment finalized for FY 2011). As we
indicated in the FY 2011 IPPS/LTCH PPS proposed rule and final rule, we
are continuing, as much as possible, consistent with section 7(b)(1) of
Public Law 110-90 and section 1886(d)(5)(I)(i) of the Act, to take such
consistency and equity into account in developing future proposals for
implementing documentation and coding adjustments. We believe that any
adjustment to the hospital-specific rate due to documentation and
coding effect should be as similar as possible to adjustments to the
IPPS rate. Accordingly, we proposed a -2.5 percent payment adjustment
to the hospital-specific rate. We believe that proposing the entire
remaining prospective adjustment of -2.5 percent would allow CMS to
maintain, to the extent possible, similarity and consistency in payment
rates for different IPPS hospitals paid using the MS-DRG. As discussed
below, we took a similar approach in finalizing an adjustment to the
Puerto-Rico specific rate in FY 2011.
Comment: Numerous commenters requested that CMS rescind its
proposed documentation and coding adjustment for SCHs and MDHs and
questioned CMS' statutory authority to apply this adjustment to
providers receiving a hospital-specific rate. The commenters argued
that because section 1886(d)(3)(A)(vi) of the Act only authorizes
application of a documentation and coding adjustment to the
standardized amount, Congress' specific instruction as to the
applicability of this type of adjustment makes it impermissible for CMS
to apply the adjustment to the hospital-specific rates. Furthermore,
commenters contend that, due to their critical role in isolated
communities, any negative documentation and coding adjustment to SCHs
and MDHs would endanger their ability to provide the type of care that
Congress specifically sought to protect by establishing their special
Medicare payment systems.
Response: We continue to disagree with the commenters 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 IPPS final rule (73 FR 48448), and the FY 2010
IPPS/RY 2010 LTCH PPS 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, we are
implementing a phase-in of the documentation and coding adjustment over
an appropriate period, beginning in FY 2011. We will continue to
separately analyze SCH and MDH claims data to ensure than any future
adjustment is appropriate for these provider types.
Comment: MedPAC responded to our request for comments regarding the
level of adjustment for special categories of hospitals, such as
hospitals paid under the hospital-specific payment rate, by pointing
out hospitals have the same financial incentives for documentation and
coding improvements and the same ability to benefit from the resulting
change in case-mix, and by recommending that ``all IPPS hospitals
should be treated the same.'' At the same time, MedPAC also stated that
``delaying prevention of overpayments * * * creates a problem because
overpayments will continue to accumulate in 2010 and later years until
the effect of documentation and coding improvement is fully offset in
the payment rates.'' In setting forward its multi-year recommendation
to CMS for complying with the requirements of section 7 of Public Law
110-90, MedPAC emphasized ``minimizing the accumulation of
overpayments.''
Response: We appreciate MedPAC's comments and agree that it is
appropriate to conclude that hospitals paid under the hospital-specific
rate have experienced a 5.4-percent increase documentation and coding
in FYs 2008 and 2009, insofar as these hospitals had the same financial
incentives to improve documentation and coding in those years as other
IPPS hospitals. We further agree with MedPAC that it is appropriate to
focus on minimizing the accumulation of overpayments, and we interpret
this to mean that MedPAC recommends that CMS move forward as quickly as
possible with prospective adjustments at an appropriate level. We
appreciate MedPAC's guidance that ``all hospitals be treated the
same,'' and stress the importance of consistent treatment of various
classes of similarly situated hospitals in our payment policy
determinations.
We continue to believe that any adjustment to the hospital-specific
rate due to documentation and coding effect should be as similar as
possible to adjustments to the standardized amount. Accordingly,
because we are finalizing a prospective adjustment to the standardized
amount of -2.0 percent for FY 2012, we are also finalizing a
prospective adjustment to the hospital-specific rate of -2.0 percent
for FY 2012, instead of our proposed adjustment of -2.5 percent. Making
this level of adjustment allows CMS to maintain, for FY 2012,
consistency in payment rates for different IPPS hospitals paid using
the MS-DRG. Because this -2.0 percent adjustment no longer reflects the
entire remaining requirement adjustment amount of -2.5 percent, an
additional -0.5 percent adjustment to the hospital-specific payment
rates will be required in future rulemaking.
9. Application of the Documentation and Coding Adjustment to the Puerto
Rico-Specific Standardized Amount
a. Background
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

[[Page 51500]]

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 (that is, we made a positive 0.6
percent adjustment, increasing the 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 patient 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 to apply
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.
b. 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 discharges occurring during FY 2008 was approximately 1.1 percent.
However, as we noted 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 was
more or less than our then current estimates, it would change, possibly
lessen, the anticipated cumulative adjustments that we had estimated we
would have to make for the FY 2008 and FY 2009 combined adjustment.
Therefore, we believed 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.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43777), we
indicated that, given these documentation and coding increases,
consistent with our statements in prior IPPS rules, we would use our
authority under section 1886(d)(5)(I)(i) of the Act to adjust the
Puerto Rico-specific rate and solicited public comment on the proposed
-1.1 percent prospective adjustment. However, in parallel to our
decision to postpone adjustments to the Federal standardized amount, we
also indicated that we were adopting a similar policy for the Puerto
Rico-specific rate for FY 2010 and would consider the phase-in of this
adjustment over an appropriate time period through future rulemaking.
We noted that, as with the hospital-specific rates, the Puerto Rico-
specific standardized amount had not previously been adjusted based on
estimated changes in documentation and coding associated with the
adoption of the MS-DRGs.
Consistent with our approach for IPPS hospitals for FY 2010, we
indicated that we would 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.
As we have noted above, similar to SCHs and MDHs, hospitals in
Puerto Rico use the same MS-DRG system as all other hospitals and we
believe they have the potential to realize increased payments from
documentation and coding changes that do not reflect real increases in
patient severity of illness. Therefore, we believe they should be
equally subject to the prospective budget neutrality adjustment that we
intend to apply to prospective payment rates for IPPS hospitals,
including SCHs and MDHs, in order to eliminate the full effect of the
documentation and coding changes associated with implementation of the
MS-DRG system.
As discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50071
through 50073), using the same methodology we applied to estimate
documentation and coding changes under IPPS for non-Puerto Rico
hospitals, our best estimate, based on the then most recently available
data (FY 2009 claims paid through March 2010), was that, for
documentation and coding that occurred over FY 2008 and FY 2009, a
cumulative adjustment of -2.6 percent was required to eliminate the
full effect of the documentation and coding changes on future payments
from the Puerto Rico-specific rate. As we stated above, we believe it
important to maintain both consistency and equity among all hospitals
paid on the basis of the same MS-DRG system. At the same time, however,
we recognize that the estimated cumulative impact on aggregate payment
rates resulting from implementation of the MS-DRG system was smaller
for Puerto Rico hospitals as compared to IPPS hospitals and SCHs and
MDHs. Therefore, in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR
23876), we proposed an adjustment to eliminate the full effect of the
documentation and coding changes on the portion of future payments to
Puerto Rico hospitals based on the Puerto Rico-specific rate. We stated
that we believed that a full prospective adjustment was the most
appropriate means to take into full account the effect of documentation
and coding changes on payments, while maintaining equity as much as
possible between hospitals paid on the basis of different prospective
rates. We noted that our updated data analysis in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50072 through 50073) showed that this adjustment
would be -2.6 percent. The previous estimate in the proposed rule was a
-2.4 percent adjustment.
One reason we proposed the full prospective adjustment for the
Puerto Rico-specific rate in FY 2011 was to

[[Page 51501]]

maintain equity as much as possible in the documentation and coding
adjustments applied to various hospital rates in FY 2011. Because our
proposal was to make an adjustment that represents the full adjustment
that is warranted for the Puerto Rico-specific rate, we indicated that
we did not anticipate proposing any additional adjustments to this rate
for documentation and coding effects.
Therefore, because the Puerto Rico-specific rate received a full
prospective adjustment of -2.6 percent in FY 2011, we proposed no
further adjustment in the proposed rule for FY 2012.

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.
2. Summary of the RTI Study of Charge Compression and CCR Refinement
As we transitioned to cost-based relative weights, some public
commenters raised concerns about potential bias in the weights due to
``charge compression,'' which is the practice of applying a higher
percentage charge markup over costs to lower cost items and services,
and a lower percentage charge markup over costs to higher cost items
and services. As a result, the cost-based weights would undervalue
high-cost items and overvalue low-cost items if a single 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 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''. 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 more
details on RTI's findings and recommendations, we refer readers to the
FY 2009 IPPS final rule (73 FR 48452).) RTI subsequently expanded its
analysis of charge compression beyond inpatient services to include 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 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 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. 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. For a more detailed

[[Page 51502]]

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).
3. Summary of Policy Changes Made in FY 2011
In the FY 2009 IPPS/LTCH PPS 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 refer readers to the
Web site: http://www.rand.org/pubs/working_papers/WR560/, and the FY
2009 IPPS/LTCH PPS final rule for details on the RAND report (73 FR
48453 through 48457).) We acknowledged, as RTI had found, that charge
compression occurs in several cost centers that exist on the Medicare
cost report. However, as we stated in the FY 2009 IPPS/LTCH PPS 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. Accordingly, a new subscripted line 55.30 for ``Implantable
Devices Charged to Patients'' was created in July 2009 as part of CMS'
Transmittal 20 update to the existing cost report Form CMS-2552-96.
This new subscripted cost center has been available for use for cost
reporting periods beginning on or after May 1, 2009.
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through
50080), we finalized our proposal to create standard cost centers for
CT scans, MRI, and cardiac catheterization, and to require that
hospitals report the costs and charges for these services under new
cost centers on the revised Medicare cost report Form CMS 2552-10. As
we discussed in the FY 2009 IPPS/LTCH PPS and CY 2009 OPPS/ASC proposed
and final rules, RTI found that the costs and charges of CT scans, MRI,
and cardiac catheterization differ significantly from the costs and
charges of other services included in the standard associated cost
center. RTI also concluded that both the IPPS and OPPS relative weights
would better estimate the costs of those services if CMS were to add
standard costs centers for CT scans, MRI, and cardiac catheterization
in order for hospitals to report separately the costs and charges for
those services and in order for CMS to calculate unique CCRs to
estimate the cost from charges on claims data. (We refer readers to the
FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080) for a more
detailed discussion on the reasons for the creation of standard cost
centers for CT scans, MRI, and cardiac catheterization.) The new
standard cost centers for MRI, CT scans, and cardiac catheterization
are effective for cost report periods beginning on or after May 1,
2010, on the revised cost report Form CMS-2552-10. CMS issued the new
hospital cost report Form CMS-2552-10 on December 30, 2010. The new
cost report form can be accessed at the CMS Web site at: https://www.cms.gov/Manuals/PBM/itemdetail.asp?filterType=none&filterByDID=-99&sortByDID=1&sortOrder=ascending&itemID=CMS021935&intNumPerPage=10.
Once at this Web site, users should double click on ``Chapter 40.''
4. Discussion for FY 2012
In the FY 2009 IPPS/LTCH PPS final rule (73 FR 48468), we stated
that, due to what is typically a 3-year lag between the reporting of
cost report data and the availability for use in ratesetting, we
anticipated that we might be able to use data from the new
``Implantable Devices Charged to Patients'' cost center to develop a
CCR for Implantable Devices Charged to Patients in the FY 2012 or FY
2013 IPPS rulemaking cycle. Specifically, we stated, ``Because there is
approximately a 3-year lag between the availability of cost report data
for IPPS and OPPS rate-setting purposes in a given fiscal year, we may
be able to derive two distinct CCRs, one for medical supplies and one
for devices, for use in calculating the FY 2012 or FY 2013 IPPS
relative weights and the CY 2012 or CY 2013 OPPS relative weights'' (73
FR 48468). However, as noted in the FY 2010 IPPS/LTCH PPS final rule
(74 FR 43782), due to delays in the issuance of the revised cost report
CMS 2552-10, a new CCR for Implantable Devices Charged to Patients may
not be available until FY 2013. Similarly, when we finalized the
decision in the FY 2011 IPPS/LTCH PPS final rule to add new cost
centers for MRI, CT scans, and cardiac catheterization, we explained
that data from any new cost centers that may be created will not be
available until at least 3 years after they are first used (75 FR
50077). That is, in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50077),
we stated that the data from the standard cost centers for MRI, CT
scans, and cardiac catheterization respectively, would not even be
available for possible use in calculating the relative weights earlier
than 3 years after Form CMS-2552-10 becomes available. We further
stated that, at that time, we would analyze the data and determine if
it is appropriate to use those data to create distinct CCRs from these
cost centers for use in the relative weights for the respective payment
systems. We also reassured public commenters that there was no need for
immediate concern regarding possible negative payment impacts on MRI
and CT scans under the IPPS and the OPPS because the cost report data
that would be used for the calculation of the relative weights were at
least 3 years from being available. We stated that we will first
thoroughly analyze and run impacts on the data and provide the public
with the opportunity to comment before distinct CCRs for MRI and CT
scans would be finalized for use in the calculation of the relative
weights. We also urged all hospitals to properly report their costs and
charges for MRI, CT scans, and all other services so that, in several
years' time, we will have reliable data from all hospitals on which to
base a decision as to whether to incorporate additional CCRs into the
relative weight calculation (75 FR 50077).
Accordingly, in preparation for the FY 2012 IPPS/LTCH PPS proposed
rule, we assessed the availability of data in the ``Implantable Devices
Charged to Patients'' cost center. In order to develop a robust
analysis regarding the use of cost data from the ``Implantable Devices
Charged to Patients'' cost center, it was necessary to have a critical
mass of cost reports filed with data in this cost center. The cost
center for ``Implantable Devices Charged to Patients'' is effective for
cost reporting periods beginning on or after May 1, 2009. While
developing the FY 2012 IPPS/LTCH PPS proposed rule, we checked the
availability of FY 2009 cost reports in the December 31, 2010 quarter
ending update of HCRIS, which was the latest upload of FY 2009 cost
report data that we could use for the proposed rule. We determined that
there were only 437 hospitals (out of approximately 3,500 IPPS
hospitals)

[[Page 51503]]

that completed the ``Implantable Devices Charged to Patients'' cost
center. We did not believe that this was a sufficient amount of data
from which to generate a meaningful analysis in this particular
situation. Therefore, we did not propose to use data from the
``Implantable Devices Charged to Patients'' cost center to create a
distinct CCR for Implantable Devices Charged to Patients for use in
calculating the MS-DRG relative weights for FY 2012. We indicated that
we would reassess the availability of data for the ``Implantable
Devices Charged to Patients'' cost center, and the ``MRI, CT Scans, and
Cardiac Catheterization'' cost centers, for the FY 2013 IPPS rulemaking
cycle and, if appropriate, we would propose to create a distinct CCR at
that time.
Comment: Commenters requested that CMS reconsider its position to
not use the data from the implantable device cost center to calculate
the MS-DRG relative weights for FY 2012. The commenter noted that
during the development of the proposed rule, CMS found that only 437
hospitals out of approximately 3,500 IPPS hospitals reported data in
the ``Implantable Devices Charged to Patients'' cost center of the
Medicare hospital cost report based on the December 2010 update of FY
2009 HCRIS. One commenter found, while reviewing the March 2011 update
of FY 2009 HCRIS, that there are approximately 800 hospitals that are
reporting cost information in the implantable medical device cost
center.
Another commenter stated that, based on the December 2010 update of
FY 2009 HCRIS, 804 hospitals reported data on either line 55 (Medical
Supplies Charged to Patients) or line 55.30 (Implantable Devices
Charged to Patients), and in the March 2011 update of FY 2009 HCRIS,
approximately 1,600 hospitals were reporting data on either of those
lines. As such, the commenters believed there is now a sufficient
amount of data to use the implantable device CCR to calculate the
relative weights and improve accuracy of the payment rates. Commenters
also noted that if we do not use the implantable device cost center to
calculate the FY 2012 relative weights, there will be enough data to
develop an implantable device CCR for FY 2013.
One commenter suggested that CMS adopt regression-based CCRs to
calculate the FY 2012 MS-DRG relative weights because CMS does not yet
have sufficient cost report data to develop the implantable device CCR.
This would allow CMS to address charge compression immediately and
improve payment accuracy for medical devices and implantables.
Response: In the FY 2012 IPPS/LTCH PPS proposed rule, we indicated
that we did not have sufficient cost report data to develop the kind of
robust analysis that we assured the public we would provide prior to
implementing a new CCR for implantable medical devices. Therefore, we
stated that we will reassess the availability of data for FY 2013. We
have reviewed the availability of FY 2009 cost reports in the March 31,
2011 quarter ending update of HCRIS, which is the latest upload of FY
2009 cost report data that we currently have available. We have
determined that, for cost reporting periods beginning on or after May
1, 2009, the effective date of line 55.30 (Implantable Devices Charged
to Patients), there are 961 hospitals (out of approximately 3,500 IPPS
hospitals) that have completed the ``Implantable Devices Charged to
Patients'' cost center. This represents an increase of 524 compared to
the 437 entries that we found when developing the FY 2012 proposed
rule. Regardless of the number of hospitals currently reporting data in
the ``Implantable Devices Charged to Patients'' cost center, the data
that were available at the time we were developing our proposed
policies for FY 2012 were insufficient, and we believe it would be
inappropriate to finalize a specific CCR for implantable devices
charged to patients for FY 2012 without an opportunity for the public
to review and comment on our analysis. Rather, we believe that it is
appropriate to wait until FY 2013, when we hope to be able to provide a
proper impact analysis of the addition of a CCR for implantable devices
charged to patients in the relative weights calculation. Accordingly,
we are not implementing a regression-based CCR for implantable devices
at this time. Therefore, we are not implementing any new CCRs for use
in the relative weights calculation for FY 2012.
Comment: Commenters urged CMS to increase education efforts to
encourage faster hospital adoption of the use of the implantable
medical device cost center. Commenters noted that, at the time of the
development of the FY 2012 IPPS/LTCH PPS proposed rule, only 437
hospitals had completed the implantable device cost center, and this
demonstrated that CMS needs to undertake additional outreach to
hospitals to ensure that they appropriately complete the Medicare
hospital cost report.
Response: We agree that it is important that hospitals understand
how to accurately report data in the ``Implantable Devices Charged to
Patients'' cost center, and we have worked to add more clarity to the
cost report instructions. However, we do believe that the December 31,
2010 update of HCRIS reflected relatively few entries for this cost
center because the corresponding cost center line was only available
for use for cost reporting periods beginning on or after May 1, 2009.
This effective date was somewhat awkward in terms of timing and would
not have applied to a large number of hospitals whose data would not be
evident to CMS until the March 31, 2011 update to HCRIS.
Comment: Commenters suggested that CMS monitor the accuracy of the
data reported in the implantable device cost center on the Medicare
hospital cost report. Commenters urged CMS to impress the importance
upon the Medicare Administrative Contractors (MACs) of establishing a
mechanism to audit the implantable device cost center to ensure that
the costs and charges are appropriately reported. One commenter
suggested that CMS require MACs to require hospitals to explain why
they had not reported in the implantable device cost center. In
addition, the commenters suggested that CMS reissue instructions,
similar to Transmittal 321, dated February 28, 2009, to the MACs with
recommendations that MACs develop an audit program for line 55 (Medical
Supplies Charged to Patients) and line 55.30 (Implantable Devices
Charged to Patients). Commenters noted that potential audit mechanisms
include identifying the presence of revenue codes 274, 275, 276 and 624
reported on the PS&R used to settle the cost report, and comparing the
CCR based on line 55.30 to the CCR based on line 55. In addition, one
commenter suggested that the cost reporting software be modified to
create a level 1 error in the case where no data is reported on line
55.30 (Implantable Devices Charged to Patients) to compel hospitals to
report that information.
Response: We agree with the commenters that the cost reporting
lines, whether they are for Implantable Devices Charged to Patients,
MRI, CT scans, cardiac catheterization, or any others, should be
subject to greater audit scrutiny from the Medicare contractors. The
new Medicare cost report form CMS-2552-10, on line 121 of Worksheet S-
2, Part I, asks ``Did this facility incur and report costs for
implantable devices charged to a patient? Enter in column 1 ``Y'' for
yes or ``N'' for no.'' All hospital types, including non-IPPS
hospitals, CAHs, and Maryland inpatient short-term acute hospitals, are
required to properly report their costs and charges, and if the answer
to this question is Y for any type of hospital, then line 72, column
26, of

[[Page 51504]]

Worksheet B, Part I must be greater than 0, with an accurate amount
that reflects the hospital's costs for implantable devices charged to
patients. In addition, we note that a Level 1 edit on the CMS-2552-10
form already exists that ensures that line 72, column 26, of Worksheet
B, Part I (Implantable Devices Charged to Patients on Worksheet A of
the CMS-2552-10 form) is greater than 0 if Worksheet S-2, Part I, line
121 is ``Y''. The edit is also set up for the reverse scenario; that
is, if there is an amount on Worksheet B, Part I, line 72, column 26,
then the response on Worksheet S-2, Part I, line 121 must be ``Y.''
Comment: Some commenters supported not making major refinements to
the calculation of MS-DRG relative weights. Commenters valued the
consistency, transparency, and predictability of the calculation of the
MS-DRG relative weights.
Response: We appreciate the commenters' support for our proposal of
not making major refinements to the MS-DRG relative weights in the
absence of sufficient data from which to create new CCRs. We also value
consistency, transparency, and predictability in the calculation of the
MS-DRG relative weights.
Comment: One commenter supported our decision to create standard
cost centers for CT, MRI, and cardiac catheterization for hospitals to
report their costs and charges on the Medicare hospital cost report. In
addition, the commenter supported urgently adopting the use of the CT,
MRI, and cardiac catheterization cost centers in calculating the MS-DRG
relative weights.
Response: We appreciate the commenter's support. As we stated in
the proposed rule, we will reassess the availability of data for the
``Implantable Devices Charged to Patients'' cost center, and the ``MRI,
CT Scans, and Cardiac Catheterization'' cost centers, for the FY 2013
IPPS rulemaking cycle, and, if appropriate, we will propose to create
distinct CCRs for these cost centers at that time.
Comment: One commenter noted that allogeneic stem cell acquisition
charges are reported using revenue code 0819 for ``Other Organ
Acquisition.'' However, the commenter added, this revenue code is not
part of the 15 national cost center CCRs used in the calculation of the
MS-DRG relative weights. In addition, the commenter stated, the
Medicare hospital cost report does not specifically identify a cost
center for bone marrow acquisition costs. The commenter requested
direction on capturing these acquisition costs and how those costs and
charges are accounted for in the MS-DRG relative weight calculation.
Response: We appreciate this comment, but note that it is not
within the scope of the issues discussed in the FY 2012 IPPS/LTCH PPS
proposed rule regarding the calculation of the MS-DRG relative weights.
However, we also note that allogeneic bone marrow transplant charges
are included in the 15 CCRs, specifically as part of the Blood and
Blood Products CCR and that CCR's associated cost centers on the cost
report.
Comment: One commenter stated that CMS should specifically exclude
sleeve gastrectomy charges derived from the Medicare claims data and
sleeve gastrectomy costs from the Medicare hospital cost report data
from the MS-DRG weight recalibrations. The commenter noted that CMS
excludes Medicare claims for services that are non-covered for Medicare
beneficiaries from the MS-DRG relative weight calculation and,
therefore, sleeve gastrectomy charges should be excluded. In addition,
the commenter recommended that CMS remind providers that Medicare cost
reports should exclude charges and costs associated with the sleeve
gastrectomy procedure, as it is a noncovered service.
Response: We appreciate this comment, but note that it is not
within the scope of the issues discussed in the FY 2012 IPPS/LTCH PPS
proposed rule regarding the calculation of the MS-DRG relative weights.
We will take this issue into consideration for future rulemaking.
Comment: One commenter suggested that CMS evaluate the MedPAR
claims database to ensure that it is not using Medicare managed care
claims data to calculate the MS-DRG relative weights, as CMS has
proposed to only use fee-for-service claims to calculate the MS-DRG
relative weights.
Response: We appreciate this comment, but note that it is not
within the scope of the issues discussed in the FY 2012 IPPS/LTCH PPS
proposed rule regarding the calculation of the MS-DRG relative weights.
However, we note that it is already our policy to exclude managed care
claims from the MS-DRG relative weights calculation.
After consideration of the public comments received, we are not
implementing any new CCRs for use in the relative weights calculation
for FY 2012.

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

1. Background
a. Statutory Authority
Section 1886(d)(4)(D) of the Act addresses certain hospital-
acquired conditions (HACs), including infections. Section 1886(d)(4)(D)
of the Act specifies that, by October 1, 2007, the Secretary was
required to select, in consultation with the Centers for Disease
Control and Prevention (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.
Section 1886(d)(4)(D) of the Act also specifies that the list of
conditions may be revised, again in consultation with CDC, from time to
time as long as the list contains at least two conditions.
Section 1886(d)(4)(D)(iii) of the Act requires that hospitals,
effective with discharges occurring on or after October 1, 2007, submit
information on Medicare claims specifying whether diagnoses were
present on admission (POA). Section 1886(d)(4)(D)(i) of the Act
specifies that, effective for discharges occurring on or after 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 condition that was not POA manifests during the hospital stay,
it is considered a HAC and the case is paid as though the secondary
diagnosis was not present. However, even if a HAC manifests during the
hospital stay, if any nonselected CC/MCC appears on the claim, the
claim will be paid at the higher MS-DRG rate. Under the HAC payment
policy, all CCs/MCCs on the claim must be HACs in order to generate a
lower MS-DRG payment. In addition, Medicare continues to assign a
discharge to a higher paying MS-DRG if a selected condition is 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

[[Page 51505]]

term ``hospital'' refers to an IPPS hospital.
The HAC provision found in section 1886(d)(4)(D) of the Act is part
of an array of Medicare tools that we are using to promote increased
quality and efficiency of care. Those tools include measuring
performance, using payment incentives, publicly reporting performance
results, applying national and local coverage policy decisions,
enforcing conditions of participation, and providing direct support for
providers through Quality Improvement Organization (QIO) activities.
The application of these tools, such as this HAC provision, is
transforming Medicare from a passive payer to an active purchaser of
higher value health care services. We are applying these strategies for
inpatient hospital care and across the continuum of care for Medicare
beneficiaries.
This effort is highly compatible with the underlying purposes as
well as existing structural features of Medicare's IPPS. Under the
IPPS, hospitals are encouraged to treat patients efficiently because
they receive the same DRG payment for stays that vary in length and in
the services provided, which gives hospitals an incentive to avoid
unnecessary costs in the delivery of care. In some cases, conditions
acquired in the hospital do not generate higher payments than the
hospital would otherwise receive for cases without these conditions. To
this extent, the IPPS encourages hospitals to avoid complications.
However, the treatment of certain conditions can generate higher
Medicare payments in two ways. First, if a hospital incurs
exceptionally high costs treating a patient, the hospital stay may
generate an outlier payment. Because the outlier payment methodology
requires that hospitals experience large losses on outlier cases before
outlier payments are made, hospitals have an incentive to prevent
outliers. Second, under the MS-DRG system that took effect in FY 2008
and that has been refined through rulemaking in subsequent years,
certain conditions can generate higher payments even if the outlier
payment requirements are not met. Under the MS-DRG system, there are
currently 259 sets of MS-DRGs that are split into 2 or 3 subgroups
based on the presence or absence of a CC or an MCC. The presence of a
CC or an MCC generally results in a higher payment. However, since we
implemented the HAC provisions, if a secondary diagnosis acquired
during a hospital stay is a HAC and no other CCs or MCCs are present,
the hospital receives a payment under the MS-DRGs as if the HACs were
not present. (We refer readers to section II.D. of the FY 2008 IPPS
final rule with comment period for a discussion of DRG reforms (72 FR
47141).)
b. HAC Selection
Beginning in FY 2007, we have set forth proposals, and solicited
and responded to public comments, to implement section 1886(d)(4)(D) of
the Act through the IPPS annual rulemaking process. For specific
policies addressed in each rulemaking cycle, we direct readers to the
following publications: The FY 2007 IPPS proposed rule (71 FR 24100)
and final rule (71 FR 48051 through 48053); the FY 2008 IPPS proposed
rule (72 FR 24716 through 24726) and final rule with comment period (72
FR 47200 through 47218); the FY 2009 IPPS proposed rule (73 FR 23547)
and final rule (73 FR 48471); the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24106) and final rule (74 FR 43782); and the FY
2011 IPPS/LTCH PPS proposed rule (75 FR 23880) and final rule (75 FR
50080). A complete list of the 10 current categories of HACs is
included in section II.F.2. of this preamble.
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50080 through
50101), we did not add any categories of additional HACs or make any
changes to policies already established under the authority of section
1886(d)(4)(D) of the Act.
c. Collaborative Process
In establishing the HAC payment policy under section 1886(d)(4)(D)
of the Act, our experts have worked closely with public health and
infectious disease professionals from across the Department of Health
and Human Services, including CDC, the Agency for Healthcare Research
and Quality (AHRQ), and the Office of Public Health and Science (OPHS),
to identify the candidate preventable HACs, review comments, and select
HACs. CMS and CDC also have 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. In addition, as discussed below, we have used
rulemaking and Listening Sessions to obtain public input.
d. Application of HAC Payment Policy to MS-DRG Classifications
As described above, in certain cases, application of the HAC
payment policy provisions can result in MS-DRG reassignment to a lower
paying MS-DRG. The following diagram portrays the logic of the HAC
payment policy provision as adopted in the FY 2008 IPPS final rule with
comment period (72 FR 47200) and in the FY 2009 IPPS final rule (73 FR
48471):

[[Page 51506]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.002

e. Public Input Regarding Selected and Potential Candidate HACs
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50080 through
50101), we did not add or remove categories of HACs, nor did we make
any changes to previously established policies. However, we continue to
encourage public dialogue about refinement of the HAC list.
Given the timeliness of the HAC discussion, particularly when
considered within the context of recent legislative health care reform
initiatives, we remain eager to engage in an ongoing public dialogue
about the various aspects of this policy. We plan to continue to
include updates and findings from the Research Triangle Institute,
International (RTI) evaluation on CMS' Hospital-Acquired Conditions and
Present on Admission Indicator Web site available at: http://www.cms.hhs.gov/HospitalAcqCond/.
f. 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.
In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23381) (and as noted
in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50081)), we listed the
instructions and change requests that were issued to IPPS hospitals and
also to non-IPPS hospitals regarding the submission of POA indicator
data for all diagnosis codes on Medicare claims and the processing of
non-PPS claims We also indicated that specific instructions on how to
select the correct POA indicator for each diagnosis code were included
in the ICD-9-CM Official Guidelines for Coding and Reporting, available
on the CDC Web site at: http://www.cdc.gov/nchs/data/icd9/icdguide10.pdf. We reiterate that additional information regarding POA
indicator reporting and application of the POA reporting options is
available on the CMS Web site at: http://www.cms.gov/HospitalAcqCond/.
In preparation for the transition to the ICD-10-CM/PCS code set
effective October 1, 2013, further information regarding the use of the
POA indictor with the ICD-10-CM/PCS classification as it pertains to
the HAC policy will be discussed in future rulemaking. In the meantime,
we encourage readers to review the educational materials and draft code
sets currently available for ICD-10-CM/PCS at the CMS Web site at:
http://www.cms.gov/ICD10/. In addition, the draft ICD-10-CM/PCS coding
guidelines can be viewed at the CDC Web site at: http://www.cdc.gov/nchs/data/icd9/10cmguidelines2011.
Historically, we have not provided coding advice. Rather, we
collaborate with the American Hospital Association (AHA) through the
Coding Clinic for ICD-9-CM. We will continue to collaborate with the
AHA to promote the Coding Clinic for ICD-9-CM as the source for coding
advice about the POA indicator.
As discussed in previous IPPS proposed and final rules, 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
that, based on data and clinical
judgment, 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 final payment policies 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 51507]]

HACs coded with ``N'' and ``U'' indicators.
Beginning on or after January 1, 2011, hospitals are required to
begin reporting POA indicators using the 5010 electronic transmittal
standards format. The 5010 format removes the need to report a POA
indicator of ``1'' for codes that are exempt from POA reporting.
However, for claims that continue to be submitted using the 4010
electronic transmittal standards format, the POA indicator of ``1'' is
still necessary because of reporting restrictions from the use of the
4010 electronic transmittal standards format.
Hospitals that began reporting with the 5010 format on and after
January 1, 2011, can no longer report a POA indicator of ``1'' for POA
exempt codes. The POA field should instead be left blank for codes
exempt from POA reporting. We have issued CMS instructions on this
reporting change as a One-Time Notification, Pub. No. 100-20,
Transmittal No. 756, Change Request 7024, effective on August 13, 2010.
These instructions, entitled ``5010 Implementation-Changes to Present
on Admission (POA) Indicator `1' and the K3 Segment,'' can be located
at the following link on the CMS Web site: http://www.cms.gov/manuals/downloads/Pub100_20.pdf.
We are continuing our efforts to clarify instructions regarding use
of the POA indicator. As discussed in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50088), we received public comments in response to the FY
2011 IPPS/LTCH PPS proposed rule that expressed concern about the
accuracy of reporting of POA indicators for HACs related to
intracranial injury with loss of consciousness. The codes for loss of
consciousness are listed in the Falls and Trauma HAC category, within
the ``Intracranial Injury'' subcategory. Because loss of consciousness
is a component of intracranial injuries rather than a separate
condition, we agreed that the POA guidelines that instructed coders to
assign an ``N'' indicator if any part of the combination code was not
present on admission did not apply to the loss of consciousness codes.
As a member of the Editorial Advisory Board for the Coding Clinic for
ICD-9-CM, we worked with the American Hospital Association (AHA),
American Health Information Management Association (AHIMA), and CDC to
provide additional clarification on how these conditions should be
reported. Additional guidance on how these cases should be reported can
be found in AHA's Coding Clinic for ICD-9-CM, 2nd Quarter 2010,
``Frequently Asked POA Questions'' section. That publication clarified
the POA reporting for patients in whom a single code captures the fact
that the patient was admitted as a result of a head injury and then
subsequently lost consciousness after the admission. For these cases,
we clarified that the POA indicator assigned should be ``Y,''
indicating that the head injury and resulting loss of consciousness
occurred prior to (and was present on) admission.
We expect that this clarification will lead to greater consistency
and accuracy in POA indicator reporting for these conditions. We look
forward to continuing our efforts as part of the AHA's Editorial
Advisory Board for Coding Clinic for ICD-9-CM to provide guidance on
accuracy of coding and the reporting of POA indicators. Hospitals look
to this publication to provide detailed guidance on ICD-9-CM coding and
POA reporting. We encourage hospitals to send any other questions about
ICD-9-CM codes or POA indicator selection to the AHA so that the
Editorial Advisory Board can continue its role of providing instruction
on the accurate selection and reporting of both ICD-9-CM codes and POA
indicators.
2. Additions and Revisions to the HAC Policy for FY 2012
a. Contrast-Induced Acute Kidney Injury
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25813 and 25814),
we discussed our analysis for a proposed new condition as a possible
candidate for selection for FY 2012 under section 1886(d)(4)(D) of the
Act. As described in more detail in section II.F.1.a. of this preamble,
each HAC must be: (1) High cost, high volume, or both; (2) 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 (3) could
reasonably have been prevented through the application of evidence-
based guidelines. We also discussed other considerations relating to
the selection of a HAC, including any administrative or operational
issues associated with a proposed condition. For example, the condition
may only be able to be identified by multiple codes, thereby requiring
the development of special GROUPER logic to also exclude similar or
related ICD-9-CM codes from being classified as a CC or an MCC.
Similarly, a condition acquired during a hospital stay may arise from
another condition that the patient had prior to admission, making it
difficult to determine whether the condition was reasonably
preventable. We invited public comment on clinical, coding, and
prevention issues on our proposal to add contrast-induced acute kidney
injury as a condition subject to the HAC payment provision for FY 2012
(for discharges occurring on or after October 1, 2011).
Contrast-induced acute kidney injury is a significant complication
of the use of iodinated contrast media and accounts for a large number
of cases of hospital-acquired acute kidney injury cases. A published
study has shown that renal failure associated with contrast
administration is correlated with up to 11 percent of cases of renal
failure that occur in hospitals (Nash, K., Hafeez, A., et al:
``Hospital-Acquired Renal Insufficiency,'' American Journal on Kidney
Disease, 2002, Vol. 39, No. 5, pp. 930-936). Patients who experience
acute kidney injury have an increased risk of inhospital mortality even
after adjustments for disease comorbidities (McCullough, J.:
``Contrast-Induced Acute Kidney Injury,'' Journal of the American
College of Cardiology, 2008, Vol. 51, No. 15, pp. 1419-1428). Data
suggest that the risk for mortality extends beyond the period of
hospitalization, resulting in 1-year and 5-year mortality rates
significantly higher than those patients who have not developed acute
kidney injury. In addition, contrast-induced acute kidney injury is
associated with an increased incidence of myocardial infarction,
bleeding requiring transfusion, and prolonged hospital stays
(McCullough, J.: American Journal of Medicine, 1997, Vol. 103, pp. 368-
375). We note that ``acute kidney injury'' is a new terminology
endorsed by the National Kidney Foundation to replace ``acute renal
failure.''
There is not a unique code that identifies kidney injury. However,
kidney injury can be identified as a subset of discharges with ICD-9-CM
diagnosis code 584.9 (Acute kidney failure, unspecified). As we
discussed in the FY 2012 IPPS/LTCH PPS proposed rule, our clinical
advisors believe that diagnosis code 584.9, in combination with the
associated procedure codes listed below, can accurately identify
contrast-induced acute kidney injury:

88.40 (Arteriography using contrast material, unspecified
site)
88.41 (Arteriography of cerebral arteries)
88.42 (Aortography)
88.43 (Arteriography of pulmonary arteries)
88.44 (Arteriography of other intrathoracic vessels)
88.45 (Arteriography of renal arteries)
88.46 (Arteriography of placenta)
88.47 (Arteriography of other intra-abdominal arteries)

[[Page 51508]]

88.48 (Arteriography of femoral and other lower extremity
arteries)
88.49 (Arteriography of other specified sites)
88.50 (Angiocardiography, not otherwise specified)
88.51 (Angiocardiography of venae cavae)
88.52 (Angiocardiography of right heart structures)
88.53 (Angiocardiography of left heart structures)
88.54 (Combined right and left heart angiocardiography)
88.55 (Coronary arteriography using a single catheter)
88.56 (Coronary arteriography using two catheters)
88.57 (Other and unspecified coronary arteriography)
88.58 (Negative-contrast cardiac roentgenography)
88.59 (Intra-operative coronary fluorescence vascular
angiography)
88.60 (Phlebography using contrast material, unspecified site)
88.61 (Phlebography of veins of head and neck using contrast
material)
88.62 (Phlebography of pulmonary veins using contrast materal)
88.63 (Phlebography of other intrathoracic veins using
contrast material)
88.64 (Phlebography of the portal venous system using contrast
material)
88.65 (Phlebography of other intra-abdominal veins using
contrast material)
88.66 (Phlebography of femoral and other lower extremity veins
using contrast material)
88.67 (Phlebography of other specified sites using contrast
material)
87.71 (C.A.T. of kidney)
87.72 (Other nephrotomogram)
87.73 (Intravenous pyelogram)
87.74 (Retrograde pyelogram)
87.75 (Percutaneous pyelogram)

We proposed to identify contrast-induced acute kidney injury with
diagnosis code 584.9 in combination with one or more of the above
associated procedure codes.
We also considered identifying contrast-induced acute kidney injury
through the use of external injury codes, or E-codes. Code E947.8
(Other drugs and medicinal substances) has an inclusion term ``Contrast
media used for diagnostic x-ray procedures'' to identify the use of
contrast. However, as we noted in the proposed rule, we do not
currently require the reporting of E-codes for the HAC payment
provisions under the IPPS. Therefore, we were unable to rely on the
identification of contrast-induced acute kidney injury through E-codes
on Medicare IPPS HACs claims.
Section 1886(d)(4)(D) of the Act requires that a HAC be a condition
that is ``high cost, high volume, or both.'' In FY 2009, there were
38,324 inpatient discharges coded with acute renal failure as specified
by ICD-9-CM diagnosis code 584.9 reported as not present on admission
(POA status = N) when reported with one of the above procedure codes
submitted through Medicare claims. The cases had an average charge of
$29,122 for the entire hospital stay. Studies suggest the additional
average cost per day for a patient who has acquired contrast-induced
acute kidney injury is $2,654. Other data report patients stays
increases by 3.75 days once they have acquired the diagnosis
(Subramanian, S.: ``Economic Burden of Contrast-Induced Nephropathy:
Implications for Prevention Strategies,'' Journal of Medical Economics,
2007, Vol. 10, pp. 119-134).
There are widely recognized guidelines for the prevention of acute
kidney injury that address the prevention of contrast-induced acute
kidney injury, and we believe the condition is reasonably preventable.
One of these guidelines can be found at: http://www.renal.org/Clinical/GuidelinesSection/AcuteKidneyInjury.aspx.
The condition of contrast-induced acute kidney injury as specified
in our proposal is a CC under the MS-DRGs.
We indicated in the proposed rule that we had not identified any
additional administrative or operational difficulties with proposing
this condition as a HAC. We invited public comment on whether contrast-
induced acute kidney injury meets the requirements set forth under
section 1886(d)(4)(D) of the Act, as well as other coding and
prevention issues associated with our proposal to add this injury as a
condition subject to the HAC payment provision for FY 2012 (for
discharges occurring on or after October 1, 2011). We also indicated
that we were particularly interested in receiving comments on the
degree to which contrast-induced acute kidney injury is reasonably
preventable through the application of evidence-based guidelines.
Comment: One commenter supported CMS' proposal to add contrast-
induced acute kidney injury as a HAC under section 1886(d)(4)(D) of the
Act. The commenter applauded the inclusion of contrast-induced acute
kidney injury to the HAC policy for FY 2012, and encouraged CMS to
continue to expand and refine the HACs and categories.
Response: We appreciate the commenter's support.
Comment: Many commenters discussed their concerns regarding the
specificity and sensitivity of the ICD-9-CM codes proposed to identify
the proposed new contrast-induced acute kidney injury HAC. The
commenters believed that these codes would not solely capture contrast-
induced acute kidney injury and would capture other conditions as well.
The commenters expressed concern about the specificity of the current
ICD-9-CM code 584.9 in reliably identifying cases of acute kidney
injury that occurred due to a specific diagnosis instead of acute
kidney injury that is believed to occur secondary to being correlated
with exposure to contrast. The commenter stated that, for example, a
patient admitted to a hospital could experience drug-induced kidney
injury that has resolved; later during that hospital stay, the patient
has a subsequent angiographic procedure. Under our proposed
methodology, the commenter added, this patient would be erroneously
identified as having contrast-induced acute kidney injury.
Some commenters suggested that CMS use E-codes, which identify
injuries, while others did not support the use of E-codes because they
are not consistently coded for Medicare billing purposes. Commenters
further noted that the list of ICD-9-CM procedure codes proposed to
assist in identifying the use of contrast as the reason for the acute
kidney injury occurring are often not reported on hospital claims. The
commenters explained that most of the codes do not represent procedures
affecting payment, are not required, and, therefore, are not reported.
Other commenters recommended waiting to finalize this proposed
candidate condition until the ICD-10 code set is implemented. The
commenters suggested that a unique code to identify and describe
contrast-induced acute kidney injury could be proposed in ICD-10, and
this would eliminate the coding limitations that currently exist for
this condition in ICD-9-CM.
Response: We acknowledge the commenters' concerns regarding the
current ICD-9-CM coding issues surrounding contrast-induced acute
kidney injury, and that our proposal could inadvertently include claims
for beneficiaries who experience acute kidney injury that may not be
contrast-induced. We note that, as discussed in the FY 2008 IPPS final
rule with comment period (72 FR 47216), under 42 CFR 412.60(d), a
hospital has 60 days after the date of the notice of the initial

[[Page 51509]]

assignment of a discharge to a DRG to request a review of that
assignment. The hospital may submit additional information as a part of
its request. A hospital that believes a discharge was assigned to the
incorrect DRG as a result of application of the payment adjustment for
HACs may request review of the DRG assignment by its fiscal
intermediary or MAC. However, we also recognize that it is important to
be as precise as possible in specifying which codes to use to identify
a HAC, and that a lack of precision could increase hospitals'
administrative burden in pursuing these appeals.
In addition, we recognize that E-codes do capture injuries and
could offer more precision in identifying contrast-induced acute kidney
injury than our proposal. We also agree with the commenters who pointed
out that E-codes are currently not required for Medicare billing
purposes and, therefore, are inconsistently reported on claims. We note
further that because these codes are not required for Medicare IPPS
payment purposes, MS-DRG assignments do not currently take E-codes into
account.
We also appreciate the comments that pointed out that the procedure
codes identified in our proposal are often not reported. We note that
commenters asserted that these codes were not reported because they did
not affect payment. We are concerned that the potential for reduced
payment would create a further disincentive to include these procedure
codes on Medicare claims. As we stated earlier, we recognize that it is
important to be as precise as possible in the interest of payment
accuracy in specifying which codes to use to identify a HAC.
We also agree that ICD-10 will offer a greater degree of
specificity. Currently, no code exists within ICD-10 that would
exclusively capture contrast-induced acute kidney injury. We note that,
as discussed in the FY 2012 IPPS/LTCH proposed rule (76 FR 25843), and
in section II.G.13.b. of this final rule, a partial code freeze was
discussed at multiple meetings of the ICD-9-CM Coordination and
Maintenance Committee, and public comment was actively solicited. At
the September 15-16, 2010 meeting, an announcement was made that the
ICD-9-CM Coordination and Maintenance Committee will implement a
partial freeze of the ICD-9-CM and ICD-10 (ICD-10-CM and ICD-10-PCS)
codes prior to the implementation of ICD-10 on October 1, 2013. There
was considerable support for this partial freeze. The partial freeze
will be implemented as follows:
The last regular, annual updates to both ICD-9-CM and ICD-
10 code sets will be made on October 1, 2011.
On October 1, 2012, there will be only limited code
updates to both the ICD-9-CM and ICD-10 code sets to capture new
technologies and diseases as required by section 503(a) of Public Law
108-173.
On October 1, 2013, there will be only limited code
updates to ICD-10 code sets to capture new technologies and diagnoses
as required by section 503(a) of Public Law 108-173. There will be no
updates to ICD-9-CM, as it will no longer be used for reporting.
On October 1, 2014, regular updates to ICD-10 will begin.
The ICD-9-CM Coordination and Maintenance Committee will continue
to meet twice a year during the partial freeze. At these meetings, the
public will be asked to comment on whether or not requests for new
diagnosis or procedure codes should be created based on the criteria of
the need to capture a new technology or disease. Any code requests that
do not meet the criteria will be evaluated for implementation within
ICD-10 on and after October 1, 2014, once the partial freeze has ended.
In summary, we agree with the commenters' recommendations regarding
coding and are deferring decision making regarding the inclusion of
contrast-induced acute kidney injury as a HAC until such a time when
improved coding is available.
Comment: Several commenters submitted comments pertaining to the
sufficiency or strength of the evidence-based guidelines in terms of
providing information or direction that would lead to the prevention of
contrast-induced acute kidney injury 100 percent of the time. The
commenters stated that evidence-based guidelines are based on varying
levels of evidence, from expert consensus based on opinion (the
``weakest'' level) to expert consensus based on data produced in
randomized controlled trials (the ``strongest'' level). According to
the commenters, in many cases, the guidelines do not address all
patient populations. Commenters also stated that current evidence-based
guidelines for decreasing the incidence of contrast-induced acute
kidney injury are limited. The commenters also noted that new
guidelines addressing the topic of contrast-induced acute kidney injury
are being published in late summer of 2011 by an international
organization, Kidney Disease Improving Global Outcomes (KDIGO), after a
multiyear development process. They noted that CMS should take these
guidelines into consideration when they become available.
Response: We acknowledge that different types of evidence-based
guidelines exist. However, we believe that the inclusion of contrast-
induced acute kidney injury in the current evidence-based guidelines
for Acute Kidney Injury supports the inclusion of contrast-induced
acute kidney injury as a condition on the HAC list. We agree that any
new evidence-based guidelines for contrast-induced acute kidney injury
should be considered when they become available.
Comment: A few commenters expressed concern about the proposal
potentially creating an incentive for practitioners to avoid necessary
contrast use in patients with high risk of acute kidney disease.
Response: We acknowledge and are sensitive to the theoretical
possibility of patient access to care being restricted. We are unaware
of significant data supporting this assertion, but we will continue to
monitor the situation for potential unintended consequences with regard
to this concern.
Comment: Some commenters recommended that CMS not reduce payment
for this condition, but to instead develop a quality measure that would
track it. The commenters noted that such a measure could track whether
the appropriate evidence-based steps to prevent contrast-induced acute
kidney injury have been performed and documented.
Response: We appreciate the commenters' recommendation. We note
that we did not propose to develop a quality measure for contrast-
induced acute kidney injury in the proposed rule. Thus, we consider
this comment to be outside of the scope of the provisions discussed in
the proposed rule. However, this subject area represents an area of
continued interest and opportunity for the agency, and we will take
this recommendation into consideration during the development of future
rulemaking.
In conclusion, after consideration of the public comments we
received, we are deferring the decision making on the addition of
contrast-induced acute kidney injury as a HAC until future rulemaking,
and such a time when improved coding is available for the reasons
described above. We note that the reduction of contrast-induced acute
kidney injury represents an area of continued interest for the agency,
and we believe that substantial opportunity exists for hospitals to
improve quality in this area.

[[Page 51510]]

b. Additional New Diagnosis Codes for Existing HACs
As we discussed in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR
25814), as changes to diagnosis codes and new diagnosis codes are
proposed and finalized for the list of CCs and MCCs, we modify the list
of selected HACs to reflect these changes. We included in Table 6A of
the proposed rule (which was made available via the Internet) the five
new ICD-9-CM diagnosis codes that we proposed to add to three of the
current HAC categories. We proposed to add two new codes for the Falls
and Trauma HAC category, two new codes for the Surgical Site Infection
(SSI) Following Certain Bariatric Procedures HAC category, and one new
code for the Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE)
Following Certain Orthopedic Procedures HAC category. The two new
diagnosis codes that we proposed to add to the Falls and Trauma HAC
category were code 808.44 (Multiple closed pelvic fractures without
disruption of pelvic circle) and code 808.54 (Multiple open pelvic
fractures without disruption of pelvic circle). These codes fall within
the range of the fracture code subcategory (800 through 829). The two
new diagnosis codes that we proposed to add to the Surgical Site
Infection (SSI) Following Certain Bariatric Procedures HAC category
were code 539.01 (Infection due to gastric band procedure) and code
539.81 (Infection due to other bariatric procedure). We stated our
belief that these diagnosis codes are appropriate for inclusion in the
existing category when reported as a secondary diagnosis with the
specified principal diagnosis code of morbid obesity (code 278.01) and
one of the designated bariatric procedure codes (code 44.38, 44.39, or
44.95). Lastly, the one new diagnosis code that we proposed to add to
the Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE) Following
Certain Orthopedic Procedures HAC category was code 415.13 (Saddle
embolus of pulmonary artery). Diagnosis code 415.13 would be applicable
when reported along with one of the following procedures codes
describing certain orthopedic procedures: 00.85 through 00.87, 81.51,
81.52, or 81.54. Shown in the table below are these five new diagnosis
codes with their corresponding descriptions and their proposed CC/MCC
designations.

------------------------------------------------------------------------
Proposed CC/MCC
ICD-9-CM code Code descriptor designation
------------------------------------------------------------------------
539.01........................ Infection due to CC
gastric band
procedure.
539.81........................ Infection due to CC
other bariatric
procedure.
415.13........................ Saddle embolus of MCC
pulmonary artery.
808.44........................ Multiple closed CC
pelvic fractures
without disruption
of pelvic circle.
808.54........................ Multiple open pelvic MCC
fractures without
disruption of pelvic
circle.
------------------------------------------------------------------------

We invited public comments on the proposed adoption of these five
new ICD-9-CM diagnosis codes as CC/MCCs that are listed above, which,
if finalized, would be added to the current Falls and Trauma HAC
category, Surgical Site Infection (SSI) Following Certain Bariatric
Procedures HAC category and Deep Vein Thrombosis and Pulmonary Embolism
(DVT/PE) Following Certain Orthopedic Procedures HAC category and would
be subject to the HAC payment provision for FY 2012.
Comment: Several commenters supported CMS' proposal to adopt the
five new ICD-9-CM diagnosis codes with their proposed CC/MCC
designations for addition to the current Falls and Trauma HAC category,
Surgical Site Infection (SSI) Following Certain Bariatric Procedures
HAC category, and Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE)
Following Certain Orthopedic Procedures HAC category and to subject
them to the HAC payment provision for FY 2012.
Response: We appreciate the commenters' support.
Comment: One commenter expressed concern regarding the
appropriateness of adding ICD-9-CM diagnosis code 415.13 as a condition
that, when reported along with the designated procedure codes
describing certain orthopedic procedures (00.85 through 00.87, 81.51,
81.52, or 81.54) in the Deep Vein Thrombosis and Pulmonary Embolism
(DVT/PE) Following Certain Orthopedic Procedures HAC category, be
subject to the HAC payment provision. The commenter stated that HAC
selection should be based on conditions considered to be reasonably
preventable with adherence to evidence-based practice guidelines. The
commenter further believed that a saddle embolus of the pulmonary
artery, when reported with the cited orthopedic procedure codes, is not
a condition that is ``reasonably preventable'' and that patients
undergoing total knee replacement and total hip replacement in the
Medicare population are at the highest risk for developing a DVT/PE.
The commenter also stated that the current structure of the MS-DRG
system does not specifically risk-adjust for these conditions in the
MS-DRGs related to primary total hip replacement (code 81.51) or
primary total knee replacement (code 81.54). The commenter believed
that risk adjustment is an indispensible component of an equitable HAC
policy. The commenter suggested that CMS account for the patient-
specific risk factors that affect preventability and reported that many
hospitalized patients have comorbidities and other patient
characteristics that put them at an increased risk of complications.
The commenter suggested that CMS take these factors into account in
creating a policy that is reasonable and equitable, in order to
minimize incentives for limiting access for patients who are at higher
risk for complications.
This same commenter also expressed support of CMS' efforts to
encourage the adoption of evidence-based treatment guidelines that
could improve the quality of care for patients. However, while the
commenter noted that evidence-based guidelines can reduce events, the
commenter asserted that CMS selected one of the patient populations at
highest risk for DVT/PE, diverging from the concept of ``reasonably
preventable.''
Response: We appreciate the commenter's detailed comments on the
proposal to add diagnosis code 415.13 as a condition that, when
reported along with the designated procedure codes described above, is
subject to the HAC payment provision. In the FY 2008 IPPS final rule
with comment period (72 FR 47200 through 47218), we discussed the
evidence based guidelines regarding DVT/PE and agreed with commenters
that this is reasonably preventable. In the FY 2009 IPPS final rule (73
FR 48481), we addressed commenters' concerns regarding the
preventability of DVT/PE and noted that the statute does not require
that a condition be ``always preventable''' in order to qualify as an

[[Page 51511]]

HAC, but rather that it be ``reasonably preventable,'' which
necessarily implies something less than 100 percent.
With regard to the commenter's assertion that risk adjustment is an
indispensible component of an equitable HAC policy, we refer readers to
the FY 2009 IPPS final rule and the FY 2010 IPPS/RY 2010 LTCH PPS final
rule. In the FY 2009 IPPS final rule (73 FR 48487 through 48488), we
discussed risk adjustment of payments related to HACs. We addressed
this issue again in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
43785), where we noted that a risk adjustment methodology may lead to
greater precision of HAC payment determinations. As part of the RTI
evaluation of the HAC-POA program, the concept of risk adjustment
continues to be an important area of interest and study for the agency.
We will consider the results of RTI's evaluation when it is complete
and, if appropriate, make a proposal and solicit public comment in
future rulemaking.
After consideration of the public comments we received, we are
finalizing the adoption of the five new ICD-9-CM diagnosis codes
described above as CC/MCCs to be added to their respective HAC
categories as proposed. Therefore, effective October 1, 2011 (FY 2012),
procedure codes 808.44 and 808.54 describing multiple pelvic fractures
will be added to the Falls and Trauma HAC category, procedure codes
539.01 and 539.81 describing infections related to gastric procedures
will be added to the Surgical Site Infection (SSI) Following Certain
Bariatric Procedures HAC category, and procedure code 415.13 describing
a type of pulmonary embolus will be added to the Deep Vein Thrombosis
and Pulmonary Embolism (DVT/PE) Following Certain Orthopedic Procedures
HAC category. All of these conditions will be subject to the HAC
payment provision for FY 2012.
c. Revision to HAC Subcategory Title
After publication of the FY 2011 IPPS/LTCH PPS final rule, we
received a comment stating that the subcategory title ``Electric
Shock'' that is included in the Falls and Trauma HAC category was
misleading. The commenter stated that this subcategory title did not
accurately describe the CC/MCC ICD-9-CM diagnoses codes (991 through
994) contained within this subcategory. The commenter requested that
CMS develop a new title that would more accurately describe this group
of codes.
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25814), we stated
that we agreed with the commenter that the HAC subcategory title
``Electric Shock'' is potentially misleading because the codes included
within these ranges contain a variety of injuries, including the
following:

Category 991 (Effects of Reduced Temperature)
Category 992 (Effects of Heat and Light)
Category 993 (Effects of Air Pressure)
Category 994 (Effects of Other External Causes)

We proposed to change the title of this HAC subcategory from
``Electric Shock'' to ``Other Injuries'' because it includes a variety
of injury codes. The subcategory will continue to include the codes
within the 991 through 994 code ranges appearing on the CC/MCC list. We
did not propose any changes to the list of codes in this subcategory;
we simply proposed to rename the subcategory title. We invited public
comments on the proposed title change to the HAC subcategory from
``Electric Shock'' to ``Other Injuries'' for FY 2012.
Comment: Several commenters supported CMS' proposal to change the
title of this HAC subcategory from ``Electric Shock'' to ``Other
Injuries'' because it includes a variety of injury codes. The
commenters stated that this title change would better describe the
conditions included in the range of codes.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing our proposal to change the title of the HAC subcategory from
``Electric Shock'' to ``Other Injuries.'' The subcategory will continue
to include the codes within the 991 through 994 code ranges appearing
on the CC/MCC list. In addition, we are not making any changes to the
list of codes in this subcategory; the subcategory title will simply be
renamed effective FY 2012.
d. Conclusion
In the FY 2012 IPPS/LTCH PPS proposed rule, we listed the current
HAC categories and the ICD-9-CM codes that identify the conditions and
have been finalized through FY 2011. For FY 2012, we proposed that
these conditions continue to be subject to the HAC payment provision,
along with the creation of a new HAC category for contrast-induced
acute kidney injury. (We note that, as discussed in section II.F.2.a.
of the preamble of the proposed rule and this final rule, we are not
adopting our proposal to add a new HAC category for contrast-induced
acute kidney injury for FY 2012.) In addition, we proposed to add five
new ICD-9-CM diagnosis codes and to revise the title of the ``Electric
Shock'' subcategory in the Falls and Trauma HAC category.
Comment: Several commenters supported maintaining the current HAC
categories and the ICD-9-CM codes that identify those conditions. These
commenters agreed that the conditions should continue to be subject to
the HAC payment provision for FY 2012.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
adopting the following list of HAC categories and the ICD-9-CM codes
that identify the conditions that have been finalized through FY 2011
and that we are finalizing in this final rule for FY 2012.

------------------------------------------------------------------------
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.................. 999.60 (CC)
999.61 (CC)
999.62 (CC)
999.63 (CC)
999.69 (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

[[Page 51512]]

--Intracranial Injury.............. 850-854
--Crushing Injury.................. 925-929
--Burn............................. 940-949
--Other Injuries................... 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)
Certain Orthopedic Procedures. 998.59 (CC)
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. 539.01 (CC)
539.81 (CC)
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)
Embolism Following Certain Orthopedic 415.13 (MCC)
Procedures. 415.19 (MCC)
453.40-453.42 (CC)
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 supporting the selection of each of the HACs selected through
FY 2012.
3. RTI Program Evaluation Summary
a. Background
On September 30, 2009, a contract was awarded to Research Triangle
Institute, International (RTI) to evaluate the impact of the Hospital-
Acquired Condition-Present on Admission (HAC-POA) provisions on the
changes in the incidence of selected conditions, effects on Medicare
payments, impacts on coding accuracy, unintended consequences, and
infection and event rates. This is an intra-agency project with funding
and technical support coming from CMS, OPHS, AHRQ, and CDC. The
evaluation will also examine the implementation of the program and
evaluate additional conditions for future selection.
RTI's evaluation of the HAC-POA provisions is divided into several
parts. In the FY 2011 IPPS/LTCH PPS final rule (50085 through 50101),
we summarized the analyses by RTI that had been completed at that time.
These RTI analyses of POA indicator reporting, frequencies and net
savings associated with current HACs, and frequencies of previously
considered candidate HACs reflected MedPAR claims from October 2008
through September 2009.
b. FY 2009 Data Analysis
As we describe in section II.F.1.f. of this preamble, we have
provided instructions to IPPS hospitals and non-IPPS hospitals
regarding the submission of POA indicator data for all diagnosis codes
on Medicare claims and the processing of non-PPS claims (75 FR 23381)
and note that specific instructions on how to select the correct POA
indicator for each diagnosis code were included in the ICD-9-CM
Official Guidelines for Coding and Reporting, available on the CDC Web
site at: http://www.cdc.gov/nchs/data/icd9/icdguide10.pdf. After
publication of the FY 2011 IPPS/LTCH PPS final rule, we identified a
discrepancy between the claims data that hospitals submitted and the
CMS data file used to calculate the HAC measures. Specifically, this
error led to incorrect HAC assignments in cases where a hospital
reported an external cause of injury (E-code). Since then, we have
corrected this error in the data file.
As a result, the RTI analysis of the HAC-POA program that was
conducted using FY 2009 claims data was updated using the corrected
data file. The corrected data do not appear to have a

[[Page 51513]]

material impact on our previous findings for FY 2009. Revised data
tables were made publicly available on the CMS Web site at http://www.cms.gov/HospitalAcqCond/01_Overview.asp and the RTI Web site at
http://www.rti.org/reports/cms/ after publication of the FY 2012 IPPS/
LTCH PPS proposed rule.
c. FY 2010 Data Analysis
RTI's analysis of the FY 2010 MedPAR data file for the HAC-POA
program evaluation was prepared for publication in the FY 2012 IPPS/
LTCH PPS proposed rule. We indicated in the proposed rule that we would
provide the results from the study on the CMS Web site at http://www.cms.gov/HospitalAcqCond/01_Overview.asp and on the RTI Web site at
http://www.rti.org/reports/cms/ when it became available. We also
stated that we anticipated that the examination of FY 2010 MedPAR data
would be completed soon after publication of the proposed rule. We
invited public comment on RTI's analysis of the FY 2010 MedPAR data for
the HAC-POA program.
Since publication of the FY 2012 IPPS/LTCH proposed rule, we
determined that it would be beneficial to the public if we provided a
summary of the results of RTI's HAC-POA program evaluation of the FY
2010 MedPAR data in this FY 2012 IPPS/LTCH final rule, in addition to
making these results available on both the CMS and RTI Web sites
mentioned above. Below we present a summary of these results.
d. FY 2010 RTI Analysis on POA Indicator Reporting of Current HACs.
To better understand the impact of HACs on the Medicare program, it
is necessary to first examine the incidence of POA indicator reporting
across all eligible Medicare discharges. As mentioned previously, only
IPPS hospitals are required to submit POA indicator data for all
diagnosis codes on Medicare claims. Therefore, all non-IPPS hospitals
were excluded, as well as providers in waiver States (Maryland) and
territories other than Puerto Rico.
Using MedPAR claims data from October 2009 through September 2010,
RTI found a total of approximately 74.38 million secondary diagnoses
across approximately 10.2 million discharges. As shown in Chart A
below, the majority of all secondary diagnoses (80.94 percent) were
reported with a POA indicator of ``Y,'' meaning the condition was POA.

Chart A--POA Code Distribution Across All Secondary Diagnoses
------------------------------------------------------------------------
Number Percentage
------------------------------------------------------------------------
Total Discharges in Final File 10,189,168
------------------------------------------------------------------------
Total Number of Secondary Diagnoses 74,382,681 100.00
Across Total Discharges
------------------------------------------------------------------------
POA Indicator Description:
Y Condition present on admission.... 60,206,593 80.94
W Status cannot be clinically 13,145 0.02
determined.........................
N Condition not present on admission 5,001,138 6.72
U Documentation not adequate to 2,223,318 2.99
determine if condition was present
on admission.......................
1 Exempted ICD-9-CM code............ 6,938,487 9.33
------------------------------------------------------------------------
Source: RTI Analysis of MedPAR IPPS Claims, October 2009 through
September 2010.

Following the initial analysis of POA indicator reporting for all
secondary diagnoses, RTI then evaluated POA indicator reporting for
specific HAC-associated secondary diagnoses. The term ``HAC-associated
secondary diagnosis'' refers to those diagnoses that are on the
selected HAC list and were reported as a secondary diagnosis. Chart B
below shows a summary of the HAC categories with the frequency in which
each HAC was reported as a secondary diagnosis and the corresponding
POA indicators assigned on the claims. It is important to note that,
because more than one HAC-associated diagnosis code can be reported per
discharge (that is, on a single claim), the frequency of HAC-associated
diagnosis codes may be more than the actual number of discharges that
have a HAC-associated diagnosis code reported as a secondary diagnosis.
Below we discuss the frequency of each HAC-associated diagnosis code
and the POA indicators assigned to those claims.
RTI analyzed the frequency of each reported HAC-associated
secondary diagnosis (across all approximately 10.2 million discharges)
and the POA indicator assigned to the claim. Chart B below shows that
the most frequently reported conditions were in the Falls and Trauma
HAC category, with a total of 189,231 HAC-associated diagnosis codes
being reported for that HAC category. Of these 189,231 diagnoses, 5,762
reported a POA indicator of ``N'' and 326 reported a POA indicator of
``U'' for not POA. Similarly, 183,048 diagnoses reported a POA
indicator of ``Y'' for POA and 95 diagnoses reported a POA indicator of
``W.'' The lowest frequency appears in the Surgical Site Infection
(SSI) Following Bariatric Surgery for Obesity HAC category with only 18
HAC-associated secondary diagnosis codes (and procedure codes)
reported, where 17 diagnoses were reported with a POA indicator of
``N'' and 1 diagnosis was reported with a POA indicator of ``Y.''

Chart B--POA Status of Current HACS: October 2009 Through September 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
Treated as hospital acquired Not treated as Hospital acquired
conditions conditions
Frequency as a -------------------------------------------------------------------------------
Selected HAC secondary POA = N POA = U POA = Y POA = W
diagnosis -------------------------------------------------------------------------------
Number Percent Number Percent Number Percent Number Percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Foreign Object Retained After Surgery (CC)........ 565 278 49.2 1 0.2 286 50.6 0 0.0
2. Air Embolism (MCC)................................ 42 29 69.0 0 0.0 13 31.0 0 0.0
3. Blood Incompatibility (CC)........................ 35 12 34.3 0 0.0 23 65.7 0 0.0
4. Pressure Ulcer Stages III & IV (MCC).............. 120,582 1,407 1.2 81 0.1 119,065 98.7 29 0.0

[[Page 51514]]

5. Falls and Trauma (MCC & CC)....................... 189,231 5,762 3.0 326 0.2 183,048 96.7 95 0.1
6. Catheter-Associated UTI (CC)...................... 18,247 3,877 21.2 24 0.1 14,319 78.5 27 0.1
7. Vascular Catheter-Associated Infection (CC)....... 10,066 4,346 43.2 25 0.2 5,673 56.4 22 0.2
8. Poor Glycemic Control (MCC)....................... 16,468 565 3.4 14 0.1 15,888 96.5 1 0.0
9A. Surgical Site Infection Mediastinitis CABG (CC).. 40 36 90.0 0 0.0 4 10.0 0 0.0
9B. Surgical Site Infection Following Certain 365 220 60.3 1 0.3 144 39.5 0 0.0
Orthopedic Procedures (CC)..........................
9C. Surgical Site Infection Following Bariatric 18 17 94.4 0 0.0 1 5.6 0 0.0
Surgery for Obesity (CC)............................
10. Pulmonary Embolism & DVT Orthopedic (MCC)........ 3,820 3,132 82.0 16 0.4 648 17.0 24 0.6
--------------------------------------------------------------------------------------------------
Total*........................................... 359,479 19,681 5.5 488 0.1 339,112 94.3 198 0.1
--------------------------------------------------------------------------------------------------------------------------------------------------------

As described in section II.F.1.f. of this preamble, in the FY 2009
IPPS final rule (73 FR 48486 through 48487), we adopted final payment
policies 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 HACs
coded with ``N'' and ``U'' indicators. We also discussed the comments
we received urging CMS to consider changing the policy and to pay for
those HACs assigned a POA indicator of ``U'' (documentation is
insufficient to determine if the condition was present at the time of
admission). We stated we would monitor the extent to which and under
what circumstances the ``U'' POA reporting option is used. In the FY
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43784 and 43785), we also
discussed and responded to comments regarding HACs coded with the ``U''
indicator. As shown in Chart B above, RTI's analysis provides data on a
total of 488 HAC-associated secondary diagnoses reported with a POA
indicator of ``U.'' These 488 diagnoses represented 2.4 percent of the
20,169 diagnoses that were considered not POA (that is, POA indicator
of ``N'' or ``U''). Approximately 3 of the 10 conditions reported no
diagnoses with POA indicators of ``U'': Air embolism, Blood
Incompatibility, and two of the three surgical site infections
(Mediastinitis after CABG and SSI after bariatric surgery for obesity).
For the two most frequently occurring conditions, the Falls and Trauma
HAC category and Stage III and/or IV Pressure Ulcers, diagnoses with a
POA indicator of ``U'' represented a small proportion of diagnoses that
were considered not POA (that is, POA indicator of ``N'' or ``U''). For
the Falls and Trauma HAC category, 5.7 percent of diagnoses (326 cases)
considered not POA were reported with a POA indicator of ``U.'' For
Stage III and/or IV Pressure Ulcers, 5.4 percent of diagnoses (81
cases) considered not POA were reported with a POA indicator of ``U.''
These two categories also represented the conditions where diagnoses
with a POA indicator of ``U'' were the highest proportion of diagnoses
considered not POA. We consider the range of 0 to 5.7 percent to
indicate that ``U'' is not used with great frequency for these 10
conditions. In the proposed rule, we stated that we did not contemplate
a proposal to change our policy under which CMS does not pay at the
higher CC/MCC amount when a selected HAC diagnosis code is reported
with a POA indicator of ``U.'' The data analysis described above
continues to support our policy.
We encourage readers to further review the RTI detailed report
which demonstrates the frequency of each individual HAC-associated
diagnosis code within the HAC categories. As an example, we note that
in the Foreign Object Retained After Surgery HAC category, there are
two unique ICD-9-CM diagnosis codes used to identify that condition:
diagnosis code 998.4 (Foreign body accidentally left during a
procedure) and diagnosis code 998.7 (Acute reaction to foreign
substance accidentally left during a procedure). In the detailed RTI
report, readers can view that diagnosis code 998.4 was reported 547
times and diagnosis code 998.7 was reported 18 times, across all MS-
DRGs, for a total of 565 times. The RTI detailed report is available at
the following Web site: http://www.rti.org/reports/cms/.
e. FY 2010 RTI Analysis of Frequency of Discharges and POA Indicator
Reporting for Current HACs
RTI further analyzed the effect of the HAC provision by studying
the frequency with which a HAC-associated diagnosis was reported as a
secondary diagnosis with a POA indicator of ``N'' or ``U'' and, of that
number, how many resulted in MS-DRG reassignment. In Chart C below,
Column A shows the number of discharges for each HAC category where the
HAC-associated diagnosis was reported as a secondary diagnosis. Column
B shows the percent of discharges reporting a HAC-associated diagnosis
code relative to the total discharges ``at risk'' in each HAC category.
For HAC categories 1 through 8, both medical and surgical MS-DRGs are
included in the total discharges ``at risk'' so this equates to
10,189,168 discharges. The remaining HAC categories are defined by the
combination of diagnosis and procedure codes; therefore, only the
surgical MS-DRGs that include the designated procedure codes are
included in the total discharges ``at risk.'' For HAC 9a, the total
discharges ``at risk'' equates to 97,341. For HAC 9b, the total
discharges ``at risk'' equates to 118,815 and for HAC 9c, the total
discharges ``at risk'' equates to 15,698. Lastly, for HAC 10, the total
discharges ``at risk'' equates to 440,571.
Column C shows the number of discharges for each HAC reported with
a POA indicator of ``N'' or ``U.'' For example, there were 42
discharges that reported Air Embolism as a secondary diagnosis. The
chart shows that, of these 42 reported discharges, 29 discharges (69.05
percent) had a POA indicator of ``N'' or ``U'' and was identified as a
HAC discharge. The HAC policy applied to these 29 discharges, and they
could, therefore, have had an MS-DRG reassignment. Column E shows the
number of discharges where an actual MS-DRG reassignment occurred. For
the Air Embolism HAC, Column E shows that the number of discharges that
resulted in actual MS-DRG reassignments is 15 (51.72 percent of the 29
discharges with a POA indicator of ``N'' or ``U''). Thus, while there
were 29 discharges (69.05 percent of the original

[[Page 51515]]

42 that had air embolism reported as a secondary diagnosis) with an air
embolism reported with a POA indicator of ``N'' or ``U'' identified as
a HAC discharge that could have caused MS-DRG reassignment, 15
discharges (51.72 percent) experienced MS-DRG reassignments. There are
a number of reasons why a selected HAC reported with a POA indicator of
``N'' or ``U'' will not result in MS-DRG reassignment. These reasons
were illustrated with the diagram in section II.F.1.c. of this preamble
and will be discussed in further detail in section II.F.3.e. of this
preamble.
Chart C below also shows that, of the 317,644 discharges with a
HAC-associated diagnosis as a secondary diagnosis, 3,587 discharges
ultimately resulted in MS-DRG reassignment. As we discuss below, there
were 15 claims that resulted in MS-DRG reassignment where 2 HACs were
reported on the same admission. The four HAC categories that had the
most discharges resulting in MS-DRG reassignment were: (1) Falls and
Trauma; (2) Pulmonary Embolism and DVT Orthopedic (Orthopedic PE/DVT);
(3) Pressure Ulcer Stages III & IV; and (4) Catheter-Associated Urinary
Tract Infection (UTI).
Codes falling under the Falls and Trauma HAC category were the most
frequently reported secondary diagnoses with 154,371 discharges. Of
these 154,371 discharges, 5,454 (3.53 percent) were coded as not POA
and identified as HAC discharges. This category also contained the
greatest number of discharges that resulted in an MS-DRG reassignment.
Of the 5,454 discharges within this HAC category that were not POA,
1,672 (30.66 percent) resulted in an MS-DRG reassignment.
Of the 317,644 total discharges reporting HAC-associated diagnoses
as a secondary diagnosis, 3,494 discharges were coded with a secondary
diagnosis of PE/DVT Orthopedic. Of these 3,494 discharges, 2,876 (82.31
percent) were coded as not POA and identified as HAC discharges. This
category contained the second greatest number of discharges resulting
in an MS-DRG reassignment. Of the 2,876 discharges in this HAC category
that were not POA, 1,206 discharges (41.93 percent) resulted in an MS-
DRG reassignment.
The Pressure Ulcer Stages III & IV category had the second most
frequently coded secondary diagnoses, with 114,138 discharges. Of these
discharges, 1,444 (1.27 percent) were coded as not POA and identified
as HAC discharges. This category contained the third greatest number of
discharges resulting in an MS-DRG reassignment. Of the 1,444 discharges
in this HAC category that were not POA, 292 discharges (20.22 percent)
resulted in an MS-DRG reassignment.
The Catheter-Associated UTI category had the third most frequently
coded secondary diagnoses, with 18,247 discharges. Of these discharges,
3,885 (21.29 percent) were coded as not POA and identified as HAC
discharges. This category contained the fourth greatest number of
discharges resulting in an MS-DRG reassignment. Of the 3,885 discharges
in this HAC category that were not POA, 223 discharges (5.74 percent)
resulted in a MS-DRG reassignment.
The remaining 6 HAC categories only had 194 discharges that
ultimately resulted in MS-DRG reassignment. We note that, even in cases
where a large number of HAC-associated secondary diagnoses were coded
as not POA, this finding did not necessarily translate into a large
number of discharges that resulted in MS-DRG reassignment. For example,
only 22 of the 4,366 Vascular Catheter-Associated Infection secondary
diagnoses that were coded as not POA and identified as HAC discharges
resulted in a MS-DRG reassignment.
There were a total of 364 discharges with a HAC-associated
secondary diagnosis reporting a POA indicator of ``N'' or ``U'' that
were excluded from acting as a HAC discharge (subject to MS-DRG
reassignment) due to the CC Exclusion List logic within the GROUPER.
The CC Exclusion List identifies secondary diagnosis codes designated
as a CC or MCC that are disregarded by the GROUPER logic when reported
with certain principal diagnoses. For example, a claim with the
principal diagnosis code of 250.83 (Diabetes with other specified
manifestations, type 1 [juvenile type], uncontrolled) and a secondary
diagnosis code of 250.13 (Diabetes with ketoacidosis, type 1, [juvenile
type], uncontrolled) with a POA indicator of ``N'' would result in the
HAC-associated secondary diagnosis code 250.13 being ignored as a CC.
According to the CC Exclusion List, code 250.13 is excluded from acting
as a CC when code 250.83 is the principal diagnosis. As a result, the
HAC logic would not be applicable to that case. For a detailed
discussion on the CC Exclusion List, we refer readers to section
II.G.9. of this preamble.
Discharges where the HAC logic was not applicable due to the CC
Exclusion List occurred among the following 6 HAC categories: Pressure
Ulcer Stages III and IV (29 cases); Falls and Trauma (263 cases);
Catheter-Associated UTI (16 cases); Vascular Catheter-Associated
Infection (5 cases); Manifestations of Poor Glycemic Control (50
cases); and Surgical Site Infection Following Certain Orthopedic
Procedures (1 case). Further information regarding the specific number
of cases that were excluded for each HAC-associated secondary diagnosis
code within each of the above mentioned HAC categories is also
available in the RTI detailed report, which can be found at: http://www.rti.org/reports/cms/.
In summary, Chart C below demonstrates that there were a total of
317,644 discharges with a reported HAC-associated secondary diagnosis.
Of the total 317,644 discharges, 6.0 percent, or 19,143 discharges,
were HACs reported with a POA indicator of ``N'' or ``U'' that were
identified as a HAC discharge. Approximately 18.7 percent, or 3,587
discharges, of these 19,143 discharges resulted in MS-DRG
reassignments.

Chart C--Discharge Frequencies of Current CMS HACS October 2009 Through September 2010
----------------------------------------------------------------------------------------------------------------
Discharges with this Discharges identified as Discharges that change
condition as secondary a HAC MS-DRG due to HAC
diagnosis ---------------------------------------------------
Selected HAC category --------------------------
Number Percent \2\ Number Percent \3\ Number Percent \4\
(column a) (column b) (column c) (column d) (column e) (column f)
----------------------------------------------------------------------------------------------------------------
1. Foreign Object Retained After 563 0.01 278 49.38 44 15.83
Surgery..........................
2. Air Embolism................... 42 0.00 29 69.05 15 51.72
3. Blood Incompatibility.......... 35 0.00 12 34.29 0 0.00
4. Pressure Ulcer Stages III & IV. 114,138 1.12 1,444 1.27 292 20.22
5. Falls and Trauma............... ........... ........... ........... ........... ........... ...........
a. Fracture....................... 137,888 1.35 4,700 3.41 1,439 30.62

[[Page 51516]]

b. Dislocation.................... 1,105 0.01 35 3.17 4 11.43
c. Intracranial Injury............ 15,844 0.16 706 4.46 234 33.14
d. Crushing Injury................ 41 0.00 2 4.88 1 50.00
e. Burn........................... 2,297 0.02 39 1.70 6 15.38
f. Electric Shock................. 818 0.01 9 1.10 0 0.00
Less: Discharges with multiple -3,622 -0.04 -37 -1.02 -12 -32.43
Falls & Trauma...................
5. Falls and Trauma: Unduplicated 154,371 1.52 5,454 3.53 1,672 30.66
Total............................
6. Catheter-Associated UTI........ 18,247 0.18 3,885 21.29 223 5.74
7. Vascular Catheter-Associated 10,066 0.10 4,366 43.37 22 0.50
Infection........................
8. Poor Glycemic Control.......... 16,267 0.16 526 3.23 107 20.34
9a. SSI Mediastinitis CABG........ 40 0.04 36 90.00 4 11.11
9b. SSI Orthopedic................ 363 0.31 220 60.61 2 0.91
9c. SSI Bariatric................. 18 0.11 17 94.44 0 0.00
10. Pulmonary Embolism & DVT 3,494 0.79 2,876 82.31 1,206 41.93
Orthopedic.......................
-----------------------------------------------------------------------------
Total \1\..................... 317,644 ........... 19,143 ........... 3,587 ...........
----------------------------------------------------------------------------------------------------------------
\1\ Discharges can appear in more than one row. The total figure is not adjusted for the 94 discharges with more
than one HAC that appear as secondary diagnoses (15 of these resulted in MS-DRG reassignment).
\2\ Percent computed relative to total discharges ``at risk'' for this HAC. For HACs 1-8, this is 10,189,168.
For HAC 9a, this is 97,341. For HAC 9b, this is 118,815. For HAC 9c, this is 15,698. For HAC 10, this is
440,571.
\3\ Percent computed relative to discharges with condition as a secondary diagnosis.
\4\ Percent computed relative to discharges with this HAC (Column C).
Source: RTI Analysis of MedPAR IPPS Claims, October 2009 through September 2010.

An extremely small number of discharges had multiple HACs reported
during the same stay. In reviewing the approximately 10.2 million
claims, RTI found approximately 94 cases in which 2 HACs were reported
on the same discharge. Chart D below summarizes these cases. Thirty-two
of the cases with 2 HACs involved Pressure Ulcer Stages III & IV, and
31 cases involved Falls or Trauma. Other multiple HAC cases included 27
Catheter-Associated UTI cases, 3 Vascular Catheter-Associated Infection
cases and 1 Foreign Object Retained After Surgery case. There were
eight cases in which a Falls and Trauma HAC was reported together with
a Pressure Ulcer Stages III & IV HAC.
Some of these cases with multiple HACs reported had both HAC codes
ignored in the MS-DRG assignment. Of these 66 claims, 49 did not
receive higher payments based on the presence of these reported HACs,
and we describe these claims in section II.F.3.f.(2) of this preamble.
Depending on the MS-DRG to which the cases were originally assigned,
ignoring the HAC codes would have led to a MS-DRG reassignment if there
were no other MCCs or CCs reported, if the MS-DRG was subdivided into
severity levels, and if the case were not already in the lowest
severity level prior to ignoring the HAC codes.

Chart D--Claims With More Than One HAC Secondary Diagnosis October 2009 Through September 2010
----------------------------------------------------------------------------------------------------------------
7. Vascular
1. Foreign 4. Pressure 5. Falls and 6. Catheter- catheter-
HAC object--CC ulcer stages trauma--MCC & associated associated
III & IV--MCC CC UTI--CC infection--CC
----------------------------------------------------------------------------------------------------------------
5. Falls and trauma--MCC & CC... .............. 8 .............. .............. ..............
6. Catheter-Associated UTI--CC.. .............. 8 12 .............. ..............
7. Vascular Catheter-Associated .............. 12 6 21 ..............
Infection--CC..................
8. Poor Glycemic Control--MCC... .............. 1 2 .............. 1
9B. Surgical Site Infection 1 .............. .............. .............. 2
Following Certain Orthopedic
Procedures--CC.................
10. Pulmonary Embolism & DVT .............. 3 11 6 ..............
Orthopedic--MCC................
-------------------------------------------------------------------------------
Total....................... 1 32 31 27 3
----------------------------------------------------------------------------------------------------------------

f. RTI Analysis of Circumstances When Application of HAC Provisions
Would Not Result in MS-DRG Reassignment for Current HACs
As discussed in section II.F.1. and illustrated in the diagram in
section II.F.1.c. of this preamble, there are instances when the MS-DRG
assignment does not change even when there is a HAC as a secondary
diagnosis (meaning a HAC-associated secondary diagnosis has a POA
indicator of either ``N'' or ``U.'') In analyzing our claims data, RTI
identified four main reasons why a MS-DRG assignment would not change
despite the presence of a HAC. Those four reasons are described below
and are shown in Chart E below. Column A shows the frequency of
discharges that included a HAC-associated secondary diagnosis. Column

[[Page 51517]]

B shows the frequency of discharges where the HAC-associated secondary
diagnosis was coded as not POA and, therefore, identified as a HAC
discharge. Column C shows the frequency of discharges in which the HAC-
associated secondary diagnosis coded as not POA resulted in a change in
MS-DRG. Columns D, E, F, and G show the frequency of discharges in
which the HAC-associated secondary diagnosis coded as not POA did not
result in a change in MS-DRG assignment. Columns D, E, F, and G are
explained in more detail below.
(1) Other MCCs/CCs Prevent Reassignment
Column D (Other MCC/CCs that Prevent Reassignment) in Chart E below
indicates the number of cases reporting a HAC (cases with HAC-
associated diagnosis codes with a POA of ``N'' or ``U'') that did not
have a MS-DRG reassignment because of the presence of other secondary
diagnoses on the MCC or CC list. A claim that is coded with a HAC-
associated secondary diagnoses and a POA status of either ``N'' or
``U'' may have other secondary diagnoses that are classified as an MCC
or a CC. In such cases, the presence of these other MCC and CC
diagnoses will still lead to the assignment of a higher severity level,
despite the fact that the GROUPER software is disregarding the ICD-9-CM
code that identifies the selected HAC in making the MS-DRG assignment
for that claim. For example, there were 156 cases in which the ICD-9-CM
codes for the Foreign Object Retained After Surgery HAC category were
present, but the presence of other secondary diagnoses that were MCCs
or CCs resulted in no change to the MS-DRG assignment. Chart E shows
that a total of 11,818 cases with HACs did not have a change in the MS-
DRG assignment because of the presence of other reported MCCs and CCs.
This represents approximately 76 percent of the 15,556 cases with HACs
that did not have a change in MS-DRG assignment.
(2) Two Severity Levels Where HAC Does Not Impact MS-DRG Assignment
Column E (Number of MS-DRGs with Two Severity Levels Where HAC Does
Not Impact MS-DRG Assignment) shows the frequency with which discharges
with a HAC (cases with HAC-associated diagnosis codes with a POA of
``N'' or ``U'') did not result in an MS-DRG change because the MS-DRG
is subdivided solely by the presence or absence of an MCC. A claim with
a HAC and a POA indicator of either ``N'' or ``U'' may be assigned to
an MS-DRG that is subdivided solely by the presence or absence of an
MCC. In such cases, removing a HAC ICD-9-CM CC code will not lead to
further changes in the MS-DRG assignment. Examples of these MS-DRG
subdivisions are shown in the footnotes to the chart and include the
following examples:

MS-DRGs 100 and 101 (Seizures with or without MCC,
respectively)
MS-DRGs 102 and 103 (Headaches with or without MCC,
respectively)

The codes that fall under the HAC category of Foreign Object
Retained After Surgery are CCs. If this case were assigned to a MS-DRG
with an MCC subdivision such as MS-DRGs 100 and 101, the presence of
the HAC code would not affect the MS-DRG severity level assignment. In
other words, if the Foreign Object Retained After Surgery code were the
only secondary diagnosis reported, then the case would be assigned to
MS-DRG 101 (Seizure without MCC). If the POA indicator was ``N,'' the
HAC Foreign Object Retained After Surgery code would be ignored in the
MS-DRG assignment logic. Despite the fact that the code was ignored,
the case would still be assigned to the same, lower severity level MS-
DRG. Therefore, there would be no impact on the MS-DRG assignment.
Column E in Chart E below shows that there were 2,282 cases where
the HAC code was reported with an ``N'' or ``U'' and the MS-DRG
assignment did not change because the case was already assigned to the
lowest severity level. This represents approximately 15 percent of the
15,556 cases with HACs that did not have a change in MS-DRG assignment.
(3) No Severity Levels
Column F (Number of MS-DRGs with No Severity Levels) shows the
frequency with which discharges with an HAC (cases with HAC-associated
diagnosis codes with a POA of ``N'' or ``U'') did not result in an MS-
DRG change because the MS-DRG that the case was assigned to is not
subdivided by severity levels. For instance, MS-DRG 311 (Angina
Pectoris) has no severity level subdivisions; this MS-DRG is not split
based on the presence of an MCC or a CC. If a patient assigned to this
MS-DRG develops a secondary diagnosis such as a Stage III pressure
ulcer after admission, the condition would be considered a HAC. The
code for the Stage III pressure ulcer would be ignored in the MS-DRG
assignment because the condition developed after the admission (the POA
indicator was ``N''). Despite the fact that the ICD-9-CM code for the
HAC Stage III pressure ulcer was ignored, the MS-DRG assignment would
not change. The case would still be assigned to MS-DRG 311. Chart E
below shows that 1,449 cases reporting a HAC (cases with HAC-associated
diagnosis codes with a POA of ``N'' or ``U'') did not undergo a change
in the MS-DRG assignment based on the fact that the case was assigned
to a MS-DRG that had no severity subdivisions (that is, the MS-DRG is
not subdivided based on the presence or absence of an MCC or a CC,
rendering the presence of the HAC irrelevant for payment purposes).
This represents approximately 9 percent of the 15,556 cases with HACs
that did not have a change in MS-DRG assignment.
(4) MS-DRG Logic
Column G (MS-DRG Logic Issues) shows the frequency with which a HAC
(cases with HAC-associated diagnosis codes with a POA of ``N'' or
``U'') did not result in an MS-DRG change because of MS-DRG assignment
logic. There were seven discharges where the HAC criteria were met and
the HAC logic was applied. However, due to the structure of the MS-DRG
logic, these cases did not result in MS-DRG reassignment. These cases
may appear similar to those discharges where the MS-DRG is subdivided
into two severity levels by the presence or absence of an MCC and did
not result in MS-DRG reassignment. However, these discharges differ
slightly in that the MS-DRG logic also considers specific procedures
that were reported on the claim. In other words, for certain MS-DRGs, a
procedure may be considered the equivalent of an MCC or a CC. The
presence of the procedure code dictates the MS-DRG assignment despite
the presence of the HAC-associated secondary diagnosis code with a POA
indicator of ``N'' or ``U.''
For example, a claim with the principal diagnosis code of 441.1
(Thoracic aneurysm, ruptured) with HAC-associated secondary diagnosis
code of 996.64 (Infection and inflammatory reaction due to indwelling
urinary catheter) and non-HAC secondary diagnosis code 599.0 (Urinary
tract infection, site not specified), having POA indicators of ``Y,''
``N,'' and ``N,'' respectively, and procedure code 39.73 (Endovascular
implantation of graft in thoracic aorta) currently results in an
assignment to MS-DRG 237 (Major Cardiovascular Procedures with MCC or
Thoracic Aortic Aneurysm Repair). In this case, the thoracic aortic
aneurysm repair is what dictated the MS-DRG assignment, and the
presence of the HAC-associated secondary diagnosis code, 996.64, did
not affect the MS-DRG assignment. Other examples of MS-

[[Page 51518]]

DRGs that are subdivided in this same manner are as follows:

MS-DRG 029 (Spinal procedures with CC or Spinal
Neurostimulators)
MS-DRG 129 (Major Head & Neck Procedures with CC/MCC or Major
Device)
MS-DRG 246 (Percutaneous Cardiovascular Procedure with Drug-
Eluting Stent with MCC or 4+ Vessels/Stents)

Column G in the chart below shows that three of the seven cases
that did not result in MS-DRG reassignment due to the MS-DRG logic were
in the Falls and Trauma HAC category, two cases were in the Catheter
Associated UTI HAC category and two cases were in the Vascular
Catheter-Associated Infection HAC Category.
In conclusion, a total of 15,556 cases (11,818 + 2,282 +1,449 + 7)
did not have a change in MS-DRG assignment, regardless of the presence
of a HAC. The reasons described above explain why only 3,587 cases had
a change in MS-DRG assignment despite the fact that there were 19,143
HACs (cases with HAC-associated diagnosis codes with a POA of ``N'' or
``U'').

Chart E--Reasons HAC Did Not Change MS-DRG Assignment October 2009 Through September 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
HAC discharges that do not change MS-DRG
---------------------------------------------------------------
Number of Number of HAC Number of MS-
discharges Number of discharges DRGs with two
with this discharges that change MS- Number of severity Number of MS-
Selected HAC category condition as identified as DRG due to HAC other MCCs/CCs levels where DRGs with no Other MS-DRG
secondary a HAC (Column (Column C) that prevent HAC does not severity logic issues
diagnosis B) reassignment affect MS-DRG levels ** (Column G)
(Column A) (Column D) assignment * (Column F)
(Column E)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Foreign Object Retained After 563 278 44 156 67 11 0
Surgery--CC............................
2. Air Embolism--MCC.................... 42 29 15 14 0 0 0
3. Blood Incompatibility--CC............ 35 12 0 9 0 3 0
4. Pressure Ulcer Stages III & IV--MCC.. 114,138 1,444 292 895 0 257 0
5. Falls and Trauma--MCC & CC........... 154,371 5,454 1,672 2,858 570 351 3
6. Catheter-Associated UTI--CC.......... 18,247 3,885 223 2,930 490 240 2
7. Vascular Catheter-Associated 10,066 4,366 22 3,656 189 497 2
Infection--CC..........................
8. Poor Glycemic Control--MCC & CC...... 16,267 526 107 364 3 52 0
9A. Surgical Site Infection, 40 36 4 24 0 8 0
Mediastinitis, Following Coronary
Artery Bypass Graft (CABG)--MCC........
9B. Surgical Site Infection Following 363 220 2 136 79 3 0
Certain Orthopedic Procedures--CC......
9C. Surgical Site Infection Following 18 17 0 17 0 0 0
Bariatric Surgery for Obesity--CC......
10. Pulmonary Embolism & DVT Orthopedic-- 3,494 2,876 1,206 759 884 27 0
MCC & CC...............................
---------------------------------------------------------------------------------------------------------------
Total \1\........................... 317,644 19,143 3,587 11,818 2,282 1,449 7
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Discharges can appear in more than one row. The total figure is not adjusted for the approximately 94 discharges with more than one HAC that appear
as secondary diagnoses (15 of these discharges resulted in MS-DRG reassignment).
* Examples where an HAC classified as a CC would not affect the DRG assignment if it were removed. The MS-DRG is subdivided by the presence or absence
of an MCC. A CC would not impact this DRG assignment.
[dec221]MS-DRGs 100 and 101 (Seizures with or without MCC, respectively).
[dec221]MS-DRGs 102 and 103 (Headaches with or without MCC, respectively).
** Examples where HAC did not change MS-DRG assignment because of the MS-DRG logic.
[dec221]MS-DRG 029 (Spinal Procedures with CC or Spinal Neurostimulators).
[dec221]MS-DRG 120 (Major Head & Neck Procedures with CC/MCC or Major Device).
Source: RTI Analysis of MedPAR IPPS Claims, October 2009 through September 2010.

[[Page 51519]]

g. RTI Analysis of Coding Changes for HAC-Associated Secondary
Diagnoses for Current HACs
In addition to studying claims from October 2009 through September
2010, RTI evaluated claims data from 3 years prior to determine if
there were significant changes in the number of discharges with a HAC-
associated code being reported as a secondary diagnosis. To provide
consistency with the FY 2010 data studied, RTI examined claims using
discharge dates from October 2006 through September 2007 (for FY 2007),
October 2007 through September 2008 (for FY 2008), October 2008 through
September 2009 (FY 2009) and compared these data to the FY 2010 data.
We refer readers to the RTI detailed report for further information
regarding all the conditions in each fiscal year (FY 2007 through FY
2010) as described above at the Web site: http://www.rti.org/reports/cms/.
h. RTI Analysis of Estimated Net Savings for Current HACs
RTI determined estimates of the net savings generated by the HAC
payment policy based on MedPAR claims for FY 2010, from October 2009
through September 2010.
(1) Net Savings Estimation Methodology
The payment impact of a HAC is the difference between the IPPS
payment amount under the initially assigned MS-DRG and the amount under
the reassigned MS-DRG. The amount for the reassigned MS-DRG appears on
the MedPAR files. To calculate this payment impact, RTI modeled the
IPPS payments for each MS-DRG following the same approach that we use
to model the impact of IPPS annual rule changes. Specifically, RTI
replicated the payment computations carried out in the IPPS PRICER
program using payment factors for IPPS providers as identified in
various CMS downloaded files. The files used are as follows:
Version 27 of the Medicare Severity GROUPER software
(applicable to discharges between October 1, 2009 and September 30,
2010). IPPS MedPAR claims were run through this file to obtain needed
HAC-POA output variables.
The FY 2010 MS-DRG payment weight file. This file includes
the weights, geometric mean length of stay (GLOS), and the postacute
transfer payment indicators.
CMS standardized operating and capital rates. Tables 1A
through 1C, as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2010, include the full update and reduced update
amounts, as well as the information needed to compute the blended
amount for providers located in Puerto Rico.
The IPPS impact file for FY 2010, as downloaded from the
Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2010/. This
file includes the wage index and geographic adjustment factors plus the
provider type variable to identify providers qualifying for alternative
hospital-specific amounts and their respective hospital-specific
payment rates.
The IPPS impact file for FY 2011, as downloaded from the
Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/11FR/. This file
includes indirect medical education (IME) and disproportionate share
(DSH) percent adjustments as well as the operating and capital CCRs
that were in effect as of March 2010.
CMS historical provider-specific files (PSFs). These files
include the indicator to identify providers subject to the full or
reduced standardized rates and the applicable operating and capital
CCRs. A SAS version was downloaded from the Web site at: http://www.cms.hhs.gov/ProspMedicareFeeSvcPmtGen/04_psf_SAS.asp. There were
50 providers with discharges in the final HAC analysis file that did
not appear in the FY 2010 impact file, of which 11 also did not appear
in the FY 2011 impact file. For these providers, we identified the
geographic CBSA from the historical PSF and assigned the wage index
using values from Tables 4A and 4C as downloaded from the Web site at:
http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2010/. For providers in
the FY 2011 file but not the FY 2010 file, we used IME and DSH rates
from FY 2011. The 11 providers in neither impact file were identified
as non-IME and non-DSH providers in the historical PSF file.
The steps for estimating the HAC payment impact are as follows:
Step 1: Re-run the Medicare Severity GROUPER on all records in the
analysis file. This is needed to obtain information on actual HAC-
related MS-DRG reassignments in the file, and to identify the CCs and
MCCs that contribute to each MS-DRG assignment.
Step 2: Model the base payment and outlier amounts associated with
the initial MS-DRG if the HAC were excluded using the computations laid
out in the CMS file ``Outlier Example FY 2007 new.xls,'' as downloaded
from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage, and modified to accommodate FY 2010 factors.
RTI's first round of computations treated all claims as though paid
under standard IPPS rules without adjusting for short-stay transfers or
hospital-specific payment amounts.
Step 3: Model the base payment and outlier amounts associated with
the final MS-DRG where the HAC was excluded using the computations laid
out in the CMS file ``Outlier Example FY 2007 new.xls,'' as downloaded
from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage and modified to accommodate FY 2010 factors.
RTI's first round of computations treated all claims as though paid
under standard IPPS rules without adjusting for short-stay transfers or
hospital-specific payment amounts.
Step 4: Compute MS-DRG base savings as the difference between the
nonoutlier payments for the initial and final MS-DRGs. Compute outlier
amounts as the difference in outlier amounts due under the initial and
final reassigned MS-DRG. Compute net savings due to HAC reassignment as
the sum of base savings plus outlier amounts.
Step 5: Adjust the model to incorporate short-stay transfer payment
adjustments.
Step 6: Adjust the model to incorporate hospital-specific payments
for qualifying rural providers receiving the hospital-specific payment
rates.
It is important to mention that using the methods described above,
the MS-DRG and outlier payments amounts that are modeled for the final
assigned MS-DRG do not always match the MS-DRG price and outlier
amounts that appear in the MedPAR record. There are several reasons for
this. Some discrepancies are caused by using single wage index, IME,
and DSH factors for the full period covered by the discharges, when, in
practice, these payment factors can be adjusted for individual
providers during the course of the fiscal year. In addition, RTI's
approach disregards any Part A coinsurance amounts owed by individual
beneficiaries with greater than 60 covered days in a spell of illness.
Five percent of all HAC discharges showed at least some Part A
coinsurance amount due from the beneficiary, although less than 2
percent of reassigned discharges (55 cases in the analysis file) showed
Part A coinsurance amounts due. Any Part A coinsurance payments would
reduce the actual savings incurred by the Medicare program.
There are also a number of less common special IPPS payment
situations that are not factored into

[[Page 51520]]

RTI's modeling. These could include new technology add-on payments,
payments for blood clotting factors, reductions for replacement medical
devices, adjustments to the capital rate for new providers, and
adjustments to the capital rate for certain classes of providers who
are subject to a minimum payment level relative to capital cost.
(2) Net Savings Estimate
Chart F below summarizes the estimated net savings of current HACs
based on MedPAR claims from October 2009 through 2010, based on the
methodology described above. Column A shows the number of discharges
where a MS-DRG reassignment for each HAC category occurred. For
example, there were 15 discharges with an air embolism that resulted in
an actual MS-DRG reassignment. Column B shows the total net savings
caused by MS-DRG reassignments for each HAC category. Continuing with
the example of air embolism, the chart shows that the 15 discharges
with an MS-DRG reassignment resulted in a total net savings of
$118,785. Column C shows the net savings per discharge for each HAC
category. For the Air Embolism HAC category, the net savings per
discharge is $7,919. Because a single discharge can have more than one
HAC, discharges can appear in more than one row. The total net savings
shown in the last line of Column B is adjusted to avoid duplicate
counting and is therefore less than the sum of the net savings from the
lines above.

Chart F--Estimated Net Savings of Current HACs October 2009 Through September 2010
----------------------------------------------------------------------------------------------------------------
Number of
discharges that Net savings (in Net savings per
Selected HAC change MS-DRG dollars) discharge (in
due to HAC dollars)
----------------------------------------------------------------------------------------------------------------
(Column A) (Column B) (Column C)
1. Foreign Object Retained After Surgery.................. 44 $159,841 $3,633
2. Air Embolism........................................... 15 118,785 7,919
3. Blood Incompatibility.................................. 0 0 0
4. Pressure Ulcer Stages III & IV......................... 292 1,795,456 6,149
5. Falls and Trauma:
a. Fracture........................................... 1,439 8,119,308 5,642
b. Dislocation........................................ 4 13,244 3,311
c. Intracranial Injury................................ 234 1,127,066 4,817
d. Crushing Injury.................................... 1 7,826 7,826
e. Burn............................................... 6 15,594 2,599
f. Shock.............................................. 0 0 0
Less: Discharges with Multiple Falls & Trauma \1\..... -12 -82,330 -6,861
-----------------------------------------------------
5. Falls and Trauma: Unduplicated Total........... 1,672 9,200,708 5,503
6. Catheter-Associated UTI................................ 223 696,662 3,124
7. Vascular Catheter-Associated Infection................. 22 77,690 3,531
8. Poor Glycemic Control.................................. 107 604,308 5,648
9a. SSI Mediastinitis CABG................................ 4 32,392 8,098
9b. SSI Orthopedic........................................ 2 15,044 7,522
9c. SSI Bariatric......................................... 0 0 0
10. Pulmonary Embolism & DVT Orthopedic................... 1,206 8,826,912 7,319
-----------------------------------------------------
Total................................................. 3,587 21,527,798 6,002
-----------------------------------------------------
Less: Discharges with Multiple HACs \2\............... -15 -77,703 -5,180
-----------------------------------------------------
Unduplicated Total................................ 3,572 21,450,095 6,005
----------------------------------------------------------------------------------------------------------------
\1\ Discharges can have more than one Falls and Trauma HAC and therefore appear in more than one row.
\2\ Discharges can have more than one HAC and therefore appear in more than one row.
Source: RTI Analysis of MedPAR IPPS Claims, October 2009 through September 2010.

As shown in Chart F above, the unduplicated total net savings
calculated for the 12-month period from October 2009 through September
2010 was approximately $21.5 million. The three HACs with the largest
number of discharges resulting in MS-DRG reassignment, Falls and
Trauma, Orthopedic PE/DVT, and Pressure Ulcer Stages III & IV,
generated approximately $19.83 million of net savings for the 12-month
period. Estimated net savings for the 12-month period associated with
the Falls and Trauma category were approximately $9.20 million.
Estimated net savings associated with Orthopedic PE/DVT for the 12-
month period were approximately $8.83 million. Estimated net savings
for the 12-month period associated with Pressure Ulcer Stages III & IV
were approximately $1.80 million.
The mean net savings per discharge calculated for the 12-month
period from October 2009 through September 2010 was approximately
$6,005. The HAC categories of Air Embolism; SSI, Mediastinitis,
Following Coronary Artery Bypass Graft (CABG); and SSI Following
Certain Orthopedic Procedures had the highest net savings per
discharge, but represented a small proportion of total net savings
because the number of discharges that resulted in MS-DRG reassignment
for these HACs was low. With the exception of Blood Incompatibility and
SSI Following Bariatric Surgery for Obesity, where no savings occurred
because no discharges resulted in MS-DRG reassignment, Catheter-
Associated UTI had the lowest net savings per discharge.
We refer readers to the RTI detailed report available at the Web
site: http://www.rti.org/reports/cms/.
As mentioned previously, an extremely small number of cases in the
12-month period of FY 2010 analyzed by RTI had multiple HACs during the
same stay. In reviewing approximately 10.2 million claims, RTI found

[[Page 51521]]

approximately 94 cases where 2 HACs were reported on the same admission
as noted in section II.F.3.g.(2) of this preamble. Of these
approximately 94 claims, 15 resulted in MS-DRG reassignment. Chart G
below summarizes these cases. There were 15 cases that had 2 HACs not
POA that resulted in an MS-DRG reassignment. Of these, four discharges
involved Pressure Ulcer Stages III & IV, four discharges involved Falls
and Trauma, and seven discharges involved Vascular Catheter-Associated
Infection.

Chart G--Claims With More Than One HAC Secondary Diagnosis Where MS-DRG Reassignment Occurred October 2009
Through September 2010
----------------------------------------------------------------------------------------------------------------
7. Vascular
4. Pressure 5. Falls and Catheter-
Selected HAC Ulcer Stages III Trauma--MCC & CC Associated
& IV-MCC Infection--CC
----------------------------------------------------------------------------------------------------------------
5. Falls and Trauma--MCC & CC............................. 2 ................ ................
6. Catheter-Associated Urinary Tract Infection (UTI)--CC.. 1 2 6
7. Vascular Catheter-Associated Infection--CC............. 1 2 ................
9B. Surgical Site Infection Following Certain Orthopedic ................ ................ 1
Procedures--CC...........................................
-----------------------------------------------------
Total................................................. 4 4 7
----------------------------------------------------------------------------------------------------------------

As we discuss in section II.F.1.b. of this preamble, implementation
of this policy is the part of an array of Medicare VBP tools that we
are using to promote increased quality and efficiency of care. We point
out that a decrease over time in the number of discharges where these
conditions are not POA is a desired consequence. We recognize that
estimated net savings would likely decline as the number of such
discharges decline. However, we believe that the sentinel effect
resulting from CMS identifying these conditions is critical. (We refer
readers to section IV.A. of this preamble for a discussion of the
inclusion of the incidence of these conditions in the Hospital IQR
Program.) It is our intention to continue to monitor trends associated
with the frequency of these HACs and the estimated net payment impact
through RTI's program evaluation and possibly beyond.
i. Previously Considered Candidate HACs--RTI Analysis of Frequency of
Discharges and POA Indicator Reporting
RTI evaluated the frequency of conditions previously considered,
but not adopted as HACs in prior rulemaking, that were reported as
secondary diagnoses (across all approximately 10.2 million discharges),
as well as the POA indicator assignments for these conditions. Chart H
below indicates that the four previously considered candidate
conditions most frequently reported as a secondary diagnosis were: (1)
Clostridium Difficile-Associated Disease (CDAD), which demonstrated the
highest frequency, with a total of 90,243 secondary diagnoses codes
being reported for that condition, of which 29,306 reported a POA
indicator of ``N''; (2) Methicillin-Resistant Staphylococcus aureus,
with a total of 72,313 secondary diagnoses codes being reported for
that condition, with 2,165 of those reporting a POA indicator of ``N'';
and (3) Staphylococcus aureus Septicemia, with a total of 24,327
secondary diagnoses codes being reported for that condition, with 5,490
of those reporting a POA indicator of ``N''; and (4) Iatrogenic
Pneumothorax, with a total of 22,506 secondary diagnoses codes being
reported for that condition, with 19,581 of those reporting a POA
indicator of ``N.'' As these four conditions had the most significant
impact for reporting a POA indicator of ``N,'' it is reasonable to
believe that these same three conditions would have the greatest number
of potential MS-DRG reassignments. The frequency of discharges for the
previously considered HACs that could lead to potential changes in MS-
DRG assignment is discussed in the next section. We take this
opportunity to remind readers that because more than one previously
considered HAC diagnosis code can be reported per discharge (on a
single claim) that the frequency of these diagnosis codes may be more
than the actual number of discharges with a previously considered
candidate condition reported as a secondary diagnosis.

Chart H--POA Status of Previously Considered ``Candidate'' HAC Conditions--October 2009 Through September 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
Not Present on Admission Present on Admission
Frequency as a -------------------------------------------------------------------------------
Previously considered HAC condition secondary POA = N POA = U POA = Y POA = W
diagnosis -------------------------------------------------------------------------------
Number Percent Number Percent Number Percent Number Percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Clostridium Difficile-Associated Disease (CDAD)... 90,243 29,306 32.47 416 0.46 60,397 66.93 124 0.14
2. Delirium.......................................... 757 190 25.10 ........ ........ 567 74.90 0 0.00
3. Legionnaire's Disease............................. 426 27 6.34 2 0.47 397 93.19 0 0.00
4. Staphylococcus aureus Septicemia.................. 24,327 5,490 22.57 65 0.27 18,738 77.03 34 0.14
5. Methicillin-Resistant Staphylococcus aureus....... 72,313 2,165 2.99 124 0.17 70,008 96.81 16 0.02
6. Iatrogenic Pneumothorax........................... 22,506 19,581 87.00 15 0.07 2,907 12.92 3 0.01
7. Ventilator-Associated Pneumonia................... 4,278 3,159 73.84 5 0.12 1,110 25.95 4 0.09
--------------------------------------------------------------------------------------------------------------------------------------------------------

In Chart I below, Column A shows the number of discharges for each
previously considered candidate HAC category when the condition was
reported as a secondary diagnosis. For example, there were 90,243
discharges that reported CDAD as a secondary diagnosis. Previously
considered candidate HACs reported with a POA indicator of ``N'' or
``U'' may cause MS-DRG reassignment (which would result in reduced
payment to the facility).

[[Page 51522]]

Column C shows the discharges for each previously considered candidate
HAC reported with a POA indicator of ``N'' or ``U.'' Continuing with
the example of CDAD, Chart I shows that, of the 90,243 discharges,
29,722 discharges (32.94 percent) had a POA indicator of ``N'' or
``U.'' Therefore, there were a total of 29,722 discharges that could
potentially have had an MS-DRG reassignment. Column E shows the number
of discharges where an actual MS-DRG reassignment could have occurred;
the number of discharges with CDAD that could have resulted in actual
MS-DRG reassignments is 830 (2.79 percent). Thus, while there were
29,722 discharges with CDAD reported with a POA indicator of ``N'' or
``U'' that could potentially have had an MS-DRG reassignment, the
result was 830 (2.79 percent) potential MS-DRG reassignments. As
discussed above, there are a number of reasons why a condition reported
with a POA indicator of ``N'' or ``U'' would not result in a MS-DRG
reassignment.
In summary, Chart I below demonstrates there were a total of
214,785 discharges with a previously considered candidate HACs reported
as a secondary diagnosis. Of those 60,538 discharges were reported with
a POA indicator of ``N'' or ``U.'' The total number of discharges that
could have resulted in MS-DRG reassignments is 3,768.

Chart I--Previously Considered ``Candidate'' HAC Discharge Frequencies--October 2009 Through September 2010
----------------------------------------------------------------------------------------------------------------
Discharges with this Discharges with this Cases that could change
condition as secondary condition not present on MS-DRG due to
diagnosis \2\ Admission (POA = ``N'' previously considered
Previously considered HAC -------------------------- or ``U'') \3\ candidate HAC \4\
condition ---------------------------------------------------
Number Percent Number Percent Number Percent
(Column A) (Column B) (Column C) (Column D) (Column E) (Column F)
----------------------------------------------------------------------------------------------------------------
1. Clostridium Difficile- 90,243 0.89 29,722 32.94 830 2.79
Associated Disease (CDAD)........
2. Delirium....................... 757 0.01 190 25.10 14 7.37
3. Legionnaire's Disease.......... 426 0.00 29 6.81 3 10.34
4. Staphylococcus aureus 24,288 0.24 5,549 22.85 97 0.02
Septicemia.......................
5. Methicillin-Resistant 72,287 0.71 2,288 3.17 0 0.00
Staphylococcus aureus............
6. Iatrogenic Pneumothorax........ 22,506 0.22 19,596 87.07 2,821 14.40
7. Ventilator-Associated Pneumonia 4,278 0.04 3,164 73.96 3 0.09
-----------------------------------------------------------------------------
Total \1\..................... 214,785 ........... 60,538 ........... 3,768 ...........
----------------------------------------------------------------------------------------------------------------
\1\ Discharges can appear in more than one row.
\2\ Percent computed relative to total cases ``at risk,'' which is 10,189,168 for all candidate conditions.
\3\ Percent computed relative to discharges with condition as a secondary diagnosis.
\4\ Percent computed relative to discharges with condition as a secondary diagnosis and identified as a
previously considered HAC (that is, coded as not present on admission).
Source: RTI Analysis of MedPAR IPPS Claims, October 2009 through September 2010.

j. Current and Previously Considered Candidate HACs--RTI Report on
Evidence-Based Guidelines
The RTI program evaluation includes an annual report that provides
references for all evidence-based guidelines available for each of the
selected and previously considered candidate HACs that provide
recommendations for the prevention of the corresponding conditions.
Guidelines were primarily identified using the AHRQ National Guidelines
Clearing House (NGCH) and the CDC, along with relevant professional
societies. Guidelines published in the United States were used, if
available. In the absence of U.S. guidelines for a specific condition,
international guidelines were included.
Evidence-based guidelines that included specific recommendations
for the prevention of the condition were identified for each of the 10
selected conditions. In addition, evidence-based guidelines were also
found for the previously considered candidate conditions.
RTI prepared the annual report to summarize its findings regarding
evidence-based guidelines, which can be found on the Web site at:
http://www.rti.org/reports/cms.
k. Final Policy Regarding Current HACs and Previously Considered
Candidate HACs
We believe that the RTI analysis summarized above does not provide
additional information that would require us to change our previous
determinations regarding either current HACs (as described in section
II.F.2. of this preamble) or previously considered candidate HACs in
the FY 2008 IPPS final rule with comment period (72 FR 47200 through
47218), the FY 2009 IPPS final rule (73 FR 48471 through 48491), and
the FY 2010 IPPS/RY 2010 LTCH final rule (74 FR 43782 through 43785).
We note that we are finalizing revisions to the Falls and Trauma HAC
category, Surgical Site Infection Following Certain Bariatric
procedures and DVT/PE Following Certain Orthopedic Procedures HAC
categories as discussed in section II.F.2. of this preamble. (We also
note that, as discussed in section II.F.3.b. of this preamble, we are
not contemplating changing our current policy regarding the treatment
of the ``U'' POA indicator.) However, we continue to encourage public
dialogue about refinements to the HAC list.
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 48491) for detailed
discussion supporting our determination regarding each of these
conditions.

G. Changes to Specific MS-DRG Classifications

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25816), we
invited public comment on each of the MS-DRG classification proposed
changes described below, as well as our proposals to maintain certain
existing MS-DRG classifications, which are also discussed below. In
some cases, we proposed changes to the MS-DRG classifications based on
our analysis of claims data. In other cases, we proposed to maintain
the existing MS-DRG classification based on our analysis of

[[Page 51523]]

claims data. Below, we summarize the public comments that we received,
if any, on our proposals, present our responses, and state our final
policies.
1. Pre-Major Diagnostic Categories (Pre-MDCs)
a. Noninvasive Mechanical Ventilation
We received a request from the National Association for Medical
Direction of Respiratory Care (NAMDRC) which suggested that we create a
new MS-DRG for patients with certain respiratory conditions who receive
noninvasive mechanical ventilation (NIV). The requestor stated that
patients who receive NIV are almost always placed within an intensive
care unit (ICU) or an emergency department and use the resources
available in those areas. The requestor recommended that this new MS-
DRG recognize current practice and allow for appropriate reimbursement
for the technical complexity and monitoring required for NIV as a form
of acute life support. According to the requestor, NIV has evolved to
become first-line supportive therapy for several forms of acute
respiratory failure. Lastly, the requestor recommended that the new MS-
DRG identify NIV usage of approximately 6 to 12 hours to account for
the ``legitimate but very short term use of this therapy.''
Historically, the concept of mechanical ventilation for critically
ill patients included establishment of an artificial airway,
invasively, through endotracheal intubation or a tracheostomy.
According to the requestor, a significant portion of these patients can
now be treated through noninvasive mechanical ventilation with the use
of a face or nasal mask. In the ICD-9-CM classification system, NIV is
described by procedure code 93.90 (Noninvasive mechanical ventilation),
while invasive mechanical ventilation is described by procedure codes
96.70 (Continuous invasive mechanical ventilation of unspecified
duration), 96.71 (Continuous invasive mechanical ventilation for less
than 96 consecutive hours), and 96.72 (Continuous invasive mechanical
ventilation for 96 consecutive hours or more). The requestor submitted
external data to illustrate trends in NIV use over the past decade.
These data were derived from a survey conducted during 2002-2003 of
several hospitals located in Massachusetts and Rhode Island. The
requestor believed that these data indicate patients with exacerbation
of chronic obstructive pulmonary disease (COPD), acute pulmonary edema,
or worsening congestive heart failure are successfully managed with
NIV.
For the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed FY 2010
MedPAR claims data that are representative of the respiratory
conditions the requestor identified when reported with NIV. We found 14
MS-DRGs reporting procedure code 93.90 using the above specifications.
The MS-DRGs are as follows:

Pre-MDC MS-DRGs:

MS-DRG 003 (ECMO or Tracheostomy with Mechanical Ventilation
96+ Hrs or PDX Except Face, Mouth & Neck with Major O.R.)
MS-DRG 004 (Tracheostomy with Mechanical Ventilation 96+ Hrs
or PDX Except Face, Mouth & Neck without Major O.R.)

MS-DRGs:

MS-DRG 189 (Pulmonary Edema & Respiratory Failure)
MS-DRG 190 (Chronic Obstructive Pulmonary Disease with MCC)
MS-DRG 191 (Chronic Obstructive Pulmonary Disease with CC)
MS-DRG 192 (Chronic Obstructive Pulmonary Disease without CC/
MCC)
MS-DRG 204 (Respiratory Signs & Symptoms)
MS-DRG 207 (Respiratory System Diagnosis with Ventilator
Support 96+ Hours)
MS-DRG 208 (Respiratory System Diagnosis with Ventilator
Support <96 Hours)
MS-DRG 222 (Cardiac Defibrillator Implant with Cardiac
Catheterization with AMI/HF/Shock with MCC)
MS-DRG 223 (Cardiac Defibrillator Implant with Cardiac
Catheterization with AMI/HF/Shock without MCC)
MS-DRG 291 (Heart Failure & Shock with MCC)
MS-DRG 292 (Heart Failure & Shock with CC)
MS-DRG 293 (Heart Failure & Shock without CC/MCC)

As shown in the list above and in the chart below, the MS-DRGs
identified also include those that describe invasive mechanical
ventilation. The ICD-9-CM coding convention instructs the reporting of
both types of mechanical ventilation when patients are admitted on
noninvasive mechanical ventilation that subsequently requires invasive
mechanical ventilation therapy.
The data demonstrate that, in certain MS-DRGs, for example, MS-DRGs
003, 004, and 222 that the cases with NIV primarily have shorter
lengths of stay and lower average costs compared to all the cases in
those MS-DRGs. Alternatively, the data for MS-DRGs 189, 190, 191, and
192 demonstrate that the cases with NIV have an increased length of
stay and higher average costs, but a relatively low volume compared to
all the cases in those MS-DRGs. Combining the current surgical and
medical MS-DRGs into a single, new MS-DRG would include noninvasive
mechanical ventilation cases with a wide range of costs for several
indications with varying levels of severity. The average costs for
these cases range from a low of $5,794 in MS-DRG 293 to a high of
$95,940 in MS-DRG 003. In the proposed rule, we indicated that we
believe the cases are more appropriately assigned and reimbursed in the
MS-DRGs to which they are currently assigned.

----------------------------------------------------------------------------------------------------------------
Average length
MS-DRG Number of cases of stay Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 003--All cases..................................... 18,223 34.7 $103,492
MS-DRG 003--Cases with code 93.90 without code 96.70, 58 33.3 95,940
96.71, or 96.72..........................................
MS-DRG 004--All cases..................................... 19,599 25.79 63,022
MS-DRG 004--Cases with code 93.90 without code 96.70, 170 25.43 58,500
96.71, or 96.72..........................................
MS-DRG 189--All cases..................................... 87,668 5.36 8,317
MS-DRG 189--Cases with code 93.90 without code 96.70, 22,023 6.07 10,383
96.71, or 96.72..........................................
MS-DRG 190--All cases..................................... 130,731 5.30 7,140
MS-DRG 190--Cases with code 93.90 without code 96.70, 8,450 6.78 11,207
96.71 or 96.72...........................................
MS-DRG 191--All cases..................................... 135,851 4.49 6,236
MS-DRG 191--Cases with code 93.90 without code 96.70, 4,563 5.41 8,819
96.71 or 96.72...........................................
MS-DRG 192--All cases..................................... 115,153 3.52 4,621
MS-DRG 192--Cases with code 93.90 without code 96.70, 2,334 4.25 6,803
96.71 or 96.72...........................................
MS-DRG 204--All cases..................................... 21,049 2.61 4,310
MS-DRG 204--Cases with code 93.90 without code 96.70, 265 4.17 7,591
96.71 or 96.72...........................................
MS-DRG 207--All cases..................................... 32,752 14.61 32,897

[[Page 51524]]

MS-DRG 207--Cases with code 93.90 without code 96.70, 0 0 0
96.71 or 96.72...........................................
MS-DRG 208--All cases..................................... 67,724 6.98 14,742
MS-DRG 208--Cases with code 93.90 without code 96.70, 0 0 0
96.71 or 96.72...........................................
MS-DRG 222--All cases..................................... 2,279 11.98 57,478
MS-DRG 222--Cases with code 93.90 without code 96.70, 52 11.79 55,011
96.71 or 96.72...........................................
MS-DRG 223--All cases..................................... 3,230 6.17 41,754
MS-DRG 223--Cases with code 93.90 without code 96.70, 19 11.05 47,064
96.71 or 96.72...........................................
MS-DRG 291--All cases..................................... 170,399 6.05 9,585
MS-DRG 291--Cases with code 93.90 without code 96.70, 14,274 6.95 12,320
96.71 or 96.72...........................................
MS-DRG 292--All cases..................................... 220,031 4.72 6,584
MS-DRG 292--Cases with code 93.90 without code 96.70, 5,171 5.58 9,180
96.71 or 96.72...........................................
MS-DRG 293--All cases..................................... 98,134 3.20 4,410
MS-DRG 293--Cases with code 93.90 without code 96.70, 1,381 3.43 5,794
96.71 or 96.72...........................................
----------------------------------------------------------------------------------------------------------------

As mentioned in the requestor's comments, and our clinical advisors
agree, NIV encompasses a broad range of interventions and utilizes
periods of time that range from a few hours to a few days of continuous
chronic use. Resource requirements are vastly different for the various
intended indications. For example, as also noted by the requestor,
respiratory failure can have many forms. Our clinical advisors provided
three subsets of patients as an example: Those that are given oxygen
support, those that are given pressure (rate) support, and those that
are intubated. There is overlap between the three subsets in that a
patient may require one, two, or all three types of therapy and there
are multiple options for any given patient. Our clinical advisors
stated that these various subsets of patients can require significantly
different resources. Lastly, respiratory failure reflects the severity
of the diagnosis (it is a complication) while NIV is a therapeutic
option. Unlike a major surgical intervention where the intervention
creates morbidity, NIV merely reflects the severity of the underlying
respiratory failure.
The requestor further noted in its comments that a significant
number of patients who receive NIV fail this therapy and must be
intubated and subsequently placed on a ventilator. However, those
patients who require both noninvasive and invasive mechanical
ventilation are already accounted for in the invasive mechanical
ventilation MS-DRGs. Similar to patients with respiratory failure,
patients with heart failure and shock have a comparable severity of
illness where each condition reflects the severity of the diagnosis (it
is a complication). Therefore, the cost is already reflected in the
high resource expenditure estimates for MS-DRGs 222, 223, 291, 292, and
293, as are all other severity-correlated resource costs.
In conclusion, we indicated in the proposed rule that we believe
that the data do not support the creation of a single MS-DRG to
identify NIV cases. As stated previously, the average costs for the NIV
cases range from a low of $5,794 in MS-DRG 293 to a high of $95,940 in
MS-DRG 003. If created, this single MS-DRG would include patients with
a wide range in average costs. We believe the cases are more
appropriately captured in their current MS-DRGs. In addition to the
clinical points raised by our clinical advisors and outlined above, the
volume and length of stay data for cases where NIV was reported with
the specified respiratory conditions further support their present MS-
DRG assignments. Therefore, we did not propose to create a new MS-DRG
for patients receiving NIV. We invited public comment on our proposal
not to create a new MS-DRG for patients receiving NIV for FY 2012.
Comment: Several commenters agreed with CMS' proposal to not create
a new MS-DRG for patients receiving NIV for FY 2012. One commenter did
not have a position on whether or not a new MS-DRG should be created
for patients receiving noninvasive mechanical ventilation. However, the
commenter was concerned that reported hospital data may be incomplete.
The commenter indicated that procedure code 93.90 (Noninvasive
mechanical ventilation) is most likely underreported or not reported
consistently because it is not required for reporting purposes. Another
commenter stated that the data analysis performed on patients receiving
NIV appeared to be supported by the current MS-DRG assignment.
Therefore, the commenter agreed with the proposal not to create a new
MS-DRG. This commenter also urged CMS to consider the Uniform Hospital
Discharge Data Set (UHDDS) definition of a ``reportable condition'' in
future analyses. This commenter noted that the UHDDS requires all
significant procedures to be reported and that Medicare requires the
reporting of any procedure that affects payment, whether or not it
meets the definition of significant procedure. This commenter further
noted that procedure code 93.90 is not considered significant by the
UHDDS definition nor does it affect payment.
Response: We appreciate the commenters' support of our proposal to
not create a new MS-DRG for patients receiving NIV for FY 2012. We
agree with the commenters that procedure code 93.90 is likely not
reported consistently and, therefore, the data included in evaluating
the request may be incomplete. We encourage complete and accurate
reporting of ICD-9-CM codes on each admission. As discussed in section
II.G.13.b. of this final rule, we have expanded our ability to accept
and process up to 25 diagnosis codes and 25 procedure codes with the
implementation of 5010. We agree with the commenters who state that the
current data do not support a new MS-DRG for patients receiving NIV.
We also agree with the commenter that NIV (procedure code 93.90) is
not considered to be a significant procedure under UHDDS definitions
and does not affect payment under Medicare policy. UHDDS definitions
are used by hospitals to report inpatient data elements in a
standardized manner. For further information regarding UHDDS data
elements and their definitions, we refer readers to the July 31, 1985
Federal Register (50 FR 31038 through 31040) and the Internet Web site
at: http://www.ncvhs.hhs.gov/ncvhsr1.htm.
Comment: The organization that submitted the original request to
create a new MS-DRG for NIV expressed appreciation to CMS for
considering their request and for providing data that was unavailable
to them at the time they submitted their original request. The
commenter also acknowledged the potential for underreporting of NIV
(procedure code 93.90). However, the commenter specifically asked to
further

[[Page 51525]]

refine their original request based on the data that were displayed in
the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25818). The commenter
suggested that CMS now limit consideration of a new MS-DRG for NIV to
only the data that were displayed for 4 of the 14 MS-DRGS analyzed in
response to their original request. The commenter asked CMS to now only
focus on the data that was provided for the following MS-DRGs:

MS-DRG 189 (Pulmonary Edema & Respiratory Failure)
MS-DRG 190 (Chronic Obstructive Pulmonary Disease with MCC)
MS-DRG 191 (Chronic Obstructive Pulmonary Disease with CC)

MS-DRG 192 (Chronic Obstructive Pulmonary Disease without
CC/MCC)

The commenter recommended that CMS utilize respiratory failure,
pulmonary edema, and chronic obstructive pulmonary disease as diagnoses
that, when present with NIV, define the structure of a new NIV MS-DRG.
Response: We acknowledge the commenter's request that we now
consider a refined request that focuses on only 4 of the 14 MS-DRGs
originally analyzed. However, due to time constraints, we were unable
to conduct the necessary analysis for evaluation. We would need to
perform a new and separate analysis with exact specifications that were
not provided by the commenter in their modified request before we could
make a final determination. For example, there are numerous ICD-9-CM
codes that describe respiratory failure, pulmonary edema, and chronic
obstructive pulmonary disease. The commenter did not specify the exact
codes they believe would warrant this modified MS-DRG when reported
with procedure code 93.90 (NIV) for us to conduct a thorough analysis
in time to include our evaluation in this final rule.
Therefore, after consideration of public comments we received, we
are finalizing our proposal to not create a new MS-DRG for NIV for FY
2012.
b. Debridement With Mechanical Ventilation Greater Than 96 Hours With
Major Operating Room (O.R.) Procedure
We received a comment concerning the use of excisional debridement
in cases with complications that lead to the need for extended
mechanical ventilation. The commenter stated that patients undergoing
procedures such as excisional debridement may also develop extensive
complications such as respiratory failure and sepsis. The commenter
indicated that these patients tend to use significant resources. The
commenter stated that these cases are currently assigned to MS-DRG 207
(Respiratory System Diagnosis with Ventilator Support 96+ Hours) or MS-
DRG 870 (Septicemia with or Severe Sepsis with Mechanical Ventilation
96+ Hours). The commenter expressed a concern that the operating room
(OR) procedure of the excisional debridement was not fully recognized
through either of these two medical MS-DRGs. The commenter requested
that a new MS-DRG be created that would include mechanical ventilation
of greater than 96 hours with the presence of an additional major OR
procedure.
We agree that patients with long-term mechanical ventilation
greater than 96 hours and a major OR procedure utilize extensive
resources. However, we point out that these patient cases are not
currently assigned to MS-DRG 207 or MS-DRG 870 as the commenter stated.
Many of these long-term mechanical ventilation patient cases are
instead assigned to MS-DRG 003 (ECMO or Tracheostomy with Mechanical
Ventilation 96+ Hours or PDX, Excluding Face, Mouth & Neck with Major
Operating Room Procedure). Cases that require mechanical ventilation
for greater than 96 hours, that have a tracheostomy performed, and that
have a procedure on the major O.R. list (including excisional
debridement) are assigned to MS-DRG 003. We specifically created MS-DRG
003 to capture these complicated patients on long-term mechanical
ventilation who also have a major O.R. procedure. Therefore, in the FY
2012 IPPS/LTCH PPS proposed rule, we did not propose to create a second
MS-DRG to capture these patients. We welcomed public comments on our
proposal not to create a new MS-DRG for these patients for FY 2012.
Comment: Several commenters supported our proposal not to create a
second MS-DRG to capture patients with mechanical ventilation of
greater than 96 hours with the presence of an additional major OR
procedure. One commenter stated that the limited data and documentation
from the requestor for the creation of a second MS-DRG prohibited them
from evaluating the need for this new MS-DRG.
Response: We agree with the commenters that CMS should not create a
second MS-DRG to capture patients with mechanical ventilation of
greater than 96 hours with the presence of an additional major OR
procedure. MS-DRG 003 (ECMO or Tracheostomy with Mechanical Ventilation
96+ Hours or PDX, Excluding Face, Mouth & Neck with major Operating
Room Procedure) appropriately captures these patients.
After consideration of the public comments we received, we are not
creating a new MS-DRG to capture patients on mechanical ventilation of
greater than 96 hours who also have an additional major OR procedure
for FY 2012.
c. Autologous Bone Marrow Transplant
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50101), effective
October 1, 2011, we deleted MS-DRG 009 (Bone Marrow Transplant) and
created two new MS-DRGs: MS-DRG 014 (Allogeneic Bone Marrow Transplant)
and MS-DRG 015 (Autologous Bone Marrow Transplant). We created new MS-
DRGs 014 and 015 because of differences in costs associated with these
procedures. During the comment period for the FY 2011 IPPS/LTCH PPS
proposed rule, two commenters who supported the proposed
reclassification of the bone marrow transplant MS-DRGs requested
further refinement to account for severity of illness. At that time, we
did not subdivide MS-DRG 014 and MS-DRG 015 based on severity of
illness because they did not meet our criteria for subdivision (75 FR
50102).
As we outlined in our FY 2008 IPPS/LTCH PPS final rule with comment
period (72 FR 47169), in designating an MS-DRG as one that would be
subdivided into subgroups based on the presence of a CC or an MCC, we
developed a set of criteria to facilitate our decision-making process.
The original criteria were based on average charges; we now use average
costs (FY 2007 IPPS final rule, 71 FR 47882). In order to warrant
creation of a CC or an MCC subgroup within a base MS-DRG, the subgroup
must meet all of the following five criteria:
A reduction in variance of cost of at least 3 percent.
At least 5 percent of the patients in the MS-DRG fall
within the CC or MCC subgroup.
At least 500 cases are in the CC or MCC subgroup.
There is at least a 20-percent difference in average cost
between subgroups.
There is a $2,000 difference in average cost between
subgroups.
For the FY 2012 IPPS/LTCH PPS proposed rule, we examined FY 2010
MedPAR claims data for these newly created MS-DRGs, and based on these
criteria, we identified MS-DRG 015 as a possible MS-DRG that would
require further subdivision. MS-DRG 014 was not identified, as this MS-
DRG did not meet the criteria stated above for possible subdivision.
Autologous bone

[[Page 51526]]

marrow transplantation utilizes the patient's own bone marrow or stem
cells in the treatment of certain cancers and bone marrow diseases.
These procedures restore stem cells that have been destroyed either by
chemotherapy and/or radiation treatment.
In our analysis, we found 1,338 total cases assigned to MS-DRG 015
with average costs of approximately $38,608 and an average length of
stay of approximately 18.8 days. There were 1,092 cases that had a
secondary diagnosis code reported on the claim that was designated as a
CC or an MCC with average costs of approximately $40,974 and an average
length of stay of approximately 19.7 days. There were 246 cases without
a secondary diagnosis code reported on the claim that had a CC or an
MCC designation with average cost of approximately $28,105 and an
average length of stay of approximately 14.6 days. The following table
illustrates our findings:

We found that the cases reported with a secondary diagnosis code of
a CC or an MCC were more costly and had a longer average length of stay
than both the overall cases assigned to MS-DRG 015 and the cases
without a CC or an MCC. The cases without a CC or an MCC were less
costly and had a shorter average length of stay than both the cases
with a CC or an MCC and the overall cases assigned to that MS-DRG.
Based on our analysis, all five criteria for a subgroup division were
met, thereby supporting a 2-level severity split for MS-DRG 015.
Therefore, for FY 2012, we proposed to delete MS-DRG 015 and create two
new MS-DRGs:
Proposed MS-DRG 016 (Autologous Bone Marrow Transplant
with MCC/CC); and
Proposed MS-DRG 017 (Autologous Bone Marrow Transplant
without MCC/CC).
We invited public comment on our proposal to delete MS-DRG 015 and
create two new MS-DRGs 016 and 017 for autologous bone marrow
transplant for FY 2012.
Comment: Several commenters supported our proposed changes for a 2-
level severity split for autologous bone marrow transplant cases. One
commenter stated that it appreciated CMS' further refinement to account
for severity of illness as it reflects current experience with
transplant eligible patients who present with a range of comorbidities
and other complicating factors.
Response: We appreciate the support of the commenters.
Comment: One commenter disagrees with our proposed refinement of
MS-DRG 014 to account for severity of illness. The commenter contended
that the recipient patient population for both autologous and
allogeneic transplants is similar and that recognition of the variation
in the patient population for both is warranted. The commenter
requested a re-review of the cost variances for MS-DRG 014 because
allogeneic transplant patients are often treated for similar
comorbidities as autologous transplant patients prior to transplant and
during post transplant care.
Response: As we outlined in the proposed rule (76 FR 25819), to
warrant creation of a CC or MCC subgroup within a base MS-DRG, the
subgroup must meet all of the five criteria. MS-DRG 014 did not meet
the criteria for possible subdivision because at least 500 cases were
not in the CC or MCC subgroup.
After consideration of the public comments we received, we are
finalizing our proposal to delete MS-DRG 015 and to create two new MS-
DRGs: MS-DRG 016 (Autologous Bone Marrow Transplant with CC/MCC); and
MS-DRG 017 (Autologous Bone Marrow Transplant without CC/MCC). We note
that we have amended the final titles of new MS-DRGs 015 and 016 to
place ``CC'' before ``MCC.''
2. MDC 1 (Diseases and Disorders of the Nervous System): Rechargeable
Dual Array Deep Brain Stimulation System
We received a public comment in response to the FY 2011 IPPS/LTCH
PPS proposed rule regarding the MS-DRG assignment for rechargeable dual
array deep brain neurostimulators. In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50128), we indicated that we considered this comment
outside of the scope of the proposed rule as we did not propose any
changes for these procedures for FY 2011. However, we addressed this
issue in the FY 2012 IPPS/LTCH PPS proposed rule.
Deep brain stimulation is a surgical treatment that involves the
implantation of a neurostimulator, used in the treatment of essential
tremor, Parkinson's disease, dystonia, and chronic pain. The commenter
recommended that CMS assign the combination of procedure codes
representing rechargeable systems for deep brain stimulation therapy,
procedure code 02.93 (Implantation or replacement of intracranial
neurostimulator lead(s)) and procedure code 86.98 (Insertion or
replacement of dual array rechargeable neurostimulator pulse generator)
to MS-DRG 023 (Craniotomy with Major Device Implant/Acute Complex CNS
PDX with MCC or Chemo Implant) and MS-DRG 024 (Craniotomy with Major
Device Implant/Acute Complex CNS PDX without MCC).
The commenter stated that this recommendation would allow all full
system dual array deep brain stimulation cases to be appropriately
grouped to the same MS-DRGs. Currently, procedure codes 02.93 and 86.98
are assigned to MS-DRG 025 (Craniotomy and Endovascular Intracranial
Procedures with MCC), MS-DRG 026 (Craniotomy and Endovascular
Intracranial Procedures with CC), and MS-DRG 027 (Craniotomy and
Endovascular Intracranial Procedures without CC/MCC), while the
procedure codes for the nonrechargeable dual array systems, procedure
codes 02.93 and 86.95 (Insertion or replacement of dual array
neurostimulator pulse generator, not specified as rechargeable), are
already assigned to MS-DRGs 023 and 024. The commenter stated that the
procedures to implant the rechargeable and nonrechargeable dual array
systems are similar clinically as well as comparable in resource
utilization.
For the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed FY 2010
MedPAR data and found a total of 16 full system rechargeable dual array
deep brain stimulation systems reported with procedure codes 02.93 and
86.98 assigned to MS-DRGs 025 through 027. We found one case assigned
to MS-DRG 025 and one case assigned to MS-DRG

[[Page 51527]]

026. The majority of the cases, 14, were assigned to MS-DRG 027, with
average costs of approximately $23,870 and an average length of stay of
approximately 2.2 days. We found that the deep brain stimulation cases
assigned to MS-DRG 027 had higher average costs than the overall cases
assigned to MS-DRG 027 of approximately $14,200. However, the average
length of stay was shorter for these cases than the overall length of
stay for MS-DRG 027 cases of approximately 3.7 days.
We also examined the data for the nonrechargeable dual array
systems to assess the commenter's assumption that both the rechargeable
and nonrechargeable dual array systems are similar in resource use. We
found 155 total nonrechargeable dual array systems (procedure codes
02.93 and 86.95) assigned to MS-DRGs 023 and 024. There were 5 cases
assigned to MS-DRG 023, with average costs of approximately $36,159 and
an average length of stay of approximately 10 days. We found that the
majority of the cases, 150, were assigned to MS-DRG 024, with average
costs of approximately $25,855 and an average length of stay of
approximately 2.2 days. We believe that these data support the
commenter's statement that, for the majority of these cases, the
resource use is similar for both systems.
For comparison purposes, if we proposed the changes that the
commenter suggested, those deep brain stimulation cases currently
assigned to MS-DRG 027 and the one case assigned to MS-DRG 026 (with
average costs of approximately $27, 836) would be reassigned to MS-DRG
024. The average costs of approximately $23,870 of these deep brain
stimulation cases assigned to MS-DRG 027 are similar to the overall
average costs of approximately $23,249 for MS-DRG 024. The one case
assigned to MS-DRG 025 (with average costs of approximately $29,361)
would be reassigned to MS-DRG 023 (with average costs of approximately
$34,168). The following table illustrates our findings:

------------------------------------------------------------------------
Average
MS-DRG Number of length of Average
cases stay costs
------------------------------------------------------------------------
MS-DRG 023--All cases............ 4,238 11.8 $34,168
MS-DRG 023--Cases with codes 5 10.0 36,159
02.93 and 86.95.................
MS-DRG 024--All cases............ 1,592 7.6 23, 249
MS-DRG 024--Cases with codes 150 2.2 25,855
02.93 and 86.95.................
MS-DRG 025--All cases............ 11,505 11.0 29,524
MS-DRG 025--Cases with codes 1 2.0 29, 361
02.93 and 86.98.................
MS-DRG 026--All cases............ 9,782 7.0 19,125
MS-DRG 026--Cases with codes 1 3.0 27,836
02.93 and 86.98.................
MS-DRG 027--All cases............ 10,936 3.7 14,200
MS-DRG 027--Cases with codes 14 2.2 23,870
02.93 and 86.98.................
------------------------------------------------------------------------

Based on our findings, in the proposed rule, we indicated that we
believe that the data support reassigning the combination of procedure
codes representing rechargeable systems for deep brain stimulation
therapy, code 02.93 and code 86.98, to MS-DRGs 023 and 024. Our
clinical advisors support this reassignment. Therefore, we proposed to
assign rechargeable dual array systems for deep brain stimulation cases
identified by reporting both procedure codes 02.93 and 86.98 to MS-DRGs
023 and 024 for FY 2012. We invited public comment on our proposal to
assign these cases to MS-DRG 023 and 024 for FY 2012.
Comment: Several commenters supported our proposal to reassign
rechargeable dual array deep brain stimulation cases.
Response: We appreciate the support of the commenters. As stated
above, we believe that the assignment of these cases to MS-DRG 023 and
024 is appropriate.
After consideration of public comments we received, we are adopting
as final our proposal to assign rechargeable dual array systems for
deep brain stimulation cases identified by reporting both procedure
codes 02.93 and 86.98 to MS-DRGs 023 and 024 for FY 2012.
3. MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and Throat):
Skull Based Surgeries
We received a request from a commenter recommending that CMS
reclassify skull-based surgical procedures that are currently assigned
to MS-DRGs 135 and 136 (Sinus and Mastoid Procedures with CC/MCC and
without CC/MCC, respectively) and reassign them to MS-DRGs 025, 026,
and 027 (Craniotomy and Endovascular Intracranial Procedures with MCC,
with CC, and without CC/MCC, respectively). The commenter stated that
the current MS-DRG assignment does not reflect the resource utilization
and technical complexity of these difficult procedures when performed
for anterior skull base tumors.
Skull (or cranial) based surgery is performed for a variety of
serious medical conditions including esthesioneuroblastomas, which are
rare, malignant tumors that arise from the epithelium overlying the
olfactory bulb; sinonasal melanomas, which are malignant melanomas that
may develop in the mucosa of the nose and sinuses; and sinonasal
undifferentiated carcinomas, which are rapidly growing malignant tumors
arising in the nasal cavity and/or sinuses. These types of conditions
are generally identified by the following ICD-9-CM diagnosis codes:

160.0 (Malignant neoplasm of nasal cavities)
160.1 (Malignant neoplasm of auditory tube, middle ear, and
mastoid air cells)
160.2 (Malignant neoplasm of maxillary sinus)
160.3 (Malignant neoplasm of ethmoidal sinus)
160.4 (Malignant neoplasm of frontal sinus)
160.5 (Malignant neoplasm of sphenoidal sinus)
160.8 (Malignant neoplasm of other accessory sinuses)
160.9 (Malignant neoplasm of accessory sinus, unspecified)
210.7 (Benign neoplasm of nasopharynx)
212.0 (Benign neoplasm of nasal cavities, middle ear, and
accessory sinuses)

According to the commenter, procedure code 22.63 (Ethmoidectomy)
describes the type of surgery being performed for these patients and is
currently assigned to MS-DRGs 135 and 136.
For the FY 2012 IPPS/LTCH PPS proposed rule, using the FY 2010
MedPAR file, we examined data on

[[Page 51528]]

cases identified by procedure code 22.63 when reported with one of the
above listed diagnosis codes in MS-DRGs 135 and 136. We found a total
of 402 cases in MS-DRG 135 with an average length of stay of 6.30 days
and average costs of $12,869. We found only 23 cases in MS-DRG 135
identified by procedure code 22.63 with one of the diagnosis codes
listed above with an average length of stay of 3.96 days and average
costs of $10,510. In MS-DRG 136, there were a total of 320 cases with
an average length of stay of 2.36 days and average costs of $6,683. We
found only 27 cases in MS-DRG 136 identified by procedure code 22.63
with one of the diagnosis codes listed above with an average length of
stay of 2.04 days and average costs of $6,844. As shown in the table
below, the cases reporting procedure code 22.63 in MS-DRGs 135 and 136
have a lower volume, a shorter length of stay, and primarily lower
average costs compared to all cases in MS-DRGs 135 and 136. As we
indicated in the proposed rule, the data demonstrated that these cases
are appropriately assigned to their current MS-DRG classifications.

We also analyzed claims data for MS-DRGs 25 through 27. We
determined that if the cases identified by procedure code 22.63 were to
be reassigned to MS-DRGs 25-27, they would be significantly overpaid.
As shown in the table below, we found that the average costs for these
MS-DRGs range from $14,200 to $29,524.

In summary, we indicated in the proposed rule that the data did not
support moving cases with procedure code 22.63 when reported with one
of the previously listed diagnosis codes from MS-DRGs 135 and 136 to
MS-DRGs 25, 26 and 27. We invited public comment on our proposal not to
make any MS-DRG modifications for these codes for FY 2012.
Comment: Several commenters supported our proposal to not make any
revisions to reclassify skull-based surgical procedures that are
currently assigned to MS-DRGs 135 and 136 and reassign them to MS-DRGs
025, 026, and 027.
Response: We appreciate the commenters' support.
After consideration of the public comment we received, we are
finalizing our proposal to not make any modifications for skull-based
surgeries for FY 2012.
4. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Percutaneous Mitral Valve Repair With Implant
Procedure code 35.97 (Percutaneous mitral valve repair with
implant) was created for use beginning October 1, 2010 (FY 2011) after
the concept of a percutaneous valve repair was presented and approved
at the February 2010 ICD-9-CM Coordination and Maintenance Committee
Meeting. Procedure code 35.97 was created at that time to describe the
MitraClip\TM\ device and any other percutaneous mitral valve repair
devices currently on the market. This procedure code is assigned to the
following MS-DRGs: 231 and 232 (Coronary Bypass with PTCA with MCC and
without MCC, respectively); 246 (Percutaneous Cardiovascular Procedure
with Drug-Eluting Stent with MCC or 4+ Vessels/Stents); 247
(Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without
MCC); 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting
Stent with MCC or 4+ Vessels/Stents); 249 (Percutaneous Cardiovascular
Procedure with Non-Drug-Eluting Stent without MCC); 250 (Percutaneous
Cardiovascular Procedure without Coronary Artery Stent or AMI with
MCC); and 251 (Percutaneous Cardiovascular Procedure without Coronary
Artery Stent or AMI without MCC).
According to the Food and Drug Administration's (FDA's) terms of
the clinical trial for MitraClip\TM\, the device is to be implanted in
patients without any additional surgeries performed. Therefore, based
on these terms, we believe that the most likely MS-DRG assignments
would be MS-DRGs 250 and 251, as described above. However, because
procedure code 35.97 has only been in use since October 1, 2010, there
are no claims data in the most recent MedPAR update file with which to
evaluate any alternative MS-DRG assignments. Therefore, we did not
propose to make any MS-DRG changes for procedure code 35.97 for FY
2012. We proposed to keep procedure code 35.97 in its current MS-DRG
assignments. We invited public comment on this proposal.
Comment: Several commenters addressed our proposal. One commenter
supported our proposal not to make any MS-DRG changes in the current
assignment of procedure code 35.97, but also recommended that CMS
review the MS-DRG assignment for FY 2013 when more claims data become
available. In addition, one commenter indicated that it ``* * * has no
objections to CMS' proposed changes to the MS-DRG classifications and
the Medicare Code Editor, which seem reasonable, given the data and
information provided.''
Response: We appreciate the commenters' support and suggestion.
After consideration of the public comments we received, we are
adopting as final without modification our

[[Page 51529]]

proposal to keep procedure code 35.97 (Percutaneous mitral valve repair
with implant) in its current MS-DRG assignments of 231 and 232
(Coronary Bypass with PTCA with MCC and without MCC, respectively); 246
(Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with MCC
or 4+ Vessels/Stents); 247 (Percutaneous Cardiovascular Procedure with
Drug-Eluting Stent without MCC); 248 (Percutaneous Cardiovascular
Procedure with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents);
249 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent
without MCC); 250 (Percutaneous Cardiovascular Procedure without
Coronary Artery Stent or AMI with MCC); and 251 (Percutaneous
Cardiovascular Procedure without Coronary Artery Stent or AMI without
MCC).
In addition, we plan to conduct a review of the MedPAR data for
code 35.97 in our next annual IPPS update cycle (that is, for FY 2013)
to determine if the MS-DRG assignments as listed above are the most
appropriate MS-DRGs for this procedure.
b. Aneurysm Repair Procedure Codes
Thoracic aorta defects, such as aneurysm, dissection, or injury,
are uncommon but serious conditions that may arise from a disease or an
accident. Some patients can be medically managed but most are treated
with surgery. Often these defects result in death if they are not
diagnosed and treated promptly. Currently, there are two techniques
used for repair of aortic defects; both are O.R. procedures performed
in an inpatient hospital setting. These two procedures are described by
ICD-9-CM procedure codes 38.45 (Resection of vessel with replacement,
thoracic vessel) and 39.73 (Endovascular implantation of graft in
thoracic aorta). Both procedure codes 38.45 and 39.73 are currently
assigned to MS-DRGs 237 (Major Cardiovascular Procedures with MCC or
Thoracic Aortic Aneurysm Repair) and 238 (Major Cardiovascular
Procedures without MCC).
We received a request that we consider the reassignment of
procedure codes 38.45 and 39.73 within the MS-DRG structure by removing
the procedure codes from MS-DRGs 237 and 238 and adding them to a more
clinically coherent set of MS-DRGs reflecting higher resource
consumption. The requestors believed that, based on their analysis of
MedPAR claims data of MS-DRGs 237 and 238, the resource utilization of
both the endovascular and open repairs of the abdominal and thoracic
aortas are higher than the overall average resource utilization for the
MS-DRGs to which these procedures are currently assigned. The
requestors also believed that an unusually high number of cases
probably fall into cost outlier status.
For the FY 2012 IPPS/LTCH PPS proposed rule, we reviewed the MedPAR
claims data for these two procedure codes. Our findings are shown in
the following two tables.

Our findings of the analysis of the cases with procedure code 39.73
showed that the average costs are substantially higher than those costs
for the cases overall in both MS-DRGs 237 and 238. We found that the
average length of stay for the 1,851 cases identified in MS-DRG 237 is
somewhat lower at 7.73 days than the average length of stay of 10.26
days in cases not containing procedure code 39.73.
Our findings of the analysis of the cases with procedure code 38.45
showed that both the average costs and the average length of stay are
considerably higher than the average costs and the average length of
stay for those cases without procedure code 38.45.
In addition, we reviewed the cases in which both procedure codes
38.45 and 39.73 were documented during the same admission. As can be
seen in the charts below, we found 22 cases in which both procedure
codes 38.45 and 39.73 were reported. Therefore, the sum of the values
in the next two charts below will differ from the charts above because
the cases containing both procedure codes have been removed and the
data have been reworked.

[[Page 51530]]

MS-DRG 238--Cases with procedure 0 0 0
code 39.73 and without procedure
code 38.45......................
MS-DRG 238--Cases with procedure 466 7.29 30,219
code 38.45 and without procedure
code 39.73......................
------------------------------------------------------------------------

We found in our analysis of the claims data for cases with both
procedure codes 38.45 and 39.73 that the average costs are
substantially higher than those costs for the cases overall in MS-DRG
237. In addition, we found that the average length of stay for the 22
cases with both procedure codes 38.45 and 39.73 is higher at 11.86 days
than the average length of stay of 10.03 days for all cases in MS-DRG
237.
Our analysis of the claims data for the procedure codes in MDC 5
showed that procedure code 38.45 is also assigned to MS-DRGs 228 (Other
Cardiothoracic Procedures with MCC), 229 (Other Cardiothoracic
Procedures with CC), and 230 (Other Cardiothoracic Procedures without
CC/MCC) when it occurs in combination with procedure code 38.44
(Resection of vessel with replacement, aorta, abdominal). Procedure
code 39.73 is not assigned to MS-DRGs 228 through 230, and review of
the data showed that there were no cases that had been reported in
these MS-DRGs.
The table below shows our findings of the average costs and the
average length of stay for procedure code 38.45 reported in combination
with procedure code 38.44 in MS-DRGs 228 through 230 and the average
costs and the average length of stay in all cases in MS-DRGs 228
through 230 when both procedure codes 38.45 and 38.44 are not assigned.

------------------------------------------------------------------------
Average
MS-DRG Number of length of Average
cases stay costs
------------------------------------------------------------------------
MS-DRG 228--All cases............ 2,084 13.79 $49,488
MS-DRG 228--Cases with procedure 276 15.18 56,246
code 38.45 and procedure code
38.44...........................
MS-DRG 228--Cases without 1,808 13.58 48,456
procedure code 38.45 and without
procedure code 38.44............
MS-DRG 229--All cases............ 2,354 8.31 31,148
MS-DRG 229--Cases with procedure 157 10.68 37,723
code 38.45 and procedure code
38.44...........................
MS-DRG 229--Cases without 2,197 8.14 30,678
procedure code 38.45 and without
procedure code 38.44............
MS-DRG 230--All cases............ 628 5.45 24,236
MS-DRG-230--Cases with procedure 34 7.18 27,054
code 38.45 and procedure code
38.44...........................
MS-DRG 230--Cases without 594 5.35 24,075
procedure code 38.45 and without
procedure code 38.44............
------------------------------------------------------------------------

Our findings show that both the average length of stay and average
costs are higher in those cases containing procedure code 38.45 than
those cases without this procedure code in MS-DRGs 228 through 230.
We then analyzed the 1,851 cases containing procedure code 39.73 in
MS-DRGs 237 and 238 and the 912 cases containing procedure code 38.45
in MS-DRGs 237 and 238 to determine if they would meet the established
criteria for a 3-way severity of illness split. This criterion is
described in section III.G.1.c. of this preamble. The chart below shows
our findings, with MS-DRG 237 acting as a severity of illness proxy for
all cases, as there were no cases in MS-DRG 238. In the chart, the
extensions ``-1,'' ``-2,'' and ``-3'' correspond to severity levels,
with ``-1'' representing cases with MCC, ``-2'' representing cases with
CC, and ``-3'' representing cases without CC/MCC.

[[Page 51531]]

Our next step was to analyze the claims data for the cases in the
clinically coherent MS-DRGs to which we proposed to move these cases.
These six MS-DRGs are: 216 (Cardiac Valve & Other Major Cardiothoracic
Procedures with Cardiac Catheterization with MCC); 217 (Cardiac Valve &
Other Major Cardiothoracic Procedures with Cardiac Catheterization with
CC); 218 (Cardiac Valve & Other Major Cardiothoracic Procedures with
Cardiac Catheterization without CC/MCC); 219 (Cardiac Valve & Other
Major Cardiothoracic Procedures without Cardiac Catheterization with
MCC), 220 (Cardiac Valve & Other Major Cardiothoracic Procedures
without Cardiac Catheterization with CC); and 221 (Cardiac Valve &
Other Major Cardiothoracic Procedures without Cardiac Catheterization
without CC/MCC). For the sake of the grouping algorithm, procedure
codes 39.73 and 38.45 must also be added to MS-DRGs 216 through 219.
However, if these codes are documented in cases in which a cardiac
catheterization occurs, they will be ``trumped'' by those
catheterizations. Therefore, when we reviewed the data in order to make
length of stay and cost comparisons, we only used the three MS-DRGs to
which procedure codes 39.73 and 38.45 would appear without cardiac
catheterization; that is MS-DRGs 219, 220, and 221. Our findings
describing these three MS-DRGs are displayed in the following chart:

Our evaluation of the severity levels in the cases containing
procedure codes 39.73 and 38.45 using the proxy MS-DRGs 237-1, 237-2,
and 237-3 compared to the claims data in the table above with MS-DRGs
219 through 221 demonstrates that the cases are similar in resource
consumption. In addition, the cases are clinically coherent.
We indicated in the proposed rule that, by moving procedure code
38.45 to MS-DRGs 216 through 221, we did not believe that there is a
need for combination codes 38.45 plus 38.44 to be specifically assigned
to MS-DRGs 228, 229, and 230. Because MS-DRGs 216 through 221 are
higher in the surgical hierarchy for MDC 5 than MS-DRGs 228 through
230, the result of the proposal would be that either procedure code
38.45 by itself or in combination with procedure code 38.44 will always
be assigned to MS-DRGs 216 through 221. We indicated that when reported
alone, under this policy, procedure code 38.44 would continue to be
assigned to MS-DRGs 237 and 238, as it has been in the past.
Therefore, for FY 2012, we proposed to remove procedure codes 38.45
and 39.73 from MS-DRGs 237 and 238 and to add these codes to MS-DRGs
216, 217, 218, 219, 220, and 221 based on our findings of similar
resource consumption and clinical coherence. To conform to this
proposed change, we also proposed to revise the title of MS-DRG 237
(Major Cardiovascular Procedures with MCC or Thoracic Aortic Aneurysm
Repair) by removing the terms ``or Thoracic Aortic Aneurysm Repair.''
Therefore, the new proposed title of MS-DRG 237 was ``Major
Cardiovascular Procedures with MCC.'' We invited public comment on
these proposals.
Comment: Several commenters supported the proposed changes.
Response: We appreciate the commenters' support.
Therefore, as we proposed, we are adopting our proposed changes as
final. In summary, we are removing procedure codes 38.45 and 39.73 from
MS-DRGs 237 and 238 and adding these two codes to the following six MS-
DRGs: 216; 217; 218; 219; 220; and 221. In addition, we are revising
the title of MS-DRG 237 to read ``Major Cardiovascular Procedures with
MCC.'' The title of MS-DRG 238 (Major Cardiovascular Procedures without
MCC) will remain the same.
5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue)
a. Artificial Discs
In response to the FY 2011 IPPS/LTCH PPS proposed rule, we received
a public comment that was outside of the scope of any proposal in that
proposed rule. The commenter urged CMS to reassign procedure code 84.62
(Insertion of total spinal disc prosthesis, cervical) from MS-DRG 490
(Back and Neck Procedures Except Spinal Fusion with CC/MCC or Disc
Device/Neurostimulator) into MS-DRGs 471 through 473 (Cervical Spinal
Fusion with MCC, with CC, and without CC/MCC, respectively). In
addition, the commenter requested that CMS reassign procedure code
84.65 (Insertion of total spinal disc prosthesis, lumbosacral) from MS-
DRG 490 (Back and Neck Procedures Except Spinal Fusion with CC/MCC or
Disc Device/Neurostimulator) to MS-DRGs 459 and 460 (Spinal Fusion
Except Cervical with MCC and without MCC, respectively). However, the
commenter also provided an alternative option to reassigning the
procedure codes to different MS-DRGs. The commenter suggested the
creation of a new, separate MS-DRG for the two artificial disc
procedures if reassignment to the fusion MS-DRGs was not feasible.
We refer the reader to the FY 2008 IPPS proposed rule and final
rule with comment period (72 FR 24731 through 24735 and 47226 through
47232) for discussion on the comprehensive evaluation of all the spinal
DRGs in the development of the MS-DRG classification system. The
modifications made to the spinal DRGs for FY 2008 recognized the
similar utilization of resources, differences in levels of severity,
and the complexity of the services being performed on patients
undergoing the various types of spinal procedures.
For the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed FY 2010
MedPAR claims data for procedure codes 84.62 and 84.65 in MS-DRG 490
and compared those results to the claims data for MS-DRGs 459, 460,
471, 472, and 473. We found a total of 19,840 cases in MS-DRG 490 with
an average length of stay of 4.24 days and average costs of $11,940. As
displayed in the chart below, we found 97 cases reporting procedure
code 84.62, with an average length of stay of 1.80 days and average
costs of $13,194 in MS-DRG 490. We also found 35 cases reporting
procedure code 84.65, with an average length of stay of 2.91 days and
average costs of $20,753. While average costs for the artificial disc
cases were slightly higher ($1,254 for procedure code 84.62 and $8,813
for procedure code 84.65) compared to the average cost for all cases in
MS-DRG 490, the artificial disc cases were of extremely low volume and
reflected shorter lengths of stay

[[Page 51532]]

compared to all the cases in MS-DRG 490.

We recognized the disparity in average costs for cases reporting
the insertion of a cervical or lumbar artificial disc in MS-DRG 490
compared to all the cases in that MS-DRG. However, we did not believe
this supports reassignment of procedure codes 84.62 and 84.65 to the
MS-DRGs for spinal fusion as the commenter requested. Even with the
disparity in costs, clinically, the insertion of an artificial disc is
not a spinal fusion. Therefore, reassignment of the artificial disc
cases to the fusion MS-DRGs would be clinically inappropriate. In
addition, for certain Medicare populations, the insertion of an
artificial disc is considered a noncovered procedure.
As stated earlier, the commenter also provided an alternative
option to reassigning procedure codes 84.62 and 84.65. The commenter
suggested the creation of a new, separate MS-DRG for the two artificial
disc procedures if reassignment to the fusion MS-DRGs was not feasible.
In our evaluation of the claims data and as shown above in the data
chart, the artificial disc cases are of extremely low volume;
therefore, we do not believe the findings warrant the creation of a
separate MS-DRG.
We invited public comment on our proposal not to reassign procedure
code 84.62 from MS-DRG 490 to MS-DRGs 471 through 473 and procedure
code 84.65 from MS-DRG 490 to MS-DRGs 459 and 460. We also invited
public comment on our proposal not to create a new, separate MS-DRG for
artificial disc procedures (codes 84.62 and 84.65) for FY 2012.
Comment: Several commenters supported our proposal not to create a
new MS-DRG for artificial disc procedures, as well as not to reassign
the procedure codes for insertion of a cervical or lumbar artificial
disc (codes 84.62 and 84.65) to the fusion MS-DRGs (459 and 460 and 471
through 473). One commenter agreed with our statement that the
insertion of an artificial disc is not the same as a fusion and should
not be included in the fusion MS-DRGs. Another commenter agreed that
reassignment of the artificial discs to the fusion MS-DRGs does not
appear to be a clinically appropriate classification despite
comparative costs. This commenter believed that limitations in the
data, such as the low volume of cases, may be due to artificial discs
being a noncovered procedure for certain Medicare populations and
recommended revisiting our analysis for a new separate MS-DRG if the
coverage policy is revised in the future.
Response: We appreciate the commenters' support for our proposals.
We also acknowledge the commenters recommendation to conduct further
analysis for total disc replacement procedures should the coverage
policy pertaining to certain Medicare populations be modified in the
future.
Comment: One commenter expressed appreciation to CMS for reviewing
the current MS-DRG assignment for total disc replacement (TDR)
procedures involving the cervical and lumbar areas. However, the
commenter disagreed with the proposed rule analysis, stating it was
limited to only the MedPAR database. The commenter believed that
information from two publicly available databases, the Healthcare Cost
and Utilization Project (HCUP) database and the California Patient
Discharge database, support modifications to the TDR procedures.
According to the commenter, ``CMS' current MS-DRG assignment and
resulting reimbursement at thirty to fifty percent (30-50%) of fusion
procedures is well below the average eighty-eight percent (88%) ratio
of TDR to fusion charges observed in the two additional databases
analyzed.''
The commenter acknowledged that procedure code 84.62 and procedure
code 84.65 are currently assigned to MS-DRG 490, regardless of whether
or not the patient has a CC or MCC. The commenter also acknowledged the
evaluation of the spinal procedure MS-DRGs in the FY 2008 IPPS proposed
and final rules (72 FR 24731 through 24735 and 47226 through 47232),
respectively. However, according to the commenter, the MS-DRG
assignment for TDR procedures requires a more recent and thorough
evaluation.
The commenter provided a comparison of how TDR procedures differ
from other procedures assigned to MS-DRG 490. The commenter also stated
that TDR procedures are more complex than other procedures in the MS-
DRG. For example, the commenter noted that MS-DRG 490 includes
procedure codes 84.58 and 84.59, representing spinal disc devices such
as the X-Stop, Coflex, Dynesys, and M-Brace which do not involve
removal of a disc. The commenter also noted that procedure code 80.51
(Excision of intervertebral disc), which comprises only one aspect of
the total surgery required for TDR, is assigned to the same MS-DRG. The
commenter further noted that because the two procedures are in the same
MS-DRG, the hospital payment is the same for both procedures.
In addition, the commenter included a comparison of TDR cases and
fusion cases, noting that there appeared to be greater similarity in
resource use between fusion and TDR procedures than between TDR and
other procedures in MS-DRG 490. The commenter reported that TDR is an
alternative treatment option to spinal fusion and that patients
receiving TDR have the same diagnosis as those receiving spinal fusion.
In terms of similarity, the commenter stated that during both a TDR and
spinal fusion surgery, the affected disc is removed, allowing normal
disc height to be restored by the use of an implant. In spinal fusion,
stability of the spinal segment is accomplished by the use of an
implant and instrumentation such as plates, rods or screws and use of
bone graft promotes osseous fusion of the vertebrae. For TDR
procedures, an implant that allows motion is inserted into the disc
space. According to the

[[Page 51533]]

commenter, these factors demonstrate clinical homogeneity and resource
utilization for both TDR and spinal fusion.
The commenter did not dispute our findings that TDR procedures have
shorter lengths of stay and are higher in costs compared to other
procedures within MS-DRG 490. The commenter also acknowledged that TDR
procedures are low volume and represent a fraction of all the
procedures assigned to the MS-DRG.
Response: We appreciate and acknowledge the commenter's provision
of data related to the HCUP database and the California Patient
Discharge database. However, we point out that the commenter failed to
identify the data related to each specified type of artificial disc
replacement procedure in its analysis. We do not consider the data to
be reliable for purposes of determining MS-DRG reclassifications in the
form provided, as the data do not identify the number of cases, average
length of stay, or average costs associated with a cervical versus a
lumbar disc replacement. Further, in its own submitted comments, the
commenter notes that the data provided were based on charges, not
costs. In addition, as stated in the FY 2012 IPPS proposed rule (76 FR
25800), in order for us to consider using particular non-MedPAR data,
we must have sufficient time to evaluate and test the data. This allows
us time to test the data and make a preliminary assessment as to the
feasibility of using the data. We evaluate patient care costs using
average charges and lengths of stay as proxies for costs and rely on
the judgment of our medical advisors to decide whether patients are
clinically distinct or similar to other patients in the MS-DRG. We also
consider variations and whether observed average differences are
consistent across patients or attributable to cases that were extreme
in terms of charges, length of stay, or both. Lastly, we consider the
number of patients who will have a given set of characteristics and
generally prefer not to create a new MS-DRG unless it would include a
substantial number of cases.
In response to the commenter's comparison of how TDR procedures
differ from other procedures in MS-DRG 490, we point out that procedure
code 84.58 (Implantation of interspinous process decompression device),
which previously identified the X-Stop device, was deleted effective
October 1, 2007 (FY 2008). In addition, the other spinal disc devices
that were noted by the commenter (Coflex, Dynesys, and M-Brace) were
reassigned from procedure code 84.59 (Insertion of other spinal
devices) to unique codes that were created in response to industry
requests to describe a newer category of devices identified as motion
preserving technologies. This new procedure code category, 84.8
(Insertion, replacement and revision of posterior spinal motion
preservation device(s)), also became effective as of October 1, 2007
(FY 2008). As discussed above, the commenter recommended that CMS
conduct a more recent and thorough evaluation of the spinal procedures
in MS-DRG 490. However, in its own submitted comments, the commenter
referred to outdated, deleted codes for its comparison to TDR.
With regard to clinical homogeneity and resource utilization,
spinal fusion, TDR and a subset of the motion preserving technologies
utilizing implant devices that allow motion in the spinal column were
discussed extensively as noted above in the FY 2008 IPPS proposed rule
and final rule with comment period (72 FR 24731 through 24735 and 47226
through 47232), respectively.
We will continue to evaluate the MS-DRGs on an annual basis and to
respond to requests for code reassignments and MS-DRG
reclassifications. We performed an analysis of the cervical and lumbar
artificial disc replacement procedures in comparison to the fusion MS-
DRGs in response to the commenter's request, as described above. Our
data did not support reassignment of the artificial disc replacement
codes, nor did our clinical advisors agree that these procedures are
clinically coherent to be grouped in the same MS-DRGs. In addition, the
data did not support the creation of a new, separate MS-DRG for total
disc replacement procedures.
As mentioned previously, we performed a comprehensive analysis of
all the spinal DRGs in our FY 2008 rulemaking process and we recognized
the costs of procedures involving insertion of a disc device. As a
result, we modified MS-DRG 490 (the higher severity level) to include
those procedures with disc devices. The data analysis conducted at that
time supported that modification.
We will continue to monitor the resource utilization of procedure
codes 84.62 and 84.65 to determine if future MS-DRG reassignments are
warranted.
After consideration of the public comments we received, we are
finalizing our proposal to not create a new, separate MS-DRG for
cervical or lumbar total disc replacement procedures and to not
reassign procedure code 84.62 from MS-DRG 490 to MS-DRGs 471 through
473 and procedure code 84.65 from MS-DRG 490 to MS-DRGs 459 and 460 for
FY 2012.
b. Major Joint Replacement or Reattachment of Lower Extremities
We received a request to add an additional severity level for MS-
DRG 469 (Major Joint Replacement or Reattachment of Lower Extremity
with MCC) and MS-DRG 470 Major Joint Replacement or Reattachment of
Lower Extremity without MCC). For the FY 2012 IPPS/LTCH PPS proposed
rule, we examined FY 2010 MedPAR claims data to determine if we could
subdivide the base MS-DRG into three severity levels: with MCC, with
CC, and without CC/MCC. We applied the criteria used in the development
of the MS-DRGs included in the FY 2008 IPPS final rule with comment
period (72 FR 47169). We refer readers to this final rule with comment
period for a complete description of these criteria. As discussed
earlier, the original criteria were based on average charges. However,
subsequent to the FY 2007 IPPS final rule (71 FR 47882), we now use
average costs. The five criteria using costs are listed below. In order
to warrant creation of a CC or an MCC subgroup within a base MS-DRG,
the subgroup must meet all of the following five criteria:
A reduction in variance of costs of at least 3 percent.
At least 5 percent of the patients in the MS-DRG fall
within the CC or MCC subgroup.
At least 500 cases are in the CC or MCC subgroup.
There is at least a 20-percent difference in average costs
between subgroups.
There is a $2,000 difference in average costs between
subgroups
The following table shows our determination of the number of cases
and average costs by MCC, CC, and non-CC levels.

------------------------------------------------------------------------
Average
MS-DRGs 469 and 470 Number of length of Average
cases stay costs
------------------------------------------------------------------------
Cases with MCC................... 25,717 7.72 $21,016

[[Page 51534]]

Cases with CC.................... 179,116 3.99 14,233
Cases without CC/MCC............. 220,739 3.21 13,250
--------------------------------------
Total........................ 425,572 3.8 14,133
------------------------------------------------------------------------

We determined that these cases do not meet our five criteria for
adding a new severity level. The cases failed to meet criterion four
(requiring at least a 20-percent difference in average costs between
subgroups) and criterion five (requiring a $2,000 difference in average
costs between subgroups). Therefore, we did not propose the addition of
a new severity level for the base MS-DRG. Instead, we proposed to
maintain the two existing severity levels for MS-DRGs 469 and 470. We
welcomed public comments on our proposal not to add an additional
severity level to MS-DRGs 469 and 470.
Comment: Several commenters supported our proposal to maintain the
two existing severity levels for MS-DRGs 469 and 470 and not to add a
third severity level. The commenters stated that the proposal seemed
reasonable, given the data and information provided.
One commenter opposed our proposal. The commenter acknowledged the
five criteria used to evaluate the establishment of a new severity
level and the fact that this set of MS-DRGs did not meet the criterion
requiring at least a 20-percent difference in average costs between
subgroups or the criterion requiring a $2,000 difference in average
costs between subgroups. However, the commenter stated that the large
number of ``with CC'' cases that are currently classified in the
``without CC/MCC'' group places an unfair burden on providers who treat
these patients and presents a distorted picture of the actual severity
level of cases assigned to those providers. The commenter believed that
adding an additional severity level to MS-DRGs 469 and 470 would better
identify those conditions that lead to higher severity of illness and
resource use relative to the average Medicare patient.
Another commenter opposed our proposal of maintaining the current
two severity levels. The commenter stated that while the data appear to
show that there is not a significant average cost difference between
cases without CC/MCC compared to cases with CC, the commenter believed
the data are biased. The commenter believed that diagnoses that do not
affect DRG assignment are less likely to be reported on claims. The
commenter speculated that it was reasonable to assume that, for cases
assigned to these MS-DRGs, complications and comorbidities are
underreported, as hospitals know that coding complications and
comorbidities do not result in higher reimbursement. The commenter
stated that a more reasonable approach would be to establish a third
severity level for major joint replacement, with the intent of
analyzing the data over the next 2 years to determine whether this was
an appropriate MS-DRG modification. The commenter stated that the fact
that ``Revision of a Hip or Knee Replacement'' has three levels
strongly suggests that three levels would be appropriate for major
joint replacement also.
Response: We agree with the commenters' statements that the data
analysis shows that two of the five established criteria for creating a
new severity level were not met. The cases failed to meet criterion two
requiring at least a 20-percent difference in average costs between
subgroups and criterion five requiring a $2,000 difference in average
costs between subgroups. The criteria were developed to evaluate the
need for severity levels across all MS-DRGs. We applied the criteria
used in the development of the MS-DRGs included in the FY 2008 IPPS
final rule with comment period (72 FR 47169). We refer readers to that
final rule with comment period for a complete description of these
criteria. As discussed earlier, the original criteria were based on
average charges. However, subsequent to the FY 2007 IPPS final rule (71
FR 47882), we now use average costs. We believe it is important to
apply these criteria consistently as requests are evaluated to create
new severity levels. The cases in MS-DRGs 469 and 470 failed to meet
the five criteria for adding a new severity level. We agree with the
commenters who supported our proposal to maintain the two existing
severity levels for MS-DRGs 469 and 470 and not creating a third
severity level.
We disagree with the commenters who stated that CMS should ignore
the criteria and add the additional severity level. One commenter
suggested that we could retroactively review this new severity level by
examining claims data 2 years after the update is made. We believe it
is inappropriate to make an exception to the severity level criteria
based on an assumption that hospitals may be under reporting secondary
diagnoses that are on the CC list for certain types of cases. We
encourage hospitals to code and report accurately. We will continue to
review data to determine if additional severity levels are needed for
specific MS-DRGs based on our published criteria. We do not believe it
is appropriate to make exceptions for certain MS-DRGs.
After consideration of the public comments we received, as we
proposed, we are maintaining MS-DRGs 469 and 470 with the current two
severity levels for FY 2012.
c. Combined Anterior/Posterior Spinal Fusion
A manufacturer requested that CMS reassign spinal fusion cases
utilizing the AxiaLIF technology from MS-DRGs 459 and 460 (Spinal
Fusion Except Cervical with MCC and without MCC, respectively) to MS-
DRGs 453, 454, and 455 (Combined Anterior/Posterior Spinal Fusion with
MCC, with CC, and without CC/MCC, respectively). The commenter stated
that an anterior lumbar interbody spinal fusion performed with a
lateral approach, the extreme lateral interbody fusion (XLIF[supreg]),
with posterior spinal fixation, can report two codes resulting in
assignment to the combined fusion MS-DRGs. The commenter also stated
that the AxiaLIF technology, which is also utilized in an anterior
lumbar interbody spinal fusion and uses a pre-sacral approach, can only
report one code, resulting in assignment to the single fusion MS-DRGs.
The commenter expressed concern that the payment incentives are not
properly aligned for the recently available minimally invasive spinal
fusion technologies. The commenter compared the XLIF[supreg] to the
AxiaLIF and urged CMS to consider the AxiaLIF technology similar to the
XLIF[supreg] for purposes of MS-DRG assignment.
Spinal fusion is a surgical procedure that joins two or more
vertebrae by the use of bone graft (or bone graft substitute), with the
goal of maintaining

[[Page 51535]]

alignment, providing stability, decreasing pain, and restoring the
function of the spinal nerves. Routinely, a spinal fusion also utilizes
internal fixation devices (instrumentation) to assist in stabilizing
the spine. These fixation devices may include pedicle screws, cages,
rods, or plates. Effective October 1, 2010, ICD-9-CM procedure code
81.06 (Lumbar and lumbosacral fusion of the anterior column, anterior
technique) describes the XLIF[supreg] procedure, and code 81.08 (Lumbar
and lumbosacral fusion of the anterior column, posterior technique)
describes the AxiaLIF technology.
The spinal fusion codes and their corresponding MS-DRG assignment
include the use of bone graft and internal fixation. The requestor's
comment regarding the assignment of one procedure code for one
technology versus assigning two procedure codes for another technology
indicates that the commenter may not fully understand the MS-DRG
GROUPER logic for spinal fusions. For example, if an anterior lumbar
interbody fusion is performed and posterior spinal fixation (or
instrumentation) is also utilized, this requires one code and results
in a single fusion MS-DRG assignment. However, if a posterior spinal
fusion (procedure code 81.07 (Lumbar and lumbosacral fusion of the
posterior column, posterior technique) was performed in addition to an
anterior fusion, for example, the XLIF[reg] procedure (procedure code
81.06), that scenario would necessitate the assignment of both codes,
resulting in assignment to the combined spinal fusion MS-DRGs (453,
454, or 455). MS-DRGs 453, 454, and 455 were created to capture
patients who have both an anterior and posterior fusion. We believe the
requestor may have confused the terms ``fixation'' and ``fusion'' for
MS-DRG assignment in its request.
For the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed the FY
2010 MedPAR data to evaluate claims reporting procedure codes 81.06,
81.07, and 81.08 in MS-DRGs 456 through 458 (Spinal Fusion Except
Cervical with Spinal Curvature/Malignancy/Infection or 9+ Fusions with
MCC, with CC and without CC/MCC, respectively) and MS-DRGs 459 and 460.
We found a total of 1,115 cases in MS-DRG 456, with an average length
of stay of 13.14 days and average costs of $63,856. We found 278 cases
reporting procedure code 81.08, with an average length of stay of 12.04
days and average costs of $56,585. Similar results can be seen for
procedure code 81.08 in the remaining MS-DRGs as shown in the chart
below in terms of volume, length of stay, and average cost. Clearly,
the data demonstrate that the AxiaLIF technology (procedure code 81.08)
is appropriately assigned to its current MS-DRG assignments, as is the
XLIF[supreg] procedure (procedure code 81.06).

------------------------------------------------------------------------
Average
MS-DRG Number of length of Average
cases stay costs
------------------------------------------------------------------------
MS-DRG 456--All cases............ 1,115 13.14 $63,856
MS-DRG 456--Cases with code 81.06 54 14.37 52,392
MS-DRG 456--Cases with code 81.07 22 12.32 46,828
MS-DRG 456--Cases with code 81.08 278 12.04 56,585
MS-DRG 457--All cases............ 3,079 6.74 41,500
MS-DRG 457--Cases with code 81.06 119 6.42 36,468
MS-DRG 457--Cases with code 81.07 98 6.49 36,532
MS-DRG 457--Cases with code 81.08 1,194 5.73 35,272
MS-DRG 458--All cases............ 1,389 3.91 32,946
MS-DRG 458--Cases with code 81.06 115 3.49 29,089
MS-DRG 458--Cases with code 81.07 76 3.16 30,551
MS-DRG 458--Cases with code 81.08 827 3.60 30,570
MS-DRG 459--All cases............ 3,650 8.92 40,218
MS-DRG 459--Cases with code 81.06 164 9.12 40,150
MS-DRG 459--Cases with code 81.07 165 8.65 37,970
MS-DRG 459--Cases with code 81.08 2,468 8.25 38,010
MS-DRG 460--All cases............ 60,865 3.75 25,268
MS-DRG 460--Cases with code 81.06 2,681 3.27 26,464
MS-DRG 460--Cases with code 81.07 3,709 3.67 23,334
MS-DRG 460--Cases with code 81.08 46,565 3.66 24,571
------------------------------------------------------------------------

We also analyzed data for combinations of the spinal fusion codes
that result in assignment to MS-DRGs 453, 454, and 455. We evaluated
the following combinations:
81.06 (Lumbar and lumbosacral fusion of the anterior
column, anterior technique) and 81.07 (Lumbar and lumbosacral fusion of
the posterior column, posterior technique).
81.06 (Lumbar and lumbosacral fusion of the anterior
column, anterior technique) and 81.08 (Lumbar and lumbosacral fusion of
the anterior column, posterior technique).
We further analyzed data with the following combination of spinal
fusion codes in MS-DRGs 456, 457, and 458 and MS-DRGs 459 and 460:
81.07 (Lumbar and lumbosacral fusion of the posterior
column, posterior technique) and 81.08 (Lumbar and lumbosacral fusion
of the anterior column, posterior technique).
The chart below shows the results of the data analysis for the
combination of procedure codes listed above where an anterior and
posterior spinal fusion was performed in the same episode of care.
There were a total of 1,190 cases in MS-DRG 453, with an average length
of stay of 13.08 days and average costs of $71,693. The cases reporting
the combination of procedure codes 81.06 and 81.08 in this same MS-DRG
totaled 431, with an average length of stay of 11.59 days and average
costs of $69,859. Results for the procedure code combination (81.06 and
81.08) in MS-DRGs 454 and 455 with regard to volume of cases, length of
stay, and average costs data also support that these spinal fusion
procedure code combinations are appropriately placed in their current
MS-DRG assignments. Likewise, for MS-DRGs 456, 457, and 458, the data
support that the spinal fusion procedure code combinations of 81.07 and
81.08 are appropriately placed in their current MS-DRG assignments.
There were a total of 1,115 cases in MS-DRG 456 with an average length
of stay of 13.14 days and average

[[Page 51536]]

costs of $68,856. The cases reporting the combination of procedure
codes 81.07 and 81.08 in this same MS-DRG totaled 54, with an average
length of stay of 14.37 days and average costs of $52,392. Results for
the procedure code combination (81.07 and 81.08) in MS-DRGs 457 and 458
with regard to volume of cases and average length of stay were lower
compared to all the cases in those two MS-DRGs. While the data show
higher average costs for the procedure code combination of 81.07 and
81.08 in MS-DRGs 457 and 458, as stated previously, the volume was
extremely low.

------------------------------------------------------------------------
Average
MS-DRG Number of length of Average
cases stay costs
------------------------------------------------------------------------
MS-DRG 453--All cases............ 1,190 13.08 $71,693
MS-DRG 453--Cases with codes 8 14.00 109,089
81.06 and 81.07.................
MS-DRG 453--Cases with codes 431 11.59 69,859
81.06 and 81.08.................
MS-DRG 454--All cases............ 3,052 6.38 48,311
MS-DRG 454--Cases with codes 47 6.83 60,743
81.06 and 81.07.................
MS-DRG 454--Cases with codes 1,825 5.71 47,144
81.06 and 81.08.................
MS-DRG 455--All cases............ 2,747 3.63 37,378
MS-DRG 455--Cases with codes 40 4.28 47,794
81.06 and 81.07.................
MS-DRG 455--Cases with codes 2,053 3.43 37,793
81.06 and 81.08.................
MS-DRG 456--All cases............ 1,115 13.14 63,856
MS-DRG 456--Cases with codes 54 14.37 52,392
81.07 and 81.08.................
MS-DRG 457--All cases............ 3,079 6.74 41,500
MS-DRG 457--Cases with codes 29 5.97 60,820
81.07 and 81.08.................
MS-DRG 458--All cases............ 1,389 3.91 32,946
MS-DRG 458--Cases with code 81.07 23 3.22 51,942
and 81.08.......................
------------------------------------------------------------------------

As the focus of the analysis was to evaluate procedure code 81.08
in comparison to procedure code 81.06, we believe the AxiaLIF
technology (procedure code 81.08) is grouped appropriately in its
current MS-DRG assignments, as is the XLIF[supreg] procedure (procedure
code 81.06). The volume, length of stay, and cost data analyzed
demonstrate that the complexity of services and resources utilized for
each of these technologies are properly accounted for in their
respective MS-DRG assignments. Therefore, the data did not support
making changes for procedure code 81.08. As a result, we did not
propose to reassign cases reporting this procedure code to the combined
fusion MS-DRGs. We invited public comment on our proposal to not
reassign procedure code 81.08 from MS-DRGs 456 through 460 to MS-DRGs
453 through 455 for FY 2012.
Comment: Several commenters supported our proposal to not reassign
procedure code 81.08 to MS-DRGs 453 through 455.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing our proposal to not reassign procedure code 81.08 to MS-DRGs
453 through 455.
6. MDC 9 (Diseases and Disorders of the Skin, Subcutaneous Tissue, and
Breast): Excisional Debridement of Wound, Infection, or Burn
We received a request that we remove procedure code 86.22
(Excisional debridement of wound, infection, or burn) from the list of
codes considered to be O.R. procedures. The commenter stated that many
inpatient excisional debridements are performed in a patient's room
instead of in an operating room. The commenter believed that the
original assignment of procedure code 86.22 to the O.R. list served to
help reflect the resource intensity required by a patient with wounds
and ulcers that required an excisional debridement. The commenter
stated that, by doing so, the code served as a proxy for severity of
illness in the original CMS DRGs prior to the implementation of MS-DRGs
in FY 2008. The commenter stated that the creation of the most serious
pressure ulcer codes for stage 3 and stage 4 pressure ulcers (codes
707.23 and 707.24) allows these conditions to be classified as MCCs.
Therefore, the commenter stated that the need to use procedure code
86.22 to capture severity of illness was no longer needed. The
commenter also stated that procedure code 86.22 is a non-O.R. code
under the APR-DRGs and does not affect the DRG assignment. The
commenter requested that procedure code 86.22 be changed from an O.R.
procedure code to a non-O.R. procedure code.
As the commenter stated, excisional debridements are currently
captured in procedure code 86.22. Procedure code 88.22 is classified as
an O.R. procedure in the current MS-DRGs and, therefore, leads to a
surgical MS-DRG assignment. We examined MedPAR claims data on all
excisional debridement cases and found that these debridement cases use
appreciably fewer resources than other cases in their current surgical
DRGs. However, for the proposed rule, we determined that if we were to
classify debridement cases as non-O.R. cases and assign them to medical
DRGs, we would significantly underpay these cases. The following chart
shows differences in average costs for all excisional debridement cases
compared to other cases within their current MS-DRG and compared to
medical DRGs to which the patients would be assigned if the procedure
were reclassified as a non-O.R. procedure.

----------------------------------------------------------------------------------------------------------------
Average costs
in surgical Average costs
All cases with Average cost DRGs to which in medical DRGs
Procedure code no other OR (A) the patients to which the
procedure are assigned patients would
(B) be assigned (C)
----------------------------------------------------------------------------------------------------------------
86.22....................................... 32,152 $12,427 $17,332 $8,070
----------------------------------------------------------------------------------------------------------------

[[Page 51537]]

The chart illustrates that when debridement is the only O.R.
procedure, it is assigned to MS-DRGs that have an average cost that is
approximately $5,000 more than the actual cost of the debridement
($12,427 versus $17,332). Conversely, if the debridement is made a non-
O.R. code, it would, on average, be assigned to MS-DRGs that have an
average cost that is approximately $4,000 less than the actual cost of
the debridement ($8,070 versus $12,427). Therefore, we believe it would
be inappropriate to propose to classify these procedures as a non-O.R.
procedure.
For the proposed rule, we explored alternative approaches to
classifying procedure code 86.22 as a non-O.R. procedure. We evaluated
the possibility of removing excisional debridements from their current
MS-DRG assignments within the following skin-related MS-DRGs, where
they are combined with skin grafts, and creating a new set of
debridement MS-DRGs. The current MS-DRGs that combine skin grafts and
debridements into the same MS-DRGs are as follows:
MS-DRGs 573 through 575 (Skin Graft &/or Debridement for
Skin Ulcer or Cellulitis with MCC, with CC, and without CC/MCC,
respectively).
MS-DRGs 576 through 578 (Skin Graft &/or Debridement
Except for Skin Ulcer or Cellulitis with MCC, with CC, and without CC/
MCC, respectively).
We analyzed MedPAR claims data on the severity level of graft cases
without any debridements in these six MS-DRGs. Our findings are shown
in the chart below.

Skin Grafts Without Debridements
------------------------------------------------------------------------
Average
MS-DRG Number of length of Average
cases stay costs
------------------------------------------------------------------------
MS-DRGs 573-575--Cases with 751 14.56 $23,975
severity level of MCC...........
MS-DRGs 573-575--Cases with 1,720 10.16 14.869
severity level of CC............
MS-DRGs 573-575--Cases with 540 5.36 8,469
severity level of without CC/MCC
MS-DRGs 576-578--Cases with 335 10.28 22,996
severity level of MCC...........
MS-DRGs 576-578--Cases with 1,482 5.28 11,299
severity level of CC............
MS-DRGs 576-578--Cases with 1,849 3.01 6,986
severity level of without CC/MCC
------------------------------------------------------------------------

We compared these data to a proposed new set of skin-related MS-
DRGs that would include only debridements. The results of the findings
of the severity levels of debridements without skin grafts in these six
MS-DRGs are shown in the chart below.

Debridements Without Skin Grafts
------------------------------------------------------------------------
Average
MS-DRG Number of length of Average
cases stay costs
------------------------------------------------------------------------
MS-DRG 573-575--Cases with 3,177 11.73 $18,381
severity level of MCC...........
MS-DRG 573-575--Cases with 6,649 7.67 10,730
severity level of CC............
MS-DRG 573-575--Cases with 2,555 4.94 6,372
severity level of without CC/MCC
MS-DRG 576-578--Cases with 271 11.59 19,429
severity level of MCC...........
MS-DRG 576-578--Cases with 638 7.61 11,913
severity level of CC............
MS-DRG 576-578--Cases with 285 4.45 6,928
severity level of without CC/MCC
------------------------------------------------------------------------

Our findings indicate that the graft procedure cases have higher
average costs than the excisional debridement cases. The average costs
for the excisional debridement cases in MS-DRGs 573 through 575
compared to the debridement cases in MS-DRGs 576 through 578 are very
similar. We believe that the data support creating a single set of
skin-related excisional debridement MS-DRGs composed of cases
previously captured in MS-DRGs 573 through 575 as well as MS-DRGs 576
through 578. The following chart illustrates those combined average
costs.

Excisional Debridements From Ms-Drgs 573 Through 578 Split on Severity
Level
------------------------------------------------------------------------
Average
MS-DRGs 573--578 Number of length of Average
cases stay costs
------------------------------------------------------------------------
Combined Excisional Debridement 3,448 11.71 $18,463
Cases with Severity Level of MCC
Combined Excisional Debridement 7,287 7.76 10,833
Cases with Severity Level of CC.
Combined Excisional Debridement 2,840 4.89 6,428
Cases with Severity Level of
without CC/MCC..................
------------------------------------------------------------------------

As we stated in the proposed rule, we believe that the data support
separating skin graft procedures from excisional debridements by
creating a new set of MS-DRGs. This would result in more accurate
payment for both skin grafts and debridement. Therefore, we proposed to
remove excisional debridements (procedure code 86.22) from their
current MS-DRG assignments within MS-DRGs 573 through 578 for skin
grafts and assign them to new excisional debridement MS-DRGs. We
proposed to maintain MS-DRGs 573 through 578 for skin grafts. The
following list describes the proposed new and revised MS-DRG titles:

[[Page 51538]]

Proposed new MS-DRGs based on procedure code 86.22:

Proposed MS-DRG 570 (Skin Debridement with MCC)
Proposed MS-DRG 571 (Skin debridement with CC)
Proposed MS-DRG 572 (Skin Debridement without CC/MCC)

Proposed Revised MS-DRGs based on codes currently assigned to MS-
DRGs 573 through 578, excluding procedure code 86.22:

Proposed revised MS-DRG 573 (Skin Graft for Skin Ulcer or
Cellulitis with MCC)
Proposed revised MS-DRG 574 (Skin Graft for Skin Ulcer or
Cellulitis with CC)
Proposed revised MS-DRG 575 (Skin Graft for Skin Ulcer or
Cellulitis without CC/MCC)
Proposed revised MS-DRG 576 (Skin Graft Except for Skin Ulcer
or Cellulitis with MCC)
Proposed revised MS-DRG 577 (Skin Graft except for Skin Ulcer
or Cellulitis with CC)
Proposed revised MS-DRG 578 (Skin Graft Except for Skin Ulcer
or Cellulitis without CC/MCC)

In the proposed rule, we invited public comments on our proposal
for FY 2012 to create three new debridement MS-DRGs 570, 571, and 572
for skin debridement and to revise MS-DRGs 573 through 578 to include
skin grafts only, as indicated above.
Comment: Several commenters supported our proposal to create three
new debridement MS-DRGs, MS-DRGs 570, 571, and 572 for skin debridement
and to revise MS-DRGs 573 through 578 to include skin grafts only, as
described above. One commenter stated that the proposal seemed
reasonable, given the data and the information provided. Another
commenter who supported this MS-DRG modification expressed appreciation
for the change because the relative weights better reflect resource
intensive cases with the proposed new and revised MS-DRGs 570 through
578.
One commenter supported our recommendation not to remove the code
for excisional debridement from the O.R. list. However, the commenter
opposed removing excisional debridements (procedure code 86.22) from
their current MS-DRG assignments within MS-DRGs 573 through 578 for
skin grafts and assigning them to new excisional debridement MS-DRGs
and maintaining MS-DRGs 573 through 578 for skin grafts. The commenter
stated that excisional debridement is not exclusively a bedside
procedure. Rather, the commenter noted, it can be performed in or out
of the operation room, based on the judgment of the surgeon. The
commenter stated that, in many instances, this procedure cannot be
performed at the bedside due to variables such as patient anxiety, the
size of the wound, bleeding risk, among others. The commenter stated
that removing excisional debridements from their current MS-DRG
assignments could harm many hospitals that perform procedures such as
split thickness skin grafts for extensive wound or burns. The commenter
recommended that, instead of removing excisional debridements from the
current MS-DRG assignments, CMS create a separate ICD-9-CM code for
debridement that is performed in the operating room due to anesthesia,
equipment, or monitoring requirements.
Another commenter opposed the creation of separate debridement and
skin graft MS-DRGs out of concern that this would create significant
confusion among hospital coders. The commenter stated that skin grafts
and skin debridements are often performed on the same patient. The
commenter stated that the current descriptions of MS-DRGs 573 through
575 (Skin Graft and/or Debridement for Skin Ulcer or Cellulitis with
MCC, with CC, and without CC/MCC, respectively) and MS-DRGs 576 through
578 (Skin Graft and/or Debridement Except for Skin Ulcer or Cellulitis
with MCC, with CC, and without CC/MCC, respectively) appropriately
describe the interrelationship between skin grafts and debridement. The
commenter expressed concern that de-linking this relationship would
lead to confusion for coders.
Response: We agree with the commenters that data support the
creation of three new debridement MS-DRGs 570, 571, and 572 for skin
debridement and the revision of MS-DRGs 573 through 578 to include skin
grafts only.
We disagree with the commenter who recommends that, instead of
creating separate MS-DRGs for skin debridements and skin grafts, CMS
pursue the creation of a new skin debridement code that would be
limited to those procedures performed in an operating room setting.
ICD-9-CM codes are not currently subdivided based on the location of
the procedure such as in an operating room, endoscopy room,
catheterization room, treatment room, or patient room. ICD-9-CM codes
are assigned based on the procedure performed, not the location in
which the procedure was performed. Furthermore, we have just begun a
period of a partial freeze of both ICD-9-CM and ICD-10 codes. This
partial freeze is discussed in section II.G.13.b. of this preamble. We
do not believe it is appropriate to postpone refinements to the MS-DRGs
until a code update could be made and data on cases reported with the
new code could be evaluated. We believe the current data support this
proposed modification. However, as stated earlier, ICD-9-CM codes do
not indicate the setting in which a procedure is performed. Therefore,
it is unlikely that such a code would be created even if we were not in
a period of a code freeze.
We also disagree with the commenter who stated that creating
separate MS-DRGs for skin debridements and skin grafts will create
confusion for coders. We believe that coders clearly understand the
difference between skin debridements and skin grafts. If both are
performed, then coders code and report both procedures. The fact that
the MS-DRGs would be modified would not affect the way in which coders
assign codes for skin debridements and skin grafts. We also note that
organizations representing coders, including the American Health
Information Management Association, supported this proposed MS-DRG
modification. These organizations did not express concerns about any
possible confusion for coders.
After consideration of the public comments we received, we are
finalizing our proposal to create the following new and revised MS-
DRGs:
New MS-DRGs based on procedure code 86.22:
MS-DRG 570 (Skin Debridement with MCC)
MS-DRG 571 (Skin debridement with CC)
MS-DRG 572 (Skin Debridement without CC/MCC)
Revised MS-DRGs based on codes currently assigned to MS-DRGs 573
through 578, excluding procedure code 86.22:
Revised MS-DRG 573 (Skin Graft for Skin Ulcer or Cellulitis
with MCC)
Revised MS-DRG 574 (Skin Graft for Skin Ulcer or Cellulitis
with CC)
Revised MS-DRG 575 (Skin Graft for Skin Ulcer or Cellulitis
without CC/MCC)
Revised MS-DRG 576 (Skin Graft Except for Skin Ulcer or
Cellulitis with MCC)
Revised MS-DRG 577 (Skin Graft except for Skin Ulcer or
Cellulitis with CC)
Revised MS-DRG 578 (Skin Graft Except for Skin Ulcer or
Cellulitis without CC/MCC)

[[Page 51539]]

7. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and
Disorders)
a. Nutritional and Metabolic Diseases: Update of MS-DRG Titles
We received a request to revise the MS-DRG titles for MS-DRGs 640
through 642 to more clearly capture the cases that are currently
assigned to these MS-DRGs. The current titles for these MS-DRGs are:
MS-DRGs 640 (Nutritional & Miscellaneous Metabolic Disorders with MCC);
MS-DRG 641 (Nutritional & Miscellaneous Metabolic Disorders without
MCC); and MS-DRG 642 (Inborn Errors of Metabolism). The requestor
suggested that we change the titles to: MS-DRG 640 (Miscellaneous
Disorders of Nutrition, Metabolism, and Fluids and Electrolytes with
MCC); MS-DRG 641 (Miscellaneous Disorders of Nutrition, Metabolism, and
Fluids and Electrolytes without MCC); and MS-DRG 642 (Inborn and Other
Disorders of Metabolism).
Our clinical advisors supported these suggested changes to the
titles, as the suggested changes would provide a better description of
the diagnoses assigned to MS-DRGs 640, 641, and 642. Therefore, in the
FY 2012 IPPS/LTCH PPS proposed rule, we proposed to revise the MS-DRG
titles for MS-DRGs 640, 641, and 642 as the requestor suggested. We
invited public comment on our proposal to change the MS-DRG titles for
MS-DRGs 640, 641, and 642 for FY 2012.
Comment: Several commenters supported our proposed changes to the
titles of MS-DRGs 640 through 642 to better reflect the cases that are
assigned to these MS-DRGs.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing our proposal to change the titles for MS-DRGs 640 through
642. The final tiles are as follows:

MS-DRG 640 (Miscellaneous Disorders of Nutrition, Metabolism,
and Fluids and Electrolytes with MCC)
MS-DRG 641 (Miscellaneous Disorders of Nutrition, Metabolism,
and Fluids and Electrolytes without MCC)
MS-DRG 642 (Inborn and Other Disorders of Metabolism).
b. Sleeve Gastrectomy Procedure for Morbid Obesity
Sleeve gastrectomy is a 70 percent to 80 percent greater curvature
gastrectomy (sleeve resection of the stomach) with continuity of the
gastric lesser curve being maintained while simultaneously reducing
stomach volume. It may be the first step in a two-stage procedure when
performing Roux-en-Y Gastric Bypass (RYGBP). Sleeve gastrectomy,
whether open or laparoscopic, is currently coded using ICD-9-CM
procedure code 43.89 (Other total gastrectomy). Procedure code 43.89 is
currently assigned to several MS-DRGs. However, the code is not
assigned to MS-DRG 619, 620, or 621 (O.R. Procedures for Obesity with
MCC, with CC, and without CC/MCC, respectively).
We received a request for CMS to review MDC 10 (Endocrine,
Nutritional, and Metabolic Diseases and Disorders) for consistency.
Specifically, the requestor questioned why diagnosis code 278.01
(Morbid obesity), when paired on a claim with procedure code 43.89,
would be assigned to MS-DRG 981, 982, or 983 (Extensive O.R. Procedure
Unrelated to Principal Diagnosis with MCC, with CC, or without CC/MCC,
respectively) instead of MS-DRG 619, 620, or 621.
Upon review for the FY 2012 IPPS/LTCH PPS proposed rule, we
determined that diagnosis code 278.01 is assigned to MDC 10. However,
procedure code 43.89 is not assigned to any MS-DRG set in this MDC.
Therefore, the cases are assigned to MS-DRGs 981 through 983,
reflecting procedures not related to the principal diagnosis. This was
an inadvertent oversight on CMS' part when the MS-DRGs were created.
Therefore, we proposed to add a procedure code or codes identifying
sleeve gastrectomy to MS-DRGs 619 through 621 for FY 2012.
Currently, sleeve gastrectomy is identified in the ICD-9-CM
procedure code Index as follows: Gastrectomy (partial) (subtotal) NEC
43.89. At procedure code 43.89 in the ICD-9-CM procedure code Tabular,
an inclusion note identifies this code as including sleeve resection of
the stomach.
In our proposal to add a procedure code or codes to MS-DRGs 619
through 621, we pointed out that there is an NCD that has precluded
coverage of sleeve gastrectomy when performed either open or
laparoscopically. This decision may be found in the Medicare National
Coverage Determination Manual, Section 100.1, Nationally Noncovered
Indications for Bariatric Surgery for Treatment of Morbid Obesity,
effective on February 12, 2009. This manual is available on the CMS Web
site through a link at: http://www.cms.gov/manuals/downloads/mcd103c1_Part2.pdf. This manual entry affirms that treatment for obesity via use
of the open or laparoscopic sleeve gastrectomy is determined to be
noncovered for Medicare beneficiaries.
Noncoverage of these cases is determined by our Medicare
contractors, the fiscal intermediary or A-B/MAC, because of the nature
of procedure code 43.89, which is a code that identifies several
gastrectomy procedures. To identify a code in the MCE that describes
many procedures would inappropriately restrict other procedures which
are also described by that code, but which are covered. We received a
request to create specific codes uniquely identifying both laparoscopic
sleeve gastrectomy and the open procedure, vertical sleeve gastrectomy.
We addressed this request at the ICD-9-CM Coordination and Maintenance
Committee meeting held on March 9, 2011.
We had stated that should a code or codes be created as a result of
this request, we would then be able to add this code or codes to the
MCE as a conforming noncoverage edit when combined with diagnosis code
278.01. The background information discussing sleeve gastrectomy coding
can be accessed on the CMS Web site at: http://www.cms.gov/ICD9ProviderDiagnosticcodes/03_meetings.asp#TopOfPage. A summary of
the meeting can be found on CMS' Web site for the ICD-9-CM Coordination
and Maintenance Committee at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp#TopOfPage by scrolling
down to the .pdf zip files containing the meeting agenda and handouts.
Therefore, for FY 2012, we proposed to add a procedure code or
codes identifying sleeve gastrectomy to MS-DRGs 619 through 621.
However, we also indicated that we intended to add any code or codes
created at the ICD-9-CM Coordination and Maintenance Committee on March
9, 2011, to the MCE because sleeve gastrectomy, whether open or
laparoscopic, is not covered for Medicare beneficiaries. The code or
codes would appear in the ``Noncovered Procedures'' edit of the MCE. As
the timing of the development of the proposed rule and the date of the
March 2011 meeting of the ICD-9-CM Coordination and Maintenance
Committee overlapped, we could not determine if additional sleeve
gastrectomy codes would be created, to what code number or numbers they
would be assigned, or how the narrative describing them would read.
However, we indicated that should a code or codes be created, we
proposed that they would simultaneously be placed in both MS-DRGs 619
through 621 and the MCE. This decision may seem to be counterintuitive,
but CMS realizes that

[[Page 51540]]

our MS-DRGs and the Medicare GROUPER program are used for other
beneficiaries and by other insurance plans rather than strictly for
Medicare beneficiaries. Any new code or codes created as a result of
the ICD-9-CM Coordination and Maintenance Committee meeting are
included in Table 6B (which is listed in section VI. of the Addendum to
this final rule and available via the Internet at http://www.cms.gov/ICD9ProviderDiagnosticCodes/04_addendum.asp#TopOfPage); we indicated
that we did not have a mechanism to make the codes from the March 9,
2011 meeting available in the proposed rule prior to the final rule's
publication.
As a result of the March 9, 2011 ICD-9-CM Coordination and
Maintenance Committee Meeting, one code was created: Procedure code
43.82 (Laparoscopic vertical (sleeve) gastrectomy). To address open
gastrectomies, the title of existing code 43.89 was revised to read
``Open and other partial gastrectomy''. Both codes can be found in
Table 6B (New Procedure Codes) and Table 6F (Revised Procedure Code
Titles), which are listed in the Addendum to this final rule and
available via the Internet on the CMS Web site.
Comment: Several commenters addressed both the creation of a code
or codes for laparoscopic or open sleeve gastrectomy discussed above
and the proposed changes to the MCE. Several commenters indicated that
they had no objections to the proposed changes to the MS-DRG
classifications and the MCE, stating that the proposed changes seemed
reasonable, given the data and information provided. One commenter
specifically requested that CMS finalize its proposal to add new
procedure code 43.82 to the MCE as a noncovered procedure.
Response: We appreciate the commenters' support of our proposal.
Comment: One commenter stated that they understood that procedure
code 43.89 was inadvertently omitted from MS-DRGs 619, 620, and 621
when the MS-DRGs were created and supported the addition of this code
to these MS-DRGs. In addition, this commenter stated that because
procedure code 43.89 is not specific to open sleeve gastrectomy, it
cannot be incorporated as a ``noncovered procedure'' in the MCE.
Response: We appreciate the commenter's support for this proposal
and agree that procedure code 43.89 includes several gastrectomy
procedures. Therefore, to identify a code describing many procedures in
an MCE edit would inappropriately restrict other procedures included in
that code that are covered.
After consideration of the public comments we received, we are
adopting as final our proposal to assign both the new procedure code
43.82 (Laparoscopic vertical (sleeve) gastrectomy) and the existing
procedure code 43.89 (Other total gastrectomy) to MS-DRGs 619, 620, and
621 (O.R. Procedures for Obesity with MCC, with CC, and without CC/MCC,
respectively). In addition, we are adding procedure code 43.82 to the
``Noncovered Procedures'' edit of the MCE because laparoscopic sleeve
gastrectomy is not covered for Medicare beneficiaries. Because
procedure code 43.89 includes several gastrectomy procedures, its
inclusion in the MCE would be inappropriate. Therefore, it will not be
placed on the MCE.
8. MDC 15 (Newborns and Other Neonates With Conditions Originating in
the Perinatal Period): Discharge Status Code 66 (Discharged/Transferred
to Critical Assess Hospital (CAH))
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50236), we finalized
our transfer policy regarding transfer of patients from an acute care
hospital to a CAH. In that final rule, we stated that hospitals are
required to use patient discharge status code 66 on the IPPS claims to
identify transfers to CAHs.
With this new requirement, a discharge from an IPPS hospital to a
CAH equates to a transfer status. However, discharge status code 66 is
currently not included in the MS-DRG GROUPER logic for MS-DRG 789
(Neonate, Died or Transferred to Another Acute Care Facility).
Therefore, in the FY 2012 IPPS/LTCH PPS proposed rule, we proposed to
add discharge status code 66 to the MS-DRG GROUPER logic for MS-DRG
789. We invited public comment on our proposal to add discharge status
code 66 to the MS-DRG GROUPER logic for MS-DRG 789 for FY 2012.
Comment: Several commenters supported our proposal to add discharge
status code 66 to the MS-DRG GROUPER logic for MS-DRG 789.
Response: We appreciate the support of the commenters.
After consideration of the public comments we received, we are
finalizing our proposal to add discharge status code 66 (Discharged/
Transferred to Critical Assess Hospital (CAH)) to the MS-DRG GROUPER
logic for MS-DRG 789.
9. 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 an MS-DRG. In this
final rule, we discuss our intention to make the following change to
the MCE edits.
In section II.G.7.b. of this preamble, we discuss that the current
ICD-9-CM procedure code for sleeve gastrectomy (43.89 (Other partial
gastrectomy, other)) is a noncovered code when performed for resection
of the stomach in patients with morbid obesity. We also discuss that
noncoverage for Medicare beneficiaries of cases containing procedure
code 43.89 is determined by the fiscal intermediaries or A-B/MACs
because of the nature of procedure code 43.89. This code is imprecise
and identifies several other gastrectomy procedures in addition to
sleeve resection. Therefore, to limit coverage by identifying a code
that describes many procedures through the use of the MCE would
inappropriately restrict other procedures that are covered by Medicare.
In that section, we also state that we received a request to create
specific procedure codes identifying both laparoscopic sleeve
gastrectomy and open vertical sleeve gastrectomy. As we stated above,
we addressed this request at the ICD-9-CM Coordination and Maintenance
Committee meeting held on March 9, 2011. In the FY 2012 IPPS/LTCH PPS
proposed rule (FR 76 25833 and 25834), we indicated that if a code or
codes should be created as a result of this request, we would then be
able to add these codes to the MCE as a conforming noncoverage edit
when combined with diagnosis code 278.01 (Morbid obesity).
As the timing of development of the proposed rule and the
scheduling of the ICD-9-CM Coordination and Maintenance Committee
meeting on March 9, 2011 overlapped, it was not possible to determine
what those codes might be, or even if they would be created for FY
2012. However, we indicated in the proposed rule that should a code or
codes be created, we proposed that any code or codes for laparoscopic
or open sleeve resection of the stomach would be added to the MCE as a
noncovered procedure or

[[Page 51541]]

procedures, in combination with diagnosis code 278.01. The background
information discussing sleeve gastrectomy coding can be accessed on the
CMS Web site at: http://www.cms.gov/ICD9ProviderDiagnosticcodes/03_meetings.asp#TopOfPage. New codes describing sleeve gastrectomy are
included in Table 6B (which is listed in section VI. of the Addendum to
this final rule and are also available via the Internet at http://www.cms.gov/ICD9ProviderDiagnosticCodes/04_addendum.asp#TopOfPage). In
the proposed rule, we indicated that we did not have a mechanism to
make the codes available prior to the final rule's publication, and
invited public comments on this proposal.
As a result of the March 9, 2011 ICD-9-CM Coordination and
Maintenance Committee Meeting, one code was created: procedure code
43.82 (Laparoscopic vertical (sleeve) gastrectomy). To address open
gastrectomies, the title of existing procedure code 43.89 was revised
to read ``Open and other partial gastrectomy''. Both codes can be found
in Tables 6B and 6F, which are listed in the Addendum to this final
rule and available via the Internet.
Comment: Several commenters indicated that they had no objections
to the proposed changes to the MS-DRG classifications and the MCE,
stating that the proposed changes seemed reasonable, given the data and
information provided. One commenter specifically requested that CMS
finalize its proposal to add new procedure code 43.82 to the MCE as a
noncovered procedure.
Response: We appreciate the commenters' support of our proposals.
Comment: Several commenters stated that because procedure code
43.89 is not specific to open sleeve gastrectomy it cannot be
incorporated as a ``noncovered procedure'' in the MCE.
Response: We agree that procedure code 43.89 includes several
gastrectomy procedures, and to identify this code describing many
procedures in an MCE edit would be inappropriately restricting other
procedures that are covered.
Comment: One commenter recognized that procedure codes discussed at
the ICD-9-CM Coordination and Maintenance Committee Meeting of March 9,
2011 could not logistically be included in the IPPS proposed rule. The
commenter urged CMS to apply current logic to code revisions that were
discussed at the March 2011 ICD-9-CM Coordination and Maintenance
Committee meeting, but which could not be finalized in time to include
them in the proposed rule.
Response: We appreciate that the public understands some of the
timing constraints under which we must operate. We assure the public
that the same logic considerations regarding code assignment to
predecessor MS-DRGs as well as O.R. determinations are applied to newly
created codes from the March 2011 ICD-9-CM Coordination and Maintenance
Committee Meeting as were applied to the codes created as a result of
the September 15, 2010 ICD-9-CM Coordination and Maintenance Committee
Meeting.
After consideration of the public comments we received, we are
adopting as final our proposal to add procedure code 43.82 to the
``Noncovered Procedures'' edit of the MCE, given that laparoscopic
sleeve gastrectomy is not covered for Medicare beneficiaries. Because
procedure code 43.89 includes several gastrectomy procedures, its
inclusion in the MCE would be inappropriate. Therefore, we are not
placing it on the MCE.
10. 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 weigh the average costs of each MS-DRG in
the class by frequency (that is, by the number of cases in the MS-DRG)
to determine average resource consumption for the surgical class. The
surgical classes would then be ordered from the class with the highest
average resource utilization to that with the lowest, with the
exception of ``other O.R. procedures'' as discussed 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-

[[Page 51542]]

ordered surgical class has a lower average costs than the class ordered
below it.
As we proposed, based on the changes that we are make for FY 2012,
as discussed in sections II.G.1. and 6. of this preamble, we are
revising the surgical hierarchy for Pre-MDCs and MDC 9 (Diseases and
Disorders of the Skin, Subcutaneous Tissue, and Breast) as follows:
In Pre-MDCs, we are reordering new MS-DRG 016 (Autologous Bone
Marrow Transplant with CC/MCC) and new MS-DRG 017 (Autologous Bone
Marrow Transplant without CC/MCC) above MS-DRG 010 (Pancreas
Transplant).
In MDC 9, we are reordering--
MS-DRG 578 (Skin Graft Except for Skin Ulcer or Cellulitis
without CC/MCC) above new MS-DRG 570 (Skin Debridement with MCC);
New MS-DRG 570 above new MS-DRG 571 (Skin Debridement with
CC);
New MS-DRG 571 above new MS-DRG 572 (Skin Debridement
without CC/MCC; and
New MS-DRG 572 above MS-DRG 579 (Other Skin, Subcutaneous
Tissue, and Breast Procedures with MCC).
Comment: Commenters generally supported our proposals.
Response: Based on these public comments and our review of the
proposed revisions using the March 2011 update of the FY 2010 MedPAR
file and the revised GROUPER software, we found that the revisions are
still supported by the data. Therefore, we have incorporated the
proposed revisions to the surgical hierarchy as final for FY 2012.
11. Complications or Comorbidity (CC) Exclusions List
a. Background
As indicated earlier in the preamble of this final rule, under the
IPPS MS-DRG classification system, we have developed a standard list of
diagnoses that are considered CCs. Historically, we developed this list
using physician panels that classified each diagnosis code based on
whether the diagnosis, when present as a secondary condition, would be
considered a substantial complication or comorbidity. A substantial
complication or comorbidity was defined as a condition that, because of
its presence with a specific principal diagnosis, would cause an
increase in the length of stay by at least 1 day in at least 75 percent
of the patients. 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 2012
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, the FY 2009 final rule (73 FR
48510), the FY 2010 final rule (74 FR 43799); and the FY 2011 final
rule (75 FR 50114). 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.
---------------------------------------------------------------------------

(1) Limited Revisions Based on Changes to the ICD-9-CM Diagnosis Codes
For FY 2012, we proposed to make limited revisions to the CC
Exclusions List to take into account the changes made in the ICD-9-CM
diagnosis coding system effective October 1, 2011. (We refer readers to
section II.G.13. 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.
CMS encourages input from our stakeholders concerning the annual
IPPS updates when that input is made available to us by December of the
year prior to the next annual proposed rule update. For example, to be
considered for any updates or changes in FY 2012, comments and
suggestions should have been submitted by early December 2010. The
following comments were submitted in a timely manner and, therefore,
are being discussed in this section.
(A) Pressure Ulcer Diagnosis Codes
We received a comment recommending that CMS remove diagnosis codes
707.23 (Pressure ulcer, stage III) and 707.24 (Pressure ulcer, stage
IV) from the CC Exclusion List when reported as a secondary diagnosis
code with a principal diagnosis code for the pressure ulcer site:
Diagnosis code 707.00 (Pressure ulcer, unspecified); diagnosis code
707.01 (Pressure ulcer,

[[Page 51543]]

elbow); diagnosis code 707.02 (Pressure ulcer, upper back); diagnosis
code 707.03 (Pressure ulcer, lower back); diagnosis code 707.04
(Pressure ulcer, hip); diagnosis code 707.05 (Pressure ulcer, buttock);
diagnosis code 707.06 (Pressure ulcer, ankle); diagnosis code 707.07
(Pressure ulcer, heel); or diagnosis code 707.09 (Pressure ulcer, other
site). Currently, when a patient is admitted with a pressure ulcer, the
CC Exclusion List prevents a pressure ulcer stage diagnosis code from
being designated as an MCC when reported as a secondary diagnosis. The
commenter disagreed with this approach and contended that a patient
admitted for treatment of a stage III or stage IV pressure ulcer likely
requires resources that would qualify the case as a diagnosis with an
MCC or, at a minimum, as a CC.
Our clinical advisors agreed with the commenter. Therefore, in the
FY 2012 IPPS/LTCH PPS proposed rule, we proposed to remove diagnosis
codes 707.23 and 707.24 from the CC Exclusion List when a principal
diagnosis code of one of codes 707.00 through 707.09 is reported. Under
this proposal, diagnosis code 707.23 or diagnosis code 707.24 would be
an MCC when reported as a secondary diagnosis code with a principal
diagnosis code of one of codes 707.00 through 707.09.
Comment: Several commenters supported the proposed removal of
diagnosis codes 707.23 and 707.24 from the CC Exclusion list when a
principal diagnosis code of one of the codes 707.00 through 707.09 is
reported.
Response: We appreciate the support of the commenters. As stated
above, we believe this proposed change has merit.
After consideration of the public comments we received, we are
adopting as final our proposal to remove diagnosis codes 707.23
(Pressure ulcer stage III) and 707.24 (Pressure ulcer stage IV) from
the CC Exclusion List when reported as a secondary diagnosis code with
a principal diagnosis code for the pressure ulcer site: diagnosis code
707.00 (Pressure ulcer, unspecified); diagnosis code 707.01 (Pressure
ulcer, elbow); diagnosis code 707.02 (Pressure ulcer, upper back);
diagnosis code 707.03 (Pressure ulcer, lower back); diagnosis code
707.04 (Pressure ulcer, hip); diagnosis code 707.05 (Pressure ulcer,
buttock); diagnosis code 707.06 (Pressure ulcer, ankle); diagnosis code
707.07 (Pressure ulcer, heel); or diagnosis code 707.09 (Pressure
ulcer, other site).
(B) End-Stage Renal Disease Diagnosis Code
We received a suggestion from a commenter that diagnosis code 585.6
(End-stage renal disease) be added to the CC Exclusion List when
reported with a principal diagnosis code of 403.90 (Hypertensive
chronic kidney disease, unspecified, with chronic kidney disease stage
I through stage IV, or unspecified) or diagnosis code 403.91
(Hypertensive chronic kidney disease, unspecified, with chronic kidney
disease stage V or end-stage renal disease). Currently, diagnosis code
585.6 is designated as an MCC.
According to the commenter, diagnosis codes 585.6 and 403.91 are
essentially the same diagnosis but coding guidelines require the
reporting of two codes to identify the stage of chronic kidney disease
when associated with hypertensive chronic kidney disease. The commenter
suggested that there is no need for diagnosis code 585.6 to be
designated as an MCC when reported with a principal diagnosis of
hypertensive chronic kidney disease, stage V or end-stage renal
disease. The commenter also pointed out that, while coding guidelines
would preclude diagnosis codes 403.90 and 585.6 from being reported
together, the MS-DRG GROUPER allows diagnosis code 585.6 to act as an
MCC when reported as a secondary diagnosis with principal diagnosis
code 403.90.
As discussed in the proposed rule, in response to the first issue,
our clinical advisors disagree with the commenter. Diagnosis code
403.91 includes chronic kidney disease stage V or end-stage renal
disease. These are two separate conditions (or stages) that are
identified by two unique codes. Diagnosis code 585.5 identifies stage V
chronic kidney disease and is classified as a CC. Diagnosis code 585.6
identifies end-stage renal disease, is classified as an MCC, and
describes patients who require chronic dialysis. The patients diagnosed
with stage V chronic kidney disease are a different population who
require different resources than those patients who are diagnosed with
end-stage renal disease. Therefore, in the FY 2012 IPPS/LTCH PPS
proposed rule, we did not propose to add diagnosis code 585.6 to the CC
Exclusion List when reported with a principal diagnosis of code 403.91.
On the second issue raised by the commenter, our clinical advisors
agreed. Diagnosis code 403.90 identifies patients with chronic kidney
disease, stages I through IV or unspecified, and diagnosis code 585.6
identifies end-stage renal disease. Our clinical advisors indicate that
the reporting of diagnosis code 585.6 should not be designated as an
MCC in this case. We agreed with the commenter that diagnosis codes
403.90 and 585.6 should not be reported together as instructed by the
Coding Guidelines. Only a code from the 585.1 through 585.4 range
(stages I through IV, or unspecified) should be reported with diagnosis
code 403.90. Diagnosis code 585.6 is the exclusive code that uniquely
identifies end-stage renal disease and should only be reported with
diagnosis code 403.91. Therefore, in the FY 2012 IPPS/LTCH PPS proposed
rule, we proposed to add diagnosis code 585.6 to the CC Exclusion List
when reported with a principal diagnosis code of 403.90.
Comment: Several commenters supported our proposal to add diagnosis
code 585.6 to the CC Exclusion List when reported with a principal
diagnosis code of 403.90.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
adopting as final our proposal to add diagnosis code 585.6 (End stage
renal disease) to the CC Exclusion List when reported with a principal
diagnosis code of 403.90 (Hypertensive chronic kidney disease,
unspecified, with chronic kidney disease stage I through stage IV, or
unspecified).
(C) Hypertensive Chronic Kidney Disease With Chronic Kidney Disease
Stage V or End-Stage Renal Disease Code
We received a comment recommending the addition of diagnosis code
403.91 (Hypertensive chronic kidney disease, unspecified, with chronic
kidney disease stage V or end-stage renal disease) to the CC Exclusion
List when reported as a secondary diagnosis code with principal
diagnosis code 585.6 (End stage renal disease). The commenter stated
that it would be unlikely that diagnosis code 403.91 would be reported
as a secondary diagnosis code with diagnosis code 585.6 as the
principal diagnosis code due to sequencing rules for end-stage renal
disease with hypertension. Currently, diagnosis code 403.91 is
designated as a CC.
Our clinical advisors agreed with the commenter. Therefore, in the
FY 2012 IPPS/LTCH PPS proposed rule, we proposed to add diagnosis code
403.91 to the CC Exclusion List when reported as a secondary diagnosis
code with principal diagnosis code 585.6.
Comment: Several commenters supported our proposal to add diagnosis
code 403.91 to the CC Exclusion List

[[Page 51544]]

when reported as a secondary diagnosis code with principal diagnosis
code 585.6.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
adopting as final our proposal to add diagnosis code 403.91
(Hypertensive chronic kidney disease, unspecified, with chronic kidney
disease stage V or end stage renal disease) to the CC Exclusion List
when reported as a secondary diagnosis code with principal diagnosis
code 585.6 (End stage renal disease).
(2) Suggested Changes to Severity Levels for Encephalopathy
We received a request that we consider changing the following
diagnosis codes from an MCC to a CC:

348.30 (Encephalopathy NOS)
348.31 (Metabolic encephalopathy)
348.39 (Encephalopathy NEC)
349.82 (Toxic encephalopathy)
572.2 (Hepatic encephalopathy)

For the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed the claims
data for the diagnosis codes mentioned above related to encephalopathy.
We used the same approach we used in initially creating the MS-DRGs and
classifying secondary diagnosis codes as non-CCs, CCs, or MCCs. A
detailed discussion of the process and criteria we used in this process
is described in the FY 2008 IPPS final rule (72 FR 47158 through
47161). We refer the readers to this discussion for complete
information on our approach to developing the non-CC, CC, and MCC
lists. Each diagnosis for which Medicare data were available was
evaluated to determine its impact on resource use and to determine the
most appropriate CC subclass (non-CC, CC, or MCC) assignment. In order
to make this determination, the average cost for each subset of cases
was compared to the expected cost for cases in that subset. The
following format was used to evaluate each diagnosis:

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

Count (Cnt) is the number of patients in each subset. C1, C2, and
C3 are a measure of the impact on resource use of patients in each of
the subsets. The C1, C2, and C3 values are a measure of the ratio of
average costs for patients with these conditions to the expected
average cost across all cases. The C1 value reflects a patient with no
other secondary diagnosis or with all other secondary diagnoses that
are non-CCs. The C2 value reflects a patient with at least one other
secondary diagnosis that is a CC but none that is a MCC. The C3 value
reflects a patient with at least one other secondary diagnosis that is
a MCC. A value close to 1.0 in the C1 field would suggest that the
diagnosis code produces the same expected value as a non-CC. A value
close to 2.0 suggests the condition is more like a CC than a non-CC but
not as significant in resource usage as an MCC. A value close to 3.0
suggests the condition is expected to consume resources more similar to
an MCC than a CC or non-CC. For additional details on this analysis, we
refer readers to the FY 2008 IPPS final rule (72 FR 47158 through
47161).
The following chart shows the analysis for each of the
encephalopathy diagnosis codes that are currently classified as MCCs.

We ran the following data as described in FY 2008 IPPS final rule
(72 FR 47158 through 47161). The C1 value reflects a patient with no
other secondary diagnosis or with all other secondary diagnoses that
are non-CCs. The C2 value reflects a patient with at least one other
secondary diagnosis that is a CC but none that is a MCC. The C3 value
reflects a patient with at least one other secondary diagnosis that is
a MCC.
The chart above shows that the C1 findings ranged from a low of
1.5448 to a high of 2.3158. As stated earlier, a C1 value close to 2.0
suggests the condition is more like a CC than a non-CC but not as
significant in resource usage as an MCC. The C1 findings suggest that
these codes are more like a CC than a MCC. However, the C2 findings
ranged from a low of 2.5054 to a high of 3.0023. Values close to 3.0
suggests the condition is more similar to an MCC than a CC or non-CC.
The C2 findings support maintaining the encephalopathy codes as an MCC
level. The data are clearly mixed between the C1 and C2 findings, and
does not consistently support a change in the severity level. Our
clinical advisers recommended that these encephalopathy codes remain at
an MCC level because these patients with encephalopathy typically
utilize significant resources and are at a higher severity level. Based
on the clinical analysis and the lack of consistent claims data support
for the severity level change, we indicated in the proposed rule that
we believe that the encephalopathy codes should remain on the MCC list.
Therefore, we proposed to retain the following encephalopathy codes on
the MCC list:
348.30 (Encephalopathy NOS)
348.31 (Metabolic encephalopathy)
348.39 (Encephalopathy NEC)
349.82 (Toxic encephalopathy)
572.2 (Hepatic encephalopathy)
We invited public comment on our proposal not to change the
severity level classification for these codes.
Comment: Several commenters supported our proposal not to change
the MCC severity level classification for the encephalopathy codes
listed above. The commenters agreed with our findings that the data
were mixed between the C1 and C2 findings for these codes, which are
currently on the MCC list, and that clinical evaluation of these
conditions supports maintaining them on the MCC list.
Response: We appreciate the commenters' support. As stated above,
our data showed mixed findings for C1 and C2 with C1 findings
supporting a change to CC, but C2 findings supporting maintaining the
codes on the MCC list. Our clinical advisors' evaluation of
encephalopathy patients supports our proposal to maintain these
encephalopathy codes on the MCC list.

[[Page 51545]]

After consideration of the public comments we received, as we
proposed, we are keeping the following encephalopathy codes on the MCC
list.

348.30 (Encephalopathy NOS) MCC
348.31 (Metabolic encephalopathy) MCC
348.39 (Encephalopathy NEC) MCC
349.82 (Toxic encephalopathy) MCC
572.2 (Hepatic encephalopathy) MCC

(3) Suggested Changes to Severity Levels for Mechanical
Complication and Infection Due to Device-Related Codes
We received a request to change the severity classification from
CCs to MCCs for the following diagnosis codes:
996.01 (Mechanical of cardiac device, implant and graft
due to cardiac pacemaker (electrode)).
996.04 (Mechanical complication of cardiac device,
implant, and graft due to automatic implantable cardiac defibrillator).
996.61 (Infection and inflammatory reaction due to
internal prosthetic device, implant, and graft due to cardiac device,
implant, and graft).
Currently, all three diagnosis codes are classified as a CC. For
the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed claims data using
the methodology described previously in this section for these
diagnosis codes. The following chart shows our findings:

We reviewed the findings from these data. The C1 findings ranged
from a low of 1.6723 to a high of 1.9922. As stated earlier, a value
close to 2.0 in the C1 field suggests that the condition is more like a
CC than a non-CC but not as significant in resource usage as an MCC.
The C1 findings clearly support the current classification of these
three codes on the CC list and the C2 findings supports this
classification. Our clinical advisors agree that the data findings and
their own clinical evaluation of the severity level of these conditions
support the classification of these three codes on the CC list.
Therefore, we proposed that these codes remain on the CC list. We
invited public comment on this proposal.
Comment: Several commenters supported our proposal to maintain the
mechanical complication and infection due to device-related codes
mentioned above on the CC list. The commenters agreed that the data as
well as our clinical advisors' evaluation support the current
classification.
Several commenters opposed our proposal to keep the mechanical
complication and infection due to device-related codes on the CC list.
In support of their position, the commenters cited our decision to keep
the encephalopathy codes on the MCC list. They pointed out that the
encephalopathy codes had C1 findings of a low of 1.5448 to a high of
2.3158 and C2 findings of a low of 2.5054 to a high of 3.0023, yet they
were maintained on the MCC list. The commenters believed that the same
logic should be applied to the mechanical complication and infection
due to device-related codes which had C1 findings of a low of 1.6723 to
a high of 1.9922 and C2 findings of a low of 2.4332 to a high of
2.8134. One commenter also offered data from the Healthcare Utilization
Project (HCUP) database which showed 2008 national statistics of
average costs for patients admitted with one of these codes as a
principal diagnosis. This commenter stated that these data showed
average costs as follows:

2008 National Statistics--Principal Diagnosis Only Ranked by Costs, Descending Order: Medicare Only
----------------------------------------------------------------------------------------------------------------
Total number of Length of stay
ICD-9-CM Principal diagnosis code discharges (LOS) (mean) Charges $ (mean) Costs $ (mean)
----------------------------------------------------------------------------------------------------------------
996.61--React-Cardiac Dev/Graft......... 8,944 10.7 95,251 26,893
996.04--Mch Comp Aut, Mplnt Dfbri....... 8,095 3.2 59,924 16,891
996.01--Malfunc Cardiac Pacemake........ 8,664 2.8 37,056 11,044
427.5--Cardiac Arrest................... 4,781 3.6 35,499 10,908
349.82--Toxic Encephalopathy............ 6,835 6.5 37,913 10,765
428.23--Ac On Chr Syst Hrt Fail......... 75,511 5.8 33,732 10,689
428.1--Left Heart Failure............... 2,261 5.1 26,777 10,252
348.39--Encephalopathy Nec.............. 4,880 6.3 32,124 9,609
428.31--Ac Diastolic Hrt Failure........ 37,216 5.5 30,167 9,298
348.30--Encephalopathy Nos.............. 11,057 5.9 31,933 9,232
572.2--Hepatic encephalopathy........... 20,154 5.4 28,056 8,580
----------------------------------------------------------------------------------------------------------------

The commenter stated that these data support changing these codes
to the MCC list since the costs associated with these admissions were
higher than admissions for encephalopathy.
Response: We agree with the commenters who supported maintaining
the current CC severity level for the mechanical complication and
infection due to device related codes. As discussed above the C1 and C2
findings as well as the advice of our clinical advisors supports this
recommendation.
We disagree with the commenters who made comparisons to our
proposals for the encephalopathy codes. The encephalopathy codes had C1
findings of a low of 1.5448 to a high of 2.3158 and C2 findings of a
low of 2.5054 to a high of 3.0023. The encephalopathy codes C1 findings
supported a change to a CC level. The C2 findings of a high of 3.0023
support the current MCC assignment for those codes.
The mechanical complication and infection due to device-related
codes had C1 findings of a low of 1.6723 and

[[Page 51546]]

a high of 1.9922, which are more like a CC than a non-CC but not as
significant in resource usage as an MCC. The C2 findings of a low of
2.4332 and a high of 2.8134 are also supportive of a CC classification
because, while one was a high of 2.8134, the other was only 2.4332.
Only one of the codes had a finding that approached 3.0 and neither
exceeded 3.0. Furthermore, our clinical advisors' evaluation of data on
patients with encephalopathy as a secondary diagnosis indicates that
these patients are at a higher severity level. Our clinical advisors
did not believe that patients who have one of the mechanical
complication and infection due to device-related codes as a secondary
diagnoses would require resources justifying the MCC severity level.
We point out that the data that the commenter shared focused on
patients admitted for either a mechanical complication or infection due
to device-related code or for encephalopathy. In other words, these
conditions were the principal diagnosis in this data. These cases did
not report the codes as secondary diagnoses. Our clinical criteria are
based on these conditions being reported as a secondary diagnosis and
the effect that has on all types of admissions. A detailed discussion
of the process and criteria we used in this process is described in the
FY 2008 IPPS final rule with comment period (72 FR 47158 through
47161). It may well make a difference in the overall costs of the
admission if a patient were admitted for these types of complications
and required a pacemaker insertion during the stay. Clearly, the
encephalopathy cases would not have had a device inserted. Therefore,
it is not possible to determine the effect of the impact of these
conditions as a secondary diagnosis based on these data because the
additional costs of a device is included. Our approach isolates the
effect of the individual code on all types of admissions when it is
reported as a secondary diagnosis. It also looks at whether this code
is the only CC or MCC reported (C1 cases), reported with another CC
diagnosis (C2 cases), or reported with another MCC diagnosis (C3). We
cannot determine what, if any, secondary diagnoses were present for the
cases shown in the HCUP data shown above.
We believe our consistent approach to evaluating the effect of a
secondary diagnosis is more appropriate than looking at average costs
when the condition is reported as a principal diagnosis in establishing
the severity level of these codes. Modifying the approach by also
looking at the principal diagnosis would significantly modify our
current approach that focuses solely on evaluating the impact of
secondary diagnoses on increasing the severity of the overall
admission. We also note that our clinical advisors' evaluation of these
cases, who advised that the codes should remain on the CC lists,
supports the findings of the data and maintaining the codes on the CC
list.
After consideration of the public comments we received, as we
proposed, we are maintain the mechanical complication and infection due
to device-related codes listed below on the CC list for FY 2012.
996.01 (Mechanical of cardiac device, implant and graft
due to cardiac pacemaker (electrode))--CC
996.04 (Mechanical complication of cardiac device,
implant, and graft due to automatic implantable cardiac
defibrillator)--CC
996.61 (Infection and inflammatory reaction due to
internal prosthetic device, implant, and graft due to cardiac device,
implant, and graft)--CC
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, 2011, are not being published in the Addendum to 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, which are listed in section VI. of the Addendum to this final rule
(and available via the Internet) 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, 2011, 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, which are listed in section VI. of
the Addendum to this final rule and available via the Internet, we are
providing the following summaries of those MCC and CC changes for FY
2012.

Summary of Additions to the MS-DRG MCC List--Table 6I.1
------------------------------------------------------------------------
Code Description
------------------------------------------------------------------------
284.11................................ Antineoplastic chemotherapy
induced pancytopenia.
284.12................................ Other drug-induced pancytopenia.
348.82................................ Brain death.
415.13................................ Saddle embolus of pulmonary
artery.
444.01................................ Saddle embolus of abdominal
aorta.
488.81................................ Influenza due to identified
novel influenza A virus with
pneumonia.
516.4................................. Lymphangioleiomyomatosis.
516.61................................ Neuroendocrine cell hyperplasia
of infancy.
516.62................................ Pulmonary interstitial
glycogenosis.
516.63................................ Surfactant mutations of the
lung.
516.64................................ Alveolar capillary dysplasia
with vein misalignment.
516.69................................ Other interstitial lung diseases
of childhood.
518.51................................ Acute respiratory failure
following trauma and surgery.
518.52................................ Other pulmonary insufficiency,
not elsewhere classified,
following trauma and surgery.
518.53................................ Acute and chronic respiratory
failure following trauma and
surgery.
747.31................................ Pulmonary artery coarctation and
atresia.
747.32................................ Pulmonary arteriovenous
malformation.
747.39................................ Other anomalies of pulmonary
artery and pulmonary
circulation.
808.54................................ Multiple open pelvic fractures
without disruption of pelvic
circle.
998.01................................ Postoperative shock,
cardiogenic.

[[Page 51547]]

998.02................................ Postoperative shock, septic.
998.09................................ Postoperative shock, other.
------------------------------------------------------------------------

Summary of Deletions From the MS-DRG MCC List--Table 6I.2
------------------------------------------------------------------------
Code Description
------------------------------------------------------------------------
518.5................................. Pulmonary insufficiency
following trauma and surgery.
747.3................................. Anomalies of pulmonary artery.
------------------------------------------------------------------------

Summary of Additions to the MS-DRG CC List--Table 6J.1
------------------------------------------------------------------------
Code Description
------------------------------------------------------------------------
284.19................................ Other pancytopenia.
286.52................................ Acquired hemophilia.
286.53................................ Antiphospholipid antibody with
hemorrhagic disorder.
286.59................................ Other hemorrhagic disorder due
to intrinsic circulating
anticoagulants, antibodies, or
inhibitors.
294.21................................ Dementia, unspecified, with
behavioral disturbance.
358.30................................ Lambert-Eaton syndrome,
unspecified.
358.31................................ Lambert-Eaton syndrome in
neoplastic disease.
358.39................................ Lambert-Eaton syndrome in other
diseases classified elsewhere.
425.11................................ Hypertrophic obstructive
cardiomyopathy.
425.18................................ Other hypertrophic
cardiomyopathy.
444.09................................ Other arterial embolism and
thrombosis of abdominal aorta.
512.2................................. Postoperative air leak.
512.81................................ Primary spontaneous
pneumothorax.
512.82................................ Secondary spontaneous
pneumothorax.
512.83................................ Chronic pneumothorax.
512.84................................ Other air leak.
512.89................................ Other pneumothorax.
516.33................................ Acute interstitial pneumonitis.
516.35................................ Idiopathic lymphoid interstitial
pneumonia.
516.36................................ Cryptogenic organizing
pneumonia.
516.37................................ Desquamative interstitial
pneumonia.
516.5................................. Adult pulmonary Langerhans cell
histiocytosis.
539.01................................ Infection due to gastric band
procedure.
539.09................................ Other complications of gastric
band procedure.
539.81................................ Infection due to other bariatric
procedure.
539.89................................ Other complications of other
bariatric procedure.
596.81................................ Infection of cystostomy.
596.82................................ Mechanical complication of
cystostomy.
596.83................................ Other complication of
cystostomy.
808.44................................ Multiple closed pelvic fractures
without disruption of pelvic
circle.
996.88................................ Complications of transplanted
organ, stem cell.
997.32................................ Postprocedural aspiration
pneumonia.
997.41................................ Retained cholelithiasis
following cholecystectomy.
997.49................................ Other digestive system
complications.
998.00................................ Postoperative shock,
unspecified.
999.32................................ Bloodstream infection due to
central venous catheter.
999.33................................ Local infection due to central
venous catheter.
999.34................................ Acute infection following
transfusion, infusion, or
injection of blood and blood
products.
999.41................................ Anaphylactic reaction due to
administration of blood and
blood products.
999.42................................ Anaphylactic reaction due to
vaccination.
999.49................................ Anaphylactic reaction due to
other serum.
999.51................................ Other serum reaction due to
administration of blood and
blood products.
999.52................................ Other serum reaction due to
vaccination.
999.59................................ Other serum reaction.
------------------------------------------------------------------------

Summary of Deletions From the MS-DRG CC List--Table 6J.2
------------------------------------------------------------------------
Code Description
------------------------------------------------------------------------
284.1................................. Pancytopenia.
286.5................................. Hemorrhagic disorder due to
intrinsic circulating
anticoagulants.
425.1................................. Hypertrophic obstructive
cardiomyopathy.
444.0................................. Embolism and thrombosis of
abdominal aorta.
512.8................................. Other spontaneous pneumothorax.
516.3................................. Idiopathic fibrosing alveolitis.

[[Page 51548]]

997.4................................. Digestive system complications.
998.0................................. Postoperative shock.
999.4................................. Anaphylactic shock due to serum.
999.5................................. Other serum reaction.
------------------------------------------------------------------------

Alternatively, the complete documentation of the GROUPER logic,
including the current CC Exclusions List, is available from 3M/Health
Information Systems (HIS), which, under contract with CMS, is
responsible for updating and maintaining the GROUPER program. The
current MS-DRG Definitions Manual, Version 28.0, is available on a CD
for $225.00. Version 29.0 of this manual, which will include the final
FY 2012 MS-DRG changes, will be available on a CD 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.
12. 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, respectively). 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,
respectively). 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, respectively).
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 MS-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, 2009, FY 2010,
and FY 2011, no procedures were moved, as noted in the FY 2008 final
rule with comment period (72 FR 46241), the FY 2009 final rule (73
FR 48513), the FY 2010 final rule (74 FR 43796); and the FY 2011
final rule (75 FR 50122).
---------------------------------------------------------------------------

Our review of MedPAR claims data showed that there were no cases
that merited movement or should logically be assigned to any of the
other MDCs. Therefore, for FY 2012, we did not propose to change the
procedures assigned among these MS-DRGs.
We did not receive any public comments on this proposal. Therefore,
as we proposed, we are not making any changes to the procedures
assigned to MS-DRGs 981 through 983, 984 through 986, and 987 through
989 for FY 2012.
a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987
Through 989 Into MDCs
We annually conduct a review of procedures producing assignment to
MS-DRGs 981 through 983 (Extensive O.R. procedure unrelated to
principal diagnosis with MCC, with CC, and without CC.MCC,
respectively) or MS-DRGs 987 through 989 (Nonextensive O.R. procedure
unrelated to principal diagnosis with MCC, with CC, and without CC/MCC,
respectively) on the basis of volume, by procedure, to see if it would
be appropriate to move procedure codes out of these MS-DRGs into one of
the surgical MS-DRGs for the MDC into which the principal diagnosis
falls. The data are arrayed in two ways for comparison purposes. We
look at a frequency count of each major operative procedure code. We
also compare procedures across MDCs by volume of procedure codes within
each MDC.
We identify those procedures occurring in conjunction with certain
principal diagnoses with sufficient frequency to justify adding them to
one of the surgical MS-DRGs for the MDC in

[[Page 51549]]

which the diagnosis falls. As noted above, there were no cases that
merited movement or that should logically be assigned to any of the
other MDCs. Therefore, for FY 2012, we did not propose to remove any
procedures from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 into
one of the surgical MS-DRGs for the MDC into which the principal
diagnosis is assigned.
We did not receive any public comments on our proposal. Therefore,
as we proposed, we are not making any changes to the procedures
assigned to MS-DRGs 981 through 983 or 987 through 989 for FY 2012.
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 (Prostatic O.R.
procedure unrelated to principal diagnosis with MCC, with CC, or
without CC/MCC, respectively), and 987 through 989, 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.
There were no cases representing shifts in treatment practice or
reporting practice that would make the resulting MS-DRG assignment
illogical, or that merited movement so that cases should logically be
assigned to any of the other MDCs. Therefore, for FY 2012, we did not
propose to move any procedure codes among these MS-DRGs.
We did not receive any public comments on our proposal. Therefore,
as we proposed, we are not moving any procedures assigned to MS-DRGs
981 through 983, 984 through 986, and 987 through 989 for FY 2012.
c. Adding Diagnosis or Procedure Codes to MDCs
Based on the review of cases in the MDCs as described above in
sections III.G.12.a. and b., we did not propose to add any diagnosis or
procedure codes to MDCs for FY 2012.
We did not receive any public comments on our proposal. Therefore,
as we proposed, we are not adding any diagnosis or procedure codes to
MDCs for FY 2012.
13. Changes to the ICD-9-CM Coding System, Including Discussion of the
Replacement of the ICD-9-CM Coding System With the ICD-10-CM and ICD-
10-PCS Systems in FY 2014
a. 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 currently 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 2012 at a public meeting held on September 15-16,
2010 and finalized the coding changes after consideration of comments
received at the meetings and in writing by November 19, 2010. Those
coding changes were announced in Tables 6A through 6F, which were
listed in section VI. of the Addendum to the proposed rule and
available via the Internet.
The Committee held its 2011 meeting on March 9-10, 2011. New codes
for which there was a consensus of public support and for which
complete tabular and indexing changes were made by May 2011 are
included in the October 1, 2011 update to ICD-9-CM. Code revisions that
were discussed at the March 9-10, 2011 Committee meeting but that could
not be finalized in time to include them in the tables listed in
section VI. of the Addendum to the proposed rule are included in Tables
6A through 6F, which are listed in section VI. of the Addendum to this
final rule and available via the Internet, and are marked with an
asterisk (*).
Copies of the minutes of the procedure codes discussions at the
Committee's September 15-16, 2010 meeting and March 9-10, 2011 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 15-16, 2010 meeting and
March 9-10, 2011 meeting are found at: http://www.cdc.gov/nchs/icd.htm.
These Web sites also provide detailed information about the Committee,
including information on requesting a new code, attending a Committee
meeting, and timeline requirements and meeting dates.
We encourage commenters to address suggestions on coding issues
involving

[[Page 51550]]

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, 2011. 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), which are listed in
section VI. of the Addendum to this final rule and available via the
Internet. 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 2012 IPPS/LTCH PPS proposed rule, we solicited comments
on the proposed classification of these new codes, which were shown in
Tables 6A and 6B listed in section VI. of the Addendum to the proposed
rule and available via the Internet.
Comment: Several commenters generally supported the proposed
changes to the MS-DRG classifications. One commenter supported the non-
CC designation for the following new diagnosis codes: 282.40
(Thalassemia, unspecified); 282.43 (Alpha thalassemia); code 282.44
(Beta thalassemia); 282.45 (Delta-beta thalassemia); 282.46
(Thalassemia minor); 282.47 (Hemoglobin E-beta Thalassemia); 516.31
(Idiopathic pulmonary fibrosis); 516.32 (Idiopathic non-specific
interstitial pneumonitis); and 516.34 (Respiratory bronchiolitis
interstitial lung disease). The commenter also supported the non-CC
designation for and the assignment of code 573.5 (Hepatopulmonary
syndrome) in MDC 4, MS-DRGs 205 and 206 (Other Respiratory System
Diagnoses with and without MCC, respectively).
However, the commenter did not support the non-CC designation of
code 294.21 (Dementia, unspecified, with behavioral disturbance). The
commenter noted that a similar diagnosis with behavioral disturbance
such as code 294.11 (Dementia in conditions classified elsewhere with
behavioral disturbance) is designated as a CC and questioned why the
same logic had not been considered for code 294.21.
Response: Our medical advisors agree with the commenter's
assessment that diagnosis code 294.21 should qualify as a CC, similar
to code 294.11. Both codes identify dementia with behavioral
disturbance and use similar resource use. Therefore, in this final
rule, we are changing the proposed non-CC designation for code 294.21
and classifying it as a CC in Table 6A. This change is reflected in
Table 6A of this final rule which is available via the Internet on the
CMS Web site.
Comment: One commenter did not support the non-CC designation for
diagnosis code 414.4 (Coronary atherosclerosis due to calcified
coronary lesion). The commenter stated that this code should be
designated as a CC, the same designation assigned to diagnosis code
414.02 (Coronary atherosclerosis of autologous vein bypass graft) and
diagnosis code 414.03 (Coronary atherosclerosis of nonautologous
biological bypass graft).
Response: Our medical advisors do not agree with the commenter.
According to our medical advisors, diagnosis code 414.4 is similar to
code 414.01 (Coronary atherosclerosis of native coronary artery) which
is not designated as a CC. Both codes indicate general atherosclerosis
and are not similar to codes 414.02 and 414.03, which indicate
atherosclerosis of an artery that has been replaced by graft.
Therefore, we are not making any modifications to the proposed non-CC
designation for code 414.4.
Comment: One commenter supported the CC designation for the
following diagnosis codes: 425.11(Hypertrophic obstructive
cardiomyopathy); 425.18 (Other hypertrophic cardiomyopathy); 512.2
(Postoperative air leak); 512.81 (Primary spontaneous pneumothorax);
512.82 (Secondary spontaneous pneumothorax); 512.83 (Chronic
pneumothorax); 512.84 (Other air leak); 512.89 (Other pneumothorax);
516.35 (Idiopathic lymphoid interstitial pneumonia); 516.36
(Cryptogenic organizing pneumonia); and 516.37 (Desquamative
interstitial pneumonia). Some commenters supported the CC designations
for code 998.00 (Postoperative shock, unspecified).
One commenter representing a national medical specialty society for
neurology supported our proposed CC designations for codes 358.30
(Lambert-Eaton syndrome, unspecified); 358.31 (Lambert-Eaton syndrome
in neoplastic disease); and 358.39 (Lambert-Eaton syndrome in other
diseases classified elsewhere). The commenter stated that Lambert-Eaton
syndrome is increasingly diagnosed and not always a paraneoplastic
syndrome.
One commenter supported the CC designation for code 348.82 (Brain
death), while another commenter did not support this proposed
designation. The commenter that did not support the proposal stated
that this code should be designated as an MCC.
Response: Our medical advisors agree with the commenter that code
348.82 should be designated as a MCC because this diagnosis requires
extensive intensive care resources. Therefore, in this final rule, we
are amending the proposed CC designation of code 348.82 (Brain death)
to MCC for FY 2012 in Table 6A. This change is reflected in Table 6A in
this final rule which is available via the Internet on the CMS Web
site.
Comment: One commenter did not support the CC designation for code
516.30 (Idiopathic interstitial pneumonia, not other specified). The
commenter did not see the differences among codes 516.30, 516.31
(Idiopathis pulmonary fibrosis), and 516.32 (Idiopathic nonspecific
interstitial pneumonitis), recognizing that the nonspecific code is
designated as a CC while the more specific codes are not designated as
CCs.
Response: We agree with the commenter that code 516.30 should not
be designated as a CC because this code identifies an unspecified
pneumonia which is more reflective of a non-CC. Therefore, in this
final rule, we are amending the proposed CC designation for of code
516.30 (Idiopathic interstitial pneumonia, not other specified) to non-
CC for FY 2012 in Table 6A. This change is reflected in Table 6A,
which, for this final rule, is available via the Internet on the CMS
Web site.
Comment: Several commenters supported the MCC designation for the
following diagnosis codes: 284.11 (Antineoplastic chemotherapy induced
pancytopenia); 284.12 (Other drug induced pancytopenia);
488.81(Influenza due to identified novel influenza A virus with
pneumonia); 998.01 (Postoperative shock, cardiogenic); 998.02
(Postoperative shock, septic); and 998.09 (Postoperative shock, other).
In addition, one commenter supported the MCC designation for the
following diagnosis codes: 518.51 (Acute respiratory failure following
trauma and surgery); 518.52 (Other pulmonary insufficiency, not
elsewhere classified);

[[Page 51551]]

and 518.53 (Acute and chronic respiratory failure following trauma and
surgery).
Response: We appreciate the commenters' support.
Comment: One commenter representing a national organization for
orthopedic surgeons did not support the proposed MCC designation for
diagnosis code 415.13 (Saddle embolus of pulmonary artery). The
commenter stated that this designation is clinically inaccurate as a
saddle embolus is a subcategory of deep vein thrombosis/pulmonary
embolism.
Response: Our medical advisors do not agree with the commenter's
assessment that this diagnosis code does not warrant an MCC
designation. The diagnosis of saddle embolus is life-threatening,
requiring intensive care resources. Therefore, we are not making any
modifications to the proposed MCC designation for code 415.13. We point
out that diagnosis codes 415.11 (Iatrogenic pulmonary embolism and
infarction), 415.12 (Septic pulmonary embolism) and 415.19 (Other
Pulmonary embolism and infarction) are designated as MCCs.
Comment: One commenter suggested that, as new codes are added to
the MS-DRG classification, the new codes be assigned to the same MS-DRG
classification as its predecessor code.
Response: CMS' longstanding practice has been, where possible, to
assign new ICD-9-CM codes to the same MS-DRGs(s) as their predecessor
code.
Comment: One commenter supported the proposed MS-DRG assignment to
MS-DRG 264 (Other Circulatory System O.R. Procedures) for procedure
code 38.26 (Insertion of implantable pressure sensor without lead for
intracardiac or great vessel hemodynamic monitoring). Another commenter
supported the surgical classification of procedure code 68.24 (Uterine
artery embolization [UAE] with coils) and code 68.25 (Uterine artery
embolization [UAE] without coils).
Response: We appreciate the support of the commenters.
For codes that have been replaced by new or expanded codes, the
corresponding new or expanded diagnosis codes are included in Table 6A,
which is listed in section VI. of the Addendum to this final rule and
available via the Internet. New procedure codes are shown in Table 6B,
which is listed in section VI. of the Addendum to this final rule and
available via the Internet. Diagnosis codes that have been replaced by
expanded codes or other codes or have been deleted are in Table 6C
(Invalid Diagnosis Codes), which is listed in section VI. of the
Addendum to this final rule and available via the Internet. These
invalid diagnosis codes will not be recognized by the GROUPER beginning
with discharges occurring on or after October 1, 2011. Table 6D, which
is listed in section VI. of the Addendum to this final rule and
available via the Internet, contains invalid procedure codes. These
invalid procedure codes will not be recognized by the GROUPER beginning
with discharges occurring on or after October 1, 2011. Revisions to
diagnosis code titles are in Table 6E (Revised Diagnosis Code Titles),
which is listed in section VI. of the Addendum to this final rule and
available via the Internet, and also includes the MS-DRG assignments
for these revised codes. Table 6F, which is listed in section VI. of
the Addendum to this final rule and available via the Internet includes
revised procedure code titles for FY 2012.
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 9-10, 2011 Committee meeting that
received consensus and that were finalized by May 2011 are included in
Tables 6A through 6F, which are listed in section VI. of the Addendum
to this final rule and available via the Internet.
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)

[[Page 51552]]

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 an April 1 update if a strong and convincing case is
made by the requester at the Committee's public meeting. The request
must identify the reason why a new code is needed in April for purposes
of the new technology process. The participants at the meeting and
those reviewing the Committee meeting summary report are provided the
opportunity to comment on this expedited request. All other topics are
considered for the October 1 update. Participants at the Committee
meeting are encouraged to comment on all such requests. There were no
requests approved for an expedited April l, 2011 implementation of an
ICD-9-CM code at the September 15-16, 2010 Committee meeting.
Therefore, there were no new ICD-9-CM codes implemented on April 1,
2011.
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
MS-DRG in which its predecessor code was assigned so there will be no
MS-DRG impact as far as MS-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.
b. Code Freeze
The International Classification of Diseases, 10th Revision (ICD-
10) coding system applicable to hospital inpatient services will be
implemented on October 1, 2013, as described in the Health Insurance
Portability and Accountability Act (HIPAA) Administrative
Simplification: Modifications to Medical Data code Set Standards to
Adopt ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 through 3362,
January 16, 2009). The ICD-10 coding system includes the International
Classification of Diseases, 10th Revision, Clinical Modification (ICD-
10-CM) for diagnosis coding and the International Classification of
Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS) for
inpatient hospital procedure coding, as well as the Official ICD-10-CM
and ICM-10-PCS Guidelines for Coding and Reporting. In the January 16,
2009 ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 through 3362),
there was a discussion of the need for a partial or total freeze in the
annual updates to both ICD-9-CM and ICD-10-CM and ICD-10-PCS codes. The
public comment addressed in that final rule stated that the annual code
set updates should cease l year prior to the implementation of ICD-10.
The commenters stated that this freeze of code updates would allow for
instructional and/or coding software programs to be designed and
purchased early, without concern that an upgrade would take place
immediately before the compliance date, necessitating additional
updates and purchases.
We responded to comments in the ICD-10 final rule that the ICD-9-CM
Coordination and Maintenance Committee has jurisdiction over any action
impacting the ICD-9-CM and ICD-10 code sets. Therefore, we indicated
that the issue of consideration of a moratorium on updates to the ICD-
9-CM, ICD-10-CM, and ICD-10-PCS code sets in anticipation of the
adoption of ICD-10-CM and ICD-10-PCS would be addressed through the
Committee at a future public meeting.
The code freeze was discussed at multiple meetings of the ICD-9-CM
Coordination and Maintenance Committee and public comment was actively
solicited. The Committee evaluated all comments from participants
attending the Committee meetings as well as written comments that were
received. There was an announcement at the September 15-16, 2010 ICD-9-
CM Coordination and Maintenance Committee meeting that a partial freeze
of both ICD-9-CM and ICD-10 codes would be implemented as follows:
The last regular annual update to both ICD-9-CM and ICD-10
code sets will be made on October 1, 2011.
On October 1, 2012, there will be only limited code
updates to both ICD-9-CM and ICD-10 code sets to capture new technology
and new diseases.
There will be no updates to ICD-9-CM on October 1, 2013,
as the system will no longer be a HIPAA standard. There will be only
limited code updates to ICD-10 code sets on October 1, 2013, to capture
new technology and new diseases.
On October 1, 2014, regular updates to ICD-10 will begin.
The ICD-9-CM Coordination and Maintenance Committee announced that
it would continue to meet twice a year during the freeze. At these
meetings, the public will be encouraged to comment on whether or not
requests for new diagnosis and procedure codes should be created based
on the need to capture new technology and new diseases. Any code
requests that do not meet the criteria will be evaluated for
implementation within ICD-10 on or after October 1, 2014, once the
partial freeze is ended.
Complete information on the partial code freeze and discussions of
the issues at the Committee meetings can be found on the ICD-9-CM
Coordination and Maintenance Committee Web site at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03. A summary of the September 15-16, 2010
Committee meeting, along with both written and audio transcripts of
this meeting, are posted on the ``Download'' section of this Web page.
Comment: Several commenters supported the partial code freeze. The
commenters stated that the partial freeze was needed to allow providers
time to prepare for the implementation of ICD-

[[Page 51553]]

10 and the accompanying system and product updates.
Response: We appreciate the commenters' support. We agree with the
commenters that the partial code freeze will be useful in providing a
greater opportunity to focus on ICD-10 implementation issues.
c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on Hospital
Inpatient Claims
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50127), we discussed
that we had received repeated requests from the hospital community to
process all 25 diagnosis codes and 25 procedure codes submitted on
electronic hospital inpatient claims. Prior to January 1, 2011,
hospitals could submit up to 25 diagnoses and 25 procedures; however,
CMS' system limitations allowed for the processing of only the first 9
diagnoses and 6 procedures. We indicated in that final rule that, as
part of our efforts to update Medicare systems prior to the
implementation of ICD-10 on October 1, 2013, we were undergoing
extensive system updates as part of the move to 5010, which includes
the ability to accept ICD-10 codes. This complicated transition
involved converting many internal systems prior to October 1, 2013,
when ICD-10 will be implemented. We stated that, as one important step
in this planned conversion process, we were planning to complete the
expansion of our internal system capability so that we are able to
process up to 25 diagnoses and 25 procedures on hospital inpatient
claims as part of the HIPAA ASC X12 Technical Reports Type 3, Version
005010 (Version 5010) standards system update. We have completed this
expansion, and, as a result, we were able to process up to 25 diagnosis
codes and 25 procedure codes when received on the 5010 format starting
on January 1, 2011. (We note that we made a typographical error in the
proposed rule (76 FR 25843) and indicated that ``we have not completed
this expansion.'' This error was pointed out to us by several
commenters. We corrected this typographical error in a correction
notice issued in the Federal Register on June 14, 2011 (76 FR 24633).)
We continue to recognize the value of the additional information
provided by this coded data for multiple uses such as for payment,
quality measures, outcome analysis, and other important uses. We will
continue to process up to 25 diagnosis codes and 25 procedure codes
when received on the 5010 format.
d. ICD-10 MS-DRGs
In response to the FY 2011 IPPS/LTCH PPS proposed rule, we received
comments on the creation of the ICD-10 version of the MS-DRGs, which
will be implemented on October 1, 2013 (FY 2014) when we implement the
reporting of ICD-10 codes (75 FR 50127 and 50128). While we did not
propose an ICD-10 version of the MS-DRGs in the FY 2011 IPPS/LTCH PPS
proposed rule, we noted that we have been actively involved in
converting our current MS-DRGs from ICD-9-CM codes to ICD-10 codes and
sharing this information through the ICD-9-CM Coordination and
Maintenance Committee. We undertook this early conversion project to
assist other payers and providers in understanding how to go about
their own conversion projects. We posted ICD-10 MS-DRGs based on V26.0
(FY 2009) of the MS-DRGs. We also posted a paper that describes how CMS
went about completing this project and suggestions for others to
follow. All of this information can be found on the CMS Web site at:
http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp.
We have continued to keep the public updated on our maintenance efforts
for ICD-10-CM and ICD-10-PCS coding systems as well as the General
Equivalence Mappings that assist in conversion through the ICD-9-CM
Coordination and Maintenance Committee. Information on these committee
meetings can be found at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp.
During FY 2011, we developed and posted Version 28.0 of the ICD-10
MS-DRGs based on the FY 2011 MS-DRGs (Version 28.0) that we finalized
in the FY 2011 IPPS/LTCH PPS final rule on the CMS Web site. This ICD-
10 MS-DRG Version 28.0 also includes the CC Exclusion List and the ICD-
10 version of the hospital acquired conditions (HACs), which was not
posted with Version 26.0. We also discussed this update at the
September 15-16, 2010 and the March 9-10, 2011 meetings of the ICD-9-CM
Coordination and Maintenance Committee. The minutes of these two
meetings are posted on the CMS Web site at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. We will continue to work
with the public to explain how we are approaching the conversion of MS-
DRGs to ICD-10 and will post drafts of updates as they are developed
for public review. The final version of the ICD-10 MS-DRGs to be
implemented in FY 2014 will be subject to notice and comment
rulemaking. In the meantime, we will provide extensive and detailed
information on this activity through the ICD-9-CM Coordination and
Maintenance Committee.
14. Other Issues
a. O.R./Non-O.R. Status of Procedures
(1) Brachytherapy Code
We received a request that we add ICD-9-CM procedure code 92.27
(Implantation or Insertion of Radioactive Elements) [Brachytherapy]
into 41 MS-DRGs that are listed below:

129 (Major Head and Neck Procedures with CC/MCC or Major
Device)
130 (Major Head and Neck Procedures without CC/MCC)
163 (Major Chest Procedures with MCC)
164 (Major Chest Procedures with CC)
165 (Major Chest Procedures without CC/MCC)
180 (Respiratory Neoplasms with MCC)
181 (Respiratory Neoplasms with CC)
182 (Respiratory Neoplasms without CC/MCC)
326 (Stomach, Esophageal and Duodenal Procedures with MCC)
327 (Stomach, Esophageal and Duodenal Procedures with CC)
328 (Stomach, Esophageal and Duodenal Procedures without CC/
MCC)
329 (Major Small and Large Bowel Procedures with MCC)
330 (Major Small and Large Bowel Procedures with CC)
331 (Major Small and Large Bowel Procedures without CC/MCC)
332 (Rectal Resection with MCC)
333 (Rectal Resection with CC)
334 (Rectal Resection without CC/MCC)
344 (Minor Small and Large Bowel Procedures with MCC)
345 (Minor Small and Large Bowel Procedures with CC)
346 (Minor Small and Large Bowel Procedures without CC/MCC)
347 (Anal and Stomal Procedures with MCC)
348 (Anal and Stomal Procedures with CC)
349 (Anal and Stomal Procedures without CC/MCC)
405 (Pancreas, Liver and Shunt Procedures with MCC)
406 (Pancreas, Liver and Shunt Procedures with CC)
407 (Pancreas, Liver and Shunt Procedures without CC/MCC)
490 (Back and Neck Procedures Except Spinal Fusion with CC/MCC
or Disc Device/Neurostimulator)
491 (Back and Neck Procedures Except Spinal Fusion without CC/
MCC)

[[Page 51554]]

500 (Soft Tissue procedures with MCC)
501 (Soft Tissue procedures with CC)
502 (Soft Tissue procedures without CC/MCC)
584 (Breast Biopsy, Local Excision and Other Breast Procedures
with CC/MCC)
585 (Breast Biopsy, Local Excision and Other Breast Procedures
without CC/MCC)
597 (Malignant Breast Disorders with MCC)
598 (Malignant Breast Disorders with CC)
599 (Malignant Breast Disorders without CC/MCC)
653 (Major Bladder Procedures with MCC)
654 (Major Bladder Procedures with CC)
655 (Major Bladder Procedures without CC/MCC)
656 (Kidney and Ureter Procedures for Neoplasm with MCC)
657 (Kidney and Ureter Procedures for Neoplasm with CC)
658 (Kidney and Ureter Procedures for Neoplasm without CC/MCC)
662 (Minor Bladder Procedures with MCC)
663 (Minor Bladder Procedures with CC)
664 (Minor Bladder Procedures without CC/MCC)
668 (Transurethral Procedures with MCC)
669 (Transurethral Procedures with CC)
670 (Transurethral Procedures without CC/MCC)
671 (Urethral Procedures with CC/MCC)
672 (Urethral Procedures without CC/MCC)
707 (Major Male Pelvic Procedures with CC/MCC)
708 (Major Male Pelvic Procedures without CC/MCC)
736 (Uterine and Adnexa Procedures for Ovarian or Adnexal
Malignancy with MCC)
737 (Uterine and Adnexa Procedures for Ovarian or Adnexal
Malignancy with CC)
738 (Uterine and Adnexa Procedures for Ovarian or Adnexal
Malignancy without CC/MCC)
739 (Uterine and Adnexa Procedures for Nonovarian or Adnexal
Malignancy with MCC)
740 (Uterine and Adnexa Procedures for Nonovarian or Adnexal
Malignancy with CC)
741 (Uterine and Adnexa Procedures for Nonovarian or Adnexal
Malignancy without CC/MCC)
746 (Vagina, Cervix and Vulva Procedures with CC/MCC)
747 (Vagina Cervix and Vulva Procedures without CC/MCC)
748 (Female Reproductive System Reconstructive Procedures)
749 (Other Female Reproductive System O.R. Procedures with CC/
MCC)
750 (Other Female Reproductive System O.R. Procedures without
CC/MCC)

For the FY 2012 IPPS/LTCH PPS proposed rule, we examined MedPAR
claims data on this request and only found 150 cases throughout these
MS-DRGs. Our findings are presented in the table below.

--------------------------------------------------------------------------------------------------------------------------------------------------------
MS-DRG with Code 92.27 MS-DRG without Code 92.27
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Average length Number of Average length
DRG cases of stay Average costs cases of stay Average costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
129.................................................... 6 6.67 $15,793 1,326 5.35 $14,400
130.................................................... 2 1.00 7,587 904 2.78 7,860
163.................................................... 17 8.18 24,166 11,871 13.90 31,860
164.................................................... 52 5.94 17,505 16,487 7.13 16,865
165.................................................... 41 2.95 10,638 9,260 4.27 11,754
180.................................................... 0 0 0 19,304 7.37 11,396
181.................................................... 0 0 0 22,205 5.30 8,014
182.................................................... 0 0 0 2,365 3.59 5,580
326.................................................... 0 0 0 10,321 15.48 35,437
327.................................................... 1 4.00 9,302 9,671 8.67 17,889
328.................................................... 0 0 0 8,461 3.49 9,161
329.................................................... 1 24.00 37,654 41,107 15.10 33,003
330.................................................... 2 9.00 20,043 53,584 8.91 16,736
331.................................................... 0 0 0 22,105 5.13 10,654
332.................................................... 1 48.00 61,169 1,439 13.40 29,727
333.................................................... 1 10.00 11,446 4,494 7.86 16,008
334.................................................... 1 16.00 27,312 2,855 4.76 10,518
344.................................................... 0 0 0 756 11.30 21,590
345.................................................... 0 0 0 2,906 6.67 11,190
346.................................................... 0 0 0 2,331 4.52 7,757
347.................................................... 0 0 0 1,430 8.80 16,644
348.................................................... 0 0 0 3,975 5.40 9,326
349.................................................... 0 0 0 3,512 2.75 5,311
405.................................................... 1 8.00 8,444 3,940 15.45 35,970
406.................................................... 2 10.50 23,231 4,749 7.83 17,333
407.................................................... 0 0 0 1,799 8.04 12,148
490.................................................... 0 0 0 19,840 4.24 11,940
491.................................................... 0 0 0 38,574 2.05 6,794
500.................................................... 0 0 0 1,935 10.86 20,600
501.................................................... 5 7.00 12,896 4,961 5.77 10,256
502.................................................... 5 7.40 13,876 5,009 2.78 6,844
584.................................................... 0 0 0 790 5.32 11,126
585.................................................... 0 0 0 1,318 2.12 7,283
597.................................................... 0 0 0 532 7.41 10,990
598.................................................... 0 0 0 1,369 5.32 7,624
599.................................................... 0 0 0 165 3.26 4,368
653.................................................... .............. .............. ............... 1,589 16.34 35,856
654.................................................... .............. .............. ............... 3,502 9.13 19,367
655.................................................... 0 0 0 1,121 5.53 413,162

[[Page 51555]]

656.................................................... 1 20.00 77,737 3,110 10.00 24,022
657.................................................... 0 0 0 7,885 5.63 13,345
658.................................................... 0 0 0 6,150 3.25 9,718
662.................................................... 0 0 0 763 10.21 19,455
663.................................................... 0 0 0 1,818 2.18 9,729
664.................................................... 0 0 0 2,705 1.86 7,457
668.................................................... 2 3.50 3,972 2,908 8.99 16,852
669.................................................... 4 6.50 7,832 13,776 4.25 8,398
670.................................................... 2 1.50 5,639 7,321 2.24 5,158
671.................................................... 0 0 0 746 5.45 9,778
672.................................................... 0 0 0 613 2.31 5,575
707.................................................... 0 0 0 4,719 4.26 12,080
708.................................................... 1 3.00 11,252 14,329 1.80 8,572
736.................................................... 0 0 0 775 13.18 29,827
737.................................................... 1 6.00 13,045 2,844 6.49 13,348
738.................................................... 0 0 0 642 3.47 7,966
739.................................................... 0 0 0 790 10.18 23,070
740.................................................... 0 0 0 3,914 4.34 10,214
741.................................................... 1 1.00 3,225 4,917 2.31 7,438
746.................................................... 0 0 0 2,282 3.97 8,504
747.................................................... 0 0 0 6,243 1.72 5,995
748.................................................... 0 0 0 14,682 1.67 6,285
749.................................................... 0 0 0 920 8.58 16,781
750.................................................... 0 0 0 285 2.88 7,116
--------------------------------------------------------------------------------------------------------------------------------------------------------

The numbers of cases in any of the MS-DRGs listed were minimal.
Many of the MS-DRGs listed had no occurrences of procedure code 92.27.
The highest number of cases found was 52, in MS-DRG 164 (Major Chest
Procedures with CC). Based on these findings, we do not believe that
making a MS-DRG change based on such a minimal number of cases can be
justified. Therefore, for FY 2012, we did not propose to add procedure
code 92.27 to any of the 41 MS-DRGs listed above. Further, we did not
propose any MS-DRG changes for procedure code 92.27. We welcomed public
comment on our proposal not to make changes to procedure code 92.27.
Comment: Several commenters supported our proposal to not add
procedure code 92.27 to any of the 41 MS-DRGs listed above and to not
propose any MS-DRG changes for procedure code 92.27.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, as we
proposed, we are not adding procedure code 92.27 to any of the 41 MS-
DRGs listed above and are not making any MS-DRG changes for procedure
code 92.27 for FY 2012.
(2) Intraoperative Electron Radiation Therapy (IOERT)
We received a public comment that was outside of the scope of the
FY 2011 IPPS/LTCH PPS proposed rule regarding the MS-DRG assignment for
intraoperative electron radiation therapy (IOERT). This issue was
discussed briefly in the FY 2011 IPPS/LTCH PPS final rule (75 FR
50128). However, we addressed this issue in the FY 2012 IPPS/LTCH PPS
rulemaking. IOERT is the direct application of radiation to a tumor
and/or tumor bed while the patient is undergoing surgery for cancer.
This technology may be used for cancers of the rectum, head/neck,
pancreas, lung, genitourinary, soft tissue, and breast. IOERT is a
secondary procedure performed during the primary tumor removal surgery.
The commenter requested that CMS update the MS-DRG assignments for
procedure code 92.41 (Intraoperative electron radiation therapy) to
ensure that the cost of this technology is captured in each MS-DRG
involving tumor removal in the rectum, head/neck, pancreas, lung,
genitourinary, soft tissue, and breast. Currently, this code is not
assigned to a specific MS-DRG as the primary procedure performed, the
tumor removal, would determine the appropriate MS-DRG assignment.
The commenter provided a recommended list of MS-DRGs to which IOERT
should be assigned:

------------------------------------------------------------------------
MS-DRG Description
------------------------------------------------------------------------
129.................................... Major Head and Neck Procedures
with CC/MCC or Major Device.
130.................................... Major Head and Neck Procedures
without CC/MCC.
133.................................... Other Ear, Nose, Mouth and
Throat O,R, Procedures with CC/
MCC.
134.................................... Other Ear, Nose, Mouth and
Throat O.R. Procedures without
CC/MCC.
163.................................... Major Chest Procedures with
MCC.
164.................................... Major Chest Procedures with CC.
165.................................... Major Chest Procedures without
CC/MCC.
166.................................... Other Respiratory System O.R.
Procedures with MCC.
167.................................... Other Respiratory System O.R.
Procedures with CC.
168.................................... Other Respiratory System O.R.
Procedures without CC/MCC.
326.................................... Stomach, Esophageal and
Duodenal Procedures with MCC.
327.................................... Stomach, Esophageal and
Duodenal Procedures with CC.
328.................................... Stomach, Esophageal and
Duodenal Procedures without CC/
MCC.
329.................................... Major Small and Large Bowel
Procedures with MCC.
330.................................... Major Small and Large Bowel
Procedures with CC.
331.................................... Major Small and Large Bowel
Procedures without CC/MCC.
332.................................... Rectal Resection with MCC.
333.................................... Rectal Resection with CC.
334.................................... Rectal Resection without CC/
MCC.
344.................................... Minor Small and Large Bowel
Procedures with MCC.
345.................................... Minor Small and Large Bowel
Procedures with CC.
346.................................... Minor Small and Large Bowel
Procedures without CC/MCC.
347.................................... Anal and Stomal Procedures with
MCC.
348.................................... Anal and Stomal Procedures with
CC.

[[Page 51556]]

349.................................... Anal and Stomal Procedures
without CC/MCC.
356.................................... Other Digestive System O.R.
Procedures with MCC.
357.................................... Other Digestive System O.R.
Procedures with CC.
358.................................... Other Digestive System O.R.
Procedures without CC/MCC.
405.................................... Pancreas, Liver and Shunt
Procedures with MCC.
406.................................... Pancreas, Liver and Shunt
Procedures with CC.
407.................................... Pancreas, Liver and Shunt
Procedures without CC/MCC.
490.................................... Back and Neck Procedures Except
Spinal Fusion with CC/MCC.
491.................................... Back and Neck Procedures Except
Spinal Fusion without CC/MCC.
500.................................... Soft Tissue Procedures with
MCC.
501.................................... Soft Tissue Procedures with CC.
502.................................... Soft Tissue Procedures without
CC/MCC.
579.................................... Other Skin, Subcutaneous Tissue
and Breast Procedures with
MCC.
580.................................... Other Skin, Subcutaneous Tissue
and Breast Procedures with CC.
581.................................... Other Skin, Subcutaneous Tissue
and Breast Procedures without
CC/MCC.
584.................................... Breast Biopsy, Local Excision
and Other Breast Procedures
with CC/MCC.
585.................................... Breast Biopsy, Local Excision
and Other Breast Procedures
without CC/MCC.
653.................................... Major Bladder Procedures with
MCC.
654.................................... Major Bladder Procedures with
CC.
655.................................... Major Bladder Procedures
without CC/MCC.
656.................................... Kidney and Ureter Procedures
For Neoplasm with MCC.
657.................................... Kidney and Ureter Procedures
For Neoplasm with CC.
658.................................... Kidney and Ureter Procedures
for Neoplasm without MCC/CC.
662.................................... Minor Bladder Procedures with
MCC.
663.................................... Minor Bladder Procedures with
CC.
664.................................... Minor Bladder Procedures
without CC/MCC.
668.................................... Transurethral Procedures with
MCC.
669.................................... Transurethral Procedures with
CC.
670.................................... Transurethral Procedures
without CC/MCC.
671.................................... Urethral Procedures with CC/
MCC.
672.................................... Urethral Procedures without CC/
MCC.
707.................................... Major Male Pelvic Procedures
with CC/MCC.
708.................................... Major Male Pelvic Procedures
without CC/MCC.
715.................................... Other Male Reproductive System
O.R. Procedures For Malignancy
with CC/MCC.
716.................................... Other Male Reproductive System
O.R. Procedures For Malignancy
without CC/MCC.
736.................................... Uterine and Adnexa Procedures
for Ovarian or Adnexal
Malignancy with MCC.
737.................................... Uterine and Adnexa Procedures
for Ovarian or Adnexal
Malignancy with CC.
738.................................... Uterine and Adnexa Procedures
for Ovarian or Adnexal
Malignancy without CC/MCC.
739.................................... Uterine and Adnexa Procedures
for Nonovarian or Adnexal
Malignancy with MCC.
740.................................... Uterine and Adnexa Procedures
for Nonovarian or Adnexal
Malignancy with CC.
741.................................... Uterine and Adnexa Procedures
for Nonovarian or Adnexal
Malignancy without CC/MCC.
746.................................... Vagina, Cervix and Vulva
Procedures with CC/MCC.
747.................................... Vagina Cervix and Vulva
Procedures without CC/MCC.
748.................................... Female Reproductive System
Reconstructive Procedures.
749.................................... Other Female Reproductive
System O.R. Procedures with CC/
MCC.
750.................................... Other Female Reproductive
System O.R. Procedures without
CC/MCC.
------------------------------------------------------------------------

For the FY 2012 IPPS/LTCH PPS proposed rule, based on our review of
the FY 2010 MedPAR claims data, we found a total of 12 cases with
procedure code 92.41 reported. There were three cases assigned to MS-
DRG 502; two cases each assigned to two different MS-DRGs: MS-DRG 333
and MS-DRG 501; and one case assigned each to five MS-DRGs: MS-DRGs
130, 168, 327, 329, and 330.
The IOERT cases were assigned to an MS-DRG that included the tumor
removal of that particular site, which was listed on the table above.
Therefore, the cost of this technology is appropriately identified in
the MS-DRG assignment for the removal of the tumor by specific site,
and no change is warranted at this time. Therefore, we did not propose
any changes to the assignment for IOERT cases for FY 2012. We invited
public comment on our proposal to not change the assignment for IOERT
cases for FY 2012.
Comment: Several commenters supported our proposal to not make any
MS-DRG modifications for FY 2012 for IOERT cases reported with
procedure code 92.41.
Response: We appreciate the commenters' support. Based on our
findings, these cases are appropriately assigned to the MS-DRG for the
removal of the tumor by specific site and warrant no further
modification.
After consideration of the public comments we received, we are
finalizing our proposal to not make any MS-DRG modifications for FY
2012 for intraoperative electron radiation therapy cases.
b. IPPS Recalled Device Policy Clarification
In the FY 2008 IPPS final rule with comment period (72 FR 47246
through 47251), we discussed the topic of Medicare payment for devices
that are replaced without cost or where credit for a replaced device is
furnished to the hospital. We implemented a policy to reduce a
hospital's IPPS payment for certain MS-DRGs where the implantation of a
device that has been recalled determined the base MS-DRG assignment. At
that time, we specified that we would reduce a hospital's IPPS payment
for those MS-DRGs where the hospital received a credit equal to 50
percent or more of the cost of the device when a manufacturer provided
a credit for a recalled device.
A similar policy was adopted under the Hospital Outpatient
Prospective Payment System (OPPS) in CY 2008 (the ``partial credit''
policy). This policy can be viewed in its entirety at 72 FR 66743
though 66748. In general terms, under the partial credit policy, CMS
reduces the amount of payment for an implanted device made under the
OPPS for which CMS determines that a significant portion of the payment
is attributable to the cost of an implanted device when the provider
receives partial credit for the cost of a replaced device, but only
where the amount of the device credit is greater than or equal to 50
percent of the cost of the new replacement device being implanted.
It came to our attention that there is a discrepancy between the
IPPS policy and the OPPS partial credit policy for replacement devices.
In particular, the OPPS partial credit policy specifies that the credit
must be 50 percent or greater of the cost of the replacement device.
However, the IPPS policy does not specify whether the credit should be
50 percent or greater of the replacement device or the original device.
We believe that the OPPS partial credit policy and the IPPS policy
should be consistent with each other on the issue of whether the 50
percent or more credit is with respect to the replacement device or the
original device. Therefore, in the FY 2012 IPPS/LTCH PPS proposed rule,
we proposed to clarify the IPPS policy to state that the policy applies
where ``the hospital received a credit equal to 50 percent or more of
the cost of the replacement device.'' We invited public comment on this
proposal.
Comment: Several commenters approved of parallel policies for
recalled

[[Page 51557]]

device credit for both the inpatient setting and the outpatient
hospital setting.
Response: We appreciate the commenters' support.
Comment: One commenter suggested additional clarifications. The
commenter recommended that CMS reconcile condition codes 49 and 50 with
the ``FB'' and ``FC'' modifiers from OPPS to include devices obtained
at reduced or no cost for reasons other than those currently specified
in condition codes 49 and 50. Condition code 49 addresses ``product
replacement within product lifecycle'' while condition code 50 covers
``product replacement for known recall of a product.'' The commenter
stated that, as currently defined, these two condition codes do not
represent all of the reasons that devices are obtained at reduced or no
cost and, therefore, create confusion as to when the device credit
policy applies. The commenter added that, by comparison, in OPPS,
modifier ``FB'' covers ``devices that are obtained at no cost to the
provider'' and modifier ``FC'' covers ``partial credit received for
replaced device.'' Further, the commenter stated, the definitions of
the ``FB'' and ``FC'' modifiers denote whether the replacement device
was obtained at no cost or reduced cost, and generally reflect all
situations when the device credit policy would apply. As part of the
clarification, the commenter suggested that CMS further explain whether
value code ``FD'' as well as modifiers ``FB'' and ``FC'' are for
``replacement'' devices only.
Response: We are not clear about the clarifications suggested by
the commenter. The OPPS modifier ``-FB'' (Item Provided without Cost to
Provider, Supplier or Practitioner) can be used to describe an item
provided under warranty, replaced due to defect, or provided as a free
sample. OPPS modifier ``-FC'' (Partial Credit Received for Replaced
Device) describes cases in which the hospital receives a partial credit
of 50 percent or more of the cost of a new replacement device under
warranty, recall, or field action.
Value code ``FD'' is used for Medicare Part A reporting of
replacement devices. Hospitals must use the combination of condition
code 49 or 50, described above, along with value code ``FD'' to
correctly bill for a replacement device that was provided with a credit
or no cost. Condition code 49 or 50 identifies a replacement device
while value code ``FD'' communicates to Medicare the amount of the
credit, or cost reduction, received by the hospital for the replaced
device. We do not believe that hospitals find these reporting
requirements confusing. Regardless of the actual reason that a device
is provided at no cost to a hospital or an ambulatory surgical center
(ASC), the end result is that neither the hospital nor the ASC is
incurring the full cost of the device, although the Medicare payment is
calculated based on the full cost of the device.
Comment: One commenter pointed out that the FY 2009 IPPS/LTCH PPS
final rule (73 FR 48496) finalized an MS-DRG change by removing several
procedure codes for AICD leads from MS-DRG 245 as well as revising the
title of that MS-DRG to read ``AICD Generator Procedures''. New MS-DRG
265 (AICD Lead Procedures) was also created and included the AICD lead
procedure codes that were transferred from MS-DRG 245. The commenter
pointed out that CMS has not issued a new table through its transmittal
process indicating that MS-DRG 265 should also be included in the list
of MS-DRGs that are subject to the device recall policy.
Response: We are aware of this oversight and have begun the process
to create an updated Change Request to address this issue. We expect to
issue the Change Request shortly.
Comment: One commenter suggested that no-charge devices should be
removed from the calculation of MS-DRG relative weights.
Response: We appreciate this comment, but we point out that no-
charge devices are not reported on claims. Therefore, charges for the
device have not been included in the computation of the MS-DRG relative
weights.
After consideration of the public comments we received, we are
finalizing our proposed clarification of the IPPS recalled device
policy to state that the policy applies where ``the hospital received a
credit equal to 50 percent or more of the cost of the replacement
device,'' and we will issue instructions to hospitals accordingly.
15. Public Comments on Issues Not Addressed in the Proposed Rule
We received a number of public comments regarding MS-DRG issues
that were outside the scope of the proposals included in the FY 2012
IPPS/LTCH PPS proposed rule. We have summarized these public comments
below. However, because these public comments were outside of the scope
of the proposed rule, we are not addressing them in this final rule. As
stated in section II.B.2. of this preamble, we encourage individuals
with comments about MS-DRG classifications to submit these comments no
later than December of each year so they can be considered for possible
inclusion in the annual proposed rule and, if included, may be
subjected to public review and comment. We will consider these comments
for possible proposals in future rulemaking as part of our annual
review process.
Commenters requested that CMS create new MS-DRGs for (1) disorders
of porphyrin metabolism and (2) related and unrelated allogeneic bone
marrow transplants. The commenters also requested that CMS create a new
MS-DRG that would distinguish between ventricular assist device (VAD)
implantation and heart transplants.
Commenters requested that CMS evaluate the non-CC, CC, or MCC
designation of the following codes:

263.0 (Malnutrition of moderate degree)
263.1 (Malnutrition of mild degree)
263.9 (Unspecified protein-calorie malnutrition)
285.3 (Antineoplastic chemotherapy induced anemia)
425.4-425.9 (Cardiomyopathy)
428.0 (Heart failure, unspecified)
707.25 (Pressure ulcer, unstageable)

One commenter recommended that CMS consider the reassignment of
cases of patients diagnosed with influenza with pneumonia and who also
have secondary diagnoses that would otherwise qualify the assignment of
the cases to MS-DRGs 177 (Respiratory Infections and Inflammations with
MCC), 178 (Respiratory Infections and Inflammations with CC), and 179
(Respiratory Infections and Inflammations without MCC/CC). The
commenter recommended these cases be reassigned from MS-DRGs 193
(Simple Pneumonia and Pleurisy with MCC), 194 (Simple Pneumonia and
Pleurisy with CC), and 195 (Simple Pneumonia and Pleurisy without MCC/
CC) to MS-DRGs 177, 178, and 179.

H. Recalibration of MS-DRG Weights

In developing the FY 2012 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 2010 MedPAR data used in this final rule include
discharges occurring on October 1, 2009, through September 30, 2010,
based on bills received by CMS through March 31, 2011, 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 2010

[[Page 51558]]

MedPAR file used in calculating the relative weights includes data for
approximately 10,836,723 Medicare discharges from IPPS providers.
Discharges for Medicare beneficiaries enrolled in a Medicare Advantage
managed care plan are excluded from this analysis. These discharges are
excluded when the MedPAR ``GHO Paid'' indicator field on the claim
record is equal to ``1'' or when the MedPAR DRG payment field, which
represents the total payment for the claim, is equal to the MedPAR
``Indirect Medical Education (IME)'' payment field, indicating that the
claim was an ``IME only'' claim submitted by a teaching hospital on
behalf of a beneficiary enrolled in a Medicare Advantage managed care
plan. In addition, the March 31, 2011 update of the FY 2010 MedPAR was
updated to comply with version 5010 of the X12 HIPAA Transaction and
Code Set Standards. The expansion of the MedPAR to the 5010 format
includes a new variable called ``claim type.'' Claim type ``60''
indicates that the claim was an inpatient claim paid as fee-for-
service. Claim types of ``61,'' ``62,'' ``63,'' and ``64'' relate to
encounter claims, Medicare Advantage IME claims, and HMO no-pay claims.
Therefore, beginning with the calculation of the relative weights for
FY 2012, we are also excluding claims with claim type values not equal
to ``60.'' The data exclude CAHs, including hospitals that subsequently
became CAHs after the period from which the data were taken. The second
data source used in the cost-based relative weighting methodology is
the FY 2009 Medicare cost report data files from HCRIS (that is, cost
reports beginning on or after October 1, 2008, and before October 1,
2009), which represents the most recent full set of cost report data
available. We used the March 31, 2011 update of the HCRIS cost report
files for FY 2009 in setting the relative cost-based weights.
The methodology we used to calculate the DRG cost-based relative
weights from the FY 2010 MedPAR claims data and FY 2009 Medicare cost
report data is as follows:
To the extent possible, all the claims were regrouped
using the FY 2012 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 2010 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 96.2 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 present on the
claim, only for purposes of relative weight-setting, the POA indicator
field was reset to ``Y'' for ``Yes'' for all claims that otherwise have
an ``N'' (No) or a ``U'' (documentation insufficient to determine if
the condition was present at the time of inpatient admission) in the
POA field.
Under current payment policy, the presence of specific HAC codes,
as indicated by the POA field values, can generate a lower payment for
the claim. Specifically, if the particular condition is present on
admission (that is, a ``Y'' indicator is associated with the diagnosis
on the claim), it is not a HAC, and the hospital is paid for the higher
severity (and, therefore, the higher weighted MS-DRG). If the
particular condition is not present on admission (that is, an ``N''
indicator is associated with the diagnosis on the claim) and there are
no other complicating conditions, the DRG GROUPER assigns the claim to
a lower severity (and, therefore, the lower weighted MS-DRG) as a
penalty for allowing a Medicare inpatient to contract a HAC. While the
POA reporting meets policy goals of encouraging quality care and
generates program savings, it presents an issue for the relative
weight-setting process. Because cases identified as HACs are likely to
be more complex than similar cases that are not identified as HACs, the
charges associated with HAC cases are likely to be higher as well.
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, we reset the POA indicator field to ``Y''
only for relative weight-setting purposes for all claims that otherwise
have a ``N'' or an ``U'' in the POA field. This resetting ``forced''
the more costly HAC claims into the higher severity MS-DRGs as
appropriate, and the relative weights calculated for each MS-DRG more
closely reflect the true costs of those cases.
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 2009 cost report data.

[[Page 51559]]

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 51560]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.003

[[Page 51561]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.004

[[Page 51562]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.005

[[Page 51563]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.006

[[Page 51564]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.007

[[Page 51565]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.008

[[Page 51566]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.009

[[Page 51567]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.010

[[Page 51568]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.011

[[Page 51569]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.012

[[Page 51570]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.013

BILLING CODE 4120-01-C

[[Page 51571]]

We developed the national average CCRs as follows:
Taking the FY 2009 cost report data, we removed CAHs, Indian Health
Service hospitals, all-inclusive rate hospitals, and cost reports that
represented time periods of less than 1 year (365 days). We included
hospitals located in Maryland because we include their charges in our
claims database. We then created CCRs for each provider for each cost
center (see prior table for line items used in the calculations) and
removed any CCRs that were greater than 10 or less than 0.01. We
normalized the departmental CCRs by dividing the CCR for each
department by the total CCR for the hospital for the purpose of
trimming the data. We then took the logs of the normalized cost 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 1.5808272736 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 2012 are as follows:

------------------------------------------------------------------------
Group CCR
------------------------------------------------------------------------
Routine Days................................................. 0.525
Intensive Days............................................... 0.453
Drugs........................................................ 0.199
Supplies & Equipment......................................... 0.329
Therapy Services............................................. 0.380
Laboratory................................................... 0.146
Operating Room............................................... 0.251
Cardiology................................................... 0.155
Radiology.................................................... 0.140
Emergency Room............................................... 0.236
Blood and Blood Products..................................... 0.402
Other Services............................................... 0.402
Labor & Delivery............................................. 0.454
Inhalation Therapy........................................... 0.191
Anesthesia................................................... 0.116
------------------------------------------------------------------------

Since FY 2009, the relative weights have been based on 100 percent
cost weights based on our MS-DRG grouping system.
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 2012 IPPS/LTCH PPS proposed
rule, we proposed to use that same case threshold in recalibrating the
MS-DRG weights for FY 2012. Using the FY 2010 MedPAR data set, there
were 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 aged 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 aged 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 2012, 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 low-volume MS-DRGs by adjusting
their FY 2011 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 O.R. Procedure FY 2011 FR weight (adjusted by
Except Sterilization and/or D&C. percent change in average
weight of the cases in other MS-
DRGs).
789..................................... Neonates, Died or Transferred to FY 2011 FR weight (adjusted by
Another Acute Care Facility. percent change in average
weight of the cases in other MS-
DRGs).
790..................................... Extreme Immaturity or Respiratory FY 2011 FR weight (adjusted by
Distress Syndrome, Neonate. percent change in average
weight of the cases in other MS-
DRGs).
791..................................... Prematurity with Major Problems..... FY 2011 FR weight (adjusted by
percent change in average
weight of the cases in other MS-
DRGs).
792..................................... Prematurity without Major Problems.. FY 2011 FR weight (adjusted by
percent change in average
weight of the cases in other MS-
DRGs).
793..................................... Full-Term Neonate with Major FY 2011 FR weight (adjusted by
Problems. percent change in average
weight of the cases in other MS-
DRGs).
794..................................... Neonate with Other Significant FY 2011 FR weight (adjusted by
Problems. percent change in average
weight of the cases in other MS-
DRGs).
795..................................... Normal Newborn...................... FY 2011 FR weight (adjusted by
percent change in average
weight of the cases in other MS-
DRGs).
----------------------------------------------------------------------------------------------------------------

[[Page 51572]]

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 a new medical service or technology may be considered
for new technology add-on payment if, ``based on the estimated costs
incurred with respect to discharges involving such service or
technology, the DRG prospective payment rate otherwise applicable to
such discharges under this subsection is inadequate.'' We note that
beginning with discharges occurring in FY 2008, CMS transitioned from
CMS-DRGs to MS-DRGs.
The regulations implementing these provisions specify three
criteria for a new medical service or technology to receive the
additional payment: (1) The medical service or technology must be new;
(2) the medical service or technology must be costly such that the DRG
rate otherwise 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 are used to
calculate the MS-DRG weights. For example, data from discharges
occurring during FY 2010 were used to calculate the FY 2012 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 MS-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 this final
rule, we generally refer to both FDA approval and FDA clearance as FDA
``approval.'') However, in some cases, there may be few to 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 2009 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, 2012 (the start
of FY 2013). Because the FY 2013 MS-DRG weights would be calculated
using FY 2011 MedPAR data, the costs of such a new technology would be
fully reflected in the FY 2013 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 2013 and thereafter.
We do not consider a service or technology to be new if it is
substantially similar to one or more existing technologies. That is,
even if a technology receives a new FDA approval, it may not
necessarily be considered ``new'' for purposes of new technology add-on
payments if it is ``substantially similar'' to a technology that was
approved by FDA and has been on the market for more than 2 to 3 years.
In the FY 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 final rule (74 FR 43813 and
43814), we noted that the discussion of substantial similarity in the
FY 2006 IPPS final rule related to 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

[[Page 51573]]

approval), or whether the technology could qualify for separate new
technology add-on payments under each indication.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43814), we
added 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
technology is substantially similar to an existing technology, we
adopted a policy 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 (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). As we
noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, 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 ineligible for the new technology add-on payment.
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 Public Law 108-173.) Table 10 that was
included in the IPPS/LTCH PPS final rule published in the Federal
Register on August 16, 2010, contained the final thresholds that were
used to evaluate applications for new technology add-on payments for
this final rule for FY 2012 (75 FR 50605 through 50613).
In the September 7, 2001 final rule that established the new
technology add-on payment regulations (66 FR 46917), we discussed the
issue of whether the Health Insurance Portability and Accountability
Act (HIPAA) Privacy Rule at 45 CFR Parts 160 and 164 applies to claims
information that providers submit with applications for new technology
add-on payments. Specifically, we explained that health plans,
including Medicare, and providers that conduct certain transactions
electronically, including hospitals that would receive new technology
add-on payments, 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 does not require a
covered entity to obtain consent from patients to use or disclose
protected health information for the covered entity's treatment,
payment, or health care operations purposes, and expressly permits such
entities to use or to disclose protected health information for these
purposes and for the treatment purposes of another health care provider
and the payment purposes of another covered entity or health care
provider. (We refer readers to 45 CFR 164.502(a)(1)(ii) and
164.506(c)(1) and (c)(3) and the Standards for Privacy of Individually
Identifiable Health Information published in the Federal Register (67
FR 53208 through 53214) on August 14, 2002, for a full discussion of
consent in the context of the HIPAA Privacy Rule.)
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 be made in a
manner that ensures that aggregate payments to hospitals are not more
or less than they were in the prior fiscal year (that is, they are
``budget neutral''). 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

[[Page 51574]]

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, in accordance with section 503(d)(2) of Public
Law 108-173, add-on payments for new medical services or technologies
for FY 2005 and later years have not been subjected to budget
neutrality.
In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we
modified our regulations at Sec. 412.87 to codify our longstanding
practice of how CMS evaluates the eligibility criteria for new medical
service or technology add-on payment applications. That is, we first
determine whether a medical service or technology meets the newness
criteria, and only if so, do we then make a determination as to whether
the technology meets the cost threshold and represents a substantial
clinical improvement over existing medical services or technologies. We
also amended Sec. 412.87(c) to specify that all applicants for new
technology add-on payments must have FDA approval or clearance for
their new medical service or technology by July 1 of each year prior to
the beginning of the fiscal year that the application is being
considered.
The Council on Technology and Innovation (CTI) at CMS oversees the
agency's cross-cutting priority on coordinating coverage, coding and
payment processes for Medicare with respect to new technologies and
procedures, including new drug therapies, as well as promoting the
exchange of information on new technologies 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 (CM), who is
also designated as the CTI's Executive Coordinator.
The specific processes for coverage, coding, and payment are
implemented by CM, 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.gov/CouncilonTechInnov/Downloads/InnovatorsGuide5_10_10.pdf.
As we indicated in the FY 2009 IPPS final rule (73 FR 48554), we
invite any product developers or manufacturers of new medical
technologies to contact the agency early in the process of product
development if they have questions or concerns about the evidence that
would be needed later in the development process for the agency's
coverage decisions for Medicare.
The CTI aims to provide useful information on its activities and
initiatives to stakeholders, including Medicare beneficiaries,
advocates, medical product manufacturers, providers, and health policy
experts. Stakeholders with further questions about Medicare's coverage,
coding, and payment processes, or who want further guidance about how
they can navigate these processes, can contact the CTI at
[email protected].
We note that applicants for add-on payments for new medical
services or technologies for FY 2013 must submit a formal request,
including a full description of the clinical applications of the
medical service or technology and the results of any clinical
evaluations demonstrating that the new medical service or technology
represents a substantial clinical improvement, along with a significant
sample of data to demonstrate that the medical service or technology
meets the high-cost threshold. Complete application information, along
with final deadlines for submitting a full application, will be posted
as it becomes available on the CMS Web site at: http://www.cms.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 2013, the Web site also
will post the tracking forms completed by each applicant.
Comment: A number of commenters submitted public comments that
addressed topics relating to the substantial similarity criteria,
marginal cost factor for the new technology add-on payment, the use of
external data in determining the cost threshold, paying new technology
add-on payments for 2 to 3 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 invite public comments nor propose to make any
changes to any of the issues summarized above. Because these public
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

[[Page 51575]]

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 2012 prior
to publication of the FY 2012 IPPS/LTCH PPS proposed rule, we published
a notice in the Federal Register on November 29, 2010 (75 FR 73091
through 73094), and held a town hall meeting at the CMS Headquarters
Office in Baltimore, MD, on February 2, 2011. 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 2012 new medical service and
technology add-on payment applications before the publication of the FY
2012 proposed rule.
Approximately 50 individuals registered to attend the town hall
meeting in person, while additional individuals listened over an open
telephone line. Each of the three FY 2012 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 the
applications, in our evaluation of the new technology add-on
applications for FY 2012 in the FY 2012 proposed rule and in this final
rule.
In response to the published notice and the new technology town
hall meeting, we received three written comments regarding applications
for FY 2012 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 proposed rule. We refer readers to the FY 2012 IPPS/LTCH PPS
proposed rule for a complete iteration of the comments received in
response to the published notice and the new technology town hall
meeting and CMS' responses (76 FR 25861 through 25863).
3. FY 2012 Status of Technologies Approved for FY 2011 Add-On Payments
a. Spiration[supreg] IBV[supreg] Valve System
Spiration, Inc. submitted an application for new technology add-on
payments 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 (LVRS). 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 HDE approval from the FDA on October 24, 2008.
We were 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 had precluded the device from being used in the
treatment of any patients until the Institutional Review Board (IRB)
granted approvals regarding its study sites. Therefore, the
Spiration[supreg] IBV[supreg] met the newness criterion once it
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 final rule (74 FR 43819), the applicant stated
that the first IRB approval for the Spiration[supreg] IBV[supreg] was
March 12, 2009. In that final rule, based on the information above from
the applicant, we determined that the Spiration[supreg] IBV[supreg]
meets the newness criterion and the newness period for the
Spiration[supreg] IBV[supreg] begins on March 12, 2009.
After evaluation of the newness, costs, and substantial clinical
improvement criteria for new technology payments for the
Spiration[supreg] IBV[supreg] and consideration of the public comments
we received in response to the FY 2010 IPPS/RY 2010 LTCH PPS proposed
rule, including the additional analysis of clinical data and supporting
information submitted by the applicant, we approved the
Spiration[supreg] IBV[supreg] for new technology add-on payments for FY
2010 with a maximum add-on payment of $3,437.50.
In the FY 2011 IPPS/LTCH PPS proposed rule, we did not propose any
changes to the new technology add-on payments for the Spiration[supreg]
IBV[supreg]. We did not receive any public comments on whether to
continue or discontinue the new technology add-on payment for the
Spiration[supreg] IBV[supreg] for FY 2011. Therefore, for FY 2011, we
continued new technology add-on payments for cases involving the
Spiration[supreg] IBV[supreg] in FY 2011, with a maximum add-on payment
of $3,437.50.
The new technology add-on payment regulations provide that ``a
medical service or technology may be considered new within 2 or 3 years
after the point at which data begin to become available reflecting the
ICD-9-CM code assigned to the new medical service or technology'' (42
CFR 412.87(b)(2)). Our practice has been to begin and end new
technology add-on payments on the basis of a fiscal year, and we have
generally followed a guideline that uses a 6-month window before and
after the start of the fiscal year to determine whether to extend the
new technology add-on payment for an additional fiscal year. In
general, we extend add-on payments for an additional year only if the
3-year anniversary date of the product's entry on the market occurs in
the latter half of the fiscal year (70 FR 47362). With regard to the
newness criterion for the Spiration[supreg] IBV[supreg], as stated
above, we consider the beginning of the newness period for the device
to have commenced on the date of the first IRB approval for the
Spiration[supreg] IBV[reg], which was March 12, 2009. For FY 2012, as
of March 12, 2012, the Spiration[supreg] IBV[supreg] will have been on
the market for 3 years, and is therefore no longer considered ``new''
as of March 12, 2012. Because the 3-year anniversary date of the
Spiration[supreg] IBV[supreg]'s entry onto the market will occur in the
first half of the fiscal year, we proposed to discontinue its new
technology add-on payment for FY 2012.
Comment: One commenter requested that the new technology add-on
payments for the Spiration[supreg] IBV[supreg] be extended for a third
year. The commenter reasoned that, although two hospital IRBs approved
the use of the Spiration[supreg] IBV[supreg], those two hospitals did
not implant the valve until June 2010 and September 2010, respectively.
The commenter explained that there was a delay in the hospitals'
implantation of the device from the time of IRB approval due to the
following

[[Page 51576]]

reasons: (1) Infrequent number of cases; and (2) the clinical,
administrative, and operation processes that needed to be completed in
order to make the technology available under HDE approval at each
institution. Therefore, the commenter stated that even though a
hospital would have received IRB approval, it would not expect the
first case to be performed immediately. The commenter believed that for
these reasons, the newness period should begin with the first
implantation of the Spiration[supreg] IBV[supreg], which occurred in
June 2009. Using this date, the commenter determined that the newness
period for the Spiration[supreg] IBV[supreg] would end June 2012,
during the latter half of FY 2012, thus making the Spiration[supreg]
IBV[supreg] eligible for a third year of new technology add-on
payments.
Response: CMS' policy is that the newness period begins with the
product's or device's FDA approval date, except in limited
circumstances that could limit the availability of the product (69 FR
49002). In this case, the product was approved as an HDE, which
included IRB approval as a requirement. Therefore, we determined that
the date of IRB approval was the appropriate start date of the newness
period (74 FR 43819). We do not agree that the start date for the
newness period should be further adjusted if a hospital then decided
not to immediately utilize the technology. In this case, the hospital's
IRB approved the product for use on March 12, 2009, and the product was
available, but no patients had the product implanted until June 2010.
We believe this is similar to a situation in which a technology is FDA
approved (without any additional qualifications for use, such as IRB
approval), but no hospital uses the technology for a period of time
after FDA approval. In such a case, the newness period would still
begin with FDA approval, and we would not delay the beginning of the
newness period until a hospital uses the drug or device for the first
time. Therefore, we disagree with the commenter, and we continue to
believe it is appropriate to start the newness period for the
Spiration[supreg] IBV[supreg] with the first IRB approval, which was
March 12, 2009. As mentioned above, for FY 2012, as of March 12, 2012,
the Spiration[supreg] IBV[supreg] will have been available for
hospitals' utilization for 3 years, and it is therefore no longer
considered ``new'' as of March 12, 2012. Because this date occurs in
the first half of the fiscal year, we are finalizing our proposal to
discontinue its new technology add-on payment for FY 2012.
b. 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) in
FY 2009. The TAH-t is a technology that is used as a bridge to heart
transplant device for heart transplant-eligible patients with end-stage
biventricular failure. The TAH-t pumps up to 9.5 liters of blood per
minute. This high level of perfusion helps improve hemodynamic function
in patients, thus making them better heart transplant candidates.
The TAH-t was approved by the FDA on October 15, 2004, for use as a
bridge to transplant device in cardiac transplant-eligible candidates
at risk of imminent death from biventricular failure. The TAH-t is
intended to be used in hospital inpatients. One of the FDA's post-
approval requirements is that the manufacturer agrees to provide a
post-approval study demonstrating that 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 in response to the
FY 2009 IPPS proposed rule, we approved the TAH-t for new technology
add-on payments for FY 2009 (73 FR 48557). We also continued to make
new technology add-on payments for the TAH-t in FY 2010 and FY 2011.
We describe the new technology add-on payment requirements with
regard to newness above. With regard to the newness criterion for the
TAH-t, as stated above, we consider the beginning of the newness period
for the device to have commenced from the Medicare NCD date of May 1,
2008; it is no longer considered new as of May 11, 2011. Because the 3-
year anniversary date of the TAH-t will occur prior to the start of FY
2012, we proposed to discontinue the new technology add-on payment for
the TAH-t in FY 2012.

[[Page 51577]]

We did not receive any public comments on this proposal. Therefore,
we are finalizing our proposal to discontinue new technology add-on
payments for the TAH-t in FY 2012.
c. Auto Laser Interstitial Thermal Therapy (AutoLITT\TM\) System
Monteris Medical submitted an application for new technology add-on
payments for FY 2011 for the AutoLITT\TM\. AutoLITT\TM\ is a minimally
invasive, MRI-guided laser tipped catheter designed to destroy
malignant brain tumors with interstitial thermal energy causing
immediate coagulation and necrosis of diseased tissue. The technology
can be identified by ICD-9-CM procedure codes 17.61 (Laser interstitial
thermal therapy [LITT] of lesion or tissue of brain under guidance),
and 17.62 (Laser interstitial thermal therapy [LITT] of lesion or
tissue of head and neck under guidance), which became effective on
October 1, 2009.
The AutoLITT\TM\ received a 510K FDA clearance in May 2009. The
AutoLITT\TM\ is indicated for use to necrotize or coagulate soft tissue
through interstitial irradiation or thermal therapy in medicine and
surgery in the discipline of neurosurgery with 1064 nm lasers. The
AutoLITT\TM\ may be used in patients with glioblastoma multiforme brain
(GBM) tumors. The applicant stated in its application and through
supplemental information that, due to required updates, the technology
was actually introduced to the market in December 2009. The applicant
explained that it was necessary to reduce the thermal damage lines from
three to one and complete International Electrotechnical Commission/
Underwriter Laboratory testing, which led to the introduction of the
technology to the market in December 2009, although the technology was
approved by FDA in May 2009. The applicant also stated through
supplementary information to its application that the first sale of the
product took place on March 19, 2010. However, because the product was
already available for use in December 2009, it appears that the newness
date would begin in December 2009. In the FY 2011 IPPS/LTCH PPS
proposed rule, we welcomed public comments on this issue.
After evaluation of the newness, costs, and substantial clinical
improvement criteria for new technology payments for the AutoLITT\TM\
and consideration of the public comments we received in response to the
FY 2011 IPPS/RY 2011 LTCH PPS proposed rule, including the additional
analysis of clinical data and supporting information submitted by the
applicant, we approved the AutoLITT\TM\ for new technology add-on
payments for FY 2011. Consistent with the applicant's clinical trial,
the add-on payment is intended only for use of the device in cases of
Glioblastoma Multiforme. Therefore, we limited the new technology add-
on payment to cases involving the AutoLITT\TM\ in MS-DRGs 025
(Craniotomy and Endovascular Intracranial Procedures with MCC), 026
(Craniotomy and Endovascular Intracranial Procedures with CC), and 027
(Craniotomy and Endovascular Intracranial Procedures without CC or
MCC). Cases involving the AutoLITT\TM\ that are eligible for the new
technology add-on payment are identified by assignment to MS-DRGs 025,
026, and 027 with a procedure code of 17.61 (Laser interstitial
thermotherapy of lesion or tissue of brain under guidance) in
combination with a primary diagnosis codes that begins with a prefix of
191 (Malignant neoplasm of brain). We note that using the procedure and
diagnosis codes above and restricting the add-on payment to cases that
map to MS-DRGs 025, 026, and 027 is consistent with information
provided by the applicant, which demonstrated that cases of the
AutoLITT\TM\ would only map to MS-DRGs 025, 026, and 027. Procedure
code 17.62 (Laser interstitial thermotherapy of lesion or tissue of
head and neck under guidance) does not map to MS-DRGs 025, 026, or 027
under the GROUPER software and, therefore, is ineligible for new
technology add-on payment.
The average cost of the AutoLITT\TM\ is reported as $10,600 per
case. Under Sec. 412.88(a)(2) of the regulations, 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 AutoLITT\TM\ is $5,300.
We describe the new technology add-on payment requirements with
regard to newness above. With regard to the newness criterion for the
AutoLITT\TM\, as stated above, we consider the beginning of the newness
period for the device to commence from the market release date of
December 2009. Therefore, the device will be considered ``new'' until
December 2012. Because the 3-year anniversary date for the AutoLITT\TM\
will occur after FY 2012, we proposed to continue to make new
technology add-on payments for the AutoLITT\TM\ in FY 2012.
We did not receive any public comments on this proposal. Therefore,
we are finalizing our proposal to continue to make new technology add-
on payments for the AutoLITT\TM\ in FY 2012. The maximum add-on payment
for a case involving the AutoLITT\TM\ will continue to be $5,300 for FY
2012.
4. FY 2012 Applications for New Technology Add-On Payments
We received three applications for new technology add-on payments
for FY 2012. However, one applicant, the Champion\TM\ HF Monitoring
System by CardioMems, Inc., withdrew its application after publication
of the proposed rule because the applicant believed it would not
receive FDA approval for its technology prior to the July 1 deadline,
as required under Sec. 412.87(c) of our regulations. Because the
applicant withdrew its application, and we did not receive any public
comments on this application, we are not discussing this application in
this final rule. A discussion of the remaining two applications is
presented below.
a. AxiaLIF[supreg] 2L+\TM\ System
TranS1 submitted an application for new technology add-on payments
for the AxiaLIF[supreg] 2L+\TM\ System for FY 2012. The AxiaLIF[supreg]
2L+\TM\ System is an implantable spinal fixation system, delivered
through a pre-sacral approach, facilitating spinal fusion through axial
stabilization of the anterior lumbar spine at Lumbar vertebrae 4
through Sacral vertebrae 1 (L4-S1).
The AxiaLIF[supreg] 2L+\TM\ System received 510K FDA clearance
(K092124) on January 21, 2010, and the applicant asserts that the
device was available on the market immediately afterward through a
limited market release program. The AxiaLIF[supreg] 2L+\TM\ System is
indicated for use to provide anterior stabilization of the L4-S1 spinal
segments as an adjunct to spinal fusion. It is also indicated for
minimally invasive access to the anterior portion of the lower spine
for assisting in the treatment of degeneration of the lumbar disc,
performing lumbar discectomy, or for assistance in the performance of
L4-S1 interbody fusion. The AxiaLIF[supreg] 2L+\TM\ System may be used
in patients requiring fusion to treat pseudoarthrosis, unsuccessful
previous fusion, spinal stenosis, spondylolisthesis (Grade 1), or
degenerative disc disease as defined as back pain of discogenic origin
with degeneration of the disc confirmed by history and radiographic
studies. The AxiaLIF[supreg] 2L+\TM\ System is coded using ICD-9-CM
procedure code 81.08 (Lumbar and lumbosacral fusion of the anterior
column, posterior technique).
In the FY 2012 IPPS/LTCH PPS proposed rule, we expressed numerous

[[Page 51578]]

concerns regarding the application for new technology add-on payments
for the AxiaLIF[supreg] 2L+\TM\ System. With regard to the newness
criterion, we were concerned that the AxiaLIF[supreg] 2L+\TM\ System
may be substantially similar to the other devices manufactured by the
applicant, AxiaLIF[supreg] System and AxiaLIF[supreg] II\TM\ System,
the latter of which is listed as the predicate device on the
AxiaLIF[supreg] 2L+\TM\ System's application for FDA approval.
Specifically, in making a determination of substantial similarity, we
consider the following: (1) Whether a product uses the same or similar
mechanism of action to achieve a therapeutic outcome; (2) whether a
product is assigned to the same or different DRG; and (3) whether the
new use of a technology involves the treatment of the same or similar
type of disease and the same or similar patient population.
We were particularly concerned that the AxiaLIF[supreg]
2L+\TM\System uses the same or similar mechanism of action as the
AxiaLIF[supreg] II\TM\ System to achieve a therapeutic outcome.
According to the applicant's 510K summary submitted to the FDA
(K073514), the AxiaLIF[supreg] System is a multicomponent system
including titanium alloy implantable devices and instrumentation for
creating a pre-sacral axial track to the L5-S1 disk space. Similarly,
the AxiaLIF[supreg] II\TM\ System is described in the applicant's 510K
summary submitted to the FDA (K073643) as a system of medical grade
titanium alloy for the anterior stabilization of the L4-S1 spinal
segments as an adjunct to spinal fusion. As we stated in the proposed
rule, the applicant states that the AxiaLIF[supreg] 2L+\TM\ System was
created from the AxiaLIF[supreg] II\TM\ System platform. The applicant
submitted the following to distinguish the AxiaLIF[supreg] 2L+\TM\
System from the AxiaLIF[supreg] II\TM\ System:
There have been internal thread changes for the 2L+
implant to accompany the Spanning Distraction Rod, which is designed to
create and hold distraction in the L5-S1 disc space and allow for a
higher degree of control over the Rod advancement and distraction;
The design enhancements in the 2L+ System remove the
dependence of distraction on size and placement of the S1 Rod, thus
allowing precise implant placement in the vertebral bodies;
In the 2L+ Implant, the L4 section of the L4-L5 Rod
incorporates a conical design to increase fixation. The outer diameter
(O.D.) of the L5 section is increased to be identical to the O.D. of
the S1 implant to provide more surface area bone contact;
The 2L+ Instrumentation incorporates Dilator Trials as an
opportunity to enhance and simplify the intraoperative measuring
technique by providing a direct visual means of measurement; and
The 2L+ Fixation Rod fills the cannulation to prevent
graft from moving into the rod from the disc space. The Fixation Rod
also fixates the S1 Anchor and L4-L5 Rod together such that these
components cannot passively separate.
Based on indications for use listed by the FDA for the
AxiaLIF[supreg] System (K073514), the AxiaLIF[supreg] II^TM
System (K073643), and the AxiaLIF[supreg] 2L+^TM System (as
described above), we also were concerned that all of these devices
involve the treatment of the same or similar type of disease and the
same or similar patient population. With respect to whether a product
is assigned to the same or different DRG, we noted in the proposed rule
that currently the AxiaLIF[supreg] System and the AxiaLIF[supreg]
2L+^TM System both generally map to MS-DRGs 459 (Spinal
Fusion Except Cervical with MCC) and 460 (Spinal Fusion Except Cervical
without MCC). Though the AxiaLIF[supreg] II^TM System is no
longer on the market, it would also map to the same DRGs.
If the AxiaLIF[supreg] 2L+^TM System is found to be
substantially similar to the AxiaLIF[supreg] System or the
AxiaLIF[supreg] II^TM System, the AxiaLIF[supreg]
2L+^TM System would no longer qualify for the new technology
add-on payment. Specifically, the appropriate start date for the
AxiaLIF[supreg] 2L+^TM System would be the start date of the
device that is found to be substantially similar to the AxiaLIF[supreg]
2L+^TM System. As noted above, the AxiaLIF[supreg]
II^TM System received FDA approval on April 28, 2008. The 3-
year newness period for the AxiaLIF[supreg] II^TM System ends
prior to the start of FY 2012 (July 28, 2011). Given the length of time
since the AxiaLIF[supreg] II^TM System's entry into the
market, cost-related data for the AxiaLIF[supreg] II^TM
System is already reflected in the most recent MS-DRG relative weights.
Additionally, the AxiaLIF[supreg] System received multiple FDA
approvals, the most recent of which was on January 11, 2008. The 3-year
newness period for the AxiaLIF[supreg] System also ends prior to the
start of FY 2012 (January 11, 2011). Given the length of time since the
AxiaLIF[supreg] System's entry into the market, cost-related data for
the AxiaLIF[supreg] System is already reflected in the most recent MS-
DRG relative weights. However, if the AxiaLIF[supreg] 2L+^TM
System is not substantially similar to any of the predicate devices
mentioned above, then the newness period for the AxiaLIF[supreg]
2L+^TM System would begin on January 21, 2010 (the
AxiaLIF[supreg] 2L+^TM System's FDA approval date) and would
be within the year newness period for FY 2012.
We invited public comment regarding whether or not the
AxiaLIF[supreg] 2L+^TM System meets the newness criteria,
and, in particular, whether it is substantially similar to the
AxiaLIF[supreg] System or the AxiaLIF[supreg] II^TM System.
We did not receive any public comments regarding the newness criteria
or the substantial similarity of the AxiaLIF[supreg] 2L+^TM
System to the AxiaLIF[supreg] System or the AxiaLIF[supreg]
II^TM System.
In the proposed rule, we also expressed concerns with the
applicant's methodology for demonstrating that it met the cost
criterion. Specifically, in determining the projected standardized
charge for the AxiaLIF[supreg] 2L+^TM System, the applicant
relied on a charge markup for defibrillators because it is also a high-
cost implantable device for which a hospital purchase price is known.
We were concerned about whether more direct data or different proxies
are available, including a charge markup for the AxiaLIF[supreg] System
or AxiaLIF[supreg] II^TM System. In reviewing the applicant's
charge markup, we also were concerned about the source data for
determining the 2.77 charge markup ratio for defibrillators. We invited
public comment on whether the AxiaLIF[supreg] 2L+^TM System
meets the cost criterion for a new technology add-on payment for FY
2012.
We did not receive any public comments that addressed our concerns
regarding the cost criterion for new technology add-on payment.
With respect to the substantial clinical improvement criterion, the
applicant asserted that it meets this criterion in its application. The
applicant stated that substantial clinical improvement is demonstrated
by the AxiaLIF[supreg] 2L+^TM System's facilitation of spinal
fusion surgery without a laparotomy. By avoiding a laparotomy, the
AxiaLIF[supreg] 2L+^TM System reduces blood loss,
postoperative pain, narcotic use, denervation, morbidity, the
probability of complications, and the risk of trauma to the tissue area
surrounding the lumbar. The applicant further stated that the
AxiaLIF[supreg] 2L+^TM System reduces morbidity and has
reduced risk of injuring vital organs and important intrinsic
stabilizing structures, with a lower complication profile than
traditional open fusion techniques. The applicant noted that long-term
results can include better support of lordosis and prevention of
adjacent level disease. In the proposed rule, we also expressed concern
that this

[[Page 51579]]

does not demonstrate a substantial clinical improvement from the
AxiaLIF[supreg] II^TM System, which also facilitated spinal
fusion surgery without a laparotomy.
The applicant has not conducted clinical trials, but the 300 cases
of AxiaLIF[supreg] 2L+^TM System's use (through the Limited
Market Release) yielded a complication rate of 0.7 percent. The
applicant also asserts that the pre-sacral approach results in a lower
average length of stay than a non-sacral approach.
The applicant referred us to several sources of literature
presenting data related to the pre-sacral approach for the applicant's
AxiaLIF[supreg] device. Again, we expressed concern that the applicant
generally repeated the statements made regarding the clinical
improvement of its AxiaLIF[supreg] device and had not provided
information that indicates that the AxiaLIF[supreg] 2L+^TM
System offers a substantial clinical benefit over the earlier
AxiaLIF[supreg] or AxiaLIF[supreg] II^TM devices. Moreover,
the applicant failed to provide any clinical outcomes data for the
AxiaLIF[supreg] 2L+^TM System to substantiate its assertions
regarding substantial clinical improvement for the AxiaLIF[supreg]
2L+^TM System. While the applicant maintains that data from
the AxiaLIF[supreg] device are relevant and can be used to substantiate
its assertions for the AxiaLIF[supreg] 2L+^TM System, we were
concerned that data directly associated with the use of the
AxiaLIF[supreg] 2L+^TM System are not available. For example,
we stated in the proposed rule that it was not clear the degree to
which the population that required treatment with the AxiaLIF[supreg]
2L+^TM System differed from the population that required
treatment with the AxiaLIF[supreg] device or the AxiaLIF[supreg]
II^TM System, and that it was also not clear the degree to
which the differences amongst the devices discussed above may affect
clinical outcomes. We invited public comments on whether the
AxiaLIF[supreg] 2L+^TM System meets the substantial clinical
improvement criterion for the new technology add-on payment for FY
2012. We did not receive any public comments regarding the substantial
clinical improvement criterion.
We did not receive any public comments with regard to this
application. In the absence of comments with information addressing our
various concerns with this application, we are not approving the
AxiaLIF[supreg] 2L+^TM System for new technology add-on
payments for FY 2012.
b. PerfectCLEAN With Micrillon[supreg]
UMF Corporation (the manufacturer) submitted an application for a
technology called the PerfectCLEAN with Micrillon[supreg]
(PerfectCLEAN). PerfectCLEAN is a cleaning textile product (or cleaning
mat/wipe) with chlorine embedded or bound to the extruded fiber. The
manufacturer asserts that PerfectCLEAN is intended to be used to trap
and eliminate pathogens such as Methicillin-resistant Staphylococcus
aureus (MRSA), Clostridium difficile (C diff.) and the H1N1 flu virus
from surfaces within the hospital (as well as other health care
facilities and locations). The applicant asserts that it can trap and
remove more than 99.99 percent of bacteria on hard surfaces.
The manufacturer stated that the PerfectCLEAN is an Environmental
Protection Agency (EPA) approved antimicrobial/disinfectant that will
be available on the market in the first quarter of 2011. The applicant
maintains that PerfectCLEAN is subject to review and approval by the
EPA per the EPA's Federal Insecticide, Fungicide, Rodenticide Act
(FIFRA) Treated Article Exemption and, therefore, is not subject to
review by the FDA. The applicant states that it was determined in a
pre-registry meeting with the EPA that the underlying chemistries used
to create the chlorine binding effects of Micrillon[supreg] chemistry
are EPA and FDA approved even though no FDA claims are being sought.
With respect to whether the PerfectCLEAN is eligible for new
technology add-on payments, in the proposed rule we noted that our
regulations at Sec. 412.87(c) state, ``CMS will only consider, for
add-on payments for a particular fiscal year, an application for which
the new medical service or technology has received FDA approval or
clearance by July 1 prior to the particular fiscal year.'' FDA
``approval,'' refers to the premarket approval application (PMA)
process for most Class III devices, and FDA ``clearance'' refers to the
510(k) premarket notification submission process for most Class II
devices and some Class I and Class III devices (section 515 of the
Food, Drug and Cosmetic Act (FDCA) for PMA) and sections 510(k) and
513(i) of the FDCA (for premarket notification submission process)).
Therefore, we believe our regulations, by requiring applicants to
receive an FDA approval or clearance in order to be eligible for new
technology add-on payments, limit the universe of items and services
eligible to receive these payments to those that require FDA approval
or clearance. The applicant has informed CMS that it is in the process
of registering and listing its product with the FDA under section
510(b) through (d) and (j) and anticipates this process to be completed
prior to the July 1 regulatory deadline. The registration process that
the applicant is currently pursing will result in neither FDA approval
nor clearance. In the proposed rule, we stated that we were therefore
concerned that the PerfectCLEAN is not eligible for new technology add-
on payments under our existing regulations, which require ``FDA
approval or clearance by July 1 prior to the particular fiscal year''
(42 CFR Sec. 412.87(c)). We welcomed public comments on whether the
PerfectCLEAN is eligible for new technology add-on payments under the
current regulations.
We did not receive any public comments in response to our concern
that the PerfectCLEAN does not meet the newness criteria. Therefore, we
conclude that the PerfectCLEAN does not meet the requirement specified
under Sec. 412.87(c) of our regulations that we requires applicants to
receive an FDA approval or clearance by July 1 prior to the particular
fiscal year, rather than registering and listing its product with the
FDA, in order to be eligible for new technology add-on payments. As a
result, we are not approving new technology add-on payments for the
PerfectCLEAN for FY 2012. However, we will consider whether it would be
appropriate for a product that is registered and listed with the FDA to
be eligible for new technology add-on payments. If we conclude that
such products should be eligible for new technology add-on payments in
the future, we will propose changes to our regulations in a future
rulemaking.
With regard to the cost criterion, the applicant used data from the
FY 2011 After Outliers Removed (AOR) file (posted on the CMS Web site)
for its cost analysis, which is based on the FY 2009 MedPAR file. The
applicant considered MS-DRGs that relate to surgeries, skin abrasions,
open sores, wounds, and similar inflamed tissue conditions where
infection sites are thought to be more likely to occur for inpatient
care situations. This resulted in the applicant determining that the
technology would be most frequently used in 622 different MS-DRGs. The
applicant noted that the charges from the FY 2011 AOR file were not
inflated from FY 2009 to FY 2011; therefore the applicant applied a 2-
year inflation factor of 12 percent (to update the charges from FY 2009
to FY 2011). The applicant based the 2-year inflation factor of 12
percent on a 3-year average of the 2 year rate-of-change in charges
(the 2-year rate-of-change for FY 2009 of 11.841 percent (73 FR 48764);
the 2-year rate-of-change for FY 2010 of 14.184

[[Page 51580]]

percent (74 FR 44010); and the 2-year rate-of-change for FY 2011 of
9.8843 percent (75 FR 50429)) that CMS uses in its outlier threshold
calculation as published in section II. of the Addendum to the annual
IPPS final rule. The applicant computed a case-weighted standardized
charge per case of $40,442 for all 622 MS-DRGs, which did not include
any charges related to the PerfectCLEAN. Therefore, it added the
charges related to the technology to the case-weighted average
standardized charge per case in evaluating the cost threshold
criterion. The manufacturer estimates a charge per patient of $100 per
day for the PerfectCLEAN. The applicant includes in this amount charges
for payroll, treated textiles, packaging and protective gloves,
laundering, storage, and distribution. The applicant multiplied the
average length of stay for each MS-DRG (as found in Table 5 of the
Addendum to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50547 through
50566)) by the charge per patient per day to determine the total
charges per stay by MS-DRG related to the PerfectCLEAN. The applicant
added additional charges per stay for the PerfectCLEAN to the case-
weighted standardized charge per case and determined a total case-
weighted average standardized charge per case of $41,105. Based on the
622 MS-DRGs to which the technology mapped, the applicant computed a
case-weighted threshold of $40,834. Because the total case-weighted
average standardized charge per case of $41,105 exceeds the case
weighted threshold of $40,834, the applicant maintains that it meets
the cost criteria.
In the proposed rule, we discussed several concerns regarding the
applicant's cost analysis. First, although the technology can
potentially be used in every single Medicare case, the application
targets specific MS-DRGs. The applicant did not provide a detailed
clinical justification regarding their selection of MS-DRGs, or a
detailed justification for why the technology could not be used in
other MS-DRGs. We believe it would be more appropriate to target all
cases in every MS-DRG when conducting the cost analysis for this type
of non-procedure or condition specific item. Using the FY 2011 AOR
file, we conducted our own analysis with the same methodology above
(and inflated the charges and included the total charges per stay
related to the PerfectCLEAN) across all MS-DRGs. Based on our analysis,
we determined a total case-weighted average standardized charge per
case of $29,535. Using the applicant's methodology, we also determined
a case-weighted threshold of $37,384 across all MS-DRGs. Because the
total case-weighted average standardized charge per case of $29,535 is
less than the case-weighted threshold of $37,384, we believe the
PerfectCLEAN may not meet the cost criteria.
Second, the applicant included in the average charge per day more
general charges unrelated to the specific new technology, such as
payroll, packaging and protective gloves, laundering, storage and
distribution. We do not believe it is appropriate to include charges
for expenses already accounted for in MS-DRG based payments, such as
laundering, storage, and distribution, and supplies already used by
hospital staff such as packaging and protective gloves. We also note
that the applicant states in its substantial clinical improvement
discussion that the PerfectCLEAN represents the first comprehensive
process for the removal and elimination of harmful micro-organisms
responsible for HAIs from patient environments, the elimination of
cross-contamination, and significant savings across many cost centers.
If the PerfectCLEAN is a substitute for other cleaning mechanisms such
as wiping down a hospital room with a spray and can produce significant
savings across many cost centers, then it would be appropriate to
deduct some charges from the average charge per day in order to
accurately reflect the cost to hospitals of this technology. For these
reasons, we remain concerned about the accuracy of the computation of a
charge per patient of $100 per day and whether the PerfectCLEAN meets
the cost criterion.
Thirdly, the applicant based the 12-percent, 2-year rate-of-change
in charges on a 3-year average (FY 2009 through FY 2011) of the 2-year
rate-of-change in charges as published in section II. of the Addendum
to the annual IPPS final rule. We do not believe it is appropriate to
use a 3-year average of the 2-year rate-of-change in charges as the 2-
year rate-of-change in charges already uses the most recent data
available to measure this change and, therefore, does not need to be
averaged with prior years. Specifically, as described in section II. of
the Addendum to this final rule, to calculate the proposed FY 2012 2-
year rate-of-change in charges, we compared the 1-year average
annualized rate-of-change in charges per case from the last quarter of
FY 2009 in combination with the first quarter of FY 2010 (July 1, 2009
through December 31, 2009) to the last quarter of FY 2010 in
combination with the first quarter of FY 2011 (July 1, 2010 through
December 31, 2010). This rate-of-change was 4.43 percent (1.044394) or
9.07 percent (1.090759) over 2 years. If we substitute the FY 2012
proposed 2-year rate-of-change in charges of 9.07 percent for the 12-
percent 3-year average of the 2-year rate-of-change in charges that the
applicant used in its cost analysis, the total case-weighted average
standardized charge per case would be $40,047 across the 622 MS-DRGs to
which the applicant believes the technology would map. As mentioned
above, the applicant computed a case-weighted threshold of $40,834.
Because the total case-weighted average standardized charge per case of
$40,047 is less than the case-weighted threshold of $40,834, it appears
the applicant would not meet the cost criteria. We invited public
comment on whether the PerfectCLEAN meets the cost criterion.
Comment: Several commenters expressed concerns that the cost
estimates assume that this product would replace other items currently
used in the hospital.
Response: As mentioned above, because PerfectCLEAN does not meet
the requirements specified under Sec. 412.87(c) of our regualtions it
was not approved for FY 2012 new technology add-on payments. Once an
applicant does not meet one of our criteria (newness, cost and
substantial clinical improvement; in that order), we typically do not
respond to public comments on the rest of the new technology add-on
payment criteria. However, we are responding to the public comment
above to ensure our cost criteria policy is clear.
The applicant substituted and added charges related to their
product as part of its efforts to demonstrate that the product's costs
exceed the cost threshold. While we have concerns regarding certain
aspects of the applicant's methodology, it is common practice for new
technology add-on payment applicants to substitute and/or add charges
related to their technology in order to develop an average standardized
charge per case to demonstrate that a technology exceeds the cost
threshold.
The applicant maintained that it met the substantial clinical
improvement criteria for the following reasons: The applicant believes
the PerfectCLEAN significantly improves clinical outcomes for a patient
population as compared to currently available treatments, decreases
rate of subsequent diagnostic or therapeutic interventions, and
decreases the number of future hospitalizations or physician visits.
The applicant cited independent laboratory studies that set forth the
level of removal and elimination of pathogens achieved by

[[Page 51581]]

the PerfectCLEAN. The applicant stated that the PerfectCLEAN includes
``more precise and focused patient room procedures that when properly
applied utilize the textile and micro-denier efficacies'' listed in the
product's independent test reports. The applicant stated that this
results ``in a safer patient environment where the likelihood of cross
contamination is reasonable.'' The applicant included test report data
for the product, which demonstrated a 99.99 percent effectiveness of
removing pathogens such as MRSA and C diff. The applicant cited
industry and clinical support to demonstrate that improved patient
environment can save lives. The applicant also stated that PerfectCLEAN
represents the first comprehensive process for the removal and
elimination of harmful micro-organisms responsible for hospital
acquired infections from patient environments, the elimination of
cross-contamination, and significant savings across many cost centers.
The applicant stated that this new innovative system delivers reliable
and repeatable results not currently achieved using currently available
protocols and products. The applicant provided the following example: a
traditional method of disinfection is to apply liquid disinfectants,
which the applicant stated typically requires a 10-minute dwell time
(which in most cases is not completed by the hospital) and then wiping
or mopping up the nonevaporated liquids. Compared to this method, the
applicant asserts that the PerfectCLEAN first removes the micro-
organisms from those surfaces using specially designed microscopic
fibers. The applicant asserted that these pathogens are trapped in a
formulation of a chlorine binding technology which eliminates the
pathogens.
The applicant further asserted that the PerfectCLEAN maintains its
disinfecting capability longer than other methods because the chlorine-
binding technology is introduced at the pellet stage of fiber extrusion
so that it is present throughout the fiber, as opposed to a finish or
coating process that wears off as textiles are used and laundered.
Additionally, the applicant asserted that the technology's non-leaching
chlorination system recharges in the wash process by attracting and
binding free molecules of chlorine. The applicant further asserted that
in this way the PerfectCLEAN recharges back to its original strength
and efficacy which allows it to work more rapidly than other
techniques. The applicant asserted that this reduces cross-
contamination by those persons handling soiled textiles after the
people contact surfaces which have been cleaned of harmful micro-
organisms. The applicant added that the training in use of color coated
textiles (different color mats) affords superior monitoring and
compliance supervision of the hygiene specialists charged with
responsibility to reduce cross contamination. We invited public comment
on whether the PerfectCLEAN meets the substantial clinical improvement
criterion.
Comment: Several commenters opposed consideration of this product
for new technology add-on payments. The commenters stated that neither
CMS nor the applicant provided sufficient supporting data to approve
this technology for add-on payments. The commenters also stated that a
cursory review of information sources on this product, including the
company's own Web site, did not identify any scientific, peer-reviewed
studies demonstrating efficacy against cross transmission, or
prevention or mitigation of Healthcare-Acquired Infections (HAIs). The
commenters urged CMS not to approve the application for new technology
add-on payments for this or any product that lacks scientific evidence
of its efficacy and urged CMS to use objective rigor to evaluate the
methodological quality and strength of evidence submitted in support of
new technology add-on payment applications.
Response: Because PerfectCLEAN does not meet the requirements
specified under Sec. 412.87(c) of our regulations (and was not
approved for FY 2012 new technology add-on payments), we are not
responding to these public comments in this final rule.

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 delineations
of statistical areas established by the Office of Management and Budget
(OMB). A discussion of the FY 2012 hospital wage index based on the
statistical areas, including OMB's revised definitions of Metropolitan
Areas, appears under section III.B. of this preamble.
Beginning October 1, 1993, section 1886(d)(3)(E) of the Act
requires that we update the wage index annually. Furthermore, this
section 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 2012 is
discussed in section II.B. of the Addendum to this final rule.
As discussed below in section III.H. 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 2012 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, 2011 (the FY 2012 wage index) appears under
section III.C. of this preamble.

B. 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 delineations of CBSAs and our implementation of the CBSA
definitions, we refer readers to the

[[Page 51582]]

preamble of the FY 2005 IPPS final rule (69 FR 49026 through 49032).
As with the FY 2011 final rule, and as we proposed, in this FY 2012
final rule, we are providing that hospitals receive 100 percent of
their wage index based upon the CBSA configurations. Specifically, for
each hospital, we determined a wage index for FY 2012 employing wage
index data from hospital cost reports for cost reporting periods
beginning during FY 2008 and using the CBSA labor market definitions.
We consider CBSAs that are Metropolitan Statistical Areas (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)).
In OMB Bulletin No. 10-2, issued on December 1, 2009, OMB announced
that the CBSA changes in that bulletin would be the final update prior
to the 2010 Census of Population and Housing. CMS adopted those changes
in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50162), beginning
October 1, 2010, and they are reflected in this FY 2012 final rule. In
2013, OMB plans to announce new area delineations based on its 2010
standards (75 FR 37246) and the 2010 Census data.
The OMB bulletin is available on the OMB Web site at http://www.whitehouse.gov/OMB--go to ``Agency Information'' and click on
``Bulletins''.

C. Occupational Mix Adjustment to the FY 2012 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 2012 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 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. (We refer readers to the FY 2010 IPPS final
rule (74 FR 43827) for a detailed discussion of the 2007-2008 survey.)
Again, for the FY 2011 hospital wage index, we used data from the 2007-
2008 survey (including revised data for 45 hospitals) to compute the FY
2011 adjustment.
As we proposed, for the FY 2012 hospital wage index, we again used
occupational mix data collected on the 2007-2008 Medicare Wage Index
Occupational Mix Survey to compute the occupational mix adjustment for
FY 2012. We included data for 3,168 hospitals that also have wage data
included in the FY 2012 wage index.
2. New 2010 Occupational Mix Survey for the FY 2013 Wage Index
As stated earlier, section 304(c) of Public Law 106-554 amended
section 1886(d)(3)(E) of the Act to require CMS to collect data every 3
years on the occupational mix of employees for each short-term, acute
care hospital participating in the Medicare program. We used
occupational mix data collected on the 2007-2008 survey to compute the
occupational mix adjustment for FY 2010 and the FY 2011 wage index and
are using the 2007-2008 occupational mix survey data in this final rule
for the FY 2012 wage index. Therefore, a new measurement of
occupational mix will be required for FY 2013.
The new 2010 survey (Form CMS-10079 (2010)) provides for the
collection of hospital-specific wages and hours data for calendar year
2010 (that is, payroll periods ending between January 1, 2010 and
December 31, 2010) and will be applied beginning with the FY 2013 wage
index. The 2010 survey was adopted in the Federal Register on January
15, 2010 (75 FR 2548) and approved by OMB on February 26, 2010 (OMB
control number 0938-0907). The survey 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 2010 surveys to their fiscal intermediaries/MACs
by July 1, 2011. The preliminary, unaudited 2010 survey data will be
released in early October 2011, along with the FY 2009 Worksheet S-3
wage data, for the FY 2013 wage index review and correction process.
3. Calculation of the Occupational Mix Adjustment for FY 2012
For FY 2012 (as we did for FY 2011), we calculated 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: (1)
Registered nurses; (2) licensed practical nurses; (3) nursing aides,
orderlies, and attendants; and (4) 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

[[Page 51583]]

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.F. 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.F. of this
preamble).
Step 9--To compute the occupational mix adjusted average hourly
wage for an urban or rural area, sum the total occupational mix
adjusted salaries and wage-related costs for all hospitals in the area,
then sum the total hours for all hospitals in the area. Next, divide
the area's occupational mix adjusted salaries and wage-related costs by
the area's hours.
Step 10--To compute the national occupational mix adjusted average
hourly wage, sum the total occupational mix adjusted salaries and wage-
related costs for all hospitals in the Nation, then sum the total hours
for all hospitals in the Nation. Next, divide the national occupational
mix adjusted salaries and wage-related costs by the national hours. The
FY 2012 occupational mix adjusted national average hourly wage is
$36.2481.
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 2012
occupational mix adjusted Puerto Rico-specific average hourly wage is
$15.4142.
The table below is an illustrative example of the occupational mix
adjustment.
BILLING CODE 4120-01-P

[[Page 51584]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.014

[[Page 51585]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.015

BILLING CODE 4120-01-C

[[Page 51586]]

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 FY 2012 wage
index. For the FY 2007-2008 survey, the response rate was 90.8 percent.
In computing the FY 2012 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 its
labor market area. This method has the least impact on the wage index
for other hospitals in the area. For areas where no hospital submitted
data for purposes of calculating the occupational mix adjustment, we
applied the national occupational mix factor of 1.0000 in calculating
the area's FY 2012 occupational mix adjusted wage index. In addition,
if a hospital submitted a survey, but that survey data could not be
used because we determined the survey data 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 hospitals that did not submit occupational mix survey
data, the occupational mix adjustment factor ranged from a low of
0.9246 (CBSA 17780, College Station-Bryan, TX), to a high of 1.0761
(CBSA 19, Rural Louisiana). 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 2012, there
are five CBSAs (that include six hospitals) for which we did not have
occupational mix data for any of its hospitals. The CBSAs are:

CBSA 36140, Ocean City, NJ (1 hospital)
CBSA 22140, Farmington, NM (1 hospital)
CBSA 41900, San German-Cabo Rojo, PR (2 hospitals)
CBSA 49500, Yauco, PR (1 hospital)
CBSA 21940, Fajardo, PR (1 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; 73 FR 48580; 74 FR 43832, and 75 FR 50167). 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 and FY 2010
rulemaking cycles, 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. 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 developed the FY 2011 wage
index.
In the FY 2011 IPPS/LTCH PPS proposed and final rules (75 FR 23943
and 50167, respectively), we stated that, in order to gain a better
understanding of why some hospitals are not submitting the occupational
mix data, we will require hospitals that do not submit occupational mix
data to provide an explanation for not complying. This requirement will
be effective beginning with the new 2010 occupational mix survey (the
2010 survey is discussed in section III.C.2. of this preamble). We will
instruct fiscal intermediaries/MACs to begin gathering this information
as part of the FY 2013 wage index desk review process. We note that we
reserve the right to apply a different approach in future years,
including potentially penalizing nonresponsive hospitals.

D. Worksheet S-3 Wage Data for the FY 2012 Wage Index

The FY 2012 wage index values are based on the data collected from
the Medicare cost reports submitted by hospitals for cost reporting
periods beginning in FY 2008 (the FY 2011 wage index was based on data
from cost reporting periods beginning during FY 2007).
1. Included Categories of Costs
The FY 2012 wage index includes the following categories of data
associated with costs paid under the IPPS (as well as outpatient
costs):
Salaries and hours from short-term, acute care hospitals
(including paid lunch hours and hours associated with military leave
and jury duty)
Home office costs and hours
Certain contract labor costs and hours (which includes
direct patient care, certain top management, pharmacy, laboratory, and
nonteaching physician Part A services, and certain contract indirect
patient care services (as discussed in the FY 2008 final rule with
comment period (72 FR 47315))
Wage-related costs, including pensions and other deferred
compensation costs.
2. Changes to the Reporting Requirements for Pension Costs for the
Medicare Wage Index
a. Background
The instructions for determining and reporting costs of qualified
defined benefit pension on the cost report for Medicare cost-finding
purposes are located in section 2142 of the Provider Reimbursement
Manual, Part I (PRM-I). For Medicare wage index purposes, the
instructions in section 3605.2 of the Provider Reimbursement Manual,
Part II (PRM-II) for Worksheet S-3, Part II, Lines 13 through 20,
require hospitals to comply with the requirements in section 2142 of
the PRM-I.
Specifically, section 2142.5 of the PRM-I defines the current
period liability for pension cost (that is, the maximum allowable
pension cost) based on the actuarial accrued liability, normal cost,
and unfunded actuarial liability. Under section 2142.4(A) of the PRM-I,
these liability measurements are to be computed in accordance with the
Employee Retirement Income Security Act of 1974 (ERISA), regardless of
whether or not the pension plan is subject to ERISA. Also, section
2142.6(A) of the PRM-I requires the current period liability for
pension costs to be funded in order to be allowable. In addition,
section 2142.6(C) of the PRM-I allows for funding in excess of

[[Page 51587]]

the current period liability to be carried forward and recognized in
future periods. We note that, on March 28, 2008, CMS published Revision
436, a technical clarification to section 2142 of the PRM-I.
Under ERISA, the actuarial accrued liability and normal cost are
typically determined on an ongoing plan basis using long-term, best-
estimate assumptions. The interest assumption reflects the average
rates of return expected over the period during which benefits were
payable, taking into account the investment mix of plan assets. Pension
costs for plans not subject to ERISA (such as church plans and plans
sponsored by public sector employers) are also typically based on the
actuarial accrued liability and normal cost using long-term, best
estimate assumptions.
The Pension Protection Act (PPA) of 2006 (Pub. L. 109-280) amended
ERISA. Under the PPA amendments to ERISA, the actuarial accrued
liability and normal cost are no longer used as a basis for determining
ERISA minimum required or maximum tax deductible contributions. ERISA
contribution limits are now based on a ``funding target'' and ``target
normal cost'' measured on a settlement basis using the current market
interest rates for investment grade corporate bonds that match the
duration of the benefit payouts. The Internal Revenue Service (IRS)
publishes the applicable interest rate tables on a monthly basis.
Because pension liabilities are very sensitive to changes in the
interest rate used to discount future benefit payouts, pension costs
based on the PPA ``funding target'' and ``target normal cost'' values
are expected to be less stable than those based on the pre-PPA
traditional long-term, best-estimate assumptions, which change
infrequently. Furthermore, plans not subject to the ERISA requirements,
as amended by the PPA, are not likely to use the new ``funding target''
and ``target normal cost'' basis for determining pension costs, and
ERISA plans are not likely to continue to report costs developed using
the actuarial accrued liability and normal cost based on long-term,
best estimate assumptions. Accordingly, there is no longer a standard
actuarial basis used by all plans.
In response to the PPA amendments to ERISA, we began a review of
the rules for determining pension costs for Medicare cost finding and
wage index purposes. As an interim measure, we issued a Joint Signature
Memorandum (JSM) in November 2009 that contained instructions and a
spreadsheet to assist hospitals and Medicare contractors in determining
the annual allowable defined benefit pension cost for the FY 2011 wage
index (JSM/TDL-10061, 11-20-09, December 3, 2009). Although these
instructions were released for purposes of the wage index, they also
serve as interim guidance for Medicare cost-finding purposes.
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25874 through
25876), we proposed to revise our policy for determining pension cost
for Medicare purposes. As mentioned above, due to the ERISA rules, as
amended by the PPA, there is no longer a standard actuarial cost basis
used by all types of plans. Therefore, we proposed to no longer rely on
actuarial computations to determine the maximum annual cost limitation
for Medicare. Instead, the general parameters of our policy would
maintain the current requirement that pension costs must be funded to
be reportable, and would require all hospitals to report the actual
pension contributions funded during the reporting period, on a cash
basis.
In addition, under this cash basis approach, we proposed separate
methodologies for measuring pension costs for Medicare cost-finding
purposes (discussed in section IV.M. of this preamble) and for purposes
of updating the wage index (discussed below in section III.D.2.b. of
this preamble). It is necessary to have two distinct policies in order
to address the different goals of determining a hospital's payments and
updating the average hourly wage to establish the geographic area wage
index. The function of the wage index is to measure relative hospital
labor costs across areas. This function is distinct from Medicare
payment determinations, where the goal is to measure the actual costs
incurred by individual hospitals. These two distinct policies would
require separate updated instructions to section 2142 of the PRM-I for
Medicare cost-finding purposes and section 3605.2 of the PRM-II for
purposes of the wage index. Below is a detailed discussion of our
proposal for reporting pension costs under the wage index, as well as
our final policy. A full discussion of our new methodology for Medicare
cost-finding purposes is discussed in section IV.M. of this preamble,
along with a summary of the public comments we received, our responses,
and statements of our final policy.
The final policy below reflects our commitment to the general
principles of the President's Executive Order released January 18,
2011, entitled ``Improving Regulation and Regulatory Review.''
b. Proposed and Final Policy for Allowable Pension Cost for the
Medicare Wage Index
As mentioned above, the function of the Medicare wage index is to
measure relative hospital labor costs across all areas. Therefore,
while we believe pension costs must be funded in order to be reportable
(we refer readers to the August 12, 2010 Federal Register (74 FR 47369)
for an explanation of this longstanding policy), it also is important
for pension costs to be relatively stable from year to year so that
there is less volatility in the wage index. Thus, in the FY 2012 IPPS/
LTCH PPS proposed rule, we proposed to include, in the wage index,
pension costs equal to a hospital's average actual cash contributions
deposited to its defined benefit pension plan over a 3-year period. The
use of cash contributions as a measure of the costs incurred is
necessary to ensure uniformity among all hospitals, regardless of their
tax status or ERISA coverage. The 3-year average is intended to reduce
the volatility that often occurs due to timing of contributions. Most
pension plan sponsors have flexibility to determine the pension funding
for a particular period and their decisions may be based on cash-flow
considerations or other factors unrelated to the normal operation of
the plan. Furthermore, the funding of current period pension costs may
be delayed by almost a full year after the close of the period to which
it applies. By using a 3-year average, we hope to enhance the stability
of the wage index.
To ensure that the average annual pension cost reflected in the
wage index is consistent with the reporting period applicable to all
other costs included in the index, we proposed that the 3-year average
be centered on the current cost reporting period for the wage index.
For example, the 2013 wage index is based on cost reporting periods
beginning during Federal Fiscal Year (FFY) 2009 and would therefore
reflect the average pension contributions made in hospitals' cost
reporting periods beginning during FFYs 2008, 2009, and 2010. Thus,
this policy would require pension plan contribution data for the cost
reporting periods immediately preceding and immediately following the
current cost reporting period for the wage index.
In the proposed rule, we indicated that we do not anticipate that
the use of contributions made in the period immediately following the
current cost reporting period will create an administrative burden
because, even under the existing rule, contributions to

[[Page 51588]]

fund current period costs are often deferred until the following
period. In addition, trust account statements and general ledger
reports to support the contributions should be readily available.
We proposed to apply the above methodology for reporting pension
costs for the wage index beginning with the FY 2013 IPPS update. We
solicited public comment on this policy proposal and indicated that we
were especially interested in receiving comments related to the
proposed 3-year averaging period.
Comment: A number of commenters suggested that CMS convene a
Medicare Technical Advisory Group (MTAG) before establishing a policy
on pension costs.
Response: An MTAG is not required by statute. Engaging in notice
and comment rulemaking provides sufficient process for developing a
policy on this issue. In addition, timeliness of an updated rule is
needed because the actuarial terminology used in section 2142 of the
PRM-I is no longer used under ERISA as amended by the PPA. Also, as
many commenters noted, there have been numerous appeals related to
pension cost adjustments in recent years, and we believe our policy
will alleviate the confusion demonstrated by such appeals. Proposing
the issue through the notice and comment rulemaking process will allow
CMS to address the issue by finalizing the policy effective October 1,
2011.
Comment: Many commenters supporting an MTAG also stated that an
MTAG might recommend adoption of Generally Accepted Accounting
Principles (GAAP) (with no funding limit) for the wage index. These
commenters generally called for CMS to propose a methodology that
accurately reflects the total resources hospitals expend over the life
of their defined benefit plans and recognizes those costs fully in the
wage index. They implied that GAAP could be the most appropriate method
to satisfy this goal. One commenter noted that a proposal to base
pension expense for both the wage index and cost-finding purposes on a
3-year average of actual funding is inconsistent with the other
principles of the cost report relying on GAAP and accrual versus cash-
basis accounting.
Response: There is no consistently applied, standardized pension
cost accounting methodology that produces a stable measure of the
actual cost incurred over the life of a pension plan. Moreover, not all
providers are subject to the same GAAP standards, and the rules
applicable to pension costs under the various standards are not
consistent. Uniformity of costs for the wage index would require all
providers to compute pension costs under a particular GAAP standard.
This would create an administrative burden for some and would limit
transparency.
Even under GAAP as promulgated by the Financial Accounting
Standards Board (FASB), significant inconsistencies may exist because
the rules allow gains and losses to either be recognized immediately
(as a current period cost), or spread over future periods. Until
recently, immediate recognition of gains and losses was seldom used
because it can cause pension costs to be extremely volatile. For
example, those who have adopted immediate recognition of gains and
losses are likely to see their GAAP pension costs shift to pension
income (negative costs) when interest rates begin to rise.
Finally, the GAAP standards are currently in a state of flux. The
Government Accounting Standards Board (GASB) and the International
Accounting Standards Board (IASB) are both in the process of reviewing
their rules for pension accounting. The FASB and IASB are discussing
how U.S. accounting can be reconciled with international accounting. We
anticipate changes in GAAP pension rules will reflect the trend towards
mark-to-market financial reporting (immediate recognition of gains and
losses) and thereby further increase the potential volatility of those
cost measurements.
Comment: Most commenters expressed concern that hospitals with
prefunded pension plans would be disadvantaged, while those with
underfunded plans would be rewarded. A number of these commenters
called for a ``true-up'' of costs to ensure absolute equity between
past and future periods, similar to the carry forward provision in the
current PRM.
Response: We continue to believe that absolute equity between past
and future periods is not necessary since the wage index is a relative
rather than an absolute measure of costs. However, in response to
public comments, we agree that it would be appropriate to allow certain
prefunded amounts to be reported as pension costs in future periods.
Although most plan sponsors follow a relatively stable pattern of
funding over time, accelerated funding may have been required due to
stock market losses and declining interest rates in recent years. We
are particularly sensitive to the fact that many hospitals were
required to make contributions in excess of the amount reportable for
Medicare purposes to satisfy ERISA requirements based on the ``current
liability.'' We are also aware that some hospitals accelerated their
pension plan funding in order to avoid benefit restrictions or other
penalties under the PPA amendments to ERISA. As a result, we are
finalizing a transition policy based on funding that may have exceeded
the amounts reportable for the FY 2007 through FY 2012 wage indexes
(cost reports with begin dates during the period of (on or after)
October 1, 2002 through (on or before) September 30, 2008). We believe
this period is representative of the period when contributions may have
exceeded the amounts reportable for Medicare purposes.
Our transition policy will allow providers to establish a
prefunding balance equal to (A) minus (B), where (A) is the sum of cash
contributions made during a period of consecutive provider cost
reporting periods commencing no earlier than October 1, 2002 (the cost
reporting period applicable for the FY 2007 wage index), and ending
with the cost reporting period applicable for the FY 2012 wage index,
and (B) is the sum of pension costs actually reflected in the wage
index for the same cost reporting periods. It should be noted that the
prefunding balance is not the same as the carry forward amount
described in section 2142.6C of the PRM-I since the carry forward
amount may include different periods and may include contributions made
after the end of the cost reporting period ending immediately prior to
the effective date of this new policy.
The transition policy permits a hospital to include 1/10th of the
prefunding balance in the wage index pension cost each year commencing
with the FY 2013 wage index and ending with the FY 2022 wage index,
that is, in 10 equal prefunding installments. Any prefunding
installment that is not included in the wage index pension cost for the
current cost reporting period cannot be reassigned and added to the
wage index pension cost of any subsequent period. To take advantage of
all 10 prefunding installments, hospitals must determine and begin
claiming the prefunding installment in the pension cost for the FY 2013
wage index. Distributing excess funding over a period of 10 years will
ensure that when hospitals have substantial prefunding balances, the
amount assigned to any one year will not unduly influence the wage
index in that year. An example of how the pension cost (including the
prefunding balance) is to be calculated is included in our response to
another comment.

[[Page 51589]]

For each cost reporting period that a prefunding installment is
included in the reported pension cost, the provider must have
documentation to support the calculation of the prefunding balance,
including the contributions made to the pension plan and pension costs
reported in the wage index for each applicable cost reporting period
reflected in the calculation. In order to notify the public of this
transition policy, we will issue a memorandum to Medicare contractors
after the publication of this final policy, requiring them to notify
hospitals in writing of these changes. In addition, we plan to post
this letter on our Web site and will announce these changes through our
regular open door forums.
Comment: A number of commenters expressed support for our proposed
rule. One viewed it as a compromise between methods required for
private, public, and non-profit entities and thought its simplicity
will help to maintain consistency. Another felt it would fairly reflect
the actual costs, mitigate year-to-year volatility, and encourage
adequate funding. One commenter agreed with our decision to eliminate
actuarial based measurements because they were too complex and lead to
inconsistency. A number of commenters noted that the Medicare wage
index methodology ``should be transparent so that it can be easily
reviewed and replicated by providers and other constituents, which
allows providers and others to have confidence in the resulting
indices.''
Response: We appreciate the commenters' support of our proposal.
Our final policy is intended to be one of simplicity that will help
maintain consistency. We believe that this final policy will satisfy
the objectives of a transparent methodology for including pension costs
in the wage index.
Comment: One commenter expressed concern that our proposal would
hurt financially strapped hospitals that cannot afford to fund their
plans. Another commenter believed that the proposal in the proposed
rule would understate wage related costs in periods when a provider was
not able to fund, and overstate wage costs in other periods. One
commenter was concerned that the proposal in the proposed rule would
``incent a hospital to `over fund' their plan in a particular year to
increase its hourly rate.'' One commenter stated that our policy will
penalize good management of investments while rewarding bad management.
Response: Our policy is that costs must be funded to be reportable
for Medicare purposes. Some providers have no legal obligation to fund
their pension liabilities. There may be organizations that cannot
afford to maintain their plan and will ultimately terminate the plan
with unfunded liabilities. Moreover, some liabilities reflected in
current period costs may never materialize due to future gains or
benefit cutbacks.
We understand that the level of funding will vary from one period
to the next due to financial constraints or other factors, but believe
that the 3-year average will help to limit volatility caused by short-
term fluctuations.
We do not believe that Medicare wage index policy will have a
material effect on the ultimate level of pension plan funding. Because
pension contributions made to a qualified trust are generally
irrevocable and most providers have limited financial resources,
significant overfunding is not likely to occur solely because of
Medicare wage index policy.
Over the long term, pension costs may increase or decrease due to
changes in plan coverage, benefit levels, or gains and losses from
investment performance or other sources. However, these changes would
ultimately affect the level of future pension costs regardless of how
those costs have been reported in the past. Thus, we do not expect that
providers will choose investments with poor returns or elevate their
contribution levels for the sole purpose of increasing their wage
index.
Comment: Several commenters requested clarification on technical
aspects of the proposed rule on timing or procedural issues. There was
confusion regarding the treatment of payments made after the end of a
fiscal year but within the 1-year period (or 3 years with extension)
permitted under the liquidation of liabilities provision in section
2305 of PRM-I.
Response: The pension cost to be reflected in the wage index will
be reported on Worksheet S-3, Part II and will equal the average
contributions paid, on a cash basis, over the applicable 3-year period
(plus any prefunding installment discussed above). The applicable
period for the 3-year average includes the current cost reporting
period applicable to the wage index (4 year lag), and the periods
immediately preceding and immediately following the applicable wage
index reporting period. The 3-year average is reportable even if it
exceeds the current period contribution. There is no requirement to
demonstrate that the 3-year average, prefunding installment or the
amount funded in any particular period are necessary to satisfy a
liability under ERISA or any other actuarial basis. Since actuarial
measurements are not used to compute pension costs under the final
policy, there is no longer a need for a crosswalk between the different
terminology used by IRS and GAAP.
For a new plan, the averaging period will be limited to the number
of years the plan was in effect. If there is a merger (plan or
corporate), contributions should include a provider's pension plan
payments made either to a predecessor plan or the current plan during
the applicable 3-year period. Increased costs attributable to benefit
improvements will be recognized when funded. This is consistent with
the amortization of costs associated with plan changes under GAAP and
ERISA.
The actual funded amounts for each cost reporting period to be
included in the average will not necessarily appear on the cost report
for the period in which they were made. We are considering
modifications to the cost report to allow for reporting of current
period contributions. Instead, provider will be required to obtain
contribution data from the pension trustee, insurance carrier, Schedule
B or SB of IRS Form 5500, and, if applicable, from accounting records
showing the allocation of total plan contributions to each
participating provider. These records should be maintained as needed
for subsequent periods.
The following is an example of the calculation of pension cost to
be included in the FY 2013 wage index calculation for a hospital with a
June 30 fiscal year end and a June 30 cost reporting period:

----------------------------------------------------------------------------------------------------------------
Provider fiscal year Reported wage
Wage index year -------------------------------------- Total pension index pension
Beginning Ending contributions cost
----------------------------------------------------------------------------------------------------------------
2007................................ 7/1/2003 6/30/2004 $3,200,000 $2,500,000
2008................................ 7/1/2004 6/30/2005 not available 2,800,000
2009................................ 7/1/2005 6/30/2006 1,300,000 800,000
2010................................ 7/1/2006 6/30/2007 2,700,000 3,000,000

[[Page 51590]]

2011................................ 7/1/2007 6/30/2008 4,100,000 3,600,000
2012................................ 7/1/2008 6/30/2009 3,000,000 200,000
2013................................ 7/1/2009 6/30/2010 1,000,000 .................
7/1/2010 6/30/2011 2,000,000 .................
----------------------------------------------------------------------------------------------------------------

Since this hospital can only produce supporting documentation of
contributions for the continuous fiscal years beginning 2005 through
2008, the determination of the prefunding balance must exclude
contributions from fiscal years beginning (FYB) in 2003 and 2004. The
sum of contributions made during FYB in 2005 through 2008 is
$11,100,000. The sum of pension costs reflected in the wage index for
FYB in 2005 through 2008 is $7,600,000. The prefunding balance is
$3,500,000 ($11,100,000--$7,600,000) and the prefunding installment is
$350,000 ($3,500,000/10). The $350,000 prefunding installment can be
added to the pension costs reported each year for the FY 2013 through
FY 2022 wage index.
In this illustration, the hospital determines the 3-year average
pension contribution for the FY 2013 wage index is $2,000,000 based on
cash contributions made during FYB in 2008, 2009, and 2010. It should
report pension costs of $2,350,000 (the sum of the current 3-year
average contribution of $2,000,000 [($1,000,000 + $3,000,000 +
$2,000,000) 3] plus the prefunding installment of $350,000) on
Worksheet S-3, Part II for the FY 2013 wage index. For audit purposes,
the hospital must retain and make available its supporting
documentation for the 3-year average, the prefunding balance and
prefunding installment.
We note that contributions are to be determined on a cash basis
rather than an accrual basis. Since there is no recognition of funding
which occurs after June 30, 2011, all of the data needed to determine
the pension cost for the FY 2013 wage index will be readily available
when the reporting process begins in October 2011. Under this final
policy, neither section 2142 nor 2305 will be applicable for wage index
purposes.
Comment: One commenter believed that we may be ``attempting
retroactive rulemaking.'' Another commenter stated that ``if it goes
forward with the proposal or a revised version of the proposal, CMS
should do so in a prospective manner * * * CMS should apply it only as
of the FY 2016 wage index (which would, if using a 3-year rolling
average, include pension costs from cost reporting periods beginning
during Federal fiscal years 2011, 2012 and 2013).''
Response: We disagree with the commenter that our policy represents
retroactive rulemaking. We proposed this change through notice and
comment rulemaking and have given the public sufficient time to provide
input through public comments before making any policy change
concerning the reporting of pension costs under the wage index. The use
of data from prior periods to implement prospective policy changes does
not constitute retroactive rulemaking. Therefore, we believe we have
applied this policy change prospectively.
Comment: One commenter recommended that there should be specific
statements in the cost report that pension costs for cost-finding will
be treated differently from pension costs for the wage index. The
commenter also suggested separate PRM cost reporting instructions for
the Medicare cost report versus the Medicare wage index, given that
there will be separate methodologies for determining pension costs.
Response: CMS is implementing different pension cost policies for
wage index and cost finding purposes. Accordingly, the PRM will be
revised to include separate and distinct pension cost provisions for
wage index and cost-finding purposes.
We would like to thank the provider community for their public
comments on the proposed rule for reporting pension costs for Medicare
wage index purposes. After considering their concerns and suggestions,
we are finalizing our policy with modifications for reporting pension
costs for Medicare wage index purposes. The final policy is effective
for the FY 2013 wage index for which the wage index process begins in
October 2011.
Under the final policy, the pension cost to be included in the wage
index equals a hospital's average cash contributions deposited to its
defined benefit pension plan over a 3-year period, or number of years
that the hospital has sponsored a defined benefit plan if less than 3
years. Any reversion or other withdrawal of assets from the pension
fund or trust is treated as a negative contribution for purposes of
measuring the 3-year average. The 3-year average is centered on the
base cost reporting period for the wage index. For example, the FY 2013
wage index will be based on Medicare cost reporting periods beginning
during FFY 2009 and will reflect the average pension contributions made
in hospitals' cost reporting periods beginning during FFYs 2008, 2009,
and 2010.
In response to the public comments as discussed above, we are
finalizing a transition policy that permits a hospital to determine a
``prefunding balance'' based on pension contributions made but not
reflected in the wage index during certain prior periods. Our
transition policy will allow providers to establish a prefunding
balance equal to (A) minus (B), where (A) is the sum of cash
contributions made during a period of consecutive provider cost
reporting periods commencing no earlier than October 1, 2002 (the cost
reporting period applicable for the FY 2007 wage index), and ending
with the cost reporting period applicable for the FY 2012 wage index,
and (B) is the sum of pension costs actually reflected in the wage
index for the same cost reporting periods.
The transition policy permits a hospital to include 1/10th of the
prefunding balance in the wage index pension cost each year commencing
with the FY 2013 wage index and ending with the FY 2022 wage index,
that is, in 10 equal prefunding installments. Any prefunding
installment that is not included in the wage index pension cost for the
current year cannot be reassigned and added to the wage index pension
cost of any subsequent year.
3. Excluded Categories of Costs
Consistent with the wage index methodology for FY 2011, the wage
index for FY 2012 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
2012 wage index also excludes the

[[Page 51591]]

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).
4. 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. Such comments should be made in response to separate
proposed rules for those providers.

E. Verification of Worksheet S-3 Wage Data

The wage data for the FY 2012 wage index were obtained from
Worksheet S-3, Parts II and III of the Medicare cost report for cost
reporting periods beginning on or after October 1, 2007, and before
October 1, 2008. For wage index purposes, we refer to cost reports
during this period as the ``FY 2008 cost report,'' the ``FY 2008 wage
data,'' or the ``FY 2008 data.'' 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 2008 data submitted to us as of June 27,
2011. 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 result in specific edit failures. For the proposed FY
2012 wage index, we identified and excluded 23 providers with data that
was too aberrant to include in the proposed wage index, although we
stated that if data elements for some of these providers are corrected,
we intended to include some of these providers in the FY 2012 final
wage index. We have received corrected data for seven providers, and
therefore, we are including the data for these seven providers in the
FY 2012 final wage index. However, we have also determined that the
data for three additional providers are too aberrant to include in the
FY 2012 final wage index. Thus, in total, we are excluding the data of
27 (23 + 7--3) providers from the FY 2012 final wage index.
In constructing the FY 2012 wage index, we included the wage data
for facilities that were IPPS hospitals in FY 2008, 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). In the proposed rule, we removed
19 hospitals that converted to CAH status between February 16, 2010,
the cut-off date for CAH exclusion from the FY 2011 wage index, and
February 15, 2011, the cut-off date for CAH exclusion from the FY 2012
wage index. However, since the issuance of the proposed rule, we have
learned of four additional hospitals that have converted to CAH status
between February 16, 2010, and February 15, 2011. We have excluded the
wage data of these four hospitals as well. After removing hospitals
with aberrant data and hospitals that converted to CAH status, the FY
2012 final wage index is calculated based on 3,489 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 2011 wage index desk review
process, we requested fiscal intermediaries/MACs to contact multicampus
hospitals that had campuses in different labor market areas to collect
the data for the allocation. The FY 2011 wage index included separate
wage data for campuses of three multicampus hospitals.
For FY 2012, as we discussed in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50168), and as we proposed, we are no longer allowing
hospitals to use 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 (Form CMS-2552-96, Worksheet S-2, lines 61 and 62). The data
from cost reporting periods that begin in FY 2008 are now available for
calculating the wage index for FY 2012. Therefore, a multicampus
hospital will not have the option 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. Table 2 for the FY 2012 wage index, which
is listed in section VI. of the Addendum to this proposed rule and
available via the Internet, includes separate wage data for campuses of
three multicampus hospitals.

F. Method for Computing the FY 2012 Unadjusted Wage Index

1. Steps for Computation
The method used to compute the FY 2012 wage index without an
occupational mix adjustment follows:
Step 1--As noted above, we based the proposed FY 2012 wage index on
wage data reported on the FY 2008 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, 2007, and before October 1, 2008. In addition,
we included data from some hospitals that had cost reporting periods
beginning before October 2007 and reported a cost reporting period
covering all of FY 2008. 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 2008 data. We note that, if a hospital
had more than one cost reporting period beginning during FY 2008 (for
example, a hospital had two short cost reporting periods beginning on
or after October 1, 2007, and before October 1, 2008), 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),

[[Page 51592]]

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 2011 is to compute a
``revised'' Line 1, by adding to the Line 1 on Worksheet S-3, Part II
(for wages and hours respectively) the amounts on Lines 22.01, 26.01,
and 27.01.) In calculating a hospital's average salaries plus wage-
related costs, we subtract from Line 1 (total salaries) the GME and
CRNA costs reported on Lines 2, 4.01, 6, and 6.01, the Part B salaries
reported on Lines 3, 5 and 5.01, home office salaries reported on Line
7, and exclude salaries reported on Lines 8 and 8.01 (that is, direct
salaries attributable to SNF services, home health services, and other
subprovider components not subject to the IPPS). We also subtract from
Line 1 the salaries for which no hours were reported. To determine
total salaries plus wage-related costs, we add to the net hospital
salaries the costs of contract labor for direct patient care, certain
top management, pharmacy, laboratory, and nonteaching physician Part A
services (Lines 9 and 10), home office salaries and wage-related costs
reported by the hospital on Lines 11 and 12, and nonexcluded area wage-
related costs (Lines 13, 14, and 18).
We note that contract labor and home office salaries for which no
corresponding hours are reported are not included. In addition, wage-
related costs for nonteaching physician Part A employees (Line 18) are
excluded if no corresponding salaries are reported for those employees
on Line 4.
Step 3--Hours--With the exception of wage-related costs, for which
there are no associated hours, we compute total hours using the same
methods as described for salaries in Step 2.
Step 4--For each hospital reporting both total overhead salaries
and total overhead hours greater than zero, we then allocate overhead
costs to areas of the hospital excluded from the wage index
calculation. First, we determine the ratio of excluded area hours (sum
of Lines 8 and 8.01 of Worksheet S-3, Part II) to revised total hours
(Line 1 minus the sum of Part II, Lines 2, 3, 4.01, 5, 5.01, 6, 6.01,
7, and Part III, Line 13 of Worksheet S-3). We then compute the amounts
of overhead salaries and hours to be allocated to excluded areas by
multiplying the above ratio by the total overhead salaries and hours
reported on Line 13 of Worksheet S-3, Part III. Next, we compute the
amounts of overhead wage-related costs to be allocated to excluded
areas using three steps: (1) we determine the ratio of overhead hours
(Part III, Line 13 minus the sum of lines 22.01, 26.01, and 27.01) to
revised hours excluding the sum of lines 22.01, 26.01, and 27.01 (Line
1 minus the sum of 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, 2005, through April 15,
2007, 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 we are not making any changes to the usage for FY 2012. 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
------------------------------------------------------------------------
10/14/2007......................... 11/15/2007............ 1.03990
11/14/2007......................... 12/15/2007............ 1.03699
12/14/2007......................... 01/15/2008............ 1.03402
01/14/2008......................... 02/15/2008............ 1.03113
02/14/2008......................... 03/15/2008............ 1.02831
03/14/2008......................... 04/15/2008............ 1.02555
04/14/2008......................... 05/15/2008............ 1.02286
05/14/2008......................... 06/15/2008............ 1.02024
06/14/2008......................... 07/15/2008............ 1.01766
07/14/2008......................... 08/15/2008............ 1.01511
08/14/2008......................... 09/15/2008............ 1.01258
09/14/2008......................... 10/15/2008............ 1.01015
10/14/2008......................... 11/15/2008............ 1.00787
11/14/2008......................... 12/15/2008............ 1.00575
12/14/2008......................... 01/15/2009............ 1.00375
01/14/2009......................... 02/15/2009............ 1.00183
02/14/2009......................... 03/15/2009............ 1.00000
03/14/2009......................... 04/15/2009............ 0.99820
------------------------------------------------------------------------

For example, the midpoint of a cost reporting period beginning
January 1, 2008, and ending December 31, 2008, is June 30, 2008. An
adjustment factor of 1.01766 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 2008 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.

[[Page 51593]]

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
$36.2784.
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 $15.3899 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 which is listed in section VI. of the Addendum
to this final rule and available via the Internet.
In the FY 2012 IPPS/LTCH PPS proposed rule, we made no proposals
for changing our policies pertaining to the rural floor provision.
However, we received several public comments, particularly regarding
the FY 2012 rural floor wage index for Massachusetts, which was
discussed in section VI.B.7. of Appendix A (76 FR 26059 and 26060) as
part of the regulatory impact analysis for the proposed rule.
Comment: Some commenters stated that CMS had correctly calculated
the Massachusetts rural floor wage index in accordance with existing
law and regulations. One commenter agreed with the basic policy and
premise of the rural floor limit but opined that all hospitals in
Massachusetts receiving a significant increase in Medicare revenues as
a result of a small hospital converting to an acute care provider is
inconsistent with the intent and spirit of the law. The commenter
suggested that CMS revisit its regulatory and policy options as it
relates to section 4410 of the BBA.
The MedPAC stated that the Massachusetts rural floor situation is
suggestive of why a new wage index system is needed, adding that the
current system is not equitable because extra payments made to
hospitals receiving such exceptions are budget neutral; therefore, all
hospitals must absorb the cost. A national hospital association
requested that CMS provide a table indicating the state-by-state impact
of the rural floor provision for providers in each state, including a
schedule of what the area wage indexes would be if the rural floor was
not applied. The commenter also suggested that CMS publish this
information annually.
Response: Beginning with this FY 2012 IPPS-LTCH final rule, we are
including in the impact section of Appendix A of both the proposed and
final rules a table indicating State level impacts of the rural floor
provision. For FY 2012, this table includes the impacts of both the
rural and imputed floors, as discussed under section III.F.2. of this
preamble. In addition, we are revising Table 4D of the Addendum, which
specifies the wage index for States or urban areas receiving the
frontier, rural, or imputed floor, to include a column indicating the
pre-floor area wage index. We will consider the commenters' other
suggestions as part of our development of the Report to Congress on
reforming the wage index, required by section 3137(b) of the Affordable
Care Act and due to the Congress by December 31, 2011.
2. Imputed Floor Policy
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25878 and 25879),
we discussed the expiration of the imputed floor policy. (We refer
readers to FY 2005 IPPS final rule (69 FR 49109 through 49111) for an
explanation of CMS' adoption of the ``imputed'' floor as a temporary 3-
year regulatory measure to address concerns that hospitals in all-urban
States were disadvantaged by the absence of rural hospitals to set a
wage index floor in those States; the FY 2008 IPPS final rule with
comment period (72 FR 47321) for a discussion of the extension of the
imputed floor through FY 2008; and the FY 2009 IPPS final rule (73 FR
48570 through 48574 and 48584) for a discussion of the extension of the
imputed floor for an additional 3 years, through FY 2011, due to
applying statewide budget neutrality for the rural and imputed floors.)
As noted in the FY 2012 IPPS/LTCH PPS proposed rule and the FY 2011
IPPS/LTCH PPS final rule (75 FR 50160), section 3141 of the Affordable
Care Act replaced the statewide budget neutrality policy and required
that budget neutrality for the rural and imputed floor be applied
``through a uniform, national adjustment to the area wage index''
instead of within each State beginning in FY 2011. However, the
Affordable Care Act did not include a provision to extend the imputed
floor or to make the imputed floor permanent.
As discussed in the FY 2008 IPPS proposed rule and final rule with
comment period (72 FR 24786 and 72 FR 47322, respectively), the
application of the national budget neutrality requirement for the rural
and imputed floors requires a transfer of payments from hospitals in
States with rural hospitals but where the rural floor is not applied to
hospitals in States where the rural or imputed floor is applied. In the
final FY 2012 wage index, the rural floor will apply to 297 hospitals
in 29 States. Continuing the imputed floor policy into FY 2012 results
in an imputed floor applied for 39 hospitals in New Jersey. In the FY
2012 IPPS/LTCH PPS proposed rule, we did not propose to extend the
imputed floor but sought public comments regarding the expiration of
the imputed floor.
Comment: Although a few commenters, including a national hospital
association, supported CMS making no proposal to extend the imputed
floor policy and agreed that this type of floor benefits only one State
at the expense of all others, applies even though there are no rural
areas in the State, and should apply only when required by statute,
several commenters requested that CMS extend the current imputed floor
policy. These commenters, including a national hospital association and
a few State hospital associations, noted that, absent any new wage
index policies that address the original need for the imputed floor, an
imputed floor should be continued. Some of the commenters suggested
that CMS make the imputed floor policy permanent. They asserted that
hospitals in all-urban States suffer financial and competitive
disadvantages, and they believed that CMS' permanent adoption of an
imputed floor policy would remedy these disadvantages. The commenters
stated that other States could potentially benefit from the imputed
floor in the future should their circumstances

[[Page 51594]]

change, and the fact that only one State currently benefits from the
policy should not serve as CMS' rationale for eliminating it. One
commenter also suggested that if the imputed floor is to expire, it
should be phased out over several years to avoid dramatic cost cutting
and elimination of vital services.
Response: In response to commenters' concerns regarding the
proposed September 30, 2011 expiration of the imputed floor, we have
decided to extend the policy for 2 additional years, for FYs 2012 and
2013 (that is, through September 30, 2013), after which time we will
reevaluate the policy. We believe that continuing the current imputed
floor policy through FY 2013 is a reasonable accommodation for the
hospitals that have benefited from the imputed floor. Also, a 2-year
extension period coincides with the requirement under section 3137(c)
of Public Law 111-148 that CMS must apply the reclassification average
hourly wage comparison standards that were in place during FY 2008
``until the first fiscal year beginning on or after the date that is
one year after the Secretary of Health and Human Services submits a
report to Congress on reforming the wage index under 3137(b) of Public
Law 111-148.'' (We refer readers to a complete discussion of this
requirement in the FY 2011 IPPS/LTCH PPS supplemental proposed rule (75
FR 30919).) The report to Congress is due by December 31, 2011.
Therefore, because the first fiscal year beginning after December 31,
2012 (a year after the report to Congress is due) starts on October 1,
2013, CMS cannot make any changes to the reclassification average
hourly wage comparison standards before FY 2014. Given our current
study of the entire wage index system, including geographic
reclassification and the rural and imputed floor policies, we believe
it is reasonable to continue the current imputed floor policy through
the same evaluation period specified under section 3137(c) of Public
Law 111-148.
Therefore, in this FY 2012 final rule, we are providing an
extension of the current imputed floor policy, including a national
budget neutrality adjustment, through FY 2013 (that is, through
September 30, 2013). Accordingly, we also have revised the Medicare
regulations in Sec. 412.64(h)(4) to reflect this extension. We note
that, although the extension of the imputed floor policy in this final
rule is partially based on the due date of the report to Congress under
section 3137(b) of Public Law 111-148 and the time period for which CMS
is prohibited from making any changes to the FY 2008 reclassification
average hourly wage comparison standards, under 3137(c) of Public Law
111-148, this extension of the imputed floor policy is effective
through the end of FY 2013, regardless of any changes that may be
subsequently made pursuant to these statutory provisions.
Thus, the final FY 2012 wage index and impact tables associated
with this final rule and published on CMS' Web site include the
application of the imputed floor policy and a national budget
neutrality adjustment for the imputed floor. As mentioned above, 39
providers in New Jersey will receive an increase in their FY 2012 wage
index due to the imputed floor policy.
3. FY 2012 Puerto Rico Wage Index
We note that, for the FY 2012 wage index, there is one new hospital
in rural Puerto Rico when previously there were none. However, this
hospital has no cost reporting period beginning during FY 2008 and,
therefore, has no wage data for inclusion in the FY 2012 wage index
calculation for rural Puerto Rico. We discussed in the FY 2005 IPPS
final rule that the imputed floor policy in Sec. 412.64(h)(4) of the
regulations does not apply to Puerto Rico hospitals (69 FR 49111). (We
note that in this discussion in the FY 2012 IPPS/LTCH PPS proposed
rule, we incorrectly stated that the imputed floor policy would apply
to Puerto Rico. We have revised the discussion in the preamble of this
final rule to accurately reflect our policies.) However, we adopted the
policy in the FY 2008 IPPS final rule with comment period (72 FR 47323)
that if there are no hospitals' cost report wage data available to
calculate a State's rural floor, and the imputed floor policy has
expired (or, in the case of Puerto Rico, the imputed floor is not
applicable), ``we will use the unweighted average of the wage indices
from all CBSAs (urban areas) that are contiguous to the rural counties
of the State to compute the State's rural floor. (We define contiguous
as sharing a border.)'' Except for Fajardo, Puerto Rico (CBSA 21940),
all other Puerto Rico urban areas are contiguous to a rural area.
Therefore, based on our existing policy, the FY 2012 rural Puerto Rico
wage index is calculated based on the average of the FY 2012 wage
indices for the following urban areas: Aguadilla-Isabela-San
Sebasti[aacute]n, PR (CBSA 10380); Guayama, PR (CBSA 25020);
Mayag[uuml]ez, PR (CBSA 32420); Ponce, PR (CBSA 38660), San
Germ[aacute]n-Cabo Rojo, PR (CBSA 41900), San Juan-Caguas-Guaynabo, PR
(CBSA 41980), and Yauco, PR (CBSA 49500).

G. Analysis and Implementation of the Occupational Mix Adjustment and
the FY 2012 Occupational Mix Adjusted Wage Index

As discussed in section III.C. of this preamble, for FY 2012, we
apply the occupational mix adjustment to 100 percent of the FY 2012
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.C.3. of this preamble.
Using the occupational mix survey data and applying the
occupational mix adjustment to 100 percent of the FY 2012 wage index
results in a national average hourly wage of $36.2481 and a Puerto-Rico
specific average hourly wage of $15.4142. After excluding data of
hospitals that either submitted aberrant data that failed critical
edits, or that do not have FY 2008 Worksheet S-3 cost report data for
use in calculating the FY 2012 wage index, we calculated the FY 2012
wage index using the occupational mix survey data from 3,168 hospitals.
Using the Worksheet S-3 cost report data of 3,489 hospitals and
occupational mix survey data from 3,168 hospitals represents a 90.8
percent survey response rate. The FY 2012 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............................................ $36.075785685
National LPN and Surgical Technician................... 20.860811964
National Nurse Aide, Orderly, and Attendant............ 14.619464256
National Medical Assistant............................. 16.443954736
National Nurse Category................................ 30.463606009
------------------------------------------------------------------------

The national average hourly wage for the entire nurse category as
computed in Step 5 of the occupational mix calculation is
$30.463606009. 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 2007-2008 occupational mix survey data, we determined
(in Step 7 of the occupational mix calculation) that the national
percentage of hospital

[[Page 51595]]

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 2012 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 209 (53.5 percent) urban areas and 32 (66.7 percent)
rural areas would increase. One hundred nine (27.9 percent) urban areas
would increase by 1 percent or more, and 5 (1.3 percent) urban areas
would increase by 5 percent or more. Seventeen (35.4 percent) rural
areas would increase by 1 percent or more, and no rural areas would
increase by 5 percent or more. However, the wage index values for 182
(46.5 percent) urban areas and 16 (33.3 percent) rural areas would
decrease. Eighty-nine (22.8 percent) urban areas would decrease by 1
percent or more, and no urban area would decrease by 5 percent or more.
Seven (14.6 percent) rural areas would decrease by 1 percent or more,
and no rural areas would decrease by 5 percent or more. The largest
positive impacts are 7.83 percent for an urban area and 2.91 percent
for a rural area. The largest negative impacts are 4.45 percent for an
urban area and 2.78 percent for a rural area. No urban or rural areas
are unaffected. These results indicate that a larger percentage of
rural areas (66.7 percent) would benefit from the occupational mix
adjustment than do urban areas (53.5 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 (33.3 percent) of rural CBSAs would still
experience a decrease in their wage indices as a result of the
occupational mix adjustment.
The wage index values for FY 2012 (except those for hospitals
receiving wage index adjustments under section 1886(d)(13) of the Act)
included in Tables 4A, 4B, 4C, and 4F, which are listed in section VI.
of the Addendum to this final rule and available via the Internet,
include the occupational mix adjustment.
Tables 3A and 3B, which are listed in section VI. of the Addendum
to this final rule and available via the Internet, list the 3-year
average hourly wage for each labor market area before the redesignation
or reclassification of hospitals based on FYs 2010, 2011, and 2012 cost
reporting periods. Table 3A lists these data for urban areas, and Table
3B lists these data for rural areas. In addition, Table 2, which is
listed in section VI. of the Addendum to this final rule and available
via the Internet, includes the adjusted average hourly wage for each
hospital from the FY 2006 and FY 2007 cost reporting periods, as well
as the FY 2008 period used to calculate the FY 2012 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, which
are listed in section VI. of the Addendum to this final rule and
available via the Internet, include the occupational mix adjustment.
The wage index values in Tables 4A, 4B, 4C, and 4D also include the
national rural and imputed floor budget neutrality adjustment.

H. Revisions to the Wage Index Based on Hospital Redesignations and
Reclassifications

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. (We refer readers to a discussion of the proximity
requirements in the FY 2002 IPPS final rule (66 FR 39874 and 39875).)
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.H.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

[[Page 51596]]

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.
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 2012 MGCRB Reclassifications
a. FY 2012 Reclassification Requirements and Approvals
Under section 1886(d)(10) of the Act, the MGCRB considers
applications by hospitals for geographic reclassification for purposes
of payment under the IPPS. The specific procedures and rules that apply
to the geographic reclassification process are outlined in 42 CFR
412.230 through 412.280.
At the time this final rule was constructed, the MGCRB had
completed its review of FY 2012 reclassification requests. Based on
such reviews, there were 280 hospitals approved for wage index
reclassifications by the MGCRB for FY 2012. Because MGCRB wage index
reclassifications are effective for 3 years, for FY 2012, hospitals
reclassified during FY 2010 or FY 2011 are eligible to continue to be
reclassified to a particular labor market area based on such prior
reclassifications. There were 283 hospitals approved for wage index
reclassifications in FY 2010 and 294 hospitals approved for wage index
reclassifications in FY 2011. Of all of the hospitals approved for
reclassification for FY 2010, FY 2011, and FY 2012, based upon the
review at the time of this final rule, 659 hospitals are in a
reclassification status for FY 2012.
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. CMS became aware that an error was
made in the calculation of the proposed wage index out-migration
adjustment in Table 4J of the FY 2012 IPPS/LTCH PPS proposed rule. This
error in the calculation affected 104 providers that became eligible to
receive the out-migration adjustment. We published a correction notice
in the Federal Register on July 13, 2011 (76 FR 41178), which had a
display date of July 11, 2011, announcing the corrections to the
tables. Additionally, we issued a letter to hospitals on July 1, 2011,
through their fiscal intermediaries/MACs advising that we extended the
45-day deadline and allowed hospitals a 7-day period from the date of
display of the correction notice (that is, by July 18, 2011) for
hospitals that wished to request a revision to an already submitted
withdrawal/termination request under 42 CFR 412.73, or that wished to
request a withdrawal of a reclassification or termination of an
existing 3-year section 1886(d)(10) reclassification that would be
effective in FY 2012. Hospitals also may 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). Additional discussion on withdrawals and terminations, and
clarifications regarding reinstating reclassifications and ``fallback''
reclassifications, were included in the FY 2008 IPPS final rule (72 FR
47333).
Changes to the wage index that result from withdrawals of requests
for reclassification, terminations, wage index corrections, appeals,
and the Administrator's review process for FY 2012 are incorporated
into the wage index values published in the FY 2012 IPPS/LTCH PPS final
rule. These changes affect not only the wage index value for specific
geographic areas, but also the wage index value redesignated/
reclassified hospitals receive; that is, whether they receive the wage
index that includes the data for both the hospitals already in the area
and the redesignated/reclassified hospitals. Further, the wage index
value for the area from which the hospitals are redesignated/
reclassified may be affected.
b. Applications for Reclassifications for FY 2013
Applications for FY 2013 reclassifications are due to the MGCRB by
September 1, 2011. 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 2011, 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.

[[Page 51597]]

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 2011 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, 2011, hospitals located in the rural county in the
first column of this chart will be redesignated for purposes of using
the wage index of the urban area listed in the second column.

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

[[Page 51598]]

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

As in the past, hospitals redesignated under section 1886(d)(8)(B)
of the Act are also eligible to be reclassified to a different area by
the MGCRB. Affected hospitals were permitted to compare the
reclassified wage index for the labor market area in Table 4C (which
was listed in section VI. of the Addendum to the proposed rule and
available via the Internet) 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 2012 proposed rule. As discussed in section III.H.3.a. of this
preamble, we published a correction notice in the Federal Register on
July 13, 2011 (76 FR 41178), which had a display date of July 11, 2011,
announcing corrections to the FY 2012 proposed out-migration adjustment
in Table 4J. Additionally, we issued a letter to hospitals on July 1,
2011, through their fiscal intermediaries/MACs advising that we
extended the 45-day deadline and allowed hospitals a 7-day period from
the date of display of the correction notice (that is, by July 18,
2011) for hospitals redesignated under section 1886(d)(8)(B) of the Act
that also were eligible for an out-migration adjustment to notify CMS
that they wished to receive the out-migration adjustment instead of
their redesignation under section 1886(d)(8)(B) of the Act. Section
1886(d)(8)(B) hospitals that had already notified CMS that they wished
to receive the out-migration adjustment instead of the section
1886(d)(8)(B) redesignation could withdraw such notifications.
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 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 the requirements of section
3137(c) of the Affordable Care Act, beginning with reclassifications
for the FY 2011

[[Page 51599]]

wage index, a Lugar hospital must also demonstrate that its average
hourly wage is equal to at least 82 percent of the average hourly wage
of hospitals in the area to which it seeks redesignation (Sec.
412.230(d)(1)(iv)(C)).
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 2010 notice issued in the
Federal Register on June 2, 2010 (75 FR 31118). Prior to the enactment
of the Medicare and Medicaid Extenders Act of 2010 (Pub. L. 111-309) on
December 15, 2010, the extension of the 508 provision was included in
sections 3137(a) and 10317 of the Affordable Care Act (Pub. L. 111-
148). Section 3137 of the Affordable Care Act extended, through FY
2010, section 508 reclassifications as well as certain special
exceptions. The most recent extension of the provision was included in
section 102 of the Medicare and Medicaid Extender Act, which extends,
through FY 2011, section 508 reclassifications as well as certain
special exceptions. The latest extension of these provisions expires on
September 30, 2011, and will no longer be applicable effective with FY
2012.
7. Waiving Lugar Redesignation for the Out-Migration Adjustment
We have received several inquiries regarding the effect on a
hospital's deemed urban status when a hospital waives its
reclassification under section 1886(d)(8) of the Act in order to accept
an out-migration adjustment to the wage index under section 1886(d)(13)
of the Act. (We refer readers to a discussion of the out-migration
adjustment under section III.I. of the preamble of this final rule.) In
the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25885 and 25886), we
clarified that Lugar hospitals will be required to waive their Lugar
urban status in its entirety in order to receive the out-migration
adjustment. We stated our belief that this represents one permissible
reading of the statute, given that section 1886(d)(13)(G) of the Act
states that a hospital with an out-migration adjustment is not
``eligible'' for a reclassification under subsection (8). Therefore,
beginning with FY 2012, we proposed that an eligible hospital that
waives its Lugar status in order to receive the out-migration
adjustment has effectively waived its deemed urban status and, thus, is
rural for all purposes under the IPPS, including being considered rural
for the DSH payment adjustment, effective for the fiscal year in which
the hospital receives the out-migration adjustment. (We refer readers
to a discussion of DSH payment adjustment under section IV.G. of this
preamble.)
In addition, we proposed to make a minor procedural change that
would allow a Lugar hospital that qualifies for and accepts the out-
migration adjustment (through written notification to CMS within the
requisite number of days from the publication of the proposed rule \4\)
to automatically waive its urban status for the 3-year period for which
its out-migration adjustment is effective. That is, such a Lugar
hospital would no longer be required during the second and third years
of eligibility for the out-migration adjustment to advise us annually
that it prefers to continue being treated as rural and receive the
adjustment. We made this proposal in response to public comments we
received on the FY 2011 IPPS/LTCH PPS proposed rule that discussed the
burden of this annual request (74 FR 43840). Thus, under the proposed
procedural change, a Lugar hospital that requests to waive its urban
status in order to receive the rural wage index in addition to the out-
migration adjustment would be deemed to have accepted the out-migration
adjustment and agrees to be treated as rural for the duration of its 3-
year eligibility period, unless prior to its second or third year of
eligibility the hospital explicitly notifies CMS in writing, within the
required period (generally 45 days from the publication of the proposed
rule), that it instead elects to return to its deemed urban status and
no longer wishes to accept the out-migration adjustment.
---------------------------------------------------------------------------

\4\ Hospitals generally have 45 days from publication of the
proposed rule to request an out-migration adjustment in lieu of the
section 1886(d)(8) deemed urban status. As noted in sections
III.H.3. and III.H.4. of this preamble, due to the correction of the
FY 2012 proposed out-migration adjustment, we extended the 45 day
deadline and allowed hospitals a 7-day period from the date of
display of the July 13, 2011 correction notice (that is, by July 18,
2011) (76 FR 41178).
---------------------------------------------------------------------------

Comment: Commenters supported CMS' proposed policy clarification
that an eligible hospital that waives its Lugar status in order to
receive the out-migration adjustment has effectively waived its deemed
urban status and, thus, is rural for all IPPS purposes. Some of the
commenters stated that this policy provides the flexibility necessary
to allow hospitals to revert to their true rural status if they wish.
Commenters also supported the proposed minor procedural change that
would allow a Lugar hospital that qualifies for and accepts the out-
migration adjustment to automatically waive its urban status for the 3-
year period for which its out-migration adjustment is effective. Some
commenters asked CMS to clarify whether the procedural change will
apply to letters already filed for the FY 2012 update, in which a
request was made to waive Lugar redesignation and to instead receive
the out-migration adjustment.
Response: Beginning with FY 2012, we are adopting as final the
policy that an eligible hospital that waives its Lugar status in order
to receive the out-migration adjustment has waived its deemed urban
status and, thus, is rural for all IPPS purposes. In addition, we are
adopting as final the procedural change that would allow a Lugar
hospital that qualifies for and accepts the out-migration adjustment to
automatically waive its urban status for the 3-year period for which
the out-migration adjustment is effective. This clarified policy and
procedural change will be effective beginning with the FY 2013 wage
index. Therefore, hospitals that sent requests to waive Lugar status
for the out-migration adjustment for FY 2012, and still have 2 or 3
years of eligibility available for the out-migration adjustment, must
request again next year for the waiver to apply to the FY 2013 wage
index. That request would be effective for the remaining years of its
eligibility.
At the time hospitals made their decisions with respect to waiving
Lugar status for the out-migration adjustment for FY 2012, the
procedural change

[[Page 51600]]

allowing a 3-year waiver was not yet in effect. Therefore, those
decisions were based on the existing policy in place for the proposed
rule, which required annual waivers. As discussed in section III.H.4.
of this preamble, counties remain eligible for a consistent out-
migration adjustment for a period of 3 years. Each year, we revise the
list of counties to (1) add new counties eligible for an adjustment for
3 years; (2) remove counties where 3 years have elapsed and the
counties no longer qualify for an adjustment; or (3) revise the
adjustment value for counties in cases where 3 years have elapsed and
the counties, once again, qualify for an adjustment. Some hospitals may
not know whether they are in the first, second, or third year of the
out-migration adjustment; and therefore, whether they are able to waive
deemed urban Lugar status for 1, 2, or 3 years. For these reasons,
beginning with FY 2013, we intend to make available, shortly after we
publish the proposed rule, a public use file which will list Lugar/out-
migration hospitals (that is, hospitals that have Lugar status and are
located in a county that qualifies for an out-migration adjustment),
and which will identify whether the hospital is in its first, second,
or third year of eligibility for the out-migration adjustment. We will
update this file annually and release it to the public after each
fiscal year's proposed rule.
Comment: Some commenters expressed concerns with respect to
hospitals reclassified from urban to rural under section 1886(d)(8)(E)
of the Act (Sec. 412.103 of the regulations). The commenters expressed
concern that a hospital reclassified from urban to rural status under
Sec. 412.103 has to cancel this reclassification to return to Lugar
status, so that it can then waive its Lugar status to become rural and
retain a special rural status (such as SCH or MDH), and also receive
the out-migration adjustment. However, a Sec. 412.103 cancellation
takes effect only at the beginning of the next cost reporting period,
whereas waiving Lugar status is effective on October 1. The commenters
indicated that this presents a problem for hospitals that do not have a
September 30 cost reporting period end date. The commenters urged CMS
to create a process by which hospitals can simultaneously cancel a
Sec. 412.103 reclassification and waive Lugar status.
Response: In circumstances where a Lugar hospital has acquired
rural status through Sec. 412.103 in order to be classified by
Medicare as an SCH or a MDH, we will allow the act of waiving Lugar
status for the out-migration adjustment to simultaneously waives the
hospital's deemed urban status and cancel the hospital's acquired rural
status, thus treating the hospital as a rural provider effective on
October 1. (We note that there are special rules that apply to rural
referral centers under Sec. 412.103(g)(1) requiring that urban-to-
rural status be maintained for a certain period of time, in order to
avoid gaming situations. We are not revising these rules for rural
referral centers due to these considerations.)
Comment: Some commenters asked for a policy that would allow
waivers of Lugar redesignation in all instances--not just when a
hospital is eligible for the out-migration adjustment.
Response: The statute provides two methods for a Lugar hospital to
be treated as rural for Medicare payment purposes: (1) If the hospital
is eligible for an out-migration adjustment under section 1886(d)(13)
of the Act; or (2) if the hospital applies for an urban to rural
reclassification under section 1886(d)(8)(E) of the Act. There are no
other provisions under the Medicare statute that would allow a Lugar
hospital to be treated as a rural provider, given that Lugar status is
a deemed status.
8. Other Geographic Reclassification Issues
a. Requested Reclassification for Single Hospital MSAs
Section 412.230 of the regulations sets forth criteria for an
individual hospital to apply for geographic reclassification to a
higher rural or urban wage index area. Specifically, under Sec.
412.230(a)(3)(ii), an individual hospital may be redesignated from an
urban area to another urban area, from a rural area to another rural
area, or from a rural area to an urban area for the purpose of using
the other area's wage index value. Such a hospital must also meet other
criteria. One required criterion (under Sec. 412.230(d)(1)(iii)(C) of
the regulations) is that the hospital must demonstrate that its own
average hourly wage is higher than the average hourly wage of hospitals
in the area in which the hospital is located (108 percent for urban
hospitals and 106 percent for rural hospitals). In cases in which a
hospital wishing to reclassify is the only hospital in its MSA, that
hospital is unable to satisfy this criterion because it cannot
demonstrate that its average hourly wage is higher than that of the
other hospitals in the area in which the hospital is located (because
there are no other hospitals in the area). For hospitals in the
category described above, our current policy provides an alternative
that allows hospitals to seek reclassification using the group
reclassification rules under Sec. 412.232 or Sec. 412.234.
Specifically, if a hospital is the single hospital in its area for the
3-year period over which the average hourly wage is calculated for the
purpose of the comparison under Sec. 412.230(d)(1)(iii)(C), the
hospital may apply for geographic reclassification as a single hospital
county group in accordance with the procedures set forth at Sec.
412.232 or Sec. 412.234. In addition to specifying the average hourly
wage criteria, these regulations state that the county in which the
hospital is located must be adjacent to the urban area to which it
seeks redesignation. In addition, a certain level of economic
integration needs to exist between the two areas. For example, for
urban county group reclassifications (for FY 2008 and subsequent
periods), Sec. 412.234(a)(3)(iv) states that ``hospitals located in
counties that are in the same Combined Statistical Area (CSA) or Core-
Based Statistical Area (CBSA) * * * as the urban area to which they
seek redesignation qualify as meeting the proximity requirements for
reclassification to the urban area to which they seek redesignation.''
Recently, we have been advised of a single hospital MSA scenario of
concern to a particular hospital. In this scenario, an urban hospital
located in an area in which there was only one other hospital had
previously applied for and was granted a reclassification by the MGCRB
to an adjacent urban area with a higher wage index. During the 3-year
reclassification timeframe, the other hospital in its labor market area
closed. After the expiration of its reclassification, the hospital
became ineligible for reclassification to that same adjacent urban area
with a higher wage index because it was no longer able to satisfy the
wage data comparison criteria to reclassify individually under Sec.
412.230(d)(1)(iii)(C). In addition, the hospital could not apply for
redesignation under the urban county group regulation at Sec. 412.234
because the hospital was not located in the same CSA or CBSA as the
urban area to which it sought reclassification. In this example, the
concern that was shared with CMS was that the hospital was
competitively disadvantaged in competing for labor with neighboring
hospitals where the hospital had a comparable average hourly wage,
compared to the other hospitals in its surrounding area, because it
receives a lower wage index.
We stated in the proposed rule that we believe that the geographic
reclassification regulations should not

[[Page 51601]]

be revised to accommodate this situation. We discussed the fact that we
have repeatedly rejected special rules to accommodate single hospital
MSAs (69 FR 48915, 49109; 71 FR 47869, 48071 and 48072). In these
explanations, we have highlighted the fact that hospitals in single
hospital MSAs not only may be eligible for out-commuting adjustments,
but that they also may apply to an adjacent MSA within the same CSA
using the group reclassification rules without meeting the 108-percent
test. We explained that each year we propose to adopt the OMB's
statistical area definitions (75 FR 50162), so if a hospital in a
single hospital MSA cannot meet group reclassification criteria because
of the CSA standard, it means that OMB has determined that there is not
a sufficient degree of employment interchange to suggest that the areas
compete for the same labor. In addition, we explained that when we
originally adopted the 108-percent test, we noted that ``with respect
to single hospital MSAs, a hospital in such an MSA receives a wage
index value that is based entirely on its own wage data and, therefore,
its actual wage levels. Because such a hospital is clearly not
disadvantaged by its inclusion in a labor market area where its wage
index is determined based on its own wage levels, it is appropriate
under this guideline that a hospital should not be reclassified if it
is the only one in its area'' (57 FR 39746). In the proposed rule, we
expressed concern that allowing a hospital representing 100 percent of
its area's wages to be exempt from the wage data comparison test could
undermine the 108-percent test for hospitals in other circumstances
where the standard cannot be met. Finally, we referred to section
3137(c) of the Affordable Care Act, which prohibits us from altering
average hourly wage comparison criteria for FY 2012. That provision
states that ``notwithstanding any other provision of law,'' the MGCRB
is required to use the ``average hourly wage comparison criteria used
in making such decisions as of September 30, 2008,'' until the first
fiscal year beginning on the date that is one year after the Secretary
submits a report to Congress.
In the proposed rule, we solicited public comments on this issue.
In particular, we invited comments on the types of regulatory solutions
that could be made available to a hospital in this type of situation.
Comment: Commenters suggested that, among other solutions to this
issue, the 108 percent test should be waived for hospitals that are the
single hospital in the MSA, as it is mathematically impossible to be
108 percent of your own average hourly wage. In addition, commenters
suggested that establishing one's own wage index or being eligible for
an out-migration adjustment may not result in adequate compensation for
a hospital's services. Commenters also noted that, despite the existing
remedies of the out-migration adjustment and county group
reclassification, a hospital may still be at a disadvantage and unable
to compete for labor with a neighboring labor market area that receives
a higher wage index. Commenters believed that Congress did not intend
to exclude a hospital in a single hospital MSA from the ability to
reclassify to another labor market area. Commenters further stated that
recognizing county boundaries does not always accurately reflect labor
markets, which is why in 1989 Congress established the reclassification
process. Therefore, commenters believed the very purpose of Congress
creating the reclassification process, that is, to give hospitals an
opportunity to be included in a labor market area in which they compete
for labor, is not being fulfilled by excluding a hospital in a single
hospital MSA the ability to seek reclassification.
Response: While we continue to be concerned regarding the precedent
that might be set by exempting a category of hospitals from the 108
percent test, we agree that the current policies for geographic
reclassification are disparate for hospitals located in single hospital
MSAs compared to hospitals located in multiple hospital MSAs. We
acknowledge the commenters' views that this disparity is sometimes a
disadvantage because hospitals in single hospital MSAs have fewer
options for qualifying for geographic reclassification than hospitals
in multiple hospital MSAs. To address the concerns of the commenters,
in this final rule, we are making a change in our policy in order to
waive a hospital in a single hospital MSA from the average hourly wage
comparison criterion under Sec. 412.230(d)(1)(iii)(C) beginning with
applications for geographic reclassification for the FY 2013 wage
index. That is, a hospital in a single hospital MSA will be exempt from
meeting the 108 percent average hourly wage criterion. Accordingly, we
are amending our regulation at Sec. 412.230 by adding a new paragraph
(d)(5) to reflect this exception for single hospital MSAs. We note that
section 3137(b) of Public Law 111-148 requires CMS to submit a report
on reforming the wage index to Congress by December 31, 2011. As a
result of this statutory requirement, we are currently studying of the
entire wage index system, including geographic reclassification.
Although we are adopting this new policy for hospitals in single
hospital MSAs for reclassification applications starting with FY 2013,
we may reevaluate this policy as we formulate a plan to reform the wage
index system under the requirements of section 3137(b).
b. Requests for Exceptions to Geographic Reclassification Rules
Over the last several years, CMS has received numerous requests for
exceptions to current Medicare law and regulation regarding geographic
reclassification or requests to revise the existing regulations in
order to allow a hospital or group of hospitals the ability to
reclassify to a labor market area with a higher wage index. Section
3137(b) of the Affordable Care Act requires the Secretary to submit a
report to Congress that includes a ``plan to reform the hospital wage
index.'' This report to Congress is due by December 31, 2011. As part
of our efforts in this regard, in the FY 2012 IPPS/LTCH PPS proposed
rule, we solicited public comments, to be considered only as part of
our report to Congress and not to be addressed in the FY 2012 IPPS/LTCH
PPS final rule, on ways to redefine the geographic reclassification
requirements to more accurately define labor markets.

I. FY 2012 Wage Index Adjustment Based on Commuting Patterns of
Hospital Employees

In accordance with the broad discretion granted to the Secretary
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 hospital 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 not necessarily
qualify

[[Page 51602]]

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 2012 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 2011 will be eligible to retain the adjustment for
FY 2012. 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, 2011.
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 FYs 2005 through 2011 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 are deemed to have chosen to retain their redesignation or
reclassification. Hospitals that reclassified under section 1886(d)(10)
of the Act 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.H.3.
of the preamble of the FY 2012 proposed rule. Otherwise, they were
deemed to have waived the out-migration adjustment. Hospitals
redesignated under section 1886(d)(8)(B) 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 FY 2012 proposed rule that
they elected to receive the out-migration adjustment instead. As noted
in sections III.H.3.a. and III.H.4. of this preamble, due to the
correction of the FY 2012 proposed outmigration adjustment, we extended
the 45-day deadline and allowed hospitals a 7-day period from the date
of display of the July 13, 2011 correction notice (that is, by July 18,
2011) (76 FR 41178).
Table 4J, which is listed in section VI. of the Addendum to this
final rule and available via the Internet, lists the out-migration wage
index adjustments for FY 2012. 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
timeframe stated above. 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, which is listed in section VI. of the
Addendum to this final rule and available via the Internet.

J. Process for Requests for Wage Index Data Corrections

The preliminary, unaudited Worksheet S-3 wage data and occupational
mix survey data files for the proposed FY 2012 wage index were made
available on October 4, 2010, 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 13, 2010, 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 4, 2010 wage and occupational mix data files, the hospital
had to submit corrections along with complete, detailed supporting
documentation to its fiscal intermediary/MAC by December 6, 2010.
Hospitals were notified of this deadline and of all other 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 13, 2010 memorandum referenced above.
In the October 13, 2010 memorandum, we also specified that a
hospital requesting revisions to its 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

[[Page 51603]]

documentation to its fiscal intermediary/MAC no later than December 6,
2010.
The fiscal intermediaries/MACs notified the hospitals by mid-
February 2011 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 2011. CMS published the proposed
wage index public use files that included hospitals' revised wage index
data on February 22, 2011. Hospitals had until March 7, 2011, 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' 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 13,
2011. 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 20, 2011.
Hospitals were given the opportunity to examine Table 2, which is
listed in section VI. of the Addendum to the proposed rule and
available via the Internet. Table 2 contained each hospital's adjusted
average hourly wage used to construct the wage index values for the
past 3 years, including the FY 2008 data used to construct the proposed
FY 2012 wage index. We noted that the hospital average hourly wages
shown in Table 2 only reflected changes made to a hospital's data that
were transmitted to CMS by March 2011.
We released the final wage index data public use files in early May
2011 on the Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp. The May 2011 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 13, 2011).
If, after reviewing the May 2011 final public use 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 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 6, 2011.
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.
After the release of the May 2011 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 13, 2011.
Requests for correction of errors that were not, but could
have been, identified during the hospital's review of the February 22,
2011 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 6, 2011)
were incorporated into the final wage index in the FY 2012 IPPS/LTCH
PPS final rule, which will be effective October 1, 2011.
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 2012 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 appeals 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 2011, 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 2012 wage index by August 2011, and the
implementation of the FY 2012 wage index on October 1, 2011. 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 6, 2011, 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 6 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 MACs notify hospitals directly of any wage
index data changes after completing their desk reviews, we do not
expect that midyear corrections will be necessary. However,

[[Page 51604]]

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 6,
2011 deadline for the FY 2012 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 calculated the final wage index (that
is, by the June 6, 2011 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.

K. Labor-Related Share for the FY 2012 Wage Index

Section 1886(d)(3)(E) of the Act directs the Secretary to adjust
the proportion of the national prospective payment system base payment
rates that are attributable to wages and wage-related costs by a factor
that reflects the relative differences in labor costs among geographic
areas. It also directs the Secretary to estimate from time to time the
proportion of hospital costs that are labor-related: ``The Secretary
shall adjust the proportion (as estimated by the Secretary from time to
time) of hospitals' costs which are attributable to wages and wage-
related costs of the DRG prospective payment rates * * *'' We refer to
the portion of hospital costs attributable to wages and wage-related
costs as the labor-related share. The labor-related share of the
prospective payment rate is adjusted by an index of relative labor
costs, which is referred to as the wage index.
Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of
the Act to provide that the Secretary must employ 62 percent as the
labor-related share unless this ``would result in lower payments to a
hospital than would otherwise be made.'' However, this provision of
Public Law 108-173 did not change the legal requirement that the
Secretary estimate ``from time to time'' the proportion of hospitals'
costs that are ``attributable to wages and wage-related costs.'' We
believe that this reflected Congressional intent that hospitals receive
payment based on either a 62-percent labor-related share, or the labor-
related share estimated from time to time by the Secretary, depending
on which labor-related share resulted in a higher payment.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850
through 43856), we rebased and revised the hospital market basket for
operating costs. We established a FY-2006-based IPPS hospital market
basket to replace the FY 2002-based IPPS hospital market basket,
effective October 1, 2009. In that final rule, we presented our
analysis and conclusions regarding the frequency and methodology for
updating the labor-related share for FY 2010. We also recalculated a
labor-related share of 68.8 percent, using the FY 2006-based IPPS
market basket, for discharges occurring on or after October 1, 2009. In
addition, we implemented this revised and rebased labor-related share
in a budget neutral manner, but consistent with section 1886(d)(3)(E)
of the Act, we did not take into account the additional payments that
would be made as a result of hospitals with a wage index less than or
equal to 1.0 being paid using a labor-related share lower than the
labor-related share of hospitals with a wage index greater than 1.0.
The labor-related share is used to determine the proportion of the
national IPPS base payment rate to which the area wage index is
applied. In this final rule, as we proposed, we are not making any
further changes to the national average proportion of operating costs
that are attributable to wages and salaries, fringe 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).
Therefore, for FY 2012, we are continuing to use a labor-related
share of 68.8 percent for discharges occurring on or after October 1,
2011. Tables 1A and 1B, which are published in section VI. of the
Addendum to this final rule and available via the Internet, reflect
this labor-related share. 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 to a
hospital than would otherwise be made.'' Therefore, for all IPPS
hospitals whose wage indices are less than 1.0000, we applied the wage
index to a labor-related share of 62 percent of the national
standardized amount. For all IPPS hospitals whose wage indices are
greater than 1.0000, we applied the wage index to a labor-related share
of 68.8 percent of the national standardized amount. For Puerto Rico
hospitals, the national labor-related share will always be 62 percent
because the national wage index for all Puerto Rico hospitals is less
than 1.0. As we proposed, in this final rule, we are continuing to use
a labor-related share for the Puerto Rico-specific standardized amounts
of 62.1 percent for discharges occurring on or after October 1, 2011.
This Puerto Rico labor-related share of 62.1 percent was also adopted
in the FY 2010 IPPS/LTCH PPS final rule (74 FR 43857) at the time the
FY 2006-based hospital market basket was established, effective October
1, 2009. Consistent with our methodology for determining the national
labor-related share, we added the Puerto Rico-specific relative weights
for wages and salaries, fringe benefits, contract labor, 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

[[Page 51605]]

basket as labor-intensive) to determine the labor-related share. Puerto
Rico hospitals are paid based on 75 percent of the national
standardized amounts and 25 percent of the Puerto Rico-specific
standardized amounts. The labor-related share of a hospital's Puerto
Rico-specific rate will be either the Puerto Rico-specific labor-
related share of 62.1 percent or 62 percent, depending on which results
in higher payments to the hospital. If the hospital has a Puerto Rico-
specific wage index of greater than 1.0, we will set the hospital's
rates using a labor-related share of 62.1 percent for the 25 percent
portion of the hospital's payment determined by the Puerto Rico
standardized amounts because this amount will result in higher
payments. Conversely, a hospital with a Puerto Rico-specific wage index
of less than 1.0 will be paid using the Puerto Rico-specific labor-
related share of 62 percent of the Puerto Rico-specific rates because
the lower labor-related share will result in higher payments. The
Puerto Rico labor-related share of 62.1 percent for FY 2012 is
reflected in the Table 1C, which is published in section VI. of the
Addendum to this final rule and available via the Internet.

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

A. Hospital Inpatient Quality Reporting (IQR) Program

1. Background
a. Overview
CMS is seeking to promote higher quality and more efficient
healthcare 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 measures various aspects of care
for almost all Medicare beneficiaries. These measures assess structural
aspects of care, clinical processes, patient experiences with care,
and, increasingly, outcomes.
CMS has implemented quality measure reporting programs for multiple
settings of care. To measure the quality of hospital inpatient
services, CMS implemented the Hospital Inpatient Quality Reporting
(IQR) Program (formerly referred to as the Reporting Hospital Quality
Data for Annual Payment Update (RHQDAPU) Program). In addition, CMS has
implemented quality reporting programs for hospital outpatient
services, the Hospital Outpatient Quality Reporting (OQR) Program
(formerly referred to as the Hospital Outpatient Quality Data Reporting
Program (HOP QDRP)), and for physicians and other eligible
professionals, the Physician Quality Reporting System (formerly
referred to as the Physician Quality Reporting Program 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
incentive program (76 FR 628 through 646) that links payment to
performance.
In implementing the Hospital IQR Program and other quality
reporting programs, we have focused on measures that have high impact
and support CMS and HHS priorities for improved quality and efficiency
of care for Medicare beneficiaries. Our goal for the future is to align
the clinical quality measure requirements of the Hospital IQR Program
with various other programs, including those authorized by the Health
Information Technology for Economic and Clinical Health (HITECH) Act so
that the burden for reporting will be reduced.
We also are implementing a Hospital Value-Based Purchasing (VBP)
Program under section 1886(o) of the Act. Earlier this year, we issued
a final rule (76 FR 26490 through 26547) (the Hospital Inpatient VBP
Program final rule) that implemented the Hospital VBP Program. We
proposed additional policies for the Hospital VBP Program in section
IV.B. of the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25926 through
25928) and in section XVI. of the CY 2012 OPPS/ASC proposed rule (76 FR
42354 through 42365). In the Hospital Inpatient VBP Program proposed
rule (76 FR 2454 through 2491), we proposed that hospitals would
receive value-based incentive payments if they meet performance
standards with respect to measures for a performance period for the
fiscal year involved. The measures under the Hospital VBP Program must
be selected from the measures specified under the Hospital IQR Program.
The Hospital VBP Program will apply to payments for discharges
occurring on or after October 1, 2012, in accordance with section
1886(o) of the Act.
The Hospital IQR Program is intertwined with the Hospital VBP
Program because the measures and reporting infrastructure for both
programs will overlap. We view the Hospital VBP Program as the next
step in promoting higher quality care for Medicare beneficiaries by
transforming Medicare into an active purchaser of quality health care
for its beneficiaries. As we stated in the Hospital Inpatient VBP
Program proposed rule (76 FR 2455), in developing that proposed rule as
well as other value-based payment initiatives, we applied the following
principles for the development and use of measures and scoring
methodologies:
Purpose:
We view value-based purchasing as an important step to
revamping how care and services are paid for, moving increasingly
toward rewarding better value, outcomes, and innovations instead of
merely volume.
Use of Measures:
Public reporting and value-based payment systems should
rely on a mix of standards, process, outcomes, and patient experience
of care measures, including measures of care transitions and changes in
patient functional status. Across all programs, we seek to move as
quickly as possible to the use of primarily outcome and patient
experience measures. To the extent practicable and appropriate, outcome
and patient experience measures should be adjusted for risk or other
appropriate patient population or provider characteristics.
To the extent possible and recognizing differences in
payment system maturity and statutory authorities, measures should be
aligned across public reporting and payment systems under Medicare and
Medicaid. The measure sets should evolve so that they include a focused
core set of measures appropriate to the specific provider category that
reflects the level of care and the most important areas of service and
measures for that provider.
The collection of information should minimize the burden
on providers to the extent possible. As part of that effort, we will
continuously seek to align our measures with the adoption of meaningful
use standards for health information technology (HIT), so the
collection of performance information is part of care delivery.
To the extent practicable, measures used by CMS should be
nationally endorsed by a multi-stakeholder organization. Measures
should be aligned with best practices among other payers and the needs
of the end users of the measures.
We invited public comment on these principles.
Comment: Many commenters supported CMS' measure selection
principles for the Hospital IQR Program and the Hospital VBP Program.
The commenters believed that these principles reflect the efficacy of
quality measure reporting, reduce data collection burdens and
facilitate alignment of measures across Medicare programs. Furthermore,
the commenters applauded CMS' overarching goal of

[[Page 51606]]

improving the quality and cost-effectiveness of care provided in health
care institutions.
Response: We appreciate the commenters' support. We will continue
implementing these principles to reach our goal to foster quality
improvement, establish strong and effective quality standards, and
systematically link quality to payment in various healthcare settings.
Comment: Many commenters overwhelmingly supported our efforts to
enhance healthcare quality transparency through the public reporting of
quality measures.
Response: We appreciate the commenters' support of public reporting
of quality measures.
Comment: Many commenters stated that with the increasing number of
measures across the Medicare and Medicaid programs, CMS should align
the measures adopted for various Medicare programs whenever possible to
reduce the hospital reporting burden. One commenter further suggested
that future measure reporting alignment across payers would reduce the
burden of quality reporting and also allow for the meaningful
comparison of healthcare quality.
Response: We recognize that the addition of manually chart-
abstracted measures to the Hospital IQR Program over time has increased
the reporting burden on hospitals. Aligning and harmonizing measures
across Medicare programs and implementing electronic measure reporting
are high priority goals for us, and we seek to further these goals as
we select measures for our programs. We agree with the commenters
regarding the importance of measure alignment across our programs in
order to provide meaningful comparative information for beneficiaries,
and we have sought to collect and utilize all-patient data for the
measures used in our programs wherever possible. Currently, we collect
all-patient data for all of the chart-abstracted and survey-based
measures for the Hospital IQR, and Hospital OQR Programs. We also agree
that alignment of measure reporting requirments across payers would
also reduce burden among providers responding to multiple reporting
requirements. CMS has adopted many measures that are in widespread use
in the industry and by other payers, and will continue to do so when
feasible and practicable.
Comment: One commenter encouraged CMS to articulate the
relationship between the measures selected for the Hospital IQR Program
and the framework laid out in the National Quality Strategy.
Response: In March 2011, HHS issued a Report to Congress entitled
``National Strategy for Quality Improvement in Health Care [National
Quality Strategy].'' The National Quality Strategy was developed with
input from stakeholders across the health care system, including
Federal and State agencies, local communities, provider organizations,
clinicians, patients, businesses, employers, and payers. The National
Quality Strategy is located at: http://www.healthcare.gov/center/reports/nationalqualitystrategy032011.pdf.
The purpose of the National Quality Strategy is to provide a
strategic plan for improving health care, of which measurement is an
integral component. The National Quality Strategy promotes three
overarching aims--Better Care (improving overall quality by making
health care more patient-centered reliable, accessible and safe),
Healthy People/Healthy Communities (improving the health of the U.S.
population by supporting proven interventions to address behavioral,
social and, environmental determinants of health in addition to
delivering higher-quality care), and Affordable Care (reducing the cost
of quality health care for individuals, families, employers, and
government). The NQS also lists six priorities to target in furthering
these goals: (1) Making care safer by reducing harm caused in the
delivery of care; (2) ensuring that each person and family are engaged
as a partner in their care; (3) promoting effective communication and
coordination of care; (4) promoting the most effective prevention and
treatment practices for the leading causes of mortality, starting with
cardiovascular disease; (5) working with communities to promote wide
use of best practices to enable healthy living; and (6) making quality
care more affordable for individuals, families, employers, and
governments by developing and spreading new health care delivery
models.
Our measure selection activity for the Hospital IQR Program
directly addresses the first five of these six priorities. For example,
the selection of Hospital Acquired Condition (HAC) measures,
Healthcare-Associated Infection (HAI) measures, and AHRQ Patient Safety
Indicators (PSIs) and Inpatient Quality Indicators (IQIs) addresses the
first priority of safer healthcare, and reduction of harm. The
selection of the HCAHPS survey addresses the second priority of
patient/family engagement. The risk-adjusted 30-day readmission and 30-
day mortality measures address effective coordination of care. The
current process of care measures for AMI, HF, PN, and Surgical Care
address effective prevention and treatment practices. Lastly, the
structural measures adopted for the Hospital IQR Program address
encouragement of best practices. To the extent that the measures we
have adopted for Hospital IQR are used in CMS value-based purchasing
programs, alternative payment demonstrations, and the evaluation of new
delivery system models, the measures also address the sixth priority
area of the National Quality Strategy.
Comment: One commenter expressed concern about the overlap in the
use of the same HACs in the Hospital IQR and Hospital VBP Programs. The
commenter suggested that CMS adopt mutually exclusive HAC measures so
that hospitals are not penalized for the same HAC measures adopted for
various Medicare programs.
Response: We do not agree with the commenter's view that the
implementation of the same HAC measures in both the Hospital VBP and
Hospital IQR Programs would penalize hospitals twice with respect to
these measures. Under section 1886(o)(1)(C)(ii)(I) of the Act, a
hospital that is subject to the payment reduction under the Hospital
IQR Program with respect to a fiscal year is excluded from the Hospital
VBP Program for that year.
Also, as we stated in the Hospital Inpatient VBP Program final rule
(76 FR 26504), we view the program authorized by section 3008 of the
Affordable Care Act and the Hospital VBP Program as being related but
separate efforts to reduce HACs. Although the Hospital VBP Program is
an incentive program that provides incentive-based payments to
hospitals based on quality performance, the program established by
section 3008 of the Affordable Care Act creates a payment adjustment
resulting in payment reductions for the lowest performing hospitals.
We also view programs that could potentially affect a hospital's
Medicaid payment as separate from programs that could potentially
affect a hospital's Medicare payment, although we intend to monitor the
various interactions of programs authorized by the Affordable Care Act
and their overall impact on providers and suppliers.
Comment: A few commenters suggested that CMS should adopt NQF-
endorsed measures whenever possible. A commenter further noted that if
CMS adopts non-NQF-endorsed measures, these measures should be formally
tested prior to their inclusion in the Hospital IQR Program. Another
commenter stated that if CMS considers

[[Page 51607]]

adopting measures that are endorsed by organizations other than the
NQF, CMS should ensure that such organizations demonstrate strong
consensus activities from consumers, healthcare organizations,
physicians and other relevant professionals, purchasers and payers, and
the organizations should have demonstrated expertise in healthcare
quality measurement. A commenter suggested that CMS seek expedited NQF
review of non-NQF-endorsed measures under consideration.
Response: We thank the commenters for all their suggestions for
measure endorsement. We have generally adopted NQF-endorsed measures
whenever possible. For non-NQF endorsed measures developed by CMS, we
use a consensus-based measure development process that includes broad
stakeholder input, and as part of this development process, we test
feasibility, validity, and reliability whenever feasible and
practicable.
Section 3001(a)(2) of the Affordable Care Act amended section
1886(b)(3)(B)(viii) of the Act to provide a different standard for
quality measures included in the Hospital IQR Program for payments
beginning with FY 2013. Under the amended provision of the Act, for
payments beginning with FY 2013, each measure specified by the
Secretary must be endorsed by a consensus entity that has a contract
with the Secretary under section 1890(a) of the Act (currently the
NQF), except in certain circumstances. Specifically, in the case of a
specified area or medical topic determined appropriate by the Secretary
for which a feasible and practical measure has not been endorsed by the
consensus entity, the Secretary may specify a measure that is not
endorsed by the consensus entity if due consideration is given to
measures that have been endorsed or adopted by a consensus organization
identified by the Secretary.
We thank the commenters for suggesting that we attempt to expedite
NQF review of non-NQF-endorsed measures under consideration for the
Hospital IQR Program, and we will consider doing so for measures for
which CMS is the steward.
Comment: One commenter expressed concerns about the sufficiency of
the risk-adjustment methods for the proposed process of care and
outcome measures. The commenter recommended that CMS and AHRQ convene
an expert panel to develop risk-adjustment for the measures used in the
Hospital IQR, Hospital Readmissions Reduction and Hospital VBP
Programs. Commenters stated that risk-adjustments should include
patient demographic factors (for example, age, sex, race, and
socioeconomic status), severity of illness, and types of services being
provided.
Response: The current 30-day outcome measures and AHRQ PSIs and
IQIs in the Hospital IQR Program are NQF-endorsed, and are risk
adjusted using NQF-endorsed risk adjustment methodologies that include
clinical risk factors. The current NQF policy for risk adjustment does
not encourage risk adjustment for non-clinical patient demographic
factors, because doing so may obscure disparities in care provided by
hospitals to disadvantaged groups. The risk adjustment methodology
employed in the NQF-endorsed outcome measures adopted for the Hospital
IQR Program, therefore, would follow these principles.
Most of the outcome measures used in these programs are restricted
to a specific condition or procedure, and therefore do not need to be
adjusted for the type of service being provided as suggested by one of
the commenters. Other outcome measures, such as the HACs, assess
``never events'' or serious reportable events that would not be
appropriate to risk adjust for either clinical or demographic factors.
CMS and AHRQ both participate in Measure Application Partnership
workgroups convened by the NQF. These workgroups are tasked with
issuing recommendations to HHS on various aspects of measurement (such
as appropriate risk adjustment) for consideration in HHS' programs.
Comment: Some commenters urged CMS to focus heavily on outcome
measures.
Response: We agree with the commenters. The adoption of outcome
measures has always been and will remain as a priority goal for the
Hospital IQR and Hospital VBP Programs.
We thank the commenters for their comments on our measure
development principles, and we will consider these comments as we
develop and select measures in the future.
b. Statutory History and History of Measures Adopted for the Hospital
IQR Program
We refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule
(74 FR 43860) and the FY 2011 IPPS/LTCH PPS final rule (75 FR 50180)
for detailed discussions of the history of the Hospital IQR Program,
including the statutory history and the measures we have adopted for
the Hospital IQR measure set through FY 2014.
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25891), we sought
comments on an option that would allow us from time to time to consider
a range of consensus endorsement entities or bodies that can assist us
with our measure development process. We believe that this approach
would provide for a diverse endorsement process and the best body of
evidence to support measures used in our quality programs.
Comment: Several commenters recommended that CMS use the NQF as the
sole consensus entity. These commenters stated that the NQF, which is
composed of healthcare stakeholders, has developed a robust measurement
evaluation system for the measure's importance, scientific
acceptability, feasibility and usability, and their endorsed measures
are gold standards. Other commenters recommended the NQF, Hospital
Quality Alliance (HQA), and Measure Application Partnership (MAP) as
consensus endorsement entities for assisting CMS in the measure
development process. These commenters considered these organizations as
the primary consensus groups for hospital quality reporting. These
commenters believed that the HQA, composed of public and private
partners, can appropriately select NQF-endorsed measures that best
assess quality in high priority areas. These commenters also pointed
out that the MAP was created under the Affordable Care Act, and aimed
to recommend a coordinated set of measures for acute hospital,
physician and long-term care hospital quality reporting. One commenter
requested clarification as to which other entities are being considered
by CMS for inclusion in its list(s) of consensus endorsement entities.
Response: We thank the commenters for their suggestions. Under
section 1886(b)(3)(B)(viii)(IX) of the Act, for payments beginning with
FY 2013, each measure specified by the Secretary under the Hospital IQR
Program must be endorsed by the entity with a contract under section
1890(a) of the Act, except in certain circumstances. This contract is
currently held by the NQF, and for this reason, we generally look to
the NQF for endorsement of the measures we are considering for the
Hospital IQR Program. However, in the case of a specified area or
medical topic determined appropriate by the Secretary for which a
feasible and practical measure has not been endorsed by the consensus
entity, the Secretary may specify a measure that is not endorsed by the
consensus entity if due consideration is given to measures that have
been endorsed or adopted by a consensus organization identified by the
Secretary.

[[Page 51608]]

We also note that we give consideration to suggestions from other
organizations such as the HQA, and the newly convened MAP, as well as
from public comment received through rulemaking. As stated in the
proposed rule, we strive to align measures where possible and
appropriate across programs.
c. Maintenance of Technical Specifications for Quality Measures
The technical specifications for the Hospital IQR Program measures,
or links to Web sites hosting technical specifications, are contained
in the CMS/The Joint Commission Specifications Manual for National
Hospital Inpatient Quality Measures (Specifications Manual). This
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. These semiannual updates are accompanied by
notifications to users, providing sufficient time between the change
and the effective date in order to allow users to incorporate changes
and updates to the specifications into data collection systems.
The technical specifications for the HCAHPS patient experience of
care survey are contained in the current HCAHPS Quality Assurance
Guidelines manual, which is available at the HCAHPS On-Line Web site,
http://www.hcahpsonline.org. We maintain the HCAHPS technical
specifications by updating the HCAHPS Quality Assurance Guidelines
manual annually, and include detailed instructions on survey
implementation, data collection, data submission and other relevant
topics. As necessary, HCAHPS Bulletins are issued to provide notice of
changes and updates to technical specifications in HCAHPS data
collection systems.
Comment: One commenter requested that CMS exercise its
administrative authority to add the new FDA-approved Fidaxomicin off-
cycle via Release Note to the current Specification Manual for National
Hospital Inpatient Quality Measures (3.3a), Medication List--Appendix
C--Table 2.1 ``Antimicrobial Medications--for hospital discharges as of
April 1, 2011.''
Response: We convene Technical Expert Panels (TEPs) for measure
development and maintenance in order to ensure that our measures
reflect current science, evidence-based clinical practice guidelines,
and best practices. We will take this suggestion under consideration
during our measure maintenance process, which informs changes to the
Specification Manual.
d. Public Display of Quality Measures
Section 1886(b)(3)(B)(viii)(VII) of the Act, as amended by section
3001(a)(2) of the Affordable Care Act, requires that the Secretary
establish procedures for making information regarding measures
submitted available to the public after ensuring that a hospital has
the opportunity to review its data before they are made public. In the
FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25891 through 25892), we
proposed to display information regarding the measures (such as names
of measures for which data will be displayed in the future) on the
Hospital Compare Web site under this provision, and invited public
comment on this proposal. We will continue our current practice of
reporting data from the Hospital IQR Program as soon as it is feasible
on CMS Web sites such as the Hospital Compare Web site, http://www.hospitalcompare.hhs.gov, after a 30-day preview period.
The Hospital Compare Web site is an interactive Web tool that
assists beneficiaries by providing information on hospital quality of
care to those who need to select a hospital. It further serves to
encourage beneficiaries 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. The Hospital IQR Program currently includes
process of care measures, risk-adjusted outcome measures, the HCAHPS
patient experience-of-care survey, and structural measures, all of
which are featured on the Hospital Compare Web site.
However, information that may not be relevant to or easily
understood by beneficiaries and information for which there are
unresolved display issues or design considerations for inclusion on
Hospital Compare may be made available on other CMS Web sites that are
not intended to be used as an interactive Web tool, such as http://www.cms.hhs.gov/HospitalQualityInits/. Publicly reporting the
information in this manner, though not on the Hospital Compare Web
site, allows CMS to meet the requirement under section
1886(b)(3)(B)(viii)(VII) of the Act for establishing procedures to make
information regarding measures submitted under the Hospital IQR Program
available to the public following a preview period. In such
circumstances, affected parties are notified via CMS listservs, CMS e-
mail blasts, national provider calls, and QualityNet announcements
regarding the release of preview reports followed by the posting of
data on a Web site other than Hospital Compare.
Comment: Many commenters overwhelmingly supported the increasing
transparency in public reporting and appreciated CMS's principles for
selecting measures. The commenters believed that these principles
reflect practical aspects of quality data reporting such as reducing
the burden of data collection on providers as well as aligning measures
across programs. The commenters stated that CMS should ensure that this
performance measure information is meaningful in improving patient care
outcomes. Some commenters stated that more consumer education on
performance measure data displayed on Hospital Compare is needed for
meaningful interpretation of the data and identification of
opportunities to improve patient outcomes.
Response: We greatly appreciate the commenters' support of public
quality reporting and agree that consumer education is an ongoing
process. We continuously strive to improve the user-friendliness of
Hospital Compare Web site design and educate Medicare beneficiaries in
understanding healthcare quality and healthcare trends. For example, we
conduct periodic consumer testing to find out consumer preference for
measure domains, understanding of measures and associated explanatory
text. We believe that the reporting of various hospital quality metrics
incentivizes hospitals to assess their patient care performance and
identify opportunities to improve patient outcomes. In addition, the
healthcare information released on Hospital Compare has become a
popular resource for beneficiaries when they need to make decisions
regarding their healthcare.
Comment: A few commenters opposed our intention to display measure
names for which data will be displayed in the future on the Hospital
Compare Web site. The commenters believed that the display of more
descriptive information on future measures would help consumers better
understand what the future measures are. The commenters believed that
displaying only the measure names would not be helpful to consumers who
need to choose a hospital for medical care.
Response: We use the Hospital Compare ``spotlight'' section to

[[Page 51609]]

highlight upcoming changes to the site, including the addition of new
measures, topics, and future potential Hospital VBP Program measures.
The measure names alone are not intended to drive consumer choice
regarding which hospital to select, but we believe that highlighting
names of measures to be added to Hospital Compare introduces possible
new topic areas that consumers can discuss with their physicians in
choosing a hospital. We also provide information about why the new
measure topic may be important to know about.
Comment: Some commenters stated that data display on Hospital
Compare should cater to consumers who visit Hospital Compare for
information related to short-term healthcare decisions.
Response: We interpret the commenters' statements to mean that the
information displayed on the Hospital Compare should provide
information to help consumers to make informed decisions regarding
inpatient acute care services (for example, treatments, tests,
procedures or surgeries) that may be provided by a hospital. Hospital
Compare is designed to be a consumer-oriented Web site where consumers
can obtain information on how well hospitals provide care to their
patients. The Web site displays quality data on process of care and
outcome measures for heart attack, heart failure, pneumonia and
surgical care as measured by the Surgical Care Improvement Project
(SCIP). In the future, we will display data on other topics, such as
Hospital-Associated Infections (HAIs) and complications of care. We
will continue to post data to the Web site in a manner that is easy for
consumers of the data to understand.
Comment: A few commenters opposed CMS' current practice of
publishing performance measure information on Web sites other than
Hospital Compare for information that may not be relevant to or easily
understood by beneficiaries and information for which there are
unresolved display issues or design considerations for inclusion on
Hospital Compare. The commenters were concerned that it would be
difficult for providers and consumers to navigate and track information
on multiple sites and supported Hospital Compare as the sole source for
public display of quality reporting. The commenters recommended
Hospital Compare be the sole Web site for display of quality data and
supported continued improvement in the Hospital Compare Web site to
make its data comprehensive and meaningful to consumers.
Response: We believe that Hospital Compare should be the primary
vehicle for displaying hospital quality data reported for the Hospital
IQR Program. As we stated in the FY 2011 IPPS/LTCH PPS final rule (75
FR 50185), the data we display on Web sites other than Hospital Compare
is displayed on a temporary basis because of pending display design and
other unresolved issues so as to not confuse beneficiaries who intend
to use data in making healthcare decisions. Once an appropriate display
mechanism has been determined, the information is added to the Hospital
Compare Web site.
Comment: One commenter noted that results displayed on Hospital
Compare should always exclude results based on a small number of cases
or those results that may be misinterpreted by consumers.
Response: Currently, hospital-level process of care measures based
on fewer than 25 cases are displayed with a footnote indicating that
the number of cases may be too few for meaningful comparisons to be
made. Hospital-level risk-adjusted outcome measure rates based on fewer
than 25 cases are not displayed at all. This minimum case threshold may
be subject to change in the future to match the minimum case threshold
for the various measures established for the Hospital VBP Program. We
thank the commenter for this suggestion.
Comment: One commenter suggested the standalone display of the PSI-
12 Post-operative PE and DVT measure due to its significance as an
indicator of hospital quality for Medicare beneficiaries undergoing
surgeries that may put them at risk for thromboembolism.
Response: We appreciate this comment. We have not finalized the
display options for the AHRQ PSI and IQI composite measures, in which
PSI-12 is included. We will take this suggestion into consideration for
the display of the AHRQ measures.
Comment: One commenter suggested that public reporting should be
presented in different formats to meet the needs of consumers,
healthcare providers and researchers.
Response: We are exploring options as to how best meet the needs of
our multiple stakeholders, including beneficiaries and researchers. A
new Web site, http://www.data.medicare.gov, allows researchers and
other interested parties to view and manipulate multiple data sources,
including downloadable databases from hospitals, nursing homes and
dialysis facilities.
Comment: One commenter asked whether the data displayed on Hospital
Compare included data from Medicare Advantage affiliated hospitals.
Response: Section 1886(b)(3)(B)(viii)(VII) of the Act requires that
the Secretary establish procedures for making information regarding
measures submitted under the Hospital IQR Program available to the
public. The Hospital IQR Program applies to subsection (d) hospitals,
many of which treat beneficiaries enrolled in Medicare Advantage (MA)
plans. With respect to the process of care measures, the data are
collected, and subsequently displayed, on all patients, including these
MA beneficiaries. However, the claims-based measures are currently
calculated using only Medicare Part A fee for service claims and do
not, for that reason, capture MA beneficiary data. In the future, we
hope to collect outcome measure data on all patients.
After consideration of the public comments we received, we are
finalizing our proposal to display information regarding the measures
(such as names of measures for which data will be displayed in the
future) on the Hospital Compare Web site.
2. Retirement of Hospital IQR Program Measures
a. Considerations in Retiring Quality Measures From the Hospital IQR
Program
We generally retain measures from the previous year's Hospital IQR
Program measure set for subsequent years' measure sets. We previously
retired one ``topped out'' measure, PN-1: Oxygenation Assessment for
Pneumonia, from the Hospital IQR Program on the basis of high unvarying
performance among hospitals, because measures with very high
performance among hospitals present little opportunity for improvement,
and do not provide meaningful distinctions in performance for
consumers.
We also have retired one measure from the Hospital IQR Program
because it no longer ``represent[ed] the best clinical practice,'' as
required under section 1886(b)(3)(B)(viii)(VI) of the Act. We stated
that when there is reason to believe that the continued collection of a
measure as it is currently specified raises potential patient safety
concerns, it is appropriate for CMS to take immediate action to remove
a measure from the Hospital IQR Program and not wait for the annual
rulemaking cycle. Therefore, we adopted the policy (74 FR 43864 and
43865) that we would promptly retire such a measure, confirm

[[Page 51610]]

the retirement in the next IPPS rulemaking cycle, and notify hospitals
and the public of the decision to promptly retire measures through the
usual hospital and QIO communication channels used for the Hospital IQR
Program. These channels include memos, e-mail notification, and
QualityNet Web site postings.
As we stated in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50185),
among the criteria that we consider when determining whether to retire
Hospital IQR Program measures are the following: (1) Measure
performance among hospitals is so high and unvarying that meaningful
distinctions and improvements in performance can no longer be made; (2)
performance or improvement on a measure does not result in better
patient outcomes; (3) a measure does not align with current clinical
guidelines or practice; (4) the availability of a more broadly
applicable (across settings, populations, or conditions) measure for
the topic; (5) the availability of a measure that is more proximal in
time to desired patient outcomes for the particular topic; (6) the
availability of a measure that is more strongly associated with desired
patient outcomes for the particular topic; (7) collection or public
reporting of a measure leads to negative unintended consequences other
than patient harm. These criteria were suggested by commenters during
rulemaking, and we agreed that these criteria should be among those
considered in evaluating Hospital IQR Program measures for retirement.
b. Retirement of Hospital IQR Program Measures for the FY 2014 Payment
Determination and Subsequent Years
In order to reduce the reporting burden on hospitals, and in
particular, the burden associated with reporting chart-abstracted
measures, we have considered options to accommodate the expansion of
the measure set through the retirement of additional Hospital IQR
measures. Specifically, we have considered retiring one or more of the
measures suggested by various commenters that were listed in the FY
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43865). We noted in that
final rule that commenters recommended for retirement 11 Hospital IQR
Program chart-abstracted measures. Seven of these 11 measures were
recommended by commenters for retirement based on their performance
being uniformly high nationwide, with little variability among
hospitals (topped-out measures). Based on our own analysis, we
concluded that these measures are topped out and for this reason, we
proposed not to include them in the FY 2013 Hospital VBP Program
measure set (76 FR 2460). These measures are listed below:
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 INF-6 Appropriate Hair Removal

The methodology we used to determine that these measures are topped
out is detailed in the Hospital VBP Program proposed rule (76 FR 2460).
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25892), we proposed
to retire these topped out measures from the Hospital IQR measure set.
In addition, we proposed to not include an eighth measure in the FY
2013 Hospital VBP Program measure set because we believe that inclusion
of this measure would result in the unintended consequence of
inappropriate antibiotic use (76 FR 2462). This measure is PN-5c Timing
of receipt of initial antibiotic following hospital arrival. In the FY
2012 IPPS/LTCH PPS proposed rule (76 FR 25892), we also proposed to
retire this measure from the Hospital IQR Program because of the
potential for this negative unintended consequence.
For these reasons, we proposed to retire these eight measures from
the Hospital IQR measure set for FY 2014 and subsequent years, and that
hospitals would no longer be required to submit data on these measures
starting with January 1, 2012 discharges. We invited public comment on
this proposal.
Comment: Several commenters supported the CMS measure retirement
criteria and the proposed retirement of the 8 proposed topped out
measures to reduce burden. The commenters encouraged CMS to replace
process measures with comparable outcome measures whenever possible.
Response: We thank the commenters for their support and agree with
the suggestion that, when possible, process measures should be replaced
by suitable outcome measures.
Comment: A few commenters suggested that CMS should proceed
cautiously in its decisions whether to retire topped-out measures or
measures no long supported by scientific evidence. Some commenters
recommended the continuation of data collection for topped out measures
because they were concerned that there may be unintended consequences,
such as a deterioration of the standard of care, if data collection and
monitoring are discontinued.
Response: We believe it is appropriate to retire measures based on
our measure retirement criteria. Retirement using these criteria also
meets our goals of minimizing the reporting burden, and staying current
with the latest scientific evidence. Furthermore, we believe that in
many cases, the proposed topped out measures have been integrated into
standard hospital clinical practices and for this reason, we believe it
is unlikely that the types of beneficiary care addressed by these
measures would deteriorate as a result of their retirement from the
Hospital IQR Program measure set. However, as explained below, we have
decided not to retire four of the eight measures we proposed to retire.
Instead, we will retain these measures in the Hospital IQR Program but
suspend data collection on them. We believe this will address the
commenters' concern that we proceed cautiously when deciding whether to
retire measures.
Comment: A few commenters opposed the retirement of the quality
measures that have been deemed clinically meaningful or that were part
of long-standing measure sets. A commenter suggested that CMS consider
including topped out measures in composite measures. Commenters were
concerned that the retirement of these measures may disrupt quality
improvement efforts in hospitals. A commenter noted that quality
measurement in general has the optimal impact on quality of care and
patient outcomes when multiple related metrics are used. Another
commenter believed that topped out measures that are NQF-endorsed
should stay in the Hospital IQR Program until the NQF has retired them.
Response: While we are dedicated to the care and safety of our
beneficiaries, we are also concerned with the burden placed on
hospitals in order to collect data for the Hospital IQR Program. We do
not believe we should continue collecting measures simply because they
are part of a long standing measure set or that it would be generally
meaningful to combine topped out measures into a composite topped out
measure. Our decision to retire a measure from the Hospital IQR Program
would not preclude a hospital from continuing to improve its own
performance on the measure. Moreover, as discussed below, we are
keeping four of the measures we proposed for retirement in the Hospital
IQR Program, but are suspending the data submission requirements for
these

[[Page 51611]]

measures. This approach will reduce data collection burdens on
hospitals, but will enable us to resume data collection should we
observe abrupt declines in adherence to these measures.
Comment: A few commenters supported the retirement of AMI-4, HF-4,
and PN-4 because they are topped out. A few commenters stated that
these 3 measures and the PN-5c measure do not meet the The Joint
Commission accountability measure criteria and should be retired.
Another commenter requested clarification on the reason for retiring
PN-5c since this measure has been a high priority in hospitals which
have geared up training efforts for this measure.
Response: We thank the commenters for supporting our proposal to
retire these four measures, and we are finalizing our proposal to
retire these measures beginning with January 1, 2012 discharges. The
three adult smoking cessation counseling measures (AMI-4, HF-4, and PN-
4) are no longer NQF-endorsed. They are also topped out, which provides
us with some assurance that these processes have been incorporated into
routine hospital care. With respect to the PN-5c measure, we believe
that the continued collection of this measure might lead to the
unintended consequence of antibiotic overuse, which is a practice that
could negatively affect beneficiary health and one that should not be
incentivized through the Hospital IQR Program. Should we decide in the
future that the clinical evidence supports the re-adoption of one or
more of these measures into the Hospital IQR Program measure set, we
will propose to re-adopt the measure(s) in rulemaking.
Comment: One commenter suggested that CMS establish policies to
retire a quality measure midyear if the measure is found to have
unintended serious consequences.
Response: We appreciate this suggestion. Our current policy is to
immediately suspend collection of a measure when there is reason to
believe that continued collection of the measure raises patient safety
concerns. In these circumstances, we will take action outside of the
rulemaking cycle, and then confirm the retirement in the next IPPS
rulemaking cycle. We will also disseminate this information to
hospitals and the public through the usual hospital and QIO
communication channels used for the Hospital IQR Program, including the
QualityNet Web site, e-mail blasts, memos and other information
postings as needed.
Comment: One commenter recommended that the following four measures
also be considered for retirement: HF-1 (because it is a ``check the
box'' measure and is not related to the quality of the discharge
process), SCIP-Inf-2 (because it is a process measure which can be
replaced by its outcome measure which is the Surgical Site Infection
measure scheduled for implementation for FY 2014), SCIP-INF-VTE-1 and
SCIP-VTE-2 (because these 2 proposed VTE measures are already included
in the VTE measure set for FY 2015) and PN-3b (because of the
incompatible EHR integration with the clinical workflow).
Response: We thank the commenter for these recommendations and will
evaluate them in our measure review for future rulemaking.
Comment: Many commenters agreed that the retirement of all eight
measures would result in a reduction in chart abstraction burden for
hospitals. However, a few commenters were particularly concerned about
retiring AMI-1, AMI-3, AMI-5, and SCIP Infection-6 because they have
been designated as accountability measures by The Joint Commission.\5\
The commenters agreed that these measures should not be used in the
Hospital VBP Program but urged CMS to keep these measures in the
Hospital IQR Program and continue their display on Hospital Compare in
order to prevent a decline in adherence to the important care processes
assessed by these measures that are clinically associated with better
outcomes. Commenters supported the cessation of data collection for
these measures that we proposed for retirement (AMI-1, AMI-3, AMI-5,
and SCIP INF-6) in order to ease the data collection burden.
---------------------------------------------------------------------------

\5\ Accountability measures are defined by the Joint Commission
as measures that: (1) Support a strong link between the measure and
improved outcomes; (2) accurately assess the relevant clinical
process; and (3) have minimal unintended adverse consequences if
implemented.
---------------------------------------------------------------------------

Response: We have been persuaded by these commenters that it might
be premature to retire these measures (AMI-1, AMI-3, AMI-5 and SCIP
INF-6) from the Hospital IQR Program. As the commenters pointed out,
these measures, unlike the other four measures we proposed to retire,
have been defined by The Joint Commission as measures of
accountability. In addition, these measures, unlike three of the other
four measures, are currently still endorsed by the NQF.
We are sensitive, however, to comments noting how the continued
adoption of chart-abstraction measures over time has increased the
burden to hospitals. Therefore, in an effort to balance our goal to
incentivize high quality care with the goal to work where possible to
minimize the data collection burden for hospitals, we have decided to
retain these measures in the Hospital IQR Program but to suspend data
collection on them until such time that the evidence shows that
hospital adherence to these practices has unacceptably declined. In
these circumstances, we would resume data collection using the same
form and manner and on the same quarterly schedule that we finalized
for these and other chart abstracted measures for the applicable period
of collection, providing at least 3 months of notice prior to resuming
data collection. Hospitals would be notified of this via CMS listservs,
CMS e-mail blasts, national provider calls, and QualityNet
announcements. In addition, we would comply with any requirements
imposed by the Paperwork Reduction Act before resuming data collection
of these 4 measures.
In summary, based upon the public comments we received, we are
retiring the following four measures beginning with January 1, 2012
discharges:

AMI-4 Adult smoking cessation advice/counseling
HF-4 Adult smoking cessation advice/counseling
PN-4 Adult smoking cessation advice/counseling
PN-5c Timing of receipt of initial antibiotic following
hospital arrival
We are suspending data collection for the following four measures
beginning with January 1, 2012 discharges:
AMI-1 Aspirin at arrival
AMI-3 ACEI/ARB for left ventricular systolic dysfunction
AMI-5 Beta-blocker prescribed at discharge
SCIP INF-6 Appropriate Hair Removal
3. Measures for the FY 2014 and FY 2015 Hospital IQR Payment
Determinations
a. Considerations in Expanding and Updating Quality Measures Under the
Hospital IQR Program
In general, we seek to adopt measures for the Hospital IQR Program
that promote better, safer, more efficient care. Our measure
development and selection activities for the Hospital IQR Program take
into account national priorities, such as those established by the
National Priorities Partnership, HHS Strategic Plan, the National
Strategy for Quality Improvement in Healthcare, as well as other widely
accepted criteria established in medical literature. (We refer readers
to the following Web sites regarding these priorities: http://

[[Page 51612]]

www.nationalprioritiespartnership.org/(National Priorities
Partnership); http://www.hhs.gov/secretary/about/priorities/priorities.html (HHS Strategic Plan); and http://www.healthcare.gov/center/reports/quality03212011a.html (National Strategy for Quality
Improvement in Healthcare)). To the extent practicable, we have sought
to adopt measures which have been endorsed by a national consensus
organization, recommended by multi-stakeholder organizations, and
developed with the input of providers, purchasers/payers and other
stakeholders. Because measures for the Hospital VBP Program must be
selected from the measures specified for the Hospital IQR Program, the
measures to be selected for inclusion in the Hospital VBP Program also
reflect these priorities. In addition, we believe it is important to
expand the pool of measures to include measures that are directed
toward improving patient safety. This goal is supported by at least two
Federal reports documenting that tens of thousands of patients do not
receive safe care in the nation's hospitals.\6\ \7\
---------------------------------------------------------------------------

\6\ OEI-06-09-00090, ``Adverse Events in Hospitals: National
Incidence Among Medicare Beneficiaries.'' Department of Health and
Human Services, Office of Inspector General, November 2010.
\7\ 2009 National Healthcare Quality Report, pp. 107-122.
``Patient Safety,'' Agency for Healthcare Research and Quality.
---------------------------------------------------------------------------

Section 3001(a)(2) of the Affordable Care Act amended the Act by
adding a new section 1886(b)(3)(B)(viii)(VIII) of the Act. This section
states that, ``[e]ffective for payments beginning with fiscal year
2013, with respect to quality measures for outcomes of care, the
Secretary shall provide for such risk adjustment as the Secretary
determines to be appropriate to maintain incentives for hospitals to
treat patients with severe illnesses or conditions.'' Section
3001(a)(2) of the Affordable Care Act also added new sections
1886(b)(3)(B)(viii)(IX)(aa) and (bb) of the Act. These sections state
that ``* * * effective for payments beginning with fiscal year 2013,
each measure specified by the Secretary under this clause shall be
endorsed by the entity with a contract under section 1890(a) [of the
Act],'' and ``[i]n the case of a specified area or medical topic
determined appropriate by the Secretary for which a feasible and
practical has not been endorsed by the entity with a contract under
section 1890(a) [of the Act], the Secretary may specify a measure that
is not so endorsed as long as due consideration is given to measures
that have been endorsed or adopted by a consensus organization
identified by the Secretary.'' In the FY 2011 IPPS/LTCH PPS final rule,
we established that all of the measures adopted in that rule for the FY
2013 and FY 2014 payment determinations meet these standards (75 FR
50200).
We have previously acknowledged the data collection burden for
hospitals participating in the Hospital IQR Program, and reiterated our
desire to expand the Hospital IQR Program measure set while minimizing
burden and seeking to provide alternative mechanisms for data
submission (75 FR 50189). We also stated that in future expansions and
updates to the Hospital IQR 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 Hospital IQR 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 databases; and, (f) weighing the relevance and utility of the
measures compared to the burden on hospitals in submitting data under
the Hospital IQR Program.
Specifically, we give priority to 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 Hospital IQR
Program measure set. In addition, in selecting measures, we seek to
address the six quality aims of effective, safe, timely, efficient,
patient-centered, and equitable healthcare. Current and long term
priority topics include: prevention and population health; safety;
chronic conditions; high cost and high volume conditions; elimination
of health disparities; HAIs and other adverse healthcare outcomes;
improved care coordination; improved efficiency; improved patient and
family experience of care; effective management of acute and chronic
episodes of care; reduced unwarranted geographic variation in quality
and efficiency; and adoption and use of interoperable HIT.
Hospital IQR Program measures were initially based solely on a
hospital's submission of chart-abstracted quality measure data.
However, in recent years we have adopted measures that do not require
chart abstraction, including structural measures and claims-based
measures that we can calculate using other data sources. This approach
supports our goal of expanding the measures for the Hospital IQR
Program while minimizing the burden on hospitals and, in particular,
without significantly increasing the chart abstraction burden.
In addition to structural measures and claims-based measures, we
previously noted that registries are potential alternative sources of
hospital data for the Hospital IQR Program. (A registry is a collection
of clinical data for purposes of assessing clinical performance,
quality of care, and opportunities for quality improvement.) We
envisioned that instead of requiring hospitals to submit the same data
to CMS that many hospitals are already submitting to registries, we
would collect the data directly from the registries. This could enable
the expansion of the Hospital IQR Program measure set without
increasing the burden of data collection for those hospitals
participating in the registries. We have previously adopted structural
measures of registry participation, and we continue to evaluate the
feasibility of leveraging registry-based data collection mechanisms for
the Hospital IQR Program.
We also stated our intention to explore mechanisms for data
submission using electronic health records (EHRs) (73 FR 48614; 74 FR
43866, 43892; and 75 FR 50189). 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 capturing, formatting, and
transmitting the 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
Hospital IQR Program measure set with less cost and burden

[[Page 51613]]

to hospitals. We believe that automatic collection and reporting of
data through EHRs will greatly simplify and streamline reporting for
various CMS quality reporting programs and that at a future date,
currently targeted to be FY 2015, hospitals will be able to switch
solely to EHR-based reporting of data that are currently manually
chart-abstracted and submitted to CMS for the Hospital IQR Program.
We reiterate our commitment to pursue our goals to expand and
update quality measures under the Hospital IQR Program and also to
minimize burden. We note that in addition to the input we described
above, we take into consideration the measures adopted by the Hospital
Quality Alliance (HQA) as well as an array of input from the public.
The HQA is a national public-private collaboration that is committed to
making meaningful, relevant, and easily understood information about
hospital performance accessible to the public and to informing and
encouraging efforts to improve quality. We appreciate HQA's integral
efforts to improve hospital quality of care and its support of our
public quality reporting programs.
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50191 through
502192), we finalized our proposal to adopt measures for the Hospital
IQR Program for three consecutive payment determinations. The intent of
this policy was to provide greater certainty for hospitals to plan to
meet future reporting requirements and implement related quality
improvement efforts. In addition to giving hospitals more advance
notice in planning quality reporting, this 3-year approach also
provides more time for us to prepare, organize and implement the
infrastructure needed to collect data on the measures and make payment
determinations. We indicated, however, that these preliminary measure
sets could still be updated through the rulemaking process should we
need to respond to agency and/or legislative changes.
Finally, in section IV.A.5.a.(2) of the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50219 through 50220), we adopted a proposal to make
Hospital IQR Program payment determinations beginning with FY 2013
using one calendar year of data for chart-abstracted measures. We will
use this approach, which synchronizes the quarters for which data on
these measures must be submitted during each year with the quarters
used to make payment determinations with respect to a fiscal year
beginning with January 1, 2011 discharges. However, it will not affect
our payment determinations until FY 2013.
Section 1886(o)(2)(A) of the Act requires the Secretary to select
measures, other than readmission measures, for the Hospital VBP Program
from the measures specified under the Hospital IQR Program. Section
1886(o)(2)(B)(i)(I) of the Act states that, for FY 2013, the selected
measures must cover at least the following five specified conditions or
procedures: Acute myocardial infarction (AMI), Heart failure (HF),
Pneumonia (PN), Surgeries, as measured by the Surgical Care Improvement
Project (SCIP), and HAIs, as measured by the prevention metrics and
targets established in the HHS Action Plan to Prevent Healthcare-
Associated Infections [HAIs] (or any successor HHS plan). Section
1886(o)(2)(B)(i)(II) of the Act provides that, for FY 2013, measures
selected for the Hospital VBP Program must also be related to the
Hospital Consumer Assessment of Healthcare Providers and Systems survey
(HCAHPS).
In selecting measures for the Hospital IQR Program, we are mindful
of the conceptual framework of the Hospital VBP Program. We will focus
on selecting measures that we believe will also meet the Hospital VBP
Program measure inclusion criteria and advance the goals of the
Hospital VBP Program by targeting hospitals' ability to improve patient
care and patient outcomes.
In addition, in order to support HHS priorities such as patient
safety, reduction of HAIs, and readmissions, and to meet more of the
widespread goals of the Affordable Care Act in terms of improving the
quality of care provided to Medicare beneficiaries, in the FY 2012
IPPS/LTCH PPS proposed rule we proposed to adopt measures for the FY
2014 and FY 2015 Hospital IQR payment determinations. However, we noted
that the final measure sets to be used for these years' payment
determinations could be changed via future rulemaking. This allows us
the flexibility to accommodate changes in program needs and legislative
changes. We invited public comment on these proposals.
Comment: Some commenters were pleased to see CMS's move to align
measures used for various Medicare programs in order to reduce the
reporting burden. Some commenters supported the alignment of all new
measures with the objectives of the National Priorities Partnership,
the HHS Strategic Plan, and the National Strategy for Quality
Improvement in Healthcare, while other commenters recommended aligning
reporting approaches across payers to reduce the burden of quality
reporting and to also allow for meaningful comparisons across payers.
Response: We appreciate the commenters' support of our ongoing
alignment strategy. We may consider an approach to align measures
across payers in the future.
Comment: Many commenters strongly opposed the adoption of
additional chart-abstracted measures because they believed these
measures would increase hospital burden. One commenter urged CMS to
limit its adoption of new chart-abstracted measures to a maximum of
three per payment determination. Some commenters recommended that CMS
either: stop adopting additional new chart-abstracted measures
altogether; propose to adopt new chart-abstracted measures only if it
simultaneously proposes to retire the same number of measures; or
retire chart-abstracted measures when related outcome measures could
instead be used.
A commenter suggested that CMS should monitor whether the adoption
of new measures for the Hospital IQR Program would create redundancy in
terms of what data is being collected. This commenter cited the
following measures and measure topics included in the table of measures
and topics under consideration for future implementation (76 FR 25899
through 25901) which was included the FY 2012 IPPS/LTCH PPS proposed
rule as examples of potentially duplicative measures: Timing of
Antibiotic Prophylaxis; Selection of Antibiotic Prophylaxis; Pre-
Operative Beta Blockade; and Duration of Prophylaxis.
A few commenters cited several other examples of measures that they
believed are already duplicative. Specifically, these commenters
believed that the 30-day mortality rate and 30-day readmission rate
measures for AMI, HF, and PN were duplicative of the 9 chart-abstracted
process measures currently included in the Hospital IQR measure set for
these 3 conditions, and that for this reason, the chart-abstracted
measures could be retired. Commenters further noted that the periodic
evaluation of measures for redundancy would significantly reduce the
administrative burden for hospitals while maintaining incentive for
hospitals to focus on their quality improvement efforts.
Commenters also suggested that the HAC measure (Vascular Catheter-
Associated Infections) is so similar to the CLABSI measure that it is
redundant for CMS to include both of these measures in the Hospital IQR
Program measure set. These commenters believed that it is unnecessary
and potentially confusing and inefficient to

[[Page 51614]]

collect data on these two measures simultaneously.
Response: We agree that chart-abstracted measures are burdensome
for hospitals to collect. As soon as we can obtain quality data from
EHRs, we intend to limit the adoption of chart-abstracted measures for
future payment determinations. To ease the burden before then, we are
finalizing our proposal to retire four chart-abstracted measures
beginning with January 1, 2012 discharges. Additionally, we are
finalizing a policy in this final rule under which the collection of
data on four chart-abstracted measures will be suspended until such
time that the clinical evidence indicates that hospital adherence to
these practices has unacceptably declined. We also continuously seek to
harmonize and align measure specifications where applicable in an
effort to reduce the incidence of duplicative measures both within and
across programs. We also seek to reduce redundancy in measurement. We
will carefully consider whether the measures cited by commenters
significantly overlap with each other and, for that reason, whether
some of the measures cited should be retired.
Comment: One commenter suggested that for initial transition into
EHR reporting, CMS should limit the number of electronic measures that
could be collected via EHR technology.
Response: We are mindful of the potential challenges that could be
faced by hospitals during a transition to EHR-based reporting. We will
keep these challenges in mind as we develop our proposals for adopting
measures that can be reported through EHRs.
Comment: In response to our projected timeframe for transitioning
to EHR-based data collection, a commenter noted that given the slow
progress of EHR software development, it was premature to anticipate
that Hospital IQR Program measures could be collected via EHRs by 2015.
Response: We believe FY 2015 is a reasonable transition date for
switching from chart-abstracted measures to EHR-based reporting for the
Hospital IQR Program because that is the year when certain hospitals
will become subject to payment adjustments if they do not demonstrate
meaningful use of certified EHR technology. For this reason, we believe
that these hospitals will be EHR-technology-ready by FY 2015.
Comment: A few commenters supported using registries and the EHR
reporting mechanism to ease burden and to obtain robust clinical data.
Some commenters believed that registries assist hospitals in managing
specific patient populations more effectively. A commenter noted that
reporting to a registry is not the long term solution to advance the
reporting of the increasingly complex quality data, but could be an
interim solution. A few commenters opposed using registries and
believed that registry-based measures would create an extra burden for
hospitals. These commenters explained that many registries require data
collection from the medical record only, whereas other registries
require the collection and submission of a significant number of data
elements. Another commenter noted that registry-based reporting would
not be meaningful when EHR-based reporting becomes more common in FY
2015.
Response: We believe that registries, in general, hold promise for
less burdensome quality reporting, and that is why we adopted several
structural measures that monitor participation in systematic clinical
database registries for the Hospital IQR Program. We agree that
registry requirements may vary. We also agree that registries could
serve as an interim solution until we implement wide-spread EHR-based
reporting for the Hospital IQR Program.
Comment: Some commenters encouraged CMS to consistently evaluate
the relevancy and need to modify quality measures in its quality
reporting expansion efforts, for small rural hospitals with limited
resources.
Response: We thank the commenter for this suggestion. In general,
we seek to adopt measures that are broadly applicable to all hospitals,
including small rural hospitals. However, we are mindful of the
challenges faced by small rural hospitals with limited resources.
In summary, we will continue to pursue goals regarding the
expansion and updating of quality measures under the Hospital IQR
Program while minimizing burden. We will take into account the public
comments we received on this issue, including the possible uses of EHRs
and registries in the Hospital IQR Program. We also note that in
accordance with the policy we are finalizing in this final rule to
suspend data collection on four measures (AMI-1, AMI-3, AMI-5, and
SCIP-6), the measure set for FY 2014 and/or FY 2015 that we finalize in
this final rule might change if we resume the collection of data on one
or more of these measures.
b. Hospital IQR Program Measures for the FY 2014 Hospital IQR Payment
Determination
(1) Retention of 56 Hospital IQR Program Measures Finalized in the FY
2011 IPPS/LTCH PPS Final Rule for the FY 2014 Payment Determination
We previously finalized 60 measures for the FY 2014 Hospital IQR
Program measure set. In general, we retain measures used in prior
payment determinations for subsequent payment determinations unless
otherwise stated. However, as we discussed above, in the FY 2012 IPPS/
LTCH PPS proposed rule (76 FR 25892), we proposed to retire 8 measures
from the FY 2014 measure set and to retain the remaining 52 of the 60
quality measures finalized in the FY 2011 IPPS/LTCH PPS final rule for
the FY 2014 payment determination. We invited public comment on our
proposal to retain these 52 measures for the FY 2014 payment
determination. We note that in this final rule we are finalizing a
policy under which we will retain four of the eight measures we
proposed to retire and will retain but suspend data collection for the
other four measures.
Comment: One commenter was concerned about the burden of chart-
abstraction of two Hospital IQR measures: ED-1: Median time from
emergency department arrival to time of departure from the emergency
room for patients admitted to the hospital; and ED-2: Median time from
admit decision to time of departure from the emergency department for
emergency department patients admitted to the inpatient status. To
reduce the chart-abstraction burden for these measures, the commenter
suggested that patients with principal diagnosis codes unrelated to the
cause for the ED visit be excluded from the denominator.
Response: We share the commenter's concern regarding the burden
hospitals face to collect data on Hospital IQR measures. We acknowledge
that patients seek medical attention in the hospital ED for a variety
of reasons, some of which may not appear to be linked with a discharge
diagnosis. We will consider whether it is appropriate to modify the ED
throughput measures to exclude patients with a principal diagnosis code
seemingly unrelated to the cause for the ED visit in the denominator.
In such case, we will seek an NQF ad hoc review to have the new
specifications endorsed. However, we believe that all patients,
regardless of chief complaint or discharge diagnosis, should have
access to timely and efficient care.
Comment: One commenter recommended that for the Surgical Site
Infection (SSI) measure that was

[[Page 51615]]

finalized in the FY 2011 IPPS/LTCH final rule for the FY 2014 payment
determination, CMS should limit the surgical procedures to not more
than two and increase the number of surgical procedures gradually in
the future.
Response: We thank the commenter for the suggestion. In the measure
Specifications Manual, there are currently 395 SCIP procedures summed
up into 6 stratifications: cardiac surgery, other cardiac surgery, hip
arthroplasty, colon surgery, hysterectomy and vascular surgery. We are
working with CDC on the collection of the Surgical Site Infection data.
The data collection is consistent with the specifications, and as
recommended by the CDC, we will be collecting data on 2 surgical
procedure categories. This will not only reduce burden, but will allow
the CDC to collect data in a phased roll out. Consistent with current
NQF harmonization efforts underway for this measure, and based on
recommendations by CDC, we will be collecting Surgical Site Infection
data only for colon and abdominal hysterectomy procedures via NHSN for
the FY 2014 payment determination.
Comment: A commenter stated that current mortality and readmissions
outcome measures in the Hospital IQR Program pose challenges for
hospitals. Other commenters stated that the hierarchical regression
model on which these measures are based includes a risk-adjustment
methodology that hospitals cannot replicate or validate. These
commenters believed that this hampered hospitals from generating
internal reports to assess performance and that hospitals have to wait
for CMS to provide the information annually.
Response: Although it provides some challenges to hospitals, we
believe that there are several reasons supporting our conclusion that
hierarchical modeling, which is NQF-endorsed, is the appropriate
statistical approach for calculating the hospital outcome measures: 30-
day risk-adjusted all-cause readmission and mortality measures. This
conclusion is based on the structure of the data and the underlying
assumption that hospital quality of care influences 30-day mortality/
readmission rates. First, patients are clustered within hospitals and,
therefore, have a shared exposure to the hospital quality and
processes. The use of hierarchical modeling accounts for the clustering
of patients within hospitals. Second, hierarchical models distinguish
within-hospital variation and between-hospital variation to estimate
the hospital's contribution to the risk of mortality or readmission.
This allows for an estimation of the hospital's influence on patient
outcomes. Finally, within hierarchical models we can account for both
differences in case mix and sample size to fairly profile hospital
performance. If we did not use hierarchical modeling we could
overestimate variation and potentially misclassify hospitals'
performance.
This approach to calculating the numerator, therefore, although
more complex than that used for logistic regression, is more
statistically accurate and fairer to hospitals. We agree that hospitals
currently cannot replicate the RSMRs or RSRRs independently. Although
hospitals have access to the inclusion/exclusion criteria and risk-
adjustment coefficients used; the model requires the input of patient
longitudinal data across care settings and data from the entire
national sample to estimate the hospital-specific effects used in the
calculations. We will consider whether it is operationally possible to
provide these data to hospitals and whether sharing these data would be
consistent with patient privacy considerations.
Comment: A few commenters opposed the retention of the HAC measure:
Manifestations of Poor Glycemic Control and the two Global Immunization
measures (Immunization for Influenza and Immunization for Pneumonia)
because they believed that these measures are more appropriate to
collect at the physician level.
Response: We disagree with the commenters' belief that the measures
are better suited for the physician office. The HAC measure,
manifestation of poor glycemic control, has ICD-9 codes that are
specific to a secondary diagnosis in the hospital, not to ambulatory
settings. Certain acute illnesses and procedures, such as influenza or
surgery, can cause blood glucose to become uncontrolled in some
patients. In these instances, a patient may react to high or low blood
sugar with adverse events such as coma, or a secondary illness or
infection. In response to the comments on the two Global Immunization
measures, we believe that the acute care setting offers a unique
opportunity to assess a patient's immunization status and offer a
service they may not otherwise receive.
Comment: A commenter stated that the current AMI and HF measures
adopted for the FY 2014 payment determination are not well-aligned with
current evidence and treatment guidelines for AMI or HF that are
reflected in the current performance measures developed by the American
Heart Association/American College of Cardiology/Physician Consortium
for Performance Improvement. The commenter also stated that the HF-1
discharge instruction measure does not have a valid process outcome
link.
Response: We are interested in the heart failure measure set
referenced by the commenter, and we included these measures in our list
of measures under future consideration for this program. However, the
AMI and HF measures proposed for retention in the Hospital IQR measure
set were developed using the most up to date clinical evidence. The CMS
TEP convened as part of our measure maintenance work for these measures
includes members and guideline authors from both the American Heart
Association and the American College of Cardiology. We look to TEPs to
inform us of vital changes to the guidelines, assuring our measures are
scientifically credible. We believe that the processes assessed by the
HF-1 measure, which assesses whether discharge instructions for heart
failure patients were issued, are vital in assuring that patients are
appropriately informed of activities and behaviors that promote health
and positive outcomes.
Comment: A commenter recommended that CMS separate the IQI-11
Abdominal aortic aneurysm (AAA) mortality rate (with or without volume)
measure into two distinct measures: one measure for those patients
undergoing elective repair and one measure for those undergoing
emergency or urgent repair. The commenter believed that this measure
should be stratified by open surgical and endovascular repair, and that
the risk-adjustment model should be tested prospectively for accuracy.
Response: We thank the commenter for this suggestion. AAA repair is
a technically difficult procedure with a relatively high mortality rate
(we refer readers to http://www.qualityindicators.ahrq.gov/modules/iqi_resources.aspx). We have adopted the measure as it is currently
specified by the Agency for Healthcare Research and Quality, and
endorsed by the NQF which includes both elective and emergent cases and
is not stratified. We believe that the measure is appropriately risk-
adjusted to account for differences in risk factors in the elective and
emergent populations undergoing this procedure.
After consideration of the public comments we received, we are
finalizing the retention of 56 measures that we finalized in the FY
2011 IPPS/LTCH PPS final rule for the FY 2014 payment determination. We
note that this number includes the four measures which, as discussed
above, we are also

[[Page 51616]]

retaining but on which we are suspending data collection.
(2) Additional Hospital IQR Program Measures for the FY 2014 Payment
Determination
(A) CDC/NHSN-Based Healthcare-Associated Infection (HAI) Measures
HAIs are among the leading causes of death in the U.S. CDC
estimates that as many as 2 million infections are acquired each year
in hospitals and result in approximately 90,000 deaths per year.\8\ It
is estimated that more Americans die each year from HAIs than from auto
accidents and homicides combined. HAIs not only put the patient at
risk, but also increase the days of hospitalization required for
patients and add considerable healthcare costs.
---------------------------------------------------------------------------

\8\ McKibben L, Horan T, Guidance on public reporting of
healthcare-associated infections: Recommendations of the Healthcare
Infection Control Practices Advisory Committee. AJIC 2005; 33:217-26
---------------------------------------------------------------------------

HAIs are largely preventable with widely publicized interventions
such as better hygiene and advanced scientifically tested techniques
for surgical patients. Therefore, the public reporting of HAIs has been
of great interest to many healthcare consumers and advocacy
organizations because it promotes awareness and permits health care
consumers to choose the hospitals with lower HAI rates, as well as
gives hospitals an incentive to improve infection control efforts. To
maximize the efficiency and improve the coordination of HAI prevention
efforts across the Department, HHS established in 2008 a senior-level
Steering Committee for the Prevention of Healthcare-Associated
Infections. In 2009, the Steering Committee, along with scientists and
program officials across the government, developed the HHS Action Plan
to Prevent HAIs providing a roadmap for HAI prevention in acute care
hospitals. In the first iteration of the Action Plan, the Steering
Committee chose to focus on infections in acute care hospitals because
the associated morbidity and mortality was most severe in that setting
and the scientific information on prevention and the capacity to
measure improvement was most complete. Thus, prevention of HAIs in
acute care hospitals became the first phase of the Action Plan and it
focuses on six high priority HAI-related areas.
In addition, the Steering Committee included in the Action Plan
five-year goals for nine specific measures of improvement tied to the
six HAI prevention priority areas. Since the release of the first
Action Plan in June 2009, the Steering Committee has been developing a
successor plan in collaboration with public and private partners which
is expected to incorporate advances in science and technology and
expand the scope to the outpatient environment. The successor plan is
also expected to address the health and safety of healthcare personnel,
as well as the risks of influenza transmission from healthcare
personnel to patients. The second Action Plan is due for publication in
2011.
We also note that the House Committee on Appropriations asked in a
2009 Report that CMS include in its ``pay for reporting'' system two
infection control measures developed by the Hospital Quality Alliance
(HQA)--Central line-associated bloodstream infections and a surgical
site infection rate (H. Rep. No. 111-220, at 159 (2009)). In the
report, the Committee stated that ``if the measures are included in
Hospital Compare, the public reporting of the data is likely to reduce
HAI occurrence, an outcome demonstrated in previous research.''
In the FY 2011 IPPS/LTCH PPS final rule, we adopted the two HAI
measures identified by the House Committee on Appropriations in its
2009 report: Central Line [catheter] Associated Blood Stream Infection
(CLABSI) measure, and Surgical Site Infection (SSI) measure. The CLABSI
measure is currently being collected as part of the FY 2013 Hospital
IQR measure set, and data submission on the measure began with January
2011 events.\9\ The Surgical Site Infection (SSI) measure is currently
part of the FY 2014 Hospital IQR measure set, and data submission on
the measure will begin with January 2012 events.
---------------------------------------------------------------------------

\9\ The CDC captures HAI data based on the onset of an event,
rather than based on the discharge date.
---------------------------------------------------------------------------

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25894 through
25896), we proposed to adopt two additional HAI measures for the FY
2014 Hospital IQR measure set. These measures are: (1) Central Line
Insertion Practices, or CLIP (which is NQF 298 and
operationalized by the CDC for collection through the NHSN); and (2)
Catheter Associated Urinary Tract Infection (CAUTI) (NQF
138). Both measures are high priority HAI measures that are included
among the prevention metrics established in the HHS Action Plan To
Prevent HAIs which, as we noted above, underscores the importance of
reducing HAIs. As detailed below, both measures also meet Hospital IQR
Program statutory requirements for measure selection.
Furthermore, both measures are currently collected by the NHSN,
which is a secure, Internet-based surveillance system maintained and
managed by the CDC, and can be used by all types of healthcare
facilities in the U.S., including acute care hospitals, long term acute
care hospitals, psychiatric hospitals, rehabilitation hospitals,
outpatient dialysis centers, ambulatory surgery centers, and long term
care facilities. The NHSN enables healthcare facilities to collect and
use data about HAIs, adherence to clinical practices known to prevent
HAIs, the incidence or prevalence of multidrug-resistant organisms
within their organizations, and other adverse events. Some States use
NHSN as a means for healthcare facilities to submit patient-level data
on the measures mandated through their specific State legislation.
Currently, 28 States require hospitals to report HAIs using NHSN, and
CDC provides support to more than 4,000 hospitals that are using NHSN.
NHSN data collection occurs via a Web-based tool hosted by CDC provided
free of charge to providers. In addition, data submission for HAI
measures through EHRs may be possible in the near future.
Comment: A commenter encouraged CMS to include only those HACs that
could reasonably be prevented. A commenter requested clarification on
how the proposed HAI measures differ from the ``never events''
currently being reported.
Response: In our selection of HACs, we have to meet the
requirements under section 1886(d)(4)(D) of the Act. Section
1886(d)(4)(D) of the Act specifies that by October 1, 2007, the
Secretary was required to select, in consultation with the 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. Under this provision, the
HACs we select must be reasonably preventable. Many of the HACs also
are ``never events'' or serious reportable events defined by the NQF.
The HAI measures, unlike the HACs, are designed to look at more than
ICD codes. The CDC criteria for the HAIs rely on chart-abstracted and
point of care assessments to identify HAIs. Many of these infections
can be identified during the acute stay, before hospital discharge,
thereby providing a more real time view of the patient.
Comment: A commenter suggested that CMS should propose to adopt
only outcome HAI measures rather than

[[Page 51617]]

process HAI measures. Furthermore, the commenter recommended that CDC
should streamline the amount of information required for collection
within HAI modules to ease the data collection burden for providers.
Response: We agree with the commenters regarding the preference for
outcome measures over process of care measures. For example, we discuss
below our decision to not finalize the proposed CLIP measure because we
have been persuaded by commenters that the CLABSI measure already
adopted for the Hospital IQR Program is sufficiently related and
captures the outcome of the process of care. We have shared the comment
regarding streamlining data collection with the CDC.
(i) Central Line Insertion Practice Adherence Percentage (CLIP)
Central line associated blood stream infections (CLABSIs) can be
prevented through proper management of the central line. The CDC's
Healthcare Infection Control Practices Advisory Committee (CDC/HICPAC)
Guidelines for the Prevention of Intravascular Catheter-Related
Infections recommends evidence-based central line insertion practices
known to reduce the risk of subsequent central line-associated
bloodstream infection.\10\ These include hand-washing by inserters, use
of maximal sterile barriers during insertion, proper use of a skin
antiseptic prior to insertion, and allowing that skin antiseptic to dry
before catheter insertion. Despite the scientific evidence supporting
these practices, several reports suggest that adherence to these
practices remains low in United States hospitals. The proposed CLIP
process measure is a companion measure to the previously adopted CLABSI
measure, and it assesses the extent to which a facility employs
practices consistent with CDC/HICPAC recommendations that are known to
reduce CLABSI. There are 2 States that currently require facilities to
report to NHSN at least one month of CLIP data.
---------------------------------------------------------------------------

\10\ O'Grady NP, Alexander M, Dellinger EP, Gerberding JL, Heard
SO, Maki DG, et al., Guidelines for the Prevention of Intravascular
Catheter-Related Infections. MMWR 2002; 51 (No. RR-10:1-26).
---------------------------------------------------------------------------

The CLIP measure is used in State reporting initiatives and is an
NQF-endorsed measure (NQF 298) that is operationalized for
collection by the CDC via the NHSN. Therefore, the measure meets the
selection criteria under section 1886(b)(3)(B)(viii)(IX)(aa) of the
Act. This CLIP prevention metric is also listed in the HHS Action Plan
To Prevent HAIs and, as we detailed above, has been widely identified
as a high priority for public reporting.
Comment: A few commenters strongly believed that the CLABSI measure
in the Hospital IQR Program is a valid, well-constructed, and risk-
adjusted outcome measure. These commenters pointed out that the
decreasing incidence of central line-associated infections was
attributed to the implementation of this measure in early 2011 in
conjunction with other ongoing patient safety infection initiatives.
Some commenters noted the current CLABSI rates have been excellent.
Commenters opposed the adoption of the CLIP measure because they
believed that it is labor-intensive to collect, hard to validate, and
does not address the need for quick removal of the central line which
is the key to reducing CLABSI. Based on these reasons, the commenters
opposed the adoption of the proposed CLIP measure, which is a process
measure, because the outcome itself (CLABSI) is being already reported
by hospitals. Furthermore, one commenter suggested that if CMS adopts
the measure, it should clarify that the measure is only applicable to
high risk units such as ICUs where central lines are generally placed
and should only apply to hospitals with bad CLABSI outcomes. A
commenter suggested that the measure be risk-adjusted based on the
morbidity of the patient at the time of admission. A few commenters
recommended delaying the adoption of the proposed CLIP measure until FY
2015 to allow time to refine its specifications. Some commenters
requested the removal of the CLABSI HAC claims measure if the CLIP
measure is implemented. A commenter believed that the proposed time
frame to begin data collection does not allow proper time for hospitals
to assure the collection of these elements for all the central line
insertions.
Response: We agree with the commenters that the existing CLABSI
outcome measure is preferable because it captures the outcome that the
process of care measure (CLIP) is designed to prevent. Therefore, by
measuring the outcome, we are inherently assessing the effectiveness of
central line insertion and maintenance processes being employed by the
facility. Consistent with our goal to shift toward outcome measures, we
are not finalizing our proposal to adopt the CLIP measure for the
Hospital IQR measure set.
Comment: A few commenters asked CMS for clarification whether the
CLIP measure developed by the Institute for Healthcare Improvement
(IHI) or the CDC/NHSN CLIP measure is being proposed for adoption into
the Hospital IQR measure set.
Response: We proposed to adopt the CDC CLIP measure, and we believe
that it is an operationalization of the NQF-endorsed CLIP measure (NQF
0298) for which IHI (not CDC) is the steward. Although the
NQF-endorsed CLIP measure was developed by the IHI, it is based upon
the CDC prevention guidelines for preventing Central Line Associated
Blood Stream Infections. However, the CDC specifications for the
measure do not require that the hospital report its daily monitoring of
central lines. For the reasons stated previously, we will not be
adopting the proposed CLIP measure for the Hospital IQR Program at this
time.
(ii) Catheter Associated Urinary Tract Infection (CAUTI)
The urinary tract is the most common site of HAI, accounting for
more than 30 percent of infections reported by acute care
hospitals.\11\ Healthcare-associated urinary tract infections (UTIs)
are commonly attributed to catheterization of the urinary tract. CAUTI
can lead to such complications as cystitis, pyelonephritis, gram-
negative bacteremia, prostatitis, epididymitis, and orchitis in males
and, less commonly, endocarditis, vertebral osteomyelitis, septic
arthritis, endophthalmitis, and meningitis in all patients.
Complications associated with CAUTI cause discomfort to the patient,
prolonged hospital stay, and increased cost and mortality. Each year,
more than 13,000 deaths are associated with UTIs.\12\ Prevention of
CAUTIs is discussed in the CDC/HICPAC document, Guideline for
Prevention of Catheter-associated Urinary Tract Infections. The NQF-
endorsed CAUTI measure we proposed is currently collected by the NHSN
as part of State-mandated reporting and surveillance requirements for
hospitals. There are 3 States that require facilities to report to NHSN
at least one month of CAUTI data.
---------------------------------------------------------------------------

\11\ Klevens RM, Edward JR, et al., Estimating Health Care-
Associated Infections and Deaths in U.S. Hospitals, 2002. Public
Health Reports 2007; 122:160-166.
\12\ Wong ES., Guideline for Prevention of Catheter-Associated
Urinary Tract Infections. Infect Control 1981; 2:126-30.
---------------------------------------------------------------------------

Section 1886(b)(3)(B)(viii)(IX)(aa) of the Act requires that
effective for payments beginning with FY 2013, each measure specified
by the Secretary for inclusion in the Hospital IQR Program be endorsed
by the entity with a contract under section 1890(a) of the Act, unless
the exception set forth in section 1886(b)(3)(B)(viii)(IX)(bb) of the

[[Page 51618]]

Act applies. The NQF currently holds the contract under section 1890(a)
of the Act, and the NQF has endorsed this CAUTI measure (NQF
138). For this reason, we believe that this measure satisfies the
endorsement requirement applicable to the Hospital IQR Program. This
proposed measure is currently risk stratified, and therefore is
consistent with section 1886(b)(3)(B)(viii)(VIII) of the Act. Risk
stratification means that it is calculated using different categories
of patients with varying risk of developing an infection. At the time
of the FY 2012 IPPS/LTCH PPS proposed rule, this CAUTI measure (NQF
138) was undergoing measure maintenance review by the NQF and
we note that the review may result in changes to the specifications. We
invited public comment on our proposal to adopt these two HAI measures
into the Hospital IQR Program for the FY 2014 payment determination. We
proposed that hospitals would begin submitting data on these measures
beginning with events that occur on or after January 1, 2012. We also
proposed that hospitals use the NHSN infrastructure and protocols, as
well as the specifications (available at http://www.cdc.gov/nhsn/PDFs/HSPmanual/HPS_Manual.pdf) to report the measures for Hospital IQR
Program purposes. The proposed reporting mechanism for these HAI
measures is discussed in greater detail in section IV.A.5.i. of the FY
2012 IPPS/LTCH PPS proposed rule (76 FR 25919 through 25920).
Comment: Many commenters supported the CAUTI measure and suggested
that CMS monitor a CAUTI project initiative that is underway to test
the effects of collecting data for both device days and patient days,
each of which might have different implications for the urinary tract
infection rate. Several commenters cautioned against using device days
as the measure denominator because that might have the unintended
consequence of artificially inflating the UTI rate.
Response: We thank the commenters for the suggestions. We will
monitor this project as suggested by the commenter. Currently, we seek
to adopt the measures targeted in the 2009 HHS Action Plan To Prevent
HAIs. These measures include the proposed NQF-endorsed CAUTI measure
and that measure is based on device days. We do not believe that
reporting a measure by device days would have a negative effect on
patient care or result in patient harm.
Comment: A commenter remarked that the measure might encourage
hospitals to reduce the CAUTI incidence rate, but would not completely
bring the rate down to zero. The commenter also noted that it would be
difficult to diagnose every UTI at the time of admission without
increasing the volume of potentially unnecessary screenings. The
commenter believed that the pressure to remove catheters quickly in the
ICU and post-surgery can have unintended consequences and
complications. Several commenters stated that the CAUTI measure should
have exclusions for patients considered to be high-risk to avoid
unintended consequences (for example, removal of catheter too quickly).
Commenters believed that this measure should also include a data
capture point for catheter reinsertion to collect the rate of repeat
instrumentation and infection risk for those with early catheter
removal.
Response: We thank the commenters for these suggestions. As stated
above, UTI is the leading cause of HAIs in the acute care setting, and
significantly reducing UTIs is a component of the HHS Action Plan To
Prevent HAIs, and we have proposed to use the metric that is listed in
the Action Plan. We do not believe that the screening of catheterized
patients according to the NQF-endorsed specifications for this measure
will cause undue treatment or patient harm. To date, there are no
published studies that we are aware of that recommend a urinary
catheter be maintained in ICU and post-surgical patients. We also thank
the commenters' suggestions for a catheter reinsertion measure.
However, we are not aware of such NQF-endorsed measure. We are adopting
the measure as currently specified in order to support the reduction
efforts of the HHS Action Plan. However, we have forwarded these
suggestions to the CDC.
Comment: A few commenters recommended that CMS delay the adoption
of this proposed measure to FY 2015 or until: (1) The CDC has addressed
the validation and implementation issues; (2) all hospitals have
attested to the installation of fully functional EHR systems; (3)
hospitals and States have had enough time to develop the proper
infrastructure to report these data (only 3 States currently require
hospitals to report these data); and (4) the measure is risk-adjusted
based on the morbidity of the patient at the time of admission.
Response: We disagree with these recommendations. The measure is
NQF-endorsed with appropriate risk-stratification as previously
described. We have been working in collaboration with the CDC, and are
assured that the measure is ready for implementation in the Hospital
IQR Program beginning with January 1, 2012 discharges. The data are
collected via the NHSN, and hospitals do not need a fully functional
EHR system in order to submit data to the NHSN.
Comment: A commenter suggested that CMS retire the current claims-
based Catheter-Associated Urinary Tract Infection HAC measure once the
proposed CAUTI measure is adopted for the Hospital IQR Program.
Response: We agree that the claims-based CAUTI measure and the NHSN
CAUTI measure may overlap. However, because the topic of HAIs is of
great importance, and a large quantity of data for the NHSN version of
the measure will not be available to CMS for some time, we will
continue to utilize the claims-based measure until such time as the
NHSN version is available to CMS. We will seek an appropriate time to
retire the claims-based version of the measure, taking into account the
needs of and impact on other programs, such as the Hospital VBP
Program.
After consideration of the public comments we received, we are
finalizing the CAUTI measure that we proposed to adopt for the FY 2014
payment determination.
(B) New Claims-Based Measure
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25896 through
25897), we proposed to add the following new claim-based measure to the
Hospital IQR Program measure set for the FY 2014 payment determination:
Medicare Spending per Beneficiary. The details of this measure are
discussed below.
(i) Medicare Spending per Beneficiary Measure
Healthcare costs consume an ever-increasing amount of our Nation's
resources, straining family, business, and government budgets.
Healthcare costs take up a growing share of Federal and State budgets
and imperil the governments' long-term fiscal outlooks. In the U.S.,
the sources of inefficiency that are leading to rising healthcare costs
include payment systems that reward medical inputs rather than
outcomes. Medicare is transforming from a system that rewards volume of
service to one that rewards efficient, effective care and reduces
delivery system fragmentation.
In order to further this transformation and help address the
critical issue of health care costs, in the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25896 through 25897) we proposed to add a measure
of Medicare spending per beneficiary to the Hospital IQR Program
measure set for the FY 2014 payment determination. This proposed
Medicare

[[Page 51619]]

spending per beneficiary measure addressing the cost of care is a type
of measure that is not currently included in the Hospital IQR Program.
We are not aware that the NQF or any other consensus organizations
under section 1886(b)(3)(B)(viii)(IX) of the Act have currently
endorsed any Medicare spending per beneficiary measures. We will give
due consideration under section 1886(b)(3)(B)(viii)(IX)(bb) of the Act
to any Medicare spending per beneficiary measures that become endorsed
in the future. It is important that the cost of care be explicitly
measured so that, in conjunction with other quality measures included
in the Hospital IQR Program, we can recognize hospitals that are
involved in the provision of high quality care at lower cost.
We proposed that this Medicare spending per beneficiary measure
would be calculated using claims data for hospital discharges occurring
between May 15, 2012 and February 14, 2013. Therefore, the addition of
this proposed measure would not increase the data submission burden on
hospitals. We outline below the methodology that we proposed to use to
calculate the measure.

The Medicare Spending per Beneficiary Episode

As we stated in the proposed rule, in order to calculate the
Medicare spending per beneficiary for each hospital, we believe that it
is necessary to determine: (1) The timeframe, or length of the
``spending per beneficiary episode'' during which Medicare payments
would be aggregated; (2) the types of Medicare payments to be
aggregated over this timeframe; and (3) how to adjust or standardize
these payments across hospitals (for example, risk adjustment).

Length of the Medicare Spending per Beneficiary Episode

Encouraging delivery of coordinated care in an efficient manner is
an important goal which can best be achieved through inclusion of
Medicare payments made outside the timeframe of the hospital inpatient
stay. We proposed to use an episode that runs from three days prior to
an inpatient PPS hospital admission (the index admission) through 90
days post hospital discharge.
We also sought public comment on an alternative 30-day time period
for the initial implementation of this measure that would be more
consistent with the 30-day time period currently in use for some
outcome measures.
We received numerous public comments on the proposed length of the
Medicare spending per beneficiary episode.
Comment: The majority of commenters stated an episode spanning 90
days post-discharge was too long to represent factors which are within
hospitals' control, and that a shorter period would focus on factors
which are more directly influenced by the hospital. Commenters noted
physician care and patient compliance with post-discharge instructions
as examples of factors which are outside the hospital's control.
Several commenters suggested a 30-day post-discharge period would be
more appropriate. Several commenters noted that a 30-day post-discharge
period would be consistent with the measures used in the Hospital
Readmissions Reduction Program. One commenter noted that it would be
consistent with the bundling pilot included in the Affordable Care Act.
Many commenters suggested a 15-day post-discharge period, and a few
suggested a 7- or 15-day post-discharge period. Three commenters
suggested no more than 14 days, with one suggesting that this shorter
period would simplify separation of episodes for complex patients.
Response: We are accepting the suggestions that we align the length
of the spending per beneficiary episode with other agency initiatives,
including the post-discharge period that applies to the readmission
measures under the Hospital IQR Program and the one we are adopting in
this final rule for the readmission measures we are finalizing for the
Hospital Readmissions Reduction Program, for the initial implementation
of this measure. We also believe that a shorter length will allow
hospitals to gain experience with this measure while we consider
whether it would be appropriate to propose to hold them accountable for
coordinating services over a longer post-discharge period. Therefore,
we are adopting a shorter length of the Medicare spending per
beneficiary episode than we proposed for the Medicare spending per
beneficiary measure to be included in the FY 2014 Hospital IQR Program.
We also believe that a shorter Medicare spending per beneficiary
episode will enable us to include a larger number of episodes in the
measure calculation because admissions occurring more than 30 days
after a discharge will now represent new index admissions, rather than
having the Medicare payments associated with them attributed back to
the first index admission. This will potentially allow more opportunity
for hospitals to improve their performance on the measure.
We are finalizing a Medicare spending per beneficiary episode which
spans from 3 days prior to hospital admission through 30 days post
hospital discharge, for the initial implementation of this measure. Our
intent is to revisit the episode length in future rulemaking as we gain
more experience with this measure and as hospitals gain more experience
in redesigning care processes and coordinating patient care in the
post-hospital discharge period, and we will strongly consider
lengthening the Medicare spending per beneficiary episode.
Comment: A few commenters suggested that a 90-day post-discharge
period was not long enough. One commenter suggested that an episode of
1 year or more post-discharge would be required in order to realize
savings achieved by selection of treatment alternatives which are more
costly initially. Another commenter suggested that a minimum of 6
months would be necessary to recognize system-wide cost savings across
all Part A and Part B payments and stated that a 90-day post-discharge
period, if adopted, should only count inpatient hospital costs, in
recognition that other provider types do not have similar incentives
and that readmissions could likely be reduced over 90 days.
Response: We acknowledge that including a longer post-discharge
period in the Medicare spending per beneficiary episode could recognize
system-wide cost savings. However, we are going to implement a 30-day
post-discharge period for the measure for the FY 2014 Hospital IQR
Program for the reasons discussed above. We intend to revisit the
episode length in the future in order to determine whether a longer
Medicare spending per beneficiary post-discharge window would be
appropriate for incentivizing greater efficiency, care coordination,
and care transitions.
Comment: One commenter expressed strong support for the 90-day
post-discharge period, noting that it encourages the teamwork and care
coordination that is necessary to achieve the delivery of high quality,
efficient healthcare.
Response: We agree that a 90-day episode would encourage teamwork
and cooperation for the provision of quality care to Medicare
beneficiaries. However, we are finalizing a 30-day post discharge
window in order for hospitals to gain experience with the measure, and
work toward redesign of care processes, while we consider whether it
would be appropriate to propose to hold them accountable for
coordinating services over a longer post-discharge period.

[[Page 51620]]

Comment: Several commenters requested clarification as to whether
the spending per beneficiary measure was intended to measure general
per-beneficiary spending or to measure the per-beneficiary spending of
specific hospitals. These commenters suggested that a 90-day post
discharge period was appropriate for inclusion in an episode to measure
general per-beneficiary spending, but that if that spending was to be
attributed to a specific hospital, then a shorter period, such as 7 or
15 days would be more appropriate.
Response: The intent of the Medicare spending per beneficiary
measure is to measure hospital-specific Medicare spending per
beneficiary, as compared to the median Medicare spending amount across
all hospitals nationally. We believe that a comparison of individual
hospitals' spending to hospital spending on a national level will best
allow hospitals to recognize where opportunities for improved
efficiencies exist. We do not believe that display of general per
beneficiary spending would achieve this intent, because it would not
indicate to hospitals how their individual Medicare spending per
beneficiary amount compares to other hospitals.
After consideration of all public comments we received on the
length of the Medicare spending per beneficiary episode, we are
finalizing a Medicare spending per beneficiary episode, spanning from 3
days prior to hospitalization through 30-days post discharge. We are
finalizing the policy that only discharges occurring within 30 days
before the end of the performance period will be counted as index
admissions for purposes of calculating episodes. We intend to revisit
the length of the Medicare spending per beneficiary episode as we gain
more experience with the use of this measure and as hospitals
increasingly focus on working to redesign care processes and to
coordinate with other providers of care, in the interest of providing
the highest-quality, most efficient coordinated care possible to the
beneficiaries they serve.

Medicare Payments Included in the Spending per Beneficiary
Episode

In order to calculate the Medicare spending per beneficiary, it is
necessary to define the Medicare payments included in the spending per
beneficiary episode. Subject to the adjustments described below, we
proposed to include all Medicare Part A and Part B payments made for
services provided to the beneficiary during the episode, including
payments made by beneficiaries that we can determine using our claims
data, such as Part B deductibles and coinsurance amounts. We believe
that this comprehensive inclusion of Medicare Part A and Part B
spending emphasizes the importance of care coordination in improving
patient care. Encouraging delivery of coordinated care in an efficient
manner over an extended time period is an important goal which can best
be achieved through the inclusion of comprehensive Medicare Part A and
Part B spending.
We also proposed that transfers, readmissions, and additional
admissions that began during the post discharge period of an index
admission would be included in the episode used for calculating the
measure.
We proposed to exclude from the Medicare spending per beneficiary
calculation episodes where at any time during the episode the
beneficiary is not enrolled in both Medicare Part A and Medicare Part
B, including if the beneficiary is enrolled in a Medicare Advantage
plan at any time during the episode or becomes deceased. We also
proposed to exclude any episodes where the beneficiary is covered by
the Railroad Retirement Board, and where Medicare is a secondary payer.
We also proposed to exclude episodes where the beneficiary is not
enrolled in both Medicare Part A and Medicare Part B, for the 90 days
prior to the episode, because we would not be able to capture all the
data necessary for the severity of illness adjustment discussed later
in this preamble. The rationale for exclusion of these episodes from
the calculation of the Medicare spending per beneficiary is that we do
not have full payment data to identify and standardize spending which
would otherwise be attributable to these episodes.
We received numerous public comments on the payments proposed for
inclusion in the Medicare spending per beneficiary measure.
Comment: Almost half of the commenters requested clarification of
the proposed handling of transfer cases, and many requested
clarification of the proposed handling of readmissions. One commenter
requested clarification of the proposed handling of cases in which the
beneficiary's primary insurance becomes Medicaid during the episode,
due to exhaustion of Medicare Part A benefits.
Response: We proposed to include in the spending per beneficiary
episode all Medicare Part A and Part B payments made for services
provided to the beneficiary during the episode that we can determine
using our claims data. Readmissions and transfers would have been
attributed to the hospital at which the index hospitalization occurred
as long as they occurred during the post-discharge window of the index
admission. For example, Medicare payments for any of the following
which happened during the hospital stay or the post-discharge window
would have been included in the Medicare spending per beneficiary
episode: A beneficiary was transferred from the subsection (d) hospital
to another subsection (d) hospital for the purposes of receiving
inpatient services; a beneficiary was transferred from the subsection
(d) hospital to a post-acute care setting, such as a SNF, LTCH, or
home; a beneficiary was readmitted to the same subsection (d) hospital;
and/or the beneficiary was admitted to a different subsection (d)
hospital. As noted above, we are finalizing a Medicare spending per
beneficiary episode, spanning from 3 days prior to hospitalization
through 30-days post discharge, in response to public comment.
Based on public comment, however, we have reconsidered the proposed
handling of transfers from one subsection (d) hospital to another, as
discussed below. We also note that, in response to public comment, we
have reconsidered whether statistical outliers should be included in
the Medicare spending per beneficiary amount, and we will exclude them,
as discussed below. To clarify our proposal regarding beneficiaries
whose primary insurance becomes Medicaid during the episode, due to
exhaustion of Medicare Part A benefits, we will not include Medicaid
payments made for services rendered to those beneficiaries during the
episode, because this is a measure of Medicare spending per
beneficiary, not Medicaid spending. We will include all Medicare Part A
payments made before benefits are exhausted and all Medicare Part B
payments made during the episode, consistent with our policy for
inclusion of all Medicare Part A and Part B payments, with the
exception of statistical outliers, as discussed below, in the
calculation of hospitals' Medicare spending per beneficiary amounts in
all cases. We intend to analyze the impact of including episodes in
which beneficiaries' primary insurance changes to Medicaid in this
measure and will consider refinements to this policy in the future. We
will also include Medicare payments made for services rendered to
beneficiaries who are eligible for both Medicare and Medicaid in the
Medicare spending per beneficiary amount.
Comment: Several commenters stated that inclusion of Medicare
payments for all Part A and Part B services occurring

[[Page 51621]]

during the post-discharge period would penalize hospitals for ensuring
that patients receive necessary post-discharge follow-up care.
Response: We do not believe that inclusion of all Part A and Part B
Medicare spending during the Medicare spending per beneficiary episode
will penalize hospitals for ensuring that beneficiaries receive needed
post-discharge care. The measure's purpose is to assess the amount of
payments Medicare makes surrounding an inpatient hospital stay at a
subsection (d) hospital, as compared to a national benchmark. We
believe that hospitals which provide quality inpatient care and
appropriate discharge planning and work with providers and suppliers on
appropriate follow-up care will realize efficiencies and perform well
on the measure, because the Medicare beneficiaries they serve will have
a reduced need for excessive post-discharge services. We believe that
including a 30-day post-discharge period, as compared to a shorter
post-discharge period, such as 7 or 14 days, will further reduce the
risk that hospitals might delay needed post-discharge care.
Comment: Six commenters expressed the opinion that readmissions
should be excluded from the measure, and four of those commenters
believed that the Affordable Care Act prohibits inclusion of
readmissions in this measure. Two of those commenters noted that
readmissions are addressed in other measures. One commenter suggested
that readmissions should not be attributed to the hospital at which the
index admission occurred, and another commenter suggested that
readmissions should not be treated as index admissions, for the
purposes of creating new, distinct episodes. Six commenters suggested
that unrelated readmissions should be excluded, and one commenter
suggested that unrelated readmissions should not be attributed to the
hospital where the index hospitalization occurred.
Response: We disagree with the interpretation that the inclusion of
Medicare spending for readmissions is contrary to the intent of the
Affordable Care Act that the Hospital VBP Program may not include
measures of readmissions. The Medicare spending per beneficiary measure
is not a measure of readmission rates, but rather it is a measure of
total Medicare spending per beneficiary, relative to a hospital stay. A
Medicare spending per beneficiary measure is required by the Affordable
Care Act to be included in the Hospital VBP Program, and therefore, in
the Hospital IQR Program. We believe that the Medicare payments made
for readmissions must be attributable to the index hospital stay, in
order: to fully capture Medicare spending relative to a hospital stay;
to encourage the provision of comprehensive inpatient care, discharge
planning, and follow-up; and to strengthen incentives to reduce
readmissions.
With regard to exclusion of unrelated readmissions, we acknowledge
the commenters who suggested that unforeseen events which are unrelated
to the hospital stay could occur. However, we note that the measure is
consistent with all cause readmission measures and that determinations
of the degree of relatedness of each subsequent hospital stay to an
initial hospitalization could be subjective and prohibitively complex.
We believe that inclusion of all readmissions in the episode
attributable to the index hospital stay is the best way to encourage
quality inpatient care, care coordination, and care transitions. We
note that all hospitals will be subject to the same method of
calculation of their Medicare spending per beneficiary amounts, as
compared to the median Medicare spending per beneficiary amount across
all hospitals, so we do not believe that inclusion of all readmissions
will notably disadvantage any individual hospital. We also note that,
in response to public comment, we will exclude statistical outliers
from the calculation of the Medicare spending per beneficiary amount,
as discussed below.
We agree with the commenter who suggested that a readmission
occurring during a Medicare spending per beneficiary episode should not
represent a new index hospitalization, for the purpose of generating a
new Medicare spending per beneficiary episode. We also acknowledge the
importance of aligning payment initiatives across CMS. Based on our
consideration of the comments we received, we are shortening the
proposed post-discharge period included in the Medicare spending per
beneficiary episode to 30 days in this final rule, which is consistent
with the Hospital Readmissions Reduction Program.
Comment: One commenter stated that no services for conditions
unrelated to the index hospitalization should be attributed to the
hospital at which that hospitalization occurred.
Response: We acknowledge the fact that health events which are
unrelated to the hospital stay could occur and require treatment post-
discharge, during the Medicare spending per beneficiary episode.
However, we believe that determinations of the degree of relatedness of
each subsequent hospital stay to an initial hospitalization would be
subjective and prohibitively complex. In order to capture the potential
efficiencies which hospitals might achieve through provision of
comprehensive, high-quality inpatient care, discharge planning, and
care transitions, we believe that it is necessary to capture all Part A
and Part B Medicare payments which occur during the Medicare spending
per beneficiary episode surrounding the hospital stay. We also note
that all hospitals will be subject to the same method of calculation of
their Medicare spending per beneficiary amounts, as compared to the
median Medicare spending per beneficiary amount across all hospitals,
so we do not believe that inclusion of all post-discharge follow-up
care will notably disadvantage any individual hospital. Again, we note
that, in response to public comment, we will exclude statistical
outliers from the calculation of the Medicare spending per beneficiary
amount, as discussed below.
Comment: Four commenters stated that transfer cases should be
excluded, in order to avoid penalizing hospitals often called upon to
receive transfers, because follow-up care may be received in a region
outside the influence of the hospital receiving the transfer, and for
consistency with the Hospital Readmissions Reduction Program.
Response: The comments regarding attribution of Medicare payments
for hospitalizations resulting in acute to acute transfers, and
specifically, the potential impact on hospitals who transfer patients
to another subsection (d) hospital or those who receive large numbers
of transfers, have persuaded us that that the attribution of Medicare
payments for hospitalizations resulting in acute to acute transfers
requires further consideration. At this time, we will exclude cases
involving acute to acute transfers from being considered index
admissions. A case involving an acute to acute transfer will therefore
not generate a new Medicare spending per beneficiary episode. This
means that neither the hospital which transfers a patient to another
subsection (d) hospital, nor the receiving subsection (d) hospital will
have an index admission attributed to them for an acute-to-acute
transfer case. The rationale for exclusion of these acute to acute
transfer cases as index admissions is that CMS wishes to perform
further analysis of hospital impacts and explore potential unintended
consequences of attribution of the Medicare spending per beneficiary
episode relative to the cases

[[Page 51622]]

to either the transferring or the receiving hospital. Therefore, at
this time we will exclude acute-to-acute transfer cases from being
counted as index admissions, and these cases will not create a new
Medicare spending per beneficiary episode. However, if a patient is
readmitted during the post-discharge window and then transferred to
another acute care hospital, we will attribute these costs to the
hospital where the original index admission occurred.
For example, if a beneficiary is hospitalized in a subsection (d)
hospital (Hospital A), then discharged from that hospital to home or to
another subacute level of care, such as a SNF, then that
hospitalization would represent an index admission, and the Medicare
Part A and Part B payments (with the exception of statistical outliers)
which are made during the Medicare spending per beneficiary episode
spanning from 3 days prior to admission through 30 days post discharge
(including payments to a subacute facility) would be included in the
Medicare spending per beneficiary amount attributed to Hospital A. We
would also include, in the total Part A and Part B payments attributed
to hospital A, any Medicare payments made for the beneficiary's
readmission to the same or a different subsection (d) hospital during
the 30 day post-discharge window, including any case where during that
subsequent hospitalization, the beneficiary is transferred to another
subsection (d) hospital.
Comment: Several commenters offered their views regarding the
importance of looking at Medicare spending concurrently with other
measures of quality, and potential unintended consequences of a measure
which is specific to Medicare spending. These commenters stated that
the scope of the measure should not be Medicare spending alone, but
that spending data should be tied to other measures. One commenter
suggested that the measure should assess conformity toward an endorsed
care process. Several commenters stated that an efficiency measure
should measure cost concurrently with quality or outcomes measures, and
three commenters stated that Medicare spending data could be
misinterpreted in the absence of quality data.
One commenter stated that the measure should be implemented for FY
2014, but should be adjusted to tie in a new HCAHPS measure of care
transitions. Three commenters stated that a spending-only measure could
result in the unintended consequence of efforts to cut cost by limiting
needed care, and another commenter suggested that it could result in a
risk of hospital avoidance of complex patients. One commenter stated
that the measure would penalize hospitals that work to keep all but the
sickest patients out of the hospital. One commenter stated that the
measure would result in physicians placing more patients into inpatient
care, post hospital discharge, in order to assure proper care
transitions, and one commenter questioned the measure's inclusion in a
quality reporting program when it does not inherently measure quality.
Response: We agree with the commenters that it is useful to view a
measure of Medicare spending per beneficiary in conjunction with other
quality measures. We will provide explanatory language on Hospital
Compare, in order to assist beneficiaries in interpreting the Medicare
spending per beneficiary measure data. We also note that we developed
this measure with the intent of including it in the Hospital VBP
Program, where it will represent the first measure in a new Efficiency
domain. Under that program, we will weight and combine the Efficiency
domain with the other, individual domain scores, in order to calculate
each hospital's Total Performance Score (TPS). This procedure for
calculating a TPS ensures that spending per beneficiary makes up only a
portion of the TPS, and that the remainder is based on hospitals'
performance on the other measures.
We disagree that Medicare spending per beneficiary should be tied
to a new HCAHPS measure. The Affordable Care Act requires the inclusion
of efficiency measures, and specifically the inclusion of a measure of
Medicare spending per beneficiary, in the Hospital VBP Program, which
in turn, means that the measure must also be adopted for the Hospital
IQR Program. We believe the intent of this statutory mandate is for
Medicare spending to be independently measured.
The data for the Medicare spending per beneficiary measure will be
posted on Hospital Compare, along with the other hospital quality
measure data available on that Web site. We will also provide
explanatory language, in order to assist beneficiaries in interpreting
the Medicare spending per beneficiary measure data. We appreciate the
commenters' concerns regarding unintended consequences of a spending
per beneficiary measure, and will monitor for any utilization changes
which may result from this measure.
We disagree that the measure will penalize hospitals that work to
keep all but the sickest beneficiaries out of the hospital. We proposed
to utilize the primary diagnoses and comorbidities from claims
submitted during the 90-days preceding the Medicare spending per
beneficiary episode to risk-adjust Medicare payments made for services
provided to beneficiaries during an inpatient hospital stay and during
the Medicare spending per beneficiary episode surrounding the stay. We
believe that this will adequately account for hospital treatment of
complex patients. We also disagree with the comment that the measure
provides an incentive for increased discharges from hospitals to other
inpatient settings. We believe that hospitals will have an incentive to
coordinate care and discharge beneficiaries to the most appropriate
setting, including utilizing less-costly outpatient levels of care for
post-discharge care. With regard to inclusion of the Medicare spending
per beneficiary in a quality reporting program, we disagree with the
comment that it does not belong in the program. We believe that
hospitals' provision of quality, coordinated care will result in more
efficient and effective delivery of care for Medicare beneficiaries and
provides an incentive to eliminate unnecessary services. Therefore, we
believe that a measure of Medicare spending per beneficiary is a
measure of quality.
Comment: Two commenters objected to the use of an episode in the
Medicare spending per beneficiary measure because they believed that it
did not meet the intent of the Affordable Care Act to measure spending
per beneficiary.
Response: The Affordable Care Act requires that the Hospital VBP
Program include measures of efficiency, including Medicare spending per
beneficiary. As we expand the Hospital VBP Program Efficiency domain,
we will consider adding additional measures of efficiency, which could
include measures of internal hospital efficiencies, through future
rulemaking.
Comment: One commenter suggested that spending for Medicare
Advantage beneficiaries should be included in the measure, because non-
managed care beneficiaries are costlier.
Response: We do not have evidence that managed care beneficiaries
are less expensive. In order to minimize burden on hospitals, CMS has
proposed the Medicare spending per beneficiary measure as a claims-
based measure. Therefore, we cannot include spending for managed care
beneficiaries in the measure calculation since we do not have fee-for-
service claims for these patients. In order to fairly compare
hospitals' spending, we have proposed

[[Page 51623]]

to exclude from the measure any episodes in which we do not have
complete Medicare FFS claims data, such as those enrolled in Medicare
Advantage plans. We will account for the complexities and resulting
costs associated with caring for Medicare beneficiaries who have
complex conditions by risk-adjusting for beneficiary age and severity
of illness.
Comment: One commenter suggested that Medicare payments for drugs
should be included, because expenditure on a new technology, for
example, could offset future costs for drugs.
Response: We appreciate this comment and will take it into
consideration in future rulemaking for the Medicare spending per
beneficiary measure. At this time, we are able to include Part A and
Part B payments, so payments for Part B drugs will be included in the
Medicare spending per beneficiary amount. We will consider whether to
propose to include Medicare payments made under the Medicare Part D
drug payment system in the future.
Comment: Two commenters stated that a hospital cost efficiency
measure should be limited to hospital resource use, such as resources
used to treat HAIs and falls, or provision of appropriate lengths of
stay.
Response: We disagree with these comments. The Affordable Care Act
requires that the Hospital VBP Program include measures of efficiency,
including Medicare spending per beneficiary. We do not believe that a
measure of hospital resource use, rather than Medicare payments, as
suggested by the commenters, would meet the intent of the law that we
include a measure of Medicare spending per beneficiary. As we expand
the Hospital VBP Program Efficiency domain, we will consider adding
additional measures of efficiency, which could include measures of
internal hospital efficiencies, through future rulemaking.
Comment: One commenter stated that CMS policies should not punish
the most efficient states and that CMS should seek savings from
providers and regions that use the highest levels of respurces to care
for patients.
Response: We agree that efficient providers should not be
penalized, and we believe they will be incentivized under this measure.
We are finalizing our proposal to calculate hospitals' Medicare
spending per beneficiary ratios as compared to the median spending
across all hospitals; therefore, we believe that hospitals who
demonstrate efficiencies in the provision of care for their patients
will perform well on the measure, regardless of where the hospital is
located.
Comment: Two commenters stated that there was no scientific or
evidentiary support for the measure.
Response: We recognize that this Medicare spending per beneficiary
measure is a new type of measure for the Hospital IQR and Hospital VBP
Programs. A measure of Medicare spending per beneficiary is is mandated
by the Affordable Care Act, so we developed a measure to capture
Medicare payments made in an episode surrounding a hospital stay, in
order to compare hospitals' individual spending to spending across all
hospitals. We considered many factors in developing the measure and
outlined in detail our methodology in the proposed rule. We believe
that this measure will provide an incentive to hospitals to redesign
care systems in order to better coordinate and provide high-quality,
cost-efficient care to Medicare beneficiaries. As we gain more
experience with the use of this new type measure for the Hospital IQR
Program, we will continue to analyze and refine the measure as
appropriate, based on that experience.
Comment: Several commenters recommended that the scope of Medicare
payments included in the Medicare spending per beneficiary be narrowed.
MedPAC suggested focus on a subset of episode costs associated with the
stay, such as the stay itself and post acute care provided during a
shortened post-discharge period. Two commenters suggested use of
condition-specific measures to address costs associated with diagnoses
such as acute myocardial infarction (AMI), heart failure (HF), or
pneumonia. One commenter suggested that the measure should be better
targeted, consistent with the Hospital Readmissions Reduction Program
and the bundling pilot, and another commenter suggested that the
measure should use criteria similar to those required for the bundling
pilot. One commenter suggested that the measure be limited to inpatient
hospital spending over 90 days, in an effort to reduce readmissions
through care coordination, but with the recognition that other types of
providers do not have the same incentives to reduce Medicare spending.
Response: We appreciate the commenters suggestion that the Medicare
spending per beneficiary measure should be aligned with measures used
in other Medicare payment incentive programs. We believe that inclusion
of Medicare spending for all Part A and Part B services in the
calculation of the hospital's Medicare spending per beneficiary amount
aligns with the aim of reducing readmissions under the Hospital
Readmissions Reduction Program. We also note that the bundling pilot is
under development and we will seek to align the Hospital VBP Program
with that program as it develops.
We appreciate the comments regarding the use of targeted or
condition-specific measures in the interest of aligning with other CMS-
initiatives. While the Affordable Care Act does not limit the Secretary
to adopting only one efficiency measure, it does specify that the
efficiency measures must include a measure of Medicare spending per
beneficiary, not per condition. At this time, we believe that inclusion
of Medicare spending related to hospital stays for all diagnoses is the
best approach to enable hospitals identify where opportunities for
improved coordination and efficiency exist, by measuring hospitals'
individual Medicare spending per beneficiary amount, as compared to
Medicare spending per beneficiary on a national basis. We will consider
adding condition-specific measures to the Hospital IQR Program and to
the Efficiency domain in the Hospital VBP Program in the future,
through rulemaking. We have shortened the post-discharge period during
which Medicare payments will be included in the calculation of the
Medicare spending per beneficiary amount in order to more closely align
the measure with the Hospital Readmissions Reduction Program and other
related initiatives.
We disagree with the comment that only inpatient payments should be
counted toward the Medicare spending per beneficiary amount. As we
explained above, we do not believe that inclusion of inpatient hospital
payments only will sufficiently address the need for care coordination
and care transitions across all settings, in the interest of providing
the highest-quality, most efficient care to Medicare beneficiaries.
Comment: Some commenters stated that CMS should collect more data
regarding the impact of inclusion of spending for post-acute care
services in the measure, due to variability in access across different
geographic areas, prior to including spending for these services in the
measure. Two commenters suggested that no post-discharge services
should be included in the measure, and expressed their belief that
post-discharge services are not within a hospital's control. A few
commenters stated that the measure should address processes or outcomes
which are under

[[Page 51624]]

hospital control, and that all Medicare spending within a 90-day post-
discharge period is not under hospital control. A few commenters
expressed that post-discharge payments depend more on physician
management, beneficiary compliance with care planning, and community
resources than they depend on care coordination by the hospital.
Response: We acknowledge the comments that geographic variability
in access to post-acute care services exists. However, we believe that
hospitals have a responsibility to encourage the highest-quality, most
coordinated and efficient care for the beneficiaries they serve,
regardless of their geographic location.
We disagree with commenters who stated that Medicare spending for
post-discharge services is outside the hospitals' control, even within
a 90-day post-discharge period. (As previously discussed, we are
finalizing a 30-day post-discharge period for the initial
implementation of this measure.) We believe that as hospitals focus on
working to redesign care systems and to coordinate with other providers
of care they can have a significant impact on the quality and
efficiency of services provided to the Medicare beneficiaries they
serve. As a result, we plan to revisit the issue of expanding the
episode duration by lengthening the period of time post discharge in
future rulemaking. We acknowledge that physician management,
beneficiary compliance with post-discharge instructions, and
availability of community resources contribute to Medicare spending
after hospital discharge. However, we believe that hospitals have a
significant influence on Medicare spending during the episode
surrounding a hospitalization, through the provision of appropriate,
high-quality care before and during inpatient hospitalization and
through proper hospital discharge planning, care coordination, and care
transitions. We believe that this measure will add an additional
incentive for hospitals to apply this influence in ways that will
promote the provision of the highest quality, most efficient care for
hospitalized Medicare beneficiaries.
After consideration of all public comments we received on our
proposals regarding which Medicare payments we will include in the
Medicare spending per beneficiary episode, we are finalizing the
inclusion of Medicare payments for all Part A and Part B services
rendered to Medicare beneficiaries during the Medicare spending per
beneficiary episode, with the exception of statistical outliers, in the
Medicare spending per beneficiary amount, which we will attribute to
the hospital at which the index admission occurred. We will exclude
cases involving acute to acute transfers from being counted as index
admissions. A case involving an acute to acute transfer will therefore
not generate a new Medicare spending per beneficiary episode. This
means that neither the hospital which transfers a patient to another
subsection (d) hospital, nor the receiving subsection (d) hospital will
have an index admission attributed to them for purposes of creating a
Medicare spending per beneficiary episode. However, if a patient is
readmitted during the post-discharge window and then transferred to
another acute care hospital, we will attribute these costs to the
hospital where the original index admission occurred.
We will attribute Medicare payments for acute to subacute
transfers, such as discharges from a subsection (d) hospital to a SNF,
IRF, or LTCH, to the index admission, as proposed.

Adjusting the Medicare Payments Included in the Spending per
Beneficiary Episode

Section 1886(o)(2)(B)(ii) of the Act requires that a Medicare
spending per beneficiary measure adopted for the Hospital VBP Program
be ``adjusted for factors such as age, sex, race, severity of illness,
and other factors that the Secretary determines appropriate.''
Consistent with these statutory requirements, we proposed to adjust the
proposed Medicare spending per beneficiary measure for age and severity
of illness. We proposed to adjust for severity of illness based on the
hierarchical condition categories (HCCs) for the period 90 days prior
to the episode and based on the MS-DRG during the index admission.
Adding the MS-DRG to the use of the HCC improves the severity of
illness adjustment and better standardizes the data, allowing for more
valid comparisons of Medicare spending per beneficiary amounts across
hospitals. Note that we would exclude episodes where the beneficiary is
not enrolled in both Medicare Part A and Medicare Part B, for the 90
days prior to the episode because we would not be able to capture all
the data necessary for the severity of illness adjustment.
We did not propose to adjust the Medicare spending per beneficiary
for sex and race, consistent with our understanding of NQF's position
strongly discouraging adjusting measures based on these factors.
In addition, we proposed to exclude geographic payment rate
differences (for example, based on the wage index and geographic
practice cost index) in order to standardize the spending per
beneficiary. We did not propose to adjust for geographic differences in
spending that are unrelated to geographic payment rate differences.
However, we sought comment on whether there are geographic factors
other than payment rate differences that should be considered in the
spending per beneficiary measure. We also proposed to standardize
spending by excluding the portion of IPPS payments resulting from the
payment differentials caused by hospital-specific rates, IME, and DSH.
We did not propose to exclude spending for hospitals that are paid
Hospital-Specific Rates, rather we proposed to exclude the differential
additional spending that results from the use of the hospital-specific
rates. Making these adjustments allows for more valid comparisons of
Medicare spending per beneficiary amounts across hospitals. For
example, without adjusting for geographic payment rate differences, a
hospital might have higher or lower spending per beneficiary amounts
compared to other hospitals based on its wage index and not its
performance.
Comment: The majority of commenters supported the proposal to
adjust for beneficiary age and severity, as well as for geographic and
hospital-specific payment differences. Many commenters suggested that
payment standardization should also go further, to adjust for
beneficiary demographic and socioeconomic factors, including sex, race,
working status, disability status, and Medicaid eligibility.
Response: We appreciate the comments supporting the severity of
illness and age adjustments proposed. We disagree with the comments
that risk-adjustment for the Medicare spending per beneficiary measure
should include further adjustment for socioeconomic factors. Consistent
with NQF's position on not adjusting for potential demographic (sex or
race) or socioeconomic factors, we believe that the best adjustment for
a payment measure is based on the beneficiaries' underlying health
status, not demographic or socioeconomic factors. We intend to further
analyze the implications of risk-adjustment for additional factors;
however at this time, we feel that for initial implementation,
consistency with the NQF position is the best approach to risk-
adjusting the Medicare spending per beneficiary measure. As we
proposed, we will take into account the underlying health status and
acuity levels for all patients before the episode in risk-adjusting

[[Page 51625]]

because these factors reflect the complexities these patients may
present.
Comment: Three commenters suggested that physician services should
be risk-adjusted, as well as the hospital services.
Response: We agree with these commenters. We intend to adjust total
Medicare Part A and Part B payments for services received during
hospitalization as well as for those received during the episode
surrounding the hospital stay.
Comment: One commenter stated that there is little evidence that
the use of the diagnosis categories used for hierarchical condition
category (HCC) scores accurately quantify severity. Three commenters
suggested that HCCs should look back further than 90 days, and one
stated that they should factor in not only primary diagnoses, but also
comorbities.
Response: First, we are clarifying that we are not applying the
HCCs in a hierarchical manner, in which some diagnoses would in effect
cancel others out. Rather, we are utilizing the diagnosis codes, both
primary diagnoses and comorbidities, from the 90 days preceding the
Medicare spending per beneficiary episode to risk adjust the Medicare
Part A and Part B payments for services received during the Medicare
spending per beneficiary episode. We believe that this approach is
sensitive to all of the diagnoses most directly affecting the hospital
stay. In addition, we will perform a risk adjustment for the
beneficiary's age. We are open to future refinements to the risk-
adjustment methodology, including potentially looking back further than
90 days for risk adjustment to the Medicare spending per beneficiary
episode calculation, in future rulemaking.
Comment: Some commenters suggested that CMS should also exclude
from the calculation of the Medicare spending per beneficiary measure
any payment differences resulting from other policy or incentive
payments, including payment differences for physician services rendered
in Federally-qualified health centers (FQHC), rural health center
(RHC), and Outpatient PPS (OPPS) settings, new technology add-ons, sole
community providers, and Medicare-dependent hospitals, as well as
incentives from the Hospital VBP Program, meaningful use under the EHR
Incentive Program, PQRS, or other current or future incentive payment
adjustments.
Response: We agree with the commenters that Medicare payment
incentives, including the Hospital VBP Program, meaningful use under
the EHR Incentive Program, PQRS, should not be factored in to the
Medicare spending per beneficiary amount. They will not be included, in
order to avoid penalizing high-quality and efficient hospitals.
Likewise, we will exclude hospital-specific rates from the Medicare
spending per beneficiary amount, so payment differentials for sole
community hospitals and Medicare-dependent hospitals would not be
included. We are excluding these payment adjustments from the
calculation of the Medicare spending per beneficiary amount because we
believe that they represent differences in the Medicare payments made
to these types of hospitals, rather than differences resulting from
hospitals' choices in provision of care or coordination of post-
discharge services.
We disagree with the comment that the Medicare spending per
beneficiary amount should be adjusted for the differential amount paid
for physician services rendered in RHCs, FQHCs, or OPPS setting. First,
we believe that adjustment for these ``site of services'' differences
would undermine the ability of this measure to meaningfully capture
differences in Medicare spending per beneficiary related to inpatient
hospitalizations. Also, we do not believe that adjusting out such
differences would result in a significant impact to any hospital's
Medicare spending per beneficiary amount or their subsequent value-
based incentive payment amount. Physician services make up only a
portion of the Medicare payments which are summed to calculate a
hospital's Medicare spending per beneficiary amount, so the
differential impact of physician services on the measure would be
further minimized. In addition we are moving to a 30-day post-discharge
period, which we believe will further reduce the impact of any payment
differentials resulting from the receipt of physician services in
various settings.
We are therefore not adjusting out differential payments made for
physician services based on site of service such as RHCs, FQHCs, or
OPPS settings. We appreciate the comments on adjusting for the new-
technology add-on payment. We intend to address this payment through
future rulemaking, prior to the implementation of the FY 2014 Hospital
VBP Program payment adjustment, and we will seek to align with other
CMS incentive programs in addressing new technology add-on payments.
Comment: Four commenters stated that CMS should adjust for hospital
case mix, in order to avoid penalizing hospitals serving specific
populations, such as transplant centers or areas with high levels of
chronic illness. One commenter suggested that CMS could adjust for
underuse, or hospitals' failure to provide needed care, in order to
avoid setting a benchmark reflecting underuse, and for overuse, or
excessive use of healthcare services, due to poverty by stratifying the
beneficiaries into cohorts reflecting disability status and Medicaid
eligibility status.
Response: We disagree that an additional adjustment should be made
to the Medicare spending per beneficiary amount to account for hospital
case mix. As we proposed, we are applying a severity adjustment on a
per-beneficiary basis, so hospitals serving large proportions of
Medicare beneficiaries with complex conditions will not be
disadvantaged.
We appreciate the comment regarding stratifying beneficiaries
according to disability and Medicaid eligibility status, as a method to
avoid setting benchmarks and making comparisons which are not
appropriate for all populations. At this time, we are implementing this
measure with adjustments for beneficiary age and severity of illness,
which is consistent with NQF's position on not risk-adjusting potential
race, socioeconomic, or gender disparities. Stratification of
beneficiaries is an approach which we may consider in future
refinements to the risk adjustment methodology, through future
rulemaking. We intend to analyze the risk-adjustment methodology, as we
gain experience with this measure, for potential changes to the
methodology we are finalizing for the initial implementation.
Comment: Two commenters suggested that CMS convene a panel to
determine the best risk-adjustment strategy. One commenter suggested
that no further risk adjustment beyond what was proposed should be
undertaken without further analysis.
Response: We agree that a panel may be a useful tool in achieving
consensus on a strategy. We are open to suggestions for future
refinements to the Medicare spending per beneficiary measure, for
future fiscal years' payment adjustments. However, at this time
convening a panel would delay implementation of this important measure
emphasizing coordination and efficiency in the delivery of health care
services to Medicare beneficiaries.
After considering all public comments we received on our proposals
for adjusting the Medicare payments included in the Medicare spending
per beneficiary episode, we are finalizing our proposal to adjust the
Medicare spending per beneficiary amount for beneficiary age and
severity of illness,

[[Page 51626]]

as calculated by applying the hierarchical condition categories which
apply to the beneficiary during the 90 days preceding the Medicare
spending per beneficiary episode. We will also adjust for geographic
payment differences such as wage index and geographic practice cost
differences. We will further adjust for Medicare payment differences
resulting from hospital-specific rates, IME and DSH payments, as
proposed. In addition, in response to public comment as discussed
above, we will exclude statistical outliers and Medicare payment
incentives, including the Hospital VBP Program, meaningful use under
the EHR Incentive Program, and PQRS incentives, from the calculation of
the Medicare spending per beneficiary amount.

Calculating a Hospital's Medicare Spending per Beneficiary
Amount

For each subsection (d) hospital participating in the Hospital IQR
Program, we proposed to add together all the adjusted Medicare Part A
and Part B payments, as defined above, with the exception of
statistical outliers, included in all the Medicare spending per
beneficiary episodes, as defined above, for that hospital. We would
then divide this sum by the total number of Medicare spending per
beneficiary episodes for that hospital. The resulting amount would
constitute the hospital's Medicare spending per beneficiary amount for
the period. The discharge period that we proposed to apply the proposed
measure for the FY 2014 Hospital IQR Program is May 15, 2012 through
February 14, 2013.
Comment: A few commenters questioned whether CMS has sufficient
internal controls to ensure accurate calculation of a complex measure
spanning time and service areas. Three commenters expressed concern
that outliers would skew the calculation.
Response: We acknowledge that a Medicare spending per beneficiary
measure is new to the Hospital IQR Program. However, we will have in
place internal checks to ensure that calculations are complete and
accurate. Hospitals wil also have an opportunity to review and correct
any information made public about them, with respect to this measure.
We agree with the commenters' suggestion that statistical outliers
should be excluded, so that low-volume hospitals are not potentially
disadvantaged by one or two anomalous high-cost outliers having a
significant impact on their Medicare spending per beneficiary amount.
We will exclude them from the calculation of individual hospitals'
Medicare spending per beneficiary amount and from the calculation of
the median Medicare spending per beneficiary amount across hospitals.
Comment: Nine commenters requested that the data used to calculate
the Medicare spending per beneficiary amount be made public in time for
public comment, and so that hospitals and advocacy groups could check
CMS' calculations. One commenter suggested that a relative-value unit
(RVU) system be used for simplicity and transparency in calculating
standardized payment amounts.
Response: We appreciate the suggestion that an RVU system could be
used for the calculation of a Medicare spending per beneficiary amount
and may consider such an approach for future refinements through
rulemaking. We understand the importance of hospital access to data
used to calculate the Medicare spending per beneficiary measure. In
response to these comments, we intend to make a public use file
available, so that hospitals can determine their own historical
Medicare spending per beneficiary amounts and identify the drivers of
those amounts.
After considering the public comments received on our proposals for
calculating a hospital's Medicare spending per beneficiary amount, we
are finalizing calculation of a Medicare spending per beneficiary
amount which is inclusive of most Medicare Part A and Part B payments
made for services provided to Medicare beneficiaries during the
Medicare spending per beneficiary episode. In addition to the
exclusions we identified above, we will exclude statistical outliers
from the calculation of individual hospitals Medicare spending per
beneficiary amounts and from the calculation of the median Medicare
spending per beneficiary amount across hospitals. We intend to make a
public use file available so that hospitals may determine their own
historical Medicare spending per beneficiary amounts.

Calculating a Hospital's Medicare Spending per Beneficiary
Ratio

We proposed to calculate a hospital's Medicare spending per
beneficiary ratio as the hospital's Medicare spending per beneficiary
amount divided by the median Medicare spending per beneficiary amount
across all hospitals.
As noted above, we also proposed to adopt this proposed measure for
the Hospital VBP Program FY 2014 measure set. The proposed method for
scoring and incorporating this Medicare spending per beneficiary ratio
into the hospital's TPS for the Hospital VBP Program, as part of a new
Efficiency domain, is fully described in section IV.B.3.b.(3)(C) of the
FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25928) and the method we are
adopting is fully described in section IV.B.3.b.(3)(C) of this final
rule. The proposed weighting for the Efficiency domain is proposed in
the FY 2012 OPPS/ASC proposed rule.
Comment: One commenter suggested that CMS use the mean, rather than
the median spending per beneficiary amount for the purposes of
calculating the Medicare spending per beneficiary ratio, stating that
the mean is less sensitive to being skewed by outliers.
Response: We disagree with the comment that the median is more
sensitive to being skewed by outliers than the mean is. That is why we
proposed to use the median for the purposes of comparison and
calculation of the Medicare spending per beneficiary ratio.
Furthermore, we are finalizing our proposal to exclude outliers from
the calculations.
Comment: MedPAC suggested that CMS should align incentives for
hospitals and post-acute care providers to reduce readmissions, toward
an end goal of alignment of incentives across the sectors, in order to
improve the quality and reduce the cost of episodes of care, and to
reduce the number of unnecessary inpatient episodes.
Response: We agree that alignment of incentives is an important
goal. We will keep that goal in mind as we work to refine the Medicare
spending per beneficiary measure. However, we acknowledge that this
measure alone would not be a sufficient vehicle to fully accomplish
that goal.
After consideration of the public comments received on our proposal
for calculating a hospital's Medicare spending per beneficiary ratio,
we are finalizing our proposal to calculate individual hospitals'
Medicare spending per beneficiary ratios as their individual Medicare
spending per beneficiary amount divided by the median Medicare spending
per beneficiary amount across all hospitals.
In summary, after consideration of all public comments we received,
we are finalizing the following policies related to the inclusion of
the Medicare spending per beneficiary measure in the Hospital IQR
Program.
We are finalizing a Medicare spending per beneficiary episode,
spanning from three days prior to hospitalization through 30-days post
discharge. We are finalizing the policy that only discharges occurring
within 30 days before the end of the performance period will be counted
as index admissions.

[[Page 51627]]

We are finalizing the inclusion of all Medicare Part A and Part B
payments for services rendered to Medicare beneficiaries during the
Medicare spending per beneficiary episode, with the exception of
statistical outliers, in the Medicare spending per beneficiary amount,
which we will attribute to the hospital at which the index admission
occurred. We are finalizing that cases involving acute to acute
transfers will be excluded from being counted as index admissions and
that those cases will not generate new Medicare spending per
beneficiary episodes.
We are finalizing our proposal to adjust the Medicare spending per
beneficiary amount for beneficiary age and for severity of illness, as
calculated by applying the hierarchical condition categories which
apply to the beneficiary during the 90 days preceding the Medicare
spending per beneficiary episode. We are finalizing our proposal to
adjust for geographic payment differences such as wage index and
geographic practice cost differences. We are finalizing our proposal to
adjust for Medicare payment differences resulting from hospital-
specific rates, IME and DSH payments, and to adjust for Medicare
payment incentives, including Hospital VBP Program, meaningful use
under the EHR Incentive Program, and PQRS.
We are finalizing calculation of a Medicare spending per
beneficiary amount which is inclusive of all Medicare Part A and Part B
payments made for services provided to Medicare beneficiaries during
the Medicare spending per beneficiary episode surrounding an index
hospitalization, excluding statistical outliers. We intend to make a
public use file available so that hospitals may determine their own
historical Medicare spending per beneficiary amount.
We are finalizing our proposal to calculate individual hospitals'
Medicare spending per beneficiary ratios as their individual Medicare
spending per beneficiary amount divided by the median Medicare spending
per beneficiary amount across all hospitals.
We note that after consideration of the comments, this measure is
also being finalized for inclusion in the Hospital VBP Program, and
this discussion is located in section IV.B.3.b. of this final rule.
(C) New Web-Based Structural Measure
Structural measures assess the characteristics and capacity of the
provider to deliver quality health care. In the FY 2009 IPPS final
rule, we finalized the ``Participation in a Systematic Database
Registry for Cardiac Surgery'' measure (73 FR 48609) for the FY 2010
payment determination. This measure does not require the hospital to
actually participate in a cardiac surgery registry, instead, it only
requires the hospital to report whether or not it participates in a
cardiac surgery registry. In the FY 2010 IPPS/RY 2010 LTCH PPS final
rule (74 FR 43871 and 43872), we adopted two more structural measures:
Participation in a Systematic Clinical Database Registry for Stroke
Care; and Participation in a Systematic Clinical Database Registry for
Nursing Sensitive Care under the Hospital IQR Program for the FY 2011
payment determination. Based on public comments, we collect these
structural measures once annually.
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25897 through
25898), we proposed to include a new structural measure, Participation
in a Systematic Clinical Database Registry for General Surgery, in the
Hospital IQR Program beginning with the FY 2014 payment determination.
The Participation in a Systematic Clinical Database Registry for
General Surgery measure would require each hospital that participates
in Hospital IQR Program to indicate whether it is participating in a
Systematic Clinical Database Registry for General Surgery and, if so,
to identify the registry. This measure, like two of the previously
adopted structural measures on registry participation (Participation in
a Systematic Clinical Database Registry for Stroke Care; and
Participation in a Systematic Clinical Database Registry for Nursing
Sensitive Care), is an application of an NQF-endorsed measure (NQF
0493) ``Participation by a physician or other clinician in a
systematic clinical database registry that includes consensus endorsed
quality measures'' to the inpatient facility.
We recognize that the NQF has endorsed this measure for the
physician/clinician setting, but believe that this measure is highly
relevant to the hospital setting, in that participation in a systematic
clinical database registry for various topics is quite common in
hospitals. Therefore, we previously adopted the Stroke and Nursing
Sensitive Care registry participation measures as applications of the
measure appropriate to the hospital inpatient setting. We reviewed the
NQF's consensus endorsed measures, as well as measures endorsed or
adopted by other organizations, and were unable to identify any other
measures specifically for participation in a systematic clinical
database registry for general surgery that have been endorsed for the
hospital inpatient setting. Having given due consideration to other
measures that have been endorsed or adopted by a consensus entity, we
proposed to adopt an application of this non-NQF endorsed measure under
the Secretary's authority to select non-NQF endorsed measures where
such measures do not exist for a specified topic or medical topic. We
proposed to adopt the measure under the exception authority provided in
section 1886(b)(3)(B)(IX)(bb) of the Act. Additionally, we believe
that, for the same reasons, the previously adopted structural measures
for Stroke and Nursing Sensitive Care registries also meet the
requirements under this authority and proposed to continue collecting
them on that basis.
We proposed that annual data submission for this proposed
structural measure via a Web-based collection tool would occur between
April 1, 2013 and May 15, 2013 with respect to the time period January
1, 2012, through December 31, 2012. This collection period and time
period were included in a correction notice to the FY 2012 IPPS/LTCH
proposed rule published at (76 FR 34633).
We believe that participation in a registry provides hospitals with
valuable ongoing quality improvement information and demonstrates a
commitment to improve. Many registries also collect outcome data and
provide feedback to hospitals about their performance. We invited
public comment on this proposal to include this structural measure for
the FY 2014 payment determination.
Comment: Some commenters did not support the adoption of the
proposed structural measure because they believed that the measure is
neither tightly linked to improving the quality of patient care, nor is
it NQF-endorsed or adopted by the HQA.
Response: This measure is an application of an NQF-endorsed measure
for the hospital inpatient setting. We believe that structural measures
are backbones to quality care as they assess whether infrastructure or
conditions conducive to providing high quality care are present.
Comment: Some commenters did not support the adoption of this
structural measure because they believed that registry participation
might create a false assumption among beneficiaries that the quality of
a hospital can be judged by its participation or non-participation in
the registry. The commenters also objected because they felt they would
be required to participate in a registry and incur fees, and believed
that registry participation should be voluntary. Furthermore, the

[[Page 51628]]

commenters stated that the addition of another registry measure is not
meaningful given CMS' goal of establishing an EHR-based quality data
reporting program by 2015.
Response: We understand the commenters' concerns. We want to
clarify that the structural registry measure that we are finalizing
does not require participation in any registry. To meet the reporting
requirements for the structural measure, hospitals only have to answer
yes or no to a question about whether they participate in a systematic
clinical database registry for general surgery, and if so to indicate
the registry. We do not believe adoption of a structural measure is
incompatible with our goal to switch to EHR-based reporting by 2015,
because many registries accept data from EHRs. After consideration of
the public comments received, we are finalizing the proposed structural
measure for FY 2014 payment determination.
In summary, after consideration of the public comments received, we
are finalizing the retirement of 4 measures from the FY 2014 measure
set that was finalized in the FY 2011 IPPS/LTCH PPS final rule,
suspending collection for 4 measures beginning with January 1, 2012
discharges, and adding 3 new measures to the measure set for the FY
2014 payment determination: 1 HAI measure (CAUTI) collected through the
NHSN, 1 claims-based measure (Medicare Spending Per Beneficiary), and 1
structural measure (Participation in a Systematic Clinical Database
Registry for General Surgery). As a result, there will be a total of 59
measures in the FY 2014 Hospital IQR measure set, but we will only be
collecting data on 55 of those measures for purposes of the FY 2014
payment determination. The 59 measures are listed below, and the 4
measures for which we will not be collecting data are designated with
the word ``SUSPENDED.''

------------------------------------------------------------------------
Hospital IQR program measures for FY
2014 payment determination
reflecting retirement of 4 measures,
Topic suspension of data collection for 4
measures and adoption of 3 new
measures
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI). AMI-1 Aspirin at arrival
[SUSPENDED].
AMI-2 Aspirin prescribed at
discharge.
AMI-3 ACEI/ARB for left
ventricular systolic dysfunction
[SUSPENDED].
AMI-5 Beta-blocker
prescribed at discharge
[SUSPENDED].
AMI-7a Fibrinolytic
(thrombolytic) agent received
within 30 minutes of hospital
arrival.
AMI-8a Timing of Receipt of
Primary Percutaneous Coronary
Intervention (PCI).
AMI-10 Statin Prescribed at
Discharge.
Heart Failure (HF)................ HF-1 Discharge
instructions.
HF-2 Evaluation of left
ventricular systolic function.
HF-3 Angiotensin Converting
Enzyme Inhibitor (ACE-I) or
Angiotensin II Receptor Blocker
(ARB) for left ventricular systolic
dysfunction.
Pneumonia (PN).................... PN-3b Blood culture
performed in the emergency
department prior to first
antibiotic received in hospital.
PN-6 Appropriate initial
antibiotic selection.
Surgical Care Improvement Project SCIP INF-1 Prophylactic
(SCIP). antibiotic received within 1 hour
prior to surgical incision.
SCIP INF-2: Prophylactic
antibiotic selection for surgical
patients.
SCIP INF-3 Prophylactic
antibiotics discontinued within 24
hours after surgery end time (48
hours for cardiac surgery).
SCIP INF-4: Cardiac surgery
patients with controlled 6AM
postoperative serum glucose.
SCIP INF-6 Appropriate Hair
Removal [SUSPENDED].
SCIP INF-9: Postoperative
urinary catheter removal on post
operative day 1 or 2 with day of
surgery being day zero.
SCIP INF-10: Surgery
patients with perioperative
temperature management.
SCIP Cardiovascular-2:
Surgery Patients on a Beta Blocker
prior to arrival who received a
Beta Blocker during the
perioperative period.
SCIP INF--VTE[dash]1:
Surgery patients with recommended
Venous Thromboembolism (VTE)
prophylaxis ordered.
SCIP-VTE[dash]2: Surgery
patients who received appropriate
VTE prophylaxis within 24 hours pre/
post surgery.
Mortality Measures (Medicare Acute Myocardial Infarction
Patients). (AMI) 30-day mortality rate.
Heart Failure (HF) 30-day
mortality rate.
Pneumonia (PN) 30-day
mortality rate.
Patients' Experience of Care...... HCAHPS survey.
Readmission Measure (Medicare Acute Myocardial Infarction
Patients). 30-day Risk Standardized
Readmission Measure.
Heart Failure 30-day Risk
Standardized Readmission Measure.
Pneumonia 30-day Risk
Standardized Readmission Measure.
AHRQ Patient Safety Indicators PSI 06: Iatrogenic
(PSIs), Inpatient Quality pneumothorax, adult.
Indicators (IQIs) and Composite PSI 11: Post Operative
Measures. Respiratory Failure.
PSI 12: Post Operative PE
or DVT.
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.
Complication/patient safety
for selected indicators
(composite).
Mortality for selected
medical conditions (composite).
AHRQ PSI and Nursing Sensitive PSI 04 Death among surgical
Care. in patients with serious treatable
complications.
Structural measures............... Participation in a
Systematic Database for Cardiac
Surgery.
Participation in a
Systematic Clinical Database
Registry for Stroke Care.
Participation in a
Systematic Clinical Database
Registry for Nursing Sensitive
Care.
Participation in a
Systematic Clinical Database
Registry for General Surgery**.
Healthcare-Associated Infections.. Central Line Associated
Bloodstream Infection.
Surgical Site Infection.*
Catheter-Associated Urinary
Tract Infection.**

[[Page 51629]]

Hospital Acquired Condition Foreign Object Retained
Measures. After Surgery.
Air Embolism.
Blood Incompatibility.
Pressure Ulcer Stages III &
IV.
Falls and Trauma:
(Includes: Fracture Dislocation
Intracranial Injury Crushing Injury
Burn Electric Shock).
Vascular Catheter-
Associated Infection.
Catheter-Associated Urinary
Tract Infection (UTI).
Manifestations of Poor
Glycemic Control.
Emergency Department Throughput... ED-1 Median time from
emergency department arrival to
time of departure from the
emergency room for patients
admitted to the hospital.*
ED-2 Median time from admit
decision to time of departure from
the emergency department for
emergency department patients
admitted to the inpatient status.*
Prevention: Global Immunization Immunization for
Measures. Influenza.*
Immunization for
Pneumonia.*
Cost Efficiency................... Medicare Spending per
Beneficiary.**
------------------------------------------------------------------------
* Measures finalized in the FY 2011 IPPS/LTCH PPS final rule for the FY
2014 payment determination.
** Additional measures adopted in this final rule for FY 2014 payment
determination.

c. Hospital IQR Program Quality Measures for the FY 2015 Payment
Determination
(1) Retention of FY 2014 Payment Determination Measures for the FY 2015
Payment Determination
We generally retain the Hospital IQR Program measures from one year
to the next. Consistent with this approach, in the FY 2012 IPPS/LTCH
PPS proposed rule (76 FR 25901), we proposed to retain all of the
proposed measures for the FY 2014 payment determination, if finalized,
for the FY 2015 payment determination.
We did not receive any comments related to this proposal and are,
therefore, finalizing it.
(2) New Hospital IQR Program Measures for the FY 2015 Payment
Determination
(A) New CDC/NHSN-Based Healthcare-Associated Infection (HAI) Measures
for the 2015 Payment Determination
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25901 through
25903), for the FY 2015 payment determination, we proposed to adopt
three additional HAI measures that are currently collected by CDC via
the NHSN. These measures are: (1) Methicillin-resistant Staphylococcus
Aureus (MRSA) Bacteremia measure; (2) Clostridium difficile (C.
difficile) standardized infection ratio (SIR); and (3) Healthcare
Personnel (HCP) Influenza Vaccination and the specifications for these
measures are available at http://www.cdc.gov/nhsn/PDFs/HSPmanual/HPS_Manual.pdf. Like the CLIP and the CAUTI measures that we proposed for
the FY 2014 payment determination, all three proposed HAI measures are
high priority HAI measures listed in the HHS Action Plan to Prevent
HAIs and were listed in previous rulemaking as possible quality
measures for future payment determinations.
Our review indicated that there are no measures for MRSA or C.
difficile SIR that have been endorsed by the NQF or another consensus
entity for the hospital inpatient setting. Therefore, we proposed to
adopt these non-NQF-endorsed measures under the Secretary's authority
to select non-NQF endorsed measures where such measures do not exist
for a specified topic or medical topic. We proposed to adopt these two
CDC-developed measures (MRSA and C. difficile SIR) under the exception
authority provided in section 1886 (b)(3)(B)(IX)(bb) of the Act.
The HCP Influenza Vaccination measure is NQF-endorsed (NQF
0431) for the hospital setting. Therefore, this measure meets
the requirement for measure selection under section
1886(b)(3)(B)(viii)(IX)(aa) of the Act.
The proposed reporting mechanism for these proposed HAI measures is
discussed in greater detail in section IV.A.5.i. of the FY 2012 IPPS/
LTCH PPS proposed rule. We invited public comment on these proposed HAI
measures.
Comment: One commenter applauded CMS's proposed use of the measure
exception authority under section 1886(b)(3)(B)(IX)(bb) of the Act to
adopt the CDC-developed, non-NQF-endorsed MRSA and C. difficile SIR
measures in the interest of public safety. The commenter believed that
CMS's proposal has met Congressional intent and takes into account the
statutory requirements that govern the Hospital VBP Program, which
mandate that measures be selected for that program on HAIs, as measured
by the prevention metrics and targets established in the HHS Action
Plan to Prevent HAIs.
Response: We appreciate the commenter's recognition of our efforts
to adopt measures for the Hospital IQR Program to protect patient
safety while fulfilling statutory mandates and promoting HHS
initiatives.
Comment: A commenter believed that the three proposed HAI measures
for the FY 2015 payment determination need further refinement before
they can be included in the Hospital IQR Program.
Response: We thank the commenter for the comment. We will continue
to collaborate with CDC to assure the specifications for the three
proposed HAI measures are complete before the data collection period
begins.
Comment: Some commenters did not support the proposed MRSA and C.
difficile SIR HAI measures because they are not NQF-endorsed.
Response: Given the high priority of the MRSA and C. difficile SIR
measures in the HHS Action Plan to Prevent HAIs, we proposed to
implement these two measures to advance the goals of this initiative,
despite of the lack of endorsement for the measures. As stated
previously, we were unable to identify any other measures specifically
for MRSA and C. Difficile SIR that have been NQF-endorsed for the
hospital inpatient setting. We found no other measures that have been
endorsed or adopted by a consensus entity. Therefore, we proposed to
adopt these two non NQF-endorsed measures under the Secretary's
exception authority set out in section 1886(b)(3)(B)(IX)(bb) of the Act
to select non-NQF endorsed

[[Page 51630]]

measures where such measures do not exist for a specified area or
medical topic. We have chosen to leverage the existing NHSN reporting
system to collect HAI measures because we have already established a
mechanism for reporting to the NHSN and it reduces potential hospital
burden since many hospitals currently use the system.
(1) Methicillin-Resistant Staphylococcus Aureus (MRSA) Bacteremia
Measure
There are different types of staphylococcus aureus bacteria,
commonly called ``staph.'' Staph bacteria are normally found on the
skin or in the nose. The bacteria are generally harmless unless they
enter the body through a cut or other wound, and even then they usually
cause only minor skin problems in healthy people. MRSA infection is
caused by a strain of staph bacteria that has become resistant to the
antibiotics commonly used to treat ordinary staph infections. Older
adults with weakened immune systems and patients in hospital or nursing
home settings are most vulnerable to MRSA infections. Health care-
associated MRSA infections typically are associated with invasive
procedures or devices, such as surgeries, intravenous tubing, urinary
catheters, or artificial joints. MRSA infections account for about 60
percent of skin infections seen in United States emergency departments
and invasive MRSA infections may cause about 18,000 deaths during a
hospital stay a year.\13\ Currently, there are 6 States that require
facilities to report MRSA information to NHSN. As stated above, we were
unable to identify any other measures specifically for MRSA that have
been endorsed by the NQF for the hospital inpatient setting. We found
no other measures that have been endorsed or adopted by a consensus
entity. Therefore, we proposed to adopt this non-NQF-endorsed and CDC-
developed measure under the Secretary's authority to select non-NQF-
endorsed measures where such measures do not exist for a specified area
or medical topic, under the exception authority provided in section
1886(b)(3)(B)(IX)(bb) of the Act. The proposed reporting mechanism for
the MRSA measure is discussed in greater detail in section IV.A.5.i. of
the FY 2012 IPPS/LTCH PPS proposed rule. We invited public comment on
this proposed HAI measure.
---------------------------------------------------------------------------

\13\ Catherine Liu, Arnold Bayer, et al., Clinical practice
Guidelines by the for the treatment of Methicillin-Resistant
Staphylococcus Aureus Infections in Adult and Children. Infectious
Disease Society of America 2011; 52:e18
---------------------------------------------------------------------------

Comment: A commenter pointed out that the MRSA measure poses
particular issues because it requires linkages between laboratory data
with admission-discharge-transfer systems. The commenter indicated that
hospitals using this measure must manually enter the data. Therefore,
the commenter recommended delaying the adoption of this measure until
there is adequate vendor support for hospitals to manage the demands of
reporting NHSN measures.
Response: Like C. difficile laboratory identified events, MRSA
bacteremia event data are a combination of laboratory results and
admission/discharge/transfer data. As with C. difficile laboratory
event reporting, these two data types are often available
electronically, and CDC expects that hospitals will increasingly use
electronic data sources to report MRSA event data.
According to CDC, users can enter the required LabID Event data
either manually or electronically. Capacity to electronically link
admission/discharge/transfer and laboratory results data is not a
prerequisite for reporting LabID event data to NHSN, but that capacity
is a way to significantly improve efficiency and economy of reporting.
CDC is already working with a number of vendors who are submitting
LabID data via the CDC Clinical Document Architecture (CDA) import
function and that number continues to grow. In addition, the monthly
patient day and admission counts for an entire facility are often
regularly tabulated for the facility for other administrative uses and
so is more likely to be readily available compared to location specific
monthly counts, which often require separate efforts to be tabulated
within the facility's data system.
The denominator and laboratory data demands that are required for
C. Difficile and MRSA Bacteremia have proven to be manageable among
facilities who are already reporting at the facility-wide inpatient
level in the States who have mandated such reporting. Facilities that
do not use vendor CDA reporting, may still receive helpful lab
printouts and reports to assist with identification of results that
meet criteria for LabID Event reporting. The LabID form is short and
requires only a limited number of variables, and the number of C.
difficile and MRSA blood tests identified using the 14-day rule has
shown to be within reasonable and manageable limits for currently
participating facilities. If such numbers are very high for an entire
facility, this may indicate the need for this important monitoring and
surveillance to help guide appropriate facility infection control
response.
Comment: A commenter recommended that CMS allow hospitals to select
two most applicable patient care units for purposes of reporting data
on this proposed measure. The selected units should initially report a
year of baseline data, followed by reporting data to CDC for no more
than 6 months each year.
Response: The MRSA bacteremia measure that we proposed and are
finalizing in this final rule applies to patients hospital-wide, which
is consistent with how the measure is presented in the HHS Action Plan
to Prevent HAIs. We thank the commenter for the recommendation to allow
hospitals to select two most applicable patient care units to report
data on. However, allowing hospitals to choose two units could possibly
skew the data and make it impossible to compare performance among
hospitals. We found that monitoring at the location level and allowing
facilities to choose their specific locations has not provided enough
substantial data for meaningful nationwide comparative rates. This type
of reporting was attempted in the CMS 9th SOW and showed that
facilities tended to not choose locations with the highest rates and in
need of further prevention efforts and also did not provide enough
numbers by location type for reliable benchmarked, risk-adjusted rates.
After consideration of the public comments we received, we are
finalizing the MRSA measure for the FY 2015 payment determination.
(2) C. difficile SIR Measure
Clostridium difficile (C. difficile) is a bacterium that can cause
symptoms ranging from diarrhea, pseudo-membranous colitis, and toxic
megacolon to life-threatening sepsis and even death. Illness from C.
difficile most commonly affects older adults in hospitals or in long
term care facilities where germs spread easily, antibiotic use is
common and people are especially vulnerable to infection. Illness from
C. difficile typically occurs after use of antibiotic medications. C.
difficile spreads mainly on hands from person to person, but also on
commonly touched services such as cart handles, bedrails, bedside
tables, toilets, sinks, stethoscopes, thermometers, and telephones.
In recent years, C. difficile infections have become more frequent,
more severe and more difficult to treat. Each year, tens of thousands
of people in the United States get sick from C. difficile, including
some otherwise healthy people who are not hospitalized or taking
antibiotics. Healthcare providers

[[Page 51631]]

have become more aware of the C. difficile infection and therefore,
more testing is being done for symptomatic patients. The C. difficile
pathogens may require specialized monitoring to evaluate if intensified
infection control efforts are required to reduce the occurrence of
these organisms and related infections. Currently, there are 3 States
that require facilities to report C. difficile data to NHSN. Our goal
for this proposed C. difficile SIR measure is to provide a common
mechanism (CDC/NHSN) for all hospitals including hospitals
participating in the Hospital IQR Program to report and analyze these
data in order to inform infection control staff of the impact of
targeted prevention efforts. The NHSN is listed in the HHS Action Plan
to Prevent HAIs as the data source for HAI measures.
Comment: Some commenters believed that the calculation of C.
difficile SIRs will be challenging because hospitals use testing
mechanisms with differing sensitivity to identify the presence of C.
difficile. These commenters were concerned that the resulted difference
in C. difficile SIR measurement may unfairly portray hospitals that use
the more sensitive testing technology as having more C. difficile
cases. A commenter pointed out that the C. difficile SIR measure poses
particular issues because it requires linkages between laboratory data
with admission-discharge-transfer systems. The commenter noted that
currently, hospitals using this measure must manually enter the data.
Therefore, the commenter recommended delaying the proposed adoption of
this measure until there is adequate vendor support for hospitals to
electronically interface with the NHSN for reporting.
Response: CDC acknowledged that differences in the sensitivity of
C. difficile laboratory testing methods could make a difference in the
C. difficile event data that hospitals report. CDC is currently
evaluating the impact and possible implications for C. difficile
reporting through NHSN. C. difficile laboratory event data is a
combination of laboratory results and admission/discharge/transfer
data. These two data types are often available electronically, and CDC
expects that hospitals will increasingly use electronic data sources to
report C. difficile event data. However, EHRs are not the only means of
capturing such information. The same data can be abstracted from
hospital reports and entered manually into NHSN. Therefore, there is
not a dependence on electronic data capture, but there is an important
opportunity to use electronic means to report, and waiting until
widespread EHR adoption would delay progress that could be made on
these HAIs. Like MRSA Bacteremia, C. difficile facility-wide Lab-ID
event reporting will be risk-adjusted by hospital type, teaching and
med affiliation, and bed size. In addition, NHSN has added a question
on the required annual facility survey beginning with 2010 data that
asks about the type of testing the lab conducts for C. difficile and
this information will be used for additional risk-adjustment along with
review of usability of admission on prevalence.
Comment: One commenter requested clarification that the measure is
only applicable to high-risk units and not hospital-wide.
Response: The CDC measure of C. difficile listed in the HHS Action
Plan to Prevent HAIs calls for hospital-wide measurement of C.
difficile events. Because the risk of C. difficile extends throughout
the hospital, the measure applies to all hospital C. difficile events,
and this is part of the specifications for this measure.
After consideration of the public comments we received, we are
finalizing this measure for the FY 2015 payment determination. Data
collection will begin with January 1, 2013 infection events.
(3) Healthcare Personnel (HCP) Influenza Vaccination (NQF
0431)
For the FY 2015 payment determination, in the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25902 through 25903), we proposed to adopt one
additional HAI measure that is currently collected by CDC via the NHSN:
Healthcare Personnel (HCP) Influenza Vaccination (NQF 0431).
This measure assesses the percentage of HCP employed at the facility
that received a prophylactic vaccination for influenza. This measure is
NQF-endorsed, and therefore, the measure meets the selection criteria
under section 1886(b)(3)(B)(viii)(IX)(aa) of the Act.
Rates of serious illness and death resulting from influenza and its
complications are increased in high-risk populations such as persons
over 50 years or under four years of age, and persons of any age who
have underlying conditions that put them at an increased risk. HCP can
acquire influenza from patients and can transmit influenza to patients
and other HCP. Many HCP provide care for, or are in frequent contact
with, patients with influenza or patients at high risk for
complications of influenza. The involvement of HCP in influenza
transmission has been a long-standing concern.^{14 15 16}
---------------------------------------------------------------------------

\14\ Maltezou HC, Drancourt M., Nosocomial influenza in
children. Journal of Hospital Infection 2003; 55:83-91.
\15\ Hurley JC, Flockhart S., An influenza outbreak in a
regional residential facility. Journal of Infection Prevention 2010;
11:58-61.
\16\ Salgado CD, Farr BM, Hall KK, Hayden FG., Influenza in the
acute hospital setting. The Lancet Infectious Diseases 2002; 2:145-
155.
---------------------------------------------------------------------------

Vaccination is an effective preventive measure against influenza,
and can prevent many illnesses, deaths, and losses in productivity.\17\
HCP are considered a high priority for expanding influenza vaccine use.
Achieving and sustaining high influenza vaccination coverage among HCP
is intended to help protect HCP and their patients and reduce disease
burden and healthcare costs. Results of several studies indicate that
higher vaccination coverage among HCP is associated with lower
incidence of nosocomial influenza.^{18 19 20} Such findings
have led some to call for mandatory influenza vaccination of
HCP.^{21 22 23 24 25}
---------------------------------------------------------------------------

\17\ Wilde JA, McMillan JA, Serwint J, Butta J, O'Riordan MA,
Steinhoff MC., Effectiveness of influenza vaccine in health care
professionals: a randomized trial. The Journal of the American
Medical Association 1999; 281:908-913.
\18\ Salgado CD, Giannetta ET, Hayden FG, Farr BM., Preventing
influenza by improving the vaccine acceptance rate of clinicians.
Infection Control and Hospital Epidemiology 2004; 25: 923-928.
\19\ Potter J, Stott DJ, Roberts MA, et al., Influenza
vaccination of health-care workers in long-term-care hospitals
reduces the mortality of elderly patients. Journal of Infectious
Diseases 1997; 175:1-6.
\20\ Hayward AC, Harling R, Wetten S, et al., Effectiveness of
an influenza vaccine programme for care home staff to prevent death,
morbidity, and health service use among residents: cluster
randomised controlled trial. British Medical Journal 2006; 333:1241-
1246.
\21\ Talbot TR, Bradley SF, Cosgrove SE, et al., SHEA position
paper: Influenza vaccination of healthcare workers and vaccine
allocation for healthcare workers during vaccine shortages.
Infection Control and Hospital Epidemiology 2005; 26:882-890
\22\ American College of Physicians (ACP), ACP policy on
influenza vaccination of health care workers. http://www.acponline.org/running_practice/quality_improvement/projects/adult_immunization/flu_hcw.pdf
\23\ Greene LR, Cain TA, Dolan SA et al., APIC position paper:
influenza immunization of healthcare personnel. Association of
Professionals in Infection Control (APIC). November 2008. http://www.apic.org/Content/NavigationMenu/PracticeGuidance/Topics/Influenza/APIC_Position_Paper_Influenza_11_7_08final_revised.pdf
\24\ National Patient Safety Foundation (NPSF), Mandatory flu
vaccinations for healthcare workers. Press Release, November 18,
2009. http://www.npsf.org/pr/pressrel/2009-11-18.php
\25\ Infectious Diseases Society of America (IDSA), IDSA policy
on mandatory immunization of health care workers against seasonal
and 2009 H1N1 influenza. Infectious Diseases Society of America
(IDSA). September 30, 2009. http://www.idsociety.org/HCWimmunization/
---------------------------------------------------------------------------

Until recently, vaccination coverage among HCP has been well below
the national Healthy People 2010 target of

[[Page 51632]]

60 percent,\26\ but preliminary data suggest 62 percent of HCP reported
receiving seasonal influenza vaccine in 2009-2010.\27\ Only 37 percent
reported receiving the 2009 pandemic A/H1N1 vaccine.\28\
---------------------------------------------------------------------------

\26\ Walker FJ, Singleton JA, Lu P, Wooten KG, Strikas RA.,
Influenza vaccination of healthcare workers in the United States,
1989-2002. Infection Control and Hospital Epidemiology 2006; 27:257-
265.
\27\ http://www.cdc.gov/mmwr/preview/mmwrhtml/rr55e209a1.htm
Influenza Vaccination of Health-Care Personnel.
Recommendations of the Healthcare Infection Control Practices
Advisory Committee (HICPAC) and the Advisory Committee on
Immunization Practices.
\28\ Centers for Disease Control and Prevention., Interim
results: Influenza A (H1N1) 2009 and Monovalent Seasonal Influenza
Vaccination Coverage Among Health-Care Personnel--United States
August 2009- January 2010. Morbidity and Mortality Weekly Report
(MMWR); 59:357-362. Available at: http://www.cdc.gov/mmwr/preview/mmwrhtml/mm5912a1.htm.
---------------------------------------------------------------------------

HCP refers to all personnel working in healthcare settings who have
the potential for exposure to patients and/or to infectious materials,
including body substances, contaminated medical supplies and equipment,
contaminated environmental surfaces, or contaminated air.\29\ HCP may
include (but are not limited to) physicians, nurses, nursing
assistants, therapists, technicians, emergency medical service
personnel, dental personnel, pharmacists, laboratory personnel, autopsy
personnel, students and trainees, contractual staff not employed by the
healthcare facility, and persons (for example, clerical, dietary,
house-keeping, laundry, security, maintenance, billing, and volunteers)
not directly involved in patient care but potentially exposed to
infectious agents that can be transmitted to and from HCP and patients.
Settings in which HCP may work include, but are not limited to, acute
care hospitals, long-term care facilities, skilled nursing facilities,
rehabilitation centers, physicians' offices, urgent care centers,
outpatient clinics, home health agencies, and emergency medical
services.
---------------------------------------------------------------------------

\29\ Adapted from: Pearson ML., Bridges CB., Harper SA.,:
Influenza vaccination of health-care personnel: Recommendations of
the Healthcare Infection Control Practices Advisory Committee
(HICPAC) and the Advisory Committee on Immunization Practices
(ACIP). Morbidity and Mortality Weekly Report (MMWR) 2006; 55:1-16.
Available at: http://www.cdc.gov/mmwr/preview/mmwrhtml/rr5502a1.htm.
---------------------------------------------------------------------------

Currently, four States have ``offer'' laws for influenza
vaccination of HCP, meaning that vaccine must be offered to HCP by
healthcare facilities; and three States (Alabama, California, and New
Hampshire) have ``ensure'' laws for influenza vaccination of HCP,
meaning that vaccination of non-immune HCP is mandatory in the absence
of a specified exemption or refusal; and, additionally, numerous
hospitals and other healthcare facilities have established policies
requiring mandatory influenza vaccination of their HCP.\30\
---------------------------------------------------------------------------

\30\ For additional information regarding healthcare facilities'
influenza vaccine policies, please see: http://www.immunize.org/honor%2Droll/.
---------------------------------------------------------------------------

Currently, no State requires that hospitals report this measure to
NHSN. However, approximately 13 hospitals (including long term acute
care and rehabilitation), outpatient hemodialysis centers, long term
care facilities, and ambulatory surgical centers are currently
reporting HCP immunization data to NHSN. In September 2009, CDC
released the Healthcare Personnel Safety (HPS) Component of NHSN, which
complements Patient Safety and Biovigilance components available in
NHSN. The HPS Component replaced CDC's National Surveillance System for
Health Care Workers (NaSH) and is comprised of two modules: the Blood/
Body Fluid Exposure Module and the Influenza Vaccination and Management
and Exposure Module.\31\ Currently, participation in either module is
voluntary. The current Influenza Vaccination and Management and
Exposure Module may soon offer options for healthcare facilities to
submit vaccination summary data. NHSN plans to partner with vendor-
based surveillance systems to permit periodic data extractions into
NHSN.
---------------------------------------------------------------------------

\31\ Available at: http://www.cdc.gov/nhsn/hps.html.
---------------------------------------------------------------------------

The modules feature basic, custom, and advanced analysis
capabilities available in real-time, which allow individual healthcare
facilities to compile and analyze their own data, as well as benchmark
these results to aggregate NHSN estimates. The HPS Component can assist
participating facilities in developing surveillance and analysis
capabilities to permit the timely recognition of HCP safety problems
and prompt interventions with appropriate measures. Influenza
vaccination data submitted to CDC will ultimately capture regional
trends on the yearly uptake of the vaccine, prophylaxis and treatment
for healthcare personnel, as well as the elements within yearly
influenza campaigns that succeed or require improvement. At the State
and national levels, the HPS Component will aid in monitoring rates and
trends.
We proposed to adopt the Healthcare Provider Influenza Vaccination
measure that is currently collected by the CDC via the NHSN because of
its importance in preventing influenza not only among healthcare
workers but also among the patients that they attend. As stated
earlier, this measure assesses the percent of Healthcare Personnel
employed at the facility that received a prophylactic vaccination for
influenza. Detailed specifications for the proposed measure are
available at: http://www.cdc.gov/nhsn/PDFs/HSPmanual/HPS_Manual.pdf.
As we also stated above, this measure is NQF-endorsed for the hospital
setting. The proposed reporting mechanism for this proposed HAI measure
is discussed in greater detail in section IV.A.5.i. of the FY 2012
IPPS/LTCH PPS proposed rule. We invited public comment on this proposed
HAI measure.
Comment: Many commenters fully supported the proposed measure and
stated that the measure will promote efforts in improving hospitals
influenza vaccination rates and patient safety. Some commenters urged
CMS to adopt this measure for the FY 2014 payment determination.
Commenters recommended additional measures for other vaccines that
prevent highly communicable diseases, such as pertussis, and diseases
such as hepatitis B. A commenter strongly supported the adoption of
this measure for the Hospital VBP Program. Finally, a commenter
recommended that CMS adopt an adult immunization composite measure that
is endorsed by NQF.
Response: We thank the commenters for their recognition of the
significance of this measure and for their strong support of the
measure. Because the measure is scheduled to undergo NQF maintenance,
we proposed to begin collection of the measure for the Hospital IQR
Program in 2013 (FY 2015 payment determination) rather than 2012 (FY
2014 payment determination) as suggested by the commenter in order to
ensure that necessary revisions to the specifications are in place
before the start of collection. We will consider the commenters'
suggestions for additional measure topics as we select future measures.
Comment: Many commenters supported the public reporting of this
proposed measure. However, a commenter was concerned that the
collection of data via NHSN is redundant and labor intensive because
the current specifications of the NHSN system require hospitals to
submit detailed data on every employee, rather than aggregated data on
vaccination rates. Some commenters believed that most hospitals already
have a database to track employee vaccination status. The commenters
recommended that CMS either identify an alternative NQF-endorsed
measure or postpone the

[[Page 51633]]

adoption of the measure in the Hospital IQR Program until the CDC has
completed and fully tested the summary data collection tool. A few
commenters suggested delaying the proposed measure until data can be
collected via EHRs. A few commenters believed that current NQF-endorsed
measures specifying the reporting of the vaccination status of all
healthcare personnel are too labor-intensive. Commenters recommended
that CMS either adopt a simplified definition of the measure that
focuses solely on hospital employees and excludes contracted staff, or
allow hospitals to submit summary data on HCP rates, ideally from
existing databases, to reduce burden. Commenters also suggested that
CMS allow for external factors outside of the facilities control (for
example, vaccination shortage).
Response: The measure is currently being respecified by the CDC to
eliminate unnecessary burden on hospitals. CDC will be adding aggregate
reporting of healthcare personnel influenza vaccination coverage to
NHSN and has submitted a proposed measure to NQF that uses aggregate
reporting in the measure proposal. The scope of the proposed
respecified measure is hospital employees and credentialed non-
employees. These steps will enable hospitals--and other healthcare
facilities--to take advantage of aggregate reporting capacity that is
built into occupational health information systems. We are confident
that such revisions to the measure specifications will be fully
implementable by the proposed FY 2015 payment determination. This is a
change to how the measure is reported to NHSN (reporting on the
influenza vaccination coverage of at the facility level, rather than
for individual personnel at the facility, and is not a change in the
substance of the measure itself).
After consideration of the public comments received, we are
finalizing the HCP Influenza Vaccination measure for the FY 2015
payment determination. Required data collection for the FY 2015 payment
determination will cover the period from January 1, 2013 through March
31, 2013. For future payment determinations, data collection will cover
the period from October 1 through March 31st to coincide with the flu
season.
(B) New Chart-Abstracted Measures for the FY 2015 Payment Determination
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25903 through
25907), we proposed to adopt two sets of chart-abstracted measures for
the FY 2015 payment determination: the Stroke and Venous
Thromboembolism (VTE) measure sets. All of these proposed measures have
either previously been proposed for the Hospital IQR Program, or have
been listed as being under consideration for future adoption into the
program. In addition, with one exception (STK-1: VTE Prophylaxis), all
of the measures in these two measure sets have been electronically
specified and are among the measures adopted for the EHR Incentive
Program for eligible hospitals. While we proposed to adopt these for
chart-abstracted submission in 2013 for the FY 2015 payment
determination, we believe that by a future date, such as 2015,
hospitals will be able to switch to EHR-based submission of these and
all other chart-abstracted measures submitted for the Hospital IQR
Program, and, as we discuss in greater detail below, we intend to work
toward this goal over the next few years.
The Stroke measure set we proposed to adopt consists of 8 measures;
and the VTE measure set consists of 6 measures. Both measure sets are
NQF-endorsed and their specifications are currently available in the
Specifications Manual, which can be found on QualityNet. We believe
that both of the proposed measure sets compliment the data elements in
our current SCIP VTE and AMI measure sets.
Comment: Many commenters supported the adoption of the Stroke
measure set and the VTE measure set into the Hospital IQR Program
because the measures in the sets are NQF-endorsed and HQA-adopted, and
they are used by The Joint Commission as core measure sets. Commenters
believed that the measures will provide meaningful information
regarding how well Stroke care and VTE care are being managed in a
hospital setting. The commenters further noted that the measure sets
are already e-specified for the meaningful use criteria under the EHR
Incentive Program. The commenters recommended delaying the adoption of
the measure sets until there is harmonization of the measure sets for
both the EHR Incentive Program and the Hospital IQR Program, so that
the reporting burden would be significantly reduced for hospitals. Some
commenters disagreed with CMS' assertion that the addition of measures
will align the Hospital IQR Program with the EHR Incentive Program
because the Stroke measure set and the VTE measure set calculations
derived from chart-based measure specifications are not the same as
those derived from e-measure specifications. The commenters believed
that any discrepancy in calculation of performance rates may lead to
confusion when they are publicly reported. Commenters recommended
comparison of data collected through manual abstraction and EHR-based
reporting to resolve discrepancies in calculations prior to display on
Hospital Compare.
Response: We thank the commenters for their support of the Stroke
measure set and the VTE measure set. Providing hospitals with one set
of harmonized specifications is a key goal for CMS for the future. We
are aware of the differences in the chart-abstracted and EHR e-measure
specifications, and have been working with relevant stakeholders to
remedy the situation. We also recognize that many hospitals
participating in the Hospital IQR Program have not adopted EHR
technology at this time. Therefore, we are finalizing our proposal to
include the chart-abstracted Stroke and VTE measure sets for data
collection beginning with January 1, 2013 discharges.
We also thank the commenters for their recommendations. We plan to
update the Specifications Manual's chart-abstracted specifications for
the stroke clinical quality measure set in order to align with the
electronic specifications for these measures. As we move towards
alignment and harmonization of clinical quality measures reporting
among federal reporting initiatives, we plan to compare, test, and
align these reporting specifications using different data sources.
(i) Stroke Measure Set
Stroke is a topic of great relevance to the Medicare population due
to its impact on morbidity and mortality, and it is an area with great
potential for quality improvement for hospitals caring for stroke
patients. Stroke is the third most common cause of death in the United
States and is one of the top 20 conditions contributing to Medicare
costs. Approximately 8 to 12 percent of ischemic strokes are fatal,\32\
and mortality following stroke is influenced by the quality of care
provided to patients during their initial hospitalization.\33\ In the
FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43873), we listed 8
Stroke measures as being under consideration for adoption for the FY
2012 Hospital IQR payment determination. Numerous commenters encouraged
us to adopt the listed stroke

[[Page 51634]]

measures which they see as evidence-based measures that accurately
measure the care of the stroke patient (74 FR 43875 through 43876).
Commenters believed that the measures are widely recognized for their
roles in minimizing secondary strokes and other complications.
---------------------------------------------------------------------------

\32\ American Heart Association, Heart Disease and Stroke
Statistics--2009 Update. American Heart Association, 2009: p. 1-36.
\33\ Weir, N.U., et al., Variations between countries in outcome
after stroke in the International Stroke Trial (IST). Stroke, 2001.
32(6): p. 1370-7.
---------------------------------------------------------------------------

We proposed to adopt a stroke measure set with 8 NQF-endorsed
process of care measures for the FY 2015 payment determination. The
table below lists and describes each of these eight proposed measures.

8 Proposed Stroke Measures
------------------------------------------------------------------------

------------------------------------------------------------------------
STK-1: Venous Thromboembolism (VTE) Percent of patients with an
Prophylaxis for patients with ischemic stroke or a hemorrhagic
ischemic or hemorrhagic stroke. (NQF stroke and who are non-
0434). ambulatory should start
receiving DVT prophylaxis by end
of hospital day two.
STK-2: Ischemic stroke patients Percent of patients with an
discharged on antithrombotic ischemic stroke prescribed
therapy. (NQF 0435). antithrombotic therapy at
discharge.
STK-3: Anticoagulation therapy for Percent of patients with an
atrial fibrillation/flutter. (NQF ischemic stroke with atrial
0436). fibrillation discharged on
anticoagulation therapy.
STK-4: Thrombolytic Therapy for Acute Percent of acute ischemic stroke
ischemic stroke patients. (NQF patients who arrive at the
0437). 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.
STK-5: Antithrombotic therapy by the Percent of patients with ischemic
end of hospital day two. (NQF 0438). antithrombotic therapy by the
end of hospital day two.
STK-6: Discharged on statin Percent of ischemic stroke
medication. (NQF 0439). 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.
STK-8: Stroke education. (NQF 0440). 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.
STK-10: Assessed for rehabilitation Percent of patients with an
services. (NQF 0441). ischemic stroke or hemorrhagic
stroke who were assessed for
rehabilitation services.
------------------------------------------------------------------------

Because the NQF is the entity that holds a contract with the
Secretary under section 1890(a) of the Act, measures that are endorsed
by the NQF meet the requirement for measure selection under section
1886(b)(3)(B)(viii)(IX)(aa) of the Act. Aside from the consideration of
NQF endorsement, we believe that the inclusion of the proposed stroke
measure set in the Hospital IQR Program would provide a comprehensive
view of how well stroke care is being managed in a hospital setting. As
stated earlier, detailed measure specifications for these 8 proposed
measures are available in the Specifications Manual located in
QualityNet. We invited public comment on the proposed stroke measure
set.
Comment: A commenter stated that there are errors in the e-
specifications of the Stroke measure set and requested corrections of
the errors to avoid variability of rates caused by discrepancy in
measure specifications.
Response: We have received public comments identifying a number of
issues and questions about the electronic specifications for the Stroke
related HITSP measure specifications listed in TN906/v1.0. We are
working with the measure steward to make updates to these electronic
specifications and will notify the public when the updates are
published. In the future, we anticipate that electronic specification
review will be part of the NQF measure endorsement process.
After consideration of the public comments we received, we are
finalizing the Stroke measure set for the FY 2015 payment
determination.
(ii) VTE Measure Set
It is widely agreed that VTE is the number one preventable cause of
hospital death in the United States and the cost of VTE when it occurs
is very high. A recent study from AHRQ in Health Affairs highlighted
that when an acute VTE event occurs, it increases the costs of care by
25 percent. In 2008, the Surgeon General issued a Call to Action to
Prevent Deep Vein Thrombosis and Pulmonary Embolism. (This document can
be found at: http://www.surgeongeneral.gov/topics/deepvein/calltoaction/call-to-action-on-dvt-2008.pdf.) VTE prevention with
pharmacologic agents can impact the cost effectiveness of care.
Specifically, patients who received anti-coagulant medication during
hospitalization have less likelihood of recurrence of VTEs upon
discharge to home. Parenteral anticoagulation is the first line of
therapy because of its rapid onset of action. Because the oral
anticoagulant medication has a very slow onset of action, it cannot be
used as mono-therapy for acute VTE. A minimum of 5 days of parenteral
anticoagulation is recommended as ``overlap therapy'' while oral
anticoagulant medication is being initiated. More thrombotic
complications and higher costs are associated with treatment in
patients demonstrating a subtherapeutic aPTT. Unfractionated Heparin
(UFH) Dosages/Platelet Count Monitoring by Protocol (or Nomogram) has
significantly advanced the use of UFH with the demonstrated ability to
achieve therapeutic aPTTs more rapidly than with standard UFH dosing.
When this occurs, patients can be discharged sooner. However,
anticoagulation therapy poses risks to patients and often leads to
adverse drug events due to complex dosing, requisite follow-up
monitoring and inconsistent patient compliance. The use of standardized
practices for anticoagulation therapy that includes patient/caregiver
involvement may reduce the risk of adverse drug events.
The Hospital IQR Program currently has 2 measures of VTE
prophylaxis for surgical patients (SCIP-VTE-1: Venous thromboembolism
(VTE) prophylaxis ordered for surgery patients; and SCIP-VTE-2: VTE
prophylaxis within 24 hours pre/post surgery) in the SCIP measure set.
In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43873), we
listed 5 VTE measures (VTE-1: Venous thromboembolism prophylaxis; VTE-
3: Venous thromboembolism patients with anticoagulation overlap
therapy; VTE-4: Venous thromboembolism patients receiving
unfractionated heparin with dosages/platelet count monitoring by
protocol; VTE-5: Venous thromboembolism discharge instructions; and
VTE-6: Incidence of

[[Page 51635]]

potentially-preventable venous Thromboembolism) as possible new
measures for the FY 2012 payment determination. In the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50213 through 50218), we listed 6 VTE
measures (VTE-1: Venous thromboembolism prophylaxis; VTE-2: Intensive
care unit venous thromboembolism prophylaxis; VTE-3: Venous
thromboembolism patients with anticoagulation overlap therapy; VTE-4:
Venous thromboembolism patients receiving unfractionated heparin with
dosages/platelet count monitoring by protocol; VTE-5: Venous
thromboembolism discharge instructions; and VTE-6: Incidence of
potentially-preventable venous thromboembolism) as measures we were
considering for possible future adoption into the program.
We proposed to adopt for the FY 2015 Hospital IQR measure set 6 VTE
measures which are aimed at preventing the incidence of potentially
preventable VTE. These 6 measures are listed and described below.

6 Proposed Venous Thromboembolism (VTE) Measures
------------------------------------------------------------------------

------------------------------------------------------------------------
VTE-1: Venous thromboembolism Percent of patients who received VTE
prophylaxis (NQF 0371). prophylaxis or have documentation
why no VTE prophylaxis was given
the day of or the day after
hospital admission or surgery end
date for surgeries that start the
day of or the day after hospital
admission.
VTE-2: Intensive care unit venous Percent of patients who received VTE
thromboembolism prophylaxis (NQF prophylaxis or have documentation
0372). why no VTE prophylaxis was given
the day of or the day after the
initial admission (or transfer) to
the Intensive Care Unit (ICU) or
surgery end date for surgeries that
start the day of or the day after
ICU admission (or transfer).
VTE-3: Venous thromboembolism Percent of patients diagnosed with
patients with anticoagulation confirmed VTE who received an
overlap therapy (NQF 0373). [IV] or subcutaneous [subcu])
anticoagulation and warfarin
therapy. For patients who received
less than 5 days of overlap
therapy, they must be discharged on
both medications. Overlap therapy
must be administered for at least 5
days with an international
normalized ratio (INR) = 2 prior to
discontinuation of the parenteral
anticoagulation therapy or the
patient must be discharged on both
medications.
VTE-4: Venous thromboembolism Percent of patients diagnosed with
patients receiving unfractionated confirmed VTE who received
heparin with dosages/platelet intravenous (IV) UFH therapy
count monitoring by protocol (NQF dosages AND had their platelet
0374). counts monitored using defined
parameters such as a nomogram or
protocol.
VTE-5: Venous thromboembolism Percent of patients diagnosed with
discharge instructions (NQF confirmed VTE that are discharged
0375). to home, to home with home health
or home hospice on warfarin with
written discharge instructions that
address all four criteria:
Compliance issues, dietary advice,
follow-up monitoring, and
information about the potential for
adverse drug reactions/
interactions.
VTE-6: Incidence of potentially- Percent of patients diagnosed with
preventable venous confirmed VTE during
Thromboembolism (NQF 0376). arrival) who did not receive VTE
prophylaxis between hospital
admission and the day before the
VTE diagnostic testing order date.
------------------------------------------------------------------------

These 6 measures were endorsed in a 2008 NQF project titled:
National Voluntary Consensus Standards for Prevention and Care of
Venous Thromboembolism: Additional Performance Measures. Because the
NQF is the entity that holds a contract with the Secretary under
section 1890(a) of the Act, measures that are endorsed by the NQF meet
the requirement for measure selection under section
1886(b)(3)(B)(viii)(IX)(aa) of the Act. Aside from the consideration of
NQF-endorsement, we believe that the inclusion of the VTE measure set
in the Hospital IQR Program would provide a comprehensive view of how
well VTE care is being managed in a hospital setting. Detailed measure
specifications for these 6 proposed measures are available in the
Specifications Manual located on QualityNet. We invited public comment
on the proposed VTE measure set.
Comment: One commenter supported the adoption of VTE 1, VTE 2, and
VTE 3 but noted that the excluded populations in the denominator of the
measures need to be expanded so that the compliance rates can be better
portrayed. One commenter opposed the adoption of VTE 4 and VTE 5
because the commenter believed that the level of detail being reported
does not meet the objectives of the Hospital IQR Program. Further, the
commenter recommended that VTE 6 not be adopted because the commenter
believed that the definition is not consistent with epidemiological
principles.
Response: VTE is a condition that can be reasonably prevented by
following evidence based guidelines, which are the basis for the VTE
measure set. We believe including this VTE measure set will encourage
broad use of VTE prophylaxis in both medical and surgical patients. VTE
1, VTE 2, and VTE 3 address appropriate preventive treatment for
surgical patients, patients in the ICU, and patients on anticoagulants.
VTE 4 and VTE 5 assess important factors in VTE prophylaxis. VTE 4
seeks to encourage hospitals to use a standardized tool for the
titration of VTE prophylactic agents to achieve appropriate levels of
effectiveness. The use of a nomogram or standardized protocol may
reduce the incidence of adverse events related to non-therapeutic blood
levels. VTE 5 is a measure of patient education related to VTE and
prophylaxis including follow up care, dietary restrictions, and adverse
interactions. VTE 6 is an important measure of the incidence of VTE in
the hospitalized patient. Therefore, we are finalizing the adoption of
the VTE measure set for discharges beginning on or after January 1,
2013.
Comment: One commenter urged CMS to separately report on Hospital
Compare measure rates calculated using e-specifications and measure
rates calculated using chart-abstracted data.
Response: We thank the commenter for the suggestion. Currently the
e-specifications are not used for Hospital IQR, but are used for
Medicare EHR Incentive Programs. We currently do not post measure rates
for Medicare EHR Incentive Programs on the Hospital Compare Web site.
We will continue to post measure data collected as part of the Hospital
IQR and Hospital VBP Programs on the Hospital Compare Web site.
Comment: One commenter stated that the reporting of 76 measures by
FY 2015 is a resource and data burden for hospitals.
Response: We anticipate that once hospitals have acquired the
capability to submit data on measures electronically in a future date
such as 2015, the burden will be reduced significantly.

[[Page 51636]]

After consideration of the public comments we received, we are
finalizing the proposed VTE measure set for the FY 2015 payment
determination. Data collection will begin with discharges on or after
January 1, 2013.
In summary, after consideration of the public comments received, we
are finalizing the retention of 59 measures for the FY 2014 measure
set, and adding 17 new measures to the measure set for the FY 2014
payment determination: 3 HAI measures collected through the NHSN, (MRSA
Bacteremia, C. difficile SIR, and the Healthcare Personnel Influenza
Vaccination), the Stroke measure set (8 measures) and the VTE measure
set (6 measures). As a result, there will be a total of 76 measures in
the FY 2015 Hospital IQR measure set, but we will only be collecting
data on 72 of those measures for purposes of the FY 2015 payment
determination. The 76 measures are listed below, and the 4 measures for
which we will not be collecting data are designated with the word
``SUSPENDED.''

------------------------------------------------------------------------
Hospital IQR program measures for FY
Topic 2015 payment determination
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI) AMI-1 Aspirin at arrival
Measures. [SUSPENDED].
AMI-2 Aspirin prescribed at
discharge.
AMI-3 ACEI/ARB for left
ventricular systolic dysfunction
[SUSPENDED].
AMI-5 Beta-blocker
prescribed at discharge
[SUSPENDED].
AMI-7a Fibrinolytic
(thrombolytic) agent received
within 30 minutes of hospital
arrival.
AMI-8a Timing of Receipt of
Primary Percutaneous Coronary
Intervention (PCI).
AMI-10 Statin Prescribed at
Discharge.
Heart Failure (HF) Measures....... HF-1 Discharge
instructions.
HF-2 Evaluation of left
ventricular systolic function.
HF-3 Angiotensin Converting
Enzyme Inhibitor (ACE-I) or
Angiotensin II Receptor Blocker
(ARB) for left ventricular systolic
dysfunction.
Stroke Measure Set................ STK-1 VTE prophylaxis.**
STK-2 Antithrombotic
therapy for ischemic stroke.**
STK-3 Anticoagulation
therapy for Afib/flutter.**
STK-4 Thrombolytic therapy
for acute ischemic stroke.**
STK-5 Antithrombotic
therapy by the end of hospital
day.**
STK-6 Discharged on
Statin.**
STK-8 Stroke education.**
STK-10 Assessed for
rehab.**
VTE Measure Set................... VTE-1 VTE prophylaxis.**
VTE-2 ICU VTE
prophylaxis.**
VTE-3 VTE patients with
anticoagulation overlap therapy.**
VTE-4 Patients receiving un-
fractionated Heparin with doses/
labs monitored by protocol.**
VTE-5 VTE discharge
instructions.**
VTE-6 Incidence of
potentially preventable VTE.**
Pneumonia (PN) Measures........... PN-3b Blood culture
performed in the emergency
department prior to first
antibiotic received in hospital.
PN-6 Appropriate initial
antibiotic selection.
Surgical Care Improvement Project SCIP INF-1: Prophylactic
(SCIP) Measures. antibiotic received within 1 hour
prior to surgical incision.
SCIP INF-2: Prophylactic
antibiotic selection for surgical
patients.
SCIP INF-3: Prophylactic
antibiotics discontinued within 24
hours after surgery end time (48
hours for cardiac surgery).
SCIP INF-4: Cardiac surgery
patients with controlled 6AM
postoperative serum glucose.
SCIP INF-6: Appropriate
Hair Removal [SUSPENDED].
SCIP INF-9: Postoperative
urinary catheter removal on post
operative day 1 or 2 with day of
surgery being day zero.
SCIP INF-10: Surgery
patients with perioperative
temperature management.
SCIP Cardiovascular-2:
Surgery Patients on a Beta Blocker
prior to arrival who received a
Beta Blocker during the
perioperative period.
SCIP INF-VTE[dash]1:
Surgery patients with recommended
Venous Thromboembolism (VTE)
prophylaxis ordered.
SCIP-VTE[dash]2: Surgery
patients who received appropriate
VTE prophylaxis within 24 hours pre/
post surgery.
Mortality Measures (Medicare Acute Myocardial Infarction
Patients). (AMI) 30-day mortality rate.
Heart Failure (HF) 30-day
mortality rate.
Pneumonia (PN) 30-day
mortality rate.
Patients' Experience of Care HCAHPS survey.
Measure.
Readmission Measures (Medicare Acute Myocardial Infarction
Patients). 30-day Risk Standardized
Readmission Measure.
Heart Failure 30-day Risk
Standardized Readmission Measure.
Pneumonia 30-day Risk
Standardized Readmission Measure.
AHRQ Patient Safety Indicators PSI 06: Iatrogenic
(PSIs), Inpatient Quality pneumothorax, adult.
Indicators (IQIs) and Composite PSI 11: Post Operative
Measures. Respiratory Failure.
PSI 12: Post Operative PE
or DVT.
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.
Complication/patient safety
for selected indicators
(composite).
Mortality for selected
medical conditions (composite).
AHRQ PSI and Nursing Sensitive PSI-4 Death among surgical
Care. inpatients with serious treatable
complications.
Structural Measures............... Participation in a
Systematic Database for Cardiac
Surgery.
Participation in a
Systematic Clinical Database
Registry for Stroke Care.

[[Page 51637]]

Participation in a
Systematic Clinical Database
Registry for Nursing Sensitive
Care.
Participation in a
Systematic Clinical Database
Registry for General Surgery.*
Healthcare-Associated Infections Central Line Associated
Measures. Bloodstream Infection.
Surgical Site Infection.
Catheter-Associated Urinary
Tract Infection.*
MRSA Bacteremia.**
Clostridium difficile (C.
difficile).**
Healthcare Provider
Influenza Vaccination.**
Hospital Acquired Condition Foreign Object Retained
Measures. After Surgery.
Air Embolism.
Blood Incompatibility.
Pressure Ulcer Stages III &
IV.
Falls and Trauma:
(Includes: Fracture Dislocation
Intracranial Injury Crushing Injury
Burn Electric Shock).
Vascular Catheter-
Associated Infection.
Catheter-Associated Urinary
Tract Infection (UTI).
Manifestations of Poor
Glycemic Control.
Emergency Department Throughput ED-1 Median time from
Measures. emergency department arrival to
time of departure from the
emergency room for patients
admitted to the hospital.
ED-2 Median time from admit
decision to time of departure from
the emergency department for
emergency department patients
admitted to the inpatient status.
Prevention: Global Immunization Immunization for Influenza.
Measures. Immunization for Pneumonia.
Cost Efficiency................... Medicare Spending per
Beneficiary.*
------------------------------------------------------------------------
* New quality measures for the FY 2014 payment determination.
** New quality measures for FY 2015 payment determination.

4. Possible New Quality Measures and Measure Topics for Future Years
We anticipate that as EHR technology evolves, and more
infrastructure is put in place, we will have the capacity to accept
electronic reporting of all of the clinical chart-abstracted measures
that are currently part of the Hospital IQR Program or have been
proposed for adoption into the program. We intend for this future
progress to significantly reduce the administrative burden on hospitals
under the Hospital IQR Program. We recognize that considerable work
needs to be done by measure owners and developers to make this possible
with respect to the clinical quality measures that we proposed. This
includes completing electronic specifications for measures, pilot
testing, reliability, and validity testing, and implementing such
specifications into EHR technology to capture and calculate the
results, and implementing the systems. We believe that at a future
date, such as 2015, CMS and hospitals will be able to switch to
complete EHR-based reporting of all chart-abstracted measures to CMS
for the Hospital IQR Program, and we intend to work diligently toward
this goal. We believe this will simplify measure collection and
submission for the Hospital IQR Program, and will reduce the burden on
hospitals. We invited public comment and suggestions on this topic.
In future rules, it is our intention to propose to adopt outcome
measures for stroke and joint replacement surgery which we have
developed and anticipate submitting for NQF review. In addition, we
intend to propose additional HAI measures as they gain NQF endorsement.
We also invited public comment on the following quality measures and
topics set out below that we are considering for the future. We seek to
limit the number of chart-abstracted measures and topics in the near
future, in order to facilitate the transition to EHR-based reporting.

Possible Hospital IQR Program Future Measures and Topics
------------------------------------------------------------------------
Measurement topic Measure title/description/concept
------------------------------------------------------------------------
Mortality/Complications.............. Acute stroke 30-day
mortality rate.
Total Hip and Total Knee
arthroplasty 30-day
complications.
Readmissions......................... Stroke 30-Day Risk
Standardized Readmission
Measure.
Total Hip and Total Knee
Arthroplasty 30-Day Risk
Standardized Readmission
Measure.
Patient Safety....................... Surgical checklist use
for surgical procedures.
NQF approved Serious
Reportable Events.
Medication Safety.................... Universal Documentation
and Verification of Current
Medications in the Medical
Record.
Drug-Drug interaction.
Medication
Reconciliation.
Surgical Outcome Measures............ Lower Extremity Bypass
Complications.
ICD Complications.
Risk Adjusted Case Mix
Adjusted Elderly surgery
outcomes.
Risk Adjusted Case Mix
Adjusted Colorectal surgery
outcomes.
Healthcare-Associated Infections..... Ventilator Associated
Pneumonia.
Post Procedure
Pneumonias.
Multi Drug Resistant
Organisms--VRE, Klebsiella,
Acinetobacter.
Readmissions......................... COPD 30-day Risk
Standardized Readmission Rate.
CABG 30-day Risk
Standardized Readmission Rate.
Other Vascular Condition
30-day Risk Standardized
Readmission.
Percutaneous Coronary
Intervention (PCI) 30-day Risk
Standardized Readmission Rate.

[[Page 51638]]

All-Patient Condition-
Specific Readmission Rates for
AMI, Heart Failure, Pneumonia,
CABG, COPD, PCI, other vascular
conditions.
All-condition 30-day
readmission rate.
Average Length of Stay............... Overall inpatient
hospital average length of stay
(ALOS) and ALOS by medical
service category.
Mortality............................ 30-day Risk Standardized
Mortality Rate following PCI for
STEMI/shock patients.
30-day risk-standardized
mortality rate following PCI for
non-STEMI/non-shock patients.
SCIP................................. Short Half-Life
prophylactic administered
preoperatively redosed within 4
hours after preoperative dose.
Care Coordination.................... Cardiac Rehabilitation
Referral for AMI, HF, Cardiac
Surgery.
Heart Failure........................ Symptom and Activity
Assessment.
Symptom Management.
Patient Education.
Combination Medical
Therapy for LVSD.
Beta Blocker Therapy for
LVSD.
Counseling Regarding ICD
for Patients with LVSD.
Tobacco & Alcohol Cessation.......... TAM-1: Tobacco Use
Screening.
TAM-2: Tobacco Use
Treatment.
TAM-3: Tobacco Use
Treatment Management at
Discharge.
TAM-4: Assessing Status
after Discharge.
TAM-5: Alcohol Use
Screening.
TAM-6: Alcohol Use Brief
Intervention.
TAM-7: Alcohol and other
Drug dependence--Treatment
Management at Discharge.
TAM-8: Substance Use--
Assessing Status after
Discharge.
Nursing Sensitive (remainder of NSC-2: Patients surveyed
measures). on an eligible reporting unit
that have at least one stage II
or greater [National Ulcer
Advisory Panel (NPUAP)]
nosocomial pressure ulcer on the
day of the prevalence study.
NSC-3: Number of patient
falls, with or without injury to
the patient, by type of Unit
during the calendar month x
1000.
NSC-4: Number of patient
falls with an injury level of
minor or greater by Type of Unit
during the calendar month x
1,000.
NSC-5: Patients surveyed
on the eligible reporting unit
that have a vest restraint and/
or limb restraint (upper or
lower or both) on the day of the
prevalence study.
NSC-12: Number of
productive hours worked as
specified in the Set Measure
Identifier.
NSC-13: Total number of
productive hours worked by
nursing staff (stratified by
type of certification RN, LPN/
LVN, UAP) with direct patient
care responsibilities by Type of
Unit during the calendar month.
NSC-14: Nursing
satisfaction survey.
NSC 15: The total number
of voluntary separations (as
specified under the Performance
Measure Identifier and
Description above) during the
calendar month.
Cardiac Surgery measures............. Post-operative Renal
Failure.
Surgical Re-exploration.
Anti-Platelet Medication
at Discharge.
Beta Blockade at
Discharge.
Anti-Lipid Treatment
Discharge (Statin at Discharge).
Risk-Adjusted Operative
Mortality for CABG.
Risk-Adjusted Operative
Mortality for Aortic Valve
Replacement (AVR).
Risk-Adjusted Operative
Mortality for Mitral Valve
Replacement/Repair (MVR).
Risk-Adjusted Operative
Mortality MVR+CABG Surgery.
Risk-Adjusted Operative
Mortality for AVR+CABG.
Surgical Volume--a.
Isolated Coronary Artery Bypass
Graft (CABG) Surgery, b. Valve
Surgery, c. CABG+Valve Surgery.
Timing of Antibiotic
Prophylaxis for Cardiac Surgery
Patients.
Selection of Antibiotic
Prophylaxis for Cardiac Surgery
Patients.
Pre-Operative Beta
Blockade.
Duration of Prophylaxis
for Cardiac Surgery Patients.
Prolonged Intubation
(ventilation).
Deep Sternal Wound
Infection Rate.
Stroke/Cerebrovascular
Accident.
CABG Composite Score.
------------------------------------------------------------------------

Comment: Commenters generally supported CMS adopting more outcome
measures in the future. The commenters further stated that CMS should
not dismiss process of care measures that have a direct link to outcome
measures.
Response: We thank the commenters for their suggestions which we
will take into consideration for future measures.
Comment: Many commenters were supportive of our proposed list of
future measures and measure topics.
Response: We thank the commenters for their support of our future
measure topics and will take their comments into consideration in our
selection of future measures.
Comment: Many commenters supported the inclusion of The Joint
Commission Smoking Cessation and Tobacco measure sets for the Hospital
IQR Program and recommended EHR-

[[Page 51639]]

based reporting for these measures. For future cardiac readmission
measures, one commenter recommended that CMS take into account the FDA-
approved new classes of medications for prevention of cardiac
readmissions and improvement of patient outcomes. One commenter
suggested that any 30-day ischemic stroke mortality or readmission
measure must include stroke severity as a risk-adjustment factor.
Response: We thank the commenters for their specific suggestions
and will consider them as we decide which measures to propose to adopt
in the future for the Hospital IQR Program.
Comment: Some commenters were opposed to some measures and measure
topics on our list of future measure and measure topics: One commenter
opposed the Nursing Sensitive Care measures and Readmission measures
for AMI, HF, PN, and PCI. One commenter opposed the adoption of the
ventilator associated pneumonia (VAP) measure because the commenter
believed that the definitions and diagnosis are problematic, and
opposed the adoption of the SCIP, and MDRO measures because they are
not NQF-endorsed. Two commenters were opposed to the care coordination
measure. A commenter opposed the adoption of the SCIP (process) measure
(short Half-Life prophylactic administered preoperatively redosed
within 4 hours after preoperative dose) because the related Surgical
Site Infection (SSI) outcome measure is already part of the Hospital
IQR Program.
Response: We thank the commenters for their recommendations and
will take them into consideration as we decide which measures to
propose to adopt in the future for the Hospital IQR Program.
Comment: Some commenters recommended measures that are not on our
list of future measures and measure topics. One commenter proposed a
new measure for hyponatremia. One commenter proposed a measure for AMI
and HF such as the NQF-endorsed Heart Failure (HF): Beta-blocker
therapy (NQF 0083). One commenter supported a surgical
checklist measure for Hospital IQR Program. One commenter recommended
NQF-endorsed wound care measures and malnutrition evaluation measures
if they are available. One commenter recommended adopting measures that
would indicate share-decision making in hospitals. One commenter
suggested a measure for Surgical Site Infection following
implementation of a CIED. One commenter recommended PTCA Readmission
measures. One commenter strongly urged CMS to adopt measures based on
registry data (for example, CABG), CTM-3, PAC measures, efficiency
measures, CAD and CHD measures, patient-reported outcomes, and cross-
cutting measures of care for patients with multiple chronic conditions.
Response: We appreciate all the suggestions for additional measures
and measure topics and will take them into consideration as we decide
which measures to propose to adopt in the future for the Hospital IQR
Program.
Comment: One commenter recommended that, in addition to current
reporting efforts, future reporting should strike a balance between
driving quality and system improvement as well as attempt to capture
the entire episode of care so that the quality of care and care
continuum can be better portrayed.
Response: We thank the commenter for the recommendation and will
take it into consideration as we decide which measures to propose to
adopt in the future for the Hospital IQR Program.
We thank the commenters for their comments and suggestions
regarding future Hospital IQR measure adoption.
5. Form, Manner, and Timing of Quality Data Submission
a. Background
Sections 1886(b)(3)(B)(viii)(I) and (II) of the Act state that the
applicable percentage increase, for FY 2007 and each subsequent fiscal
year, shall be reduced by 2.0 percentage points (or, beginning with FY
2015, by one-quarter of such applicable percentage increase (determined
without regard to sections 1886(b)(3)(B)(ix), (xi), or (xii) of the
Act) for any subsection (d) hospital that does not submit quality data
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: http://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.
In order to participate in the Hospital IQR Program, hospitals must
meet specific procedural requirements. Hospitals choosing to
participate in the Hospital IQR Program must also meet specific data
collection, submission, and validation requirements.
b. Procedural Requirements for FY 2012 Payment Determinations and
Subsequent Years
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25914 through
25920), we proposed Hospital IQR Program procedural requirements that
are, for the most part, the same as the procedures adopted in the FY
2011 IPPS/LTCH PPS final rule for the Hospital IQR Program. Hospitals
must comply with the following procedural requirements to participate--
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 (http://www.QualityNet.org).
Complete a Notice of Participation. New subsection (d)
hospitals and existing hospitals that wish to participate in the
Hospital IQR Program for the first time must complete an online Notice
of Participation (formerly known as ``Reporting Hospital Quality Data
for Annual Payment Update Notice of Participation,'' also referred to
as IPledge) that includes the name and address of each hospital campus
that shares the same CMS Certification Number (CCN). We revise the
Notice of Participation periodically as needed and provide appropriate
notification of any revisions to hospitals and QIOs through the routine
Hospital IQR Program communication channels, which include memo and e-
mail notification and QualityNet Web site articles and postings.
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 Hospital IQR Program and
has not otherwise submitted a Notice of Participation using the new CCN
must submit a completed Notice of Participation no later than 180 days
from the date identified as the open date (that is, the Medicare
acceptance date) on the approved CMS Quality Improvement Evaluation
System (QIES) (which we referred to in the proposed rule as the CMS
Online System Certification and Reporting (OSCAR) system) to
participate in the Hospital IQR Program. We proposed regulation text to
codify this requirement.
We will accept Hospital IQR Program withdrawal forms for
the FY 2013 payment determination from hospitals any time from October
1, 2011 until August 15, 2012. The August 15, 2012 deadline will give
us sufficient

[[Page 51640]]

time to update the FY 2013 payment to hospitals starting on October 1,
2012. If a hospital withdraws from the program for the FY 2013 payment
determination, it will receive a reduction of 2.0 percentage points to
the FY 2013 applicable percentage increase. Once a hospital has
submitted a Notice of Participation, it is considered to be an active
Hospital IQR Program participant until such time as the hospital
submits a withdrawal form to CMS.
We will determine if a hospital has complied with our data
submission requirements by looking at whether the hospital has properly
submitted data to the appropriate data warehouses for HCAHPS, CDC/NHSN,
chart-abstracted measures, and structural measure quality measure data
during the four calendar year quarters of FY 2012.
The Hospital IQR Program procedural requirements have remained
relatively unchanged for the past several years and we proposed to
codify them at 42 CFR 412.140. We invited public comment on this
proposal.
We received no comments on our proposal to codify the Hospital IQR
Program procedural requirements. Therefore, for the reasons described
above, we are codifying the Hospital IQR Program procedural
requirements at 42 CFR 412.140.
c. Procedural Requirements for FY 2013 and Subsequent Years
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25915), we
proposed that hospitals that have an open date (as noted on the
approved CMS OSCAR system/QIES) before March 31, 2009 that did not
participate in the Hospital IQR Program in FY 2011 or FY 2012 but that
wish to participate in the Hospital IQR Program for the FY 2013 payment
determination must submit a completed Notice of Participation to CMS on
or before December 31, 2011. 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
Hospital IQR Program while also enabling us to collect enough data from
them to make an accurate FY 2013 payment determination. We proposed
regulation text that provides that hospitals that would like to
participate in the Hospital IQR Program for the first time, or that
previously withdrew from the program and would like to participate
again, must submit to CMS a completed Notice of Participation Form by
December 31 of the fiscal year preceding the fiscal year in which they
would like to participate.
We received no comments regarding the proposal to require hospitals
to submit a completed Notice of Participation Form by December 31 of
the fiscal year preceding the fiscal year in which they would like to
participate. Therefore, for the reasons described above, we will
require a completed Notice of Participation Form by December 31 of the
fiscal year preceding the fiscal year in which they would like to
participate.
d. Data Submission Requirements for Chart-Abstracted Measures
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 2525915), we
proposed to reduce the quarterly submission deadline for chart-
abstracted quality measures from 4\1/2\ months to 104 days. In other
words, for FY 2014 payment determinations, the quarterly deadline for
the quality measures under the topic that require chart abstraction
(AMI, HF, PN, SCIP, Emergency Department Throughput (EDT), and Global
Immunization (GIM)) will be 104 days following the last discharge date
in the calendar quarter. We proposed to reduce the data submission
deadline in order to allow for a correction period, which we will
propose in future rulemaking. We also believe that this proposed change
will encourage hospitals to utilize quality measure information in a
more rapid manner to facilitate quality improvement. We also want to
provide hospitals sufficient notice of any proposed changes to our
submission deadline, since we recognize the advance time needed by
hospitals to modify their recordkeeping and abstraction practices to
comply with this proposed requirement. We also proposed to change the
aggregate population and sampling deadline from 4 months to 3 months to
align with the corresponding proposal to change the data submission
deadline from 135 to 104 days.
We will continue to require hospitals to submit aggregate
population and sample size counts to CMS on a quarterly basis for
Medicare and non-Medicare discharges for the topic areas for which
chart-abstracted data must be submitted (currently AMI, HF, PN, and
SCIP) (75 FR 50221). Starting with the FY 2014 payment determination,
we proposed to change the submission deadline for hospitals to submit
aggregate population and sample size count data for the measures
requiring chart abstraction from 4 months to 3 months following the
last discharge date in the calendar quarter. We proposed this 3-month
deadline for submission of the aggregate population and sample size
counts data to provide CMS with information necessary to notify
hospitals about their data completeness status. Specifically, we
currently provide a Provider Participation Report the day after the
submitted file is processed, which includes a calculation of the number
of hospital submitted cases by topic, hospital self-reported aggregate
population and sample size count, and Medicare FFS claims by clinical
topic and SCIP surgical category. We expect that hospitals will use
this report after submission to assess their patient-level data
completeness and will submit additional patient-level cases before the
proposed quarterly patient-level deadline. We proposed to provide
hospitals with the same 14-day period after the proposed aggregate
population and sample size count deadline to submit the required
patient-level records.
Comment: Several commenters opposed the shorter timeframes due to
the increased administrative burden that this would create for
hospitals.
Response: We appreciate the comment and are sensitive to the burden
faced by hospitals to meet the requirements under the Hospital IQR
Program. In the CY 2012 OPPS/ASC proposed rule (76 FR 42363 through
42365), we proposed to implement a review and corrections process for
the Hospital VBP Program that would give hospitals an opportunity to
review and correct data submitted on all Hospital IQR Program chart-
abstracted measures, whether or not those measures are adopted as
Hospital VBP Program measures. We noted that under the Hospital IQR
Program, hospitals currently have an opportunity to submit, review, and
correct any of the chart-abstracted information submitted to the QIO
Clinical Warehouse for the full 4\1/2\ months following the last
discharge date in a calendar quarter, although we also noted that we
had proposed to shorten this period. In response to the comments
stating that the shortened timeframe would increase the burden to
hospitals under the Hospital IQR Program, we re-examined the timing
issues that had prompted us to propose to shorten the period and
concluded that the existing 4\1/2\ month submission period would give
hospitals a sufficient amount of time to review and correct their
chart-abstracted data, and would also give us a sufficient amount of
time to perform our administrative functions. For this reason, we will
not finalize our proposal to shorten the chart-abstracted data
submission period to 104 days, and hospitals will continue to have 4\1/
2\ months following the last discharge date in a calendar quarter to
submit their

[[Page 51641]]

chart-abstracted data for that quarter. To be consistent with our
decision to retain the 4\1/2\ month data submission period, we will
also not finalize our proposal to shorten the aggregate population and
sampling deadline from 4 months to 3 months, and hospitals will
continue to have 4 months to submit this data.
Comment: One commenter expressed concern that the reduced
submission deadline would reduce the amount of time vendors have to
analyze, report and resubmit the various data files.
Response: We thank the commenter for their input and appreciate the
commenter's concern regarding the proposed reduced timeframes. For the
reasons stated above, we will not finalize our proposals to shorten the
chart-abstracted data submission deadline or the aggregate population
and sampling deadline.
Comment: A few commenters suggested that efforts be made to
synchronize reporting timeframes with other standard reporting
requirements, such as The Joint Commission's requirements and
timeframes.
Response: We believe that the reporting deadlines we have developed
for the Hospital IQR Program take into consideration both the burden to
hospitals and our administrative and operational needs. However, we
appreciate the commenters' suggestion to align our reporting deadlines
with the reporting deadlines imposed by other organizations and will
take it into consideration in developing future rulemaking.
Comment: Many commenters suggested that CMS shorten the data
submission timeline from 135 days to 122 days, not the proposed 104
days. These commenters asserted that this would build in time for a
data correction period while ensuring that hospitals are not
overwhelmed by a drastically shortened data collection period.
Response: We thank the commenters for their input. As noted above,
we are not finalizing our proposals to shorten the chart-abstracted
data submission deadline or the aggregate population and sampling
deadline. However, we will take the commenters' suggestions into
consideration in developing future rulemaking.
Comment: One commenter supported the reduction in submission days
because it would increase efficiency in the program. A few commenters
supported the opportunity to review and correct data and suggested the
reduced submission deadline was not a burden in exchange for the review
opportunity.
Response: We thank the commenters for supporting our proposals to
shorten the chart-abstracted data submission deadline and the aggregate
population and sampling deadline, however for the reasons noted above,
we will not be finalizing these proposals.
After consideration of the public comments we received, we will not
finalize our proposal to shorten the chart-abstracted data submission
period to 104 days, and hospitals will continue to have 4\1/2\ months
following the last discharge date in a calendar quarter to submit their
chart-abstracted data for that quarter. To be consistent with our
decision to retain the 4\1/2\ month data submission period, we will
also not finalize our proposal to shorten the aggregate population and
sampling deadline from 4 months to 3 months, and hospitals will
continue to have 4 months to submit this data.
We did not receive any comments on our proposal to continue
providing hospitals with 14 days after the aggregate population and
sample size count deadline to submit the required patient-level
records, and we are finalizing that proposal.
e. Sampling and Case Thresholds Beginning with the FY 2015 Payment
Determination
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25915 through
25916), we proposed to continue the requirement for hospital submission
of population and sampling data for the FY 2015 payment determination
and future years. Hospitals must submit to CMS quarterly aggregate
population and sample size counts for Medicare and non-Medicare
discharges for the topic areas for which chart-abstracted data must be
submitted (AMI, HF, PN, SCIP, EDT and GIM). Hospitals are required to
submit their aggregate population and sample size count for each topic
area.
In accordance with the policy we adopted in the FY 2011 IPPS/LTCH
PPS final rule, hospitals that have not treated patients in a specific
topic area must still submit quarterly population and sample size
counts for all Hospital IQR chart-abstracted data topics. For example,
if a hospital has not treated AMI patients, the hospital is still
required to submit a zero for its quarterly aggregate population and
sample count for that topic in order to meet the requirement. We view
it as vital for hospitals to determine accurately their aggregate
population and appropriate sampling size data in order for CMS to
assess hospitals' data reporting completeness for their total
population of cases, Medicare and non-Medicare.
In order to reduce the burden on hospitals that treat a low number
of patients in a Hospital IQR 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 would not
be 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
topic areas each quarter. Hospitals meeting the five or fewer patient
discharge exception may voluntarily submit these data.
We strongly recommend that hospitals review the QIO Clinical
Warehouse Feedback Reports and the Hospital IQR Program Provider
Participation Reports that are available after patient-level data are
submitted to the QIO Clinical Warehouse. We generally update 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.
We did not receive any public comments related to this proposal.
Therefore, we are finalizing our proposal regarding hospital submission
of population and sampling data for the FY 2015 payment determination
and future years as proposed.
f. HCAHPS Requirements for the FY 2013, FY 2014, and FY 2015 Payment
Determinations
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25916 through
25917), beginning with discharges occurring in third quarter CY 2011,
we proposed to move the HCAHPS data submission deadline forward by one
week in order to allow for a review and correction period, which we
will propose in future rulemaking. Currently, hospitals have about 14
weeks after the end of a calendar quarter to submit HCAHPS data for
that quarter to the QIO Clinical Warehouse. If this proposal is
adopted, hospitals will have about 13 weeks after the end of a calendar
quarter to submit HCAHPS data for that quarter to the QIO Clinical
Warehouse.
Other than this proposed change, we did not propose any other
changes to the HCAHPS requirements for the FY 2013 and FY 2014 Hospital
IQR Program payment determinations, which were adopted in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50220). For FY 2015 Hospital IQR
payment determinations, we proposed to continue the HCAHPS requirements
as follows. Under these requirements, a hospital must

[[Page 51642]]

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 HCAHPS Web site at: http://www.hcahpsonline.org. A current list of approved HCAHPS survey vendors
can be found on the HCAHPS Web site. For the FY 2015 Hospital IQR
Program, we proposed that the HCAHPS data will be based on discharges
from January 1, 2013 through December 31, 2013.
Every hospital choosing to contract with a survey vendor must
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 http://www.hcahpsonline.org for details about HCAHPS survey
administration.) Hospitals are strongly encouraged to submit their
entire patient discharge list, excluding patients who had requested
``no publicity'' status or who are excluded because of State
regulations, in a timely manner to their survey vendor to allow
adequate time for sample creation, sampling, and survey administration.
We wish to emphasize that hospitals must also provide the
administrative data that is required for HCAHPS in a timely manner to
their survey vendor. This includes the patient MS-DRG at discharge, or
alternative information that can be used to determine the patient's
service line, in accordance with the survey protocols in the most
recent HCAHPS Quality Assurance Guidelines.
We note that the HCAHPS Quality Assurance Guidelines require that
hospitals maintain complete discharge lists that indicate which
patients were eligible for the HCAHPS survey, which patients were not
eligible, which patients were excluded, and the reason(s) for
ineligibility and exclusion. (We refer readers to the Quality Assurance
Guidelines located at http://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.
Hospitals must submit at least 300 completed HCAHPS surveys in a
rolling four-quarter period unless the hospital is too small to obtain
300 completed surveys. We wish to emphasize that the absence of a
sufficient number of HCAHPS eligible discharges is the only acceptable
reason for submitting fewer than 300 completed HCAHPS surveys in a
rolling four quarter period. If a hospital obtains fewer than 100
completed surveys, the hospital's HCAHPS scores will be accompanied by
a footnote on the Hospital Compare Web site alerting the Web site users
that the scores should be reviewed with caution, as the number of
surveys may be too low to reliably assess hospital performance.
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.
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 Interactive Voice Response (IVR)
materials and facilities; (d) data receipt, entry and storage
facilities; and, (e) written documentation of survey processes. As
needed, hospitals and survey vendors will be subject to follow-up site
visits or conference calls. We wish to point out that the HCAHPS
Quality Assurance Guidelines state that hospitals should refrain from
activities that explicitly influence how patients respond on the HCAHPS
survey. If we determine that a hospital is not compliant with HCAHPS
program requirements, we may determine that the hospital is not
submitting HCAHPS data that meet the requirements of the Hospital IQR
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 Hospital IQR Program
requirements. New hospitals can conduct a dry run in the last month of
a calendar quarter. 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 dry-run data and submit the data to My QualityNet, the secure
portion of QualityNet.
We again are encouraging hospitals to regularly check the HCAHPS
Web site at http://www.hcahpsonline.org for program updates and
information.
Comment: One commenter asked about the purpose of the proposed
HCAHPS review and correction period. Another commenter recommended that
CMS change its HCHAPS data submission timeline to match the current
Joint Commission data submission schedule, which is two weeks earlier
than the CMS deadline.
Response: The proposed one-week HCAHPS review and correction period
would allow a formal opportunity for hospitals (or their HCAHPS survey
vendors) to resubmit data for patients in order to correct errors in
the data submitted for those patients prior to the review and
correction period.
Given the amount of time necessary for participating hospitals or
their survey vendors to fully administer the HCAHPS survey, receive
survey responses, and create the necessary data files, we do not
believe it is appropriate to further shorten the data submission period
either by beginning the period sooner, or ending it sooner.
After consideration of the public comments we received, we are
finalizing the HCAHPS requirements discussed above, as proposed.
In the Hospital Inpatient VBP Program proposed rule, we proposed
that HCAHPS scores become part of the FY 2013 Hospital VBP Program (76
FR 2462). We adopted that proposal in the Hospital Inpatient VBP
Program final rule (76 FR 26510). As HCAHPS scores become incorporated
in hospital payment, we believe that a neutral third-party should
administer the

[[Page 51643]]

survey for hospitals whose annual payment updates will be affected by
their HCAHPS scores. It is our belief that an experienced survey vendor
will be best able to ensure reliable results. Therefore, we are
considering whether to require that-subsection (d) hospitals engage an
HCAHPS-approved survey vendor to administer the HCAHPS survey. We
invited public comment that will inform our future policy on this issue
Comment: One commenter expressed support for requiring the use of
an approved survey vendor to administer the HCAHPS survey when the
survey will be used for hospital payment purposes.
Response: We thank the commenter for this suggestion. We are
considering this policy change for the future and we will take this
suggestion into consideration as we develop future proposals.
g. Procedures for Claims-Based Measures
In the FY 2012 IPPS/LTCH PPS proposed rule, we proposed to adopt a
new claims-based measure for FY 2014, the Medicare Spending per
Beneficiary Measure, which is included in the chart below.

------------------------------------------------------------------------
FY 2014 Payment determination:
adopted and proposed claims-based
Topic quality measures (no additional
hospital data submission
required)
------------------------------------------------------------------------
Mortality Measures (Medicare Acute Myocardial
Patients). Infarction (AMI) 30-day
mortality rate.
Heart Failure (HF) 30-
day mortality rate.
Pneumonia (PN) 30-day
mortality rate.
Readmission Measure (Medicare Acute Myocardial
Patients). Infarction 30-day Risk
Standardized Readmission
Measure.
Heart Failure 30-day
Risk Standardized Readmission
Measure.
Pneumonia 30-day Risk
Standardized Readmission
Measure.
AHRQ Patient Safety Indicators PSI 06: Iatrogenic
(PSIs), Inpatient Quality Indicators pneumothorax, adult.
(IQIs) and Composite Measures. PSI 11: Post Operative
Respiratory Failure.
PSI 12: Post Operative
PE or DVT.
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.
Complication/patient
safety for selected indicators
(composite).
Mortality for selected
medical conditions (composite).
AHRQ PSI and Nursing Sensitive Care.. PSI 04 Death among
surgical inpatients with serious
treatable complications.
Hospital Acquired Condition Measures. Foreign Object Retained
After Surgery.
Air Embolism.
Blood Incompatibility.
Pressure Ulcer Stages
III & IV.
Falls and Trauma:
(Includes: Fracture Dislocation
Intracranial Injury Crushing
Injury Burn Electric Shock).
Vascular Catheter-
Associated Infection.
Catheter-Associated
Urinary Tract Infection (UTI).
Manifestations of Poor
Glycemic Control.
Cost Efficiency...................... Medicare Spending per
Beneficiary.*
------------------------------------------------------------------------
* New proposed measure for FY 2014.

We did not propose to change the procedures and time periods we
adopted in the FY 2011 IPPS/LTCH PPS final rule for the FY 2012, FY
2013 and FY 2014 payment determinations. For the FY 2014 payment
determination, we proposed to use up to 3 years of Medicare FFS claims
data to calculate the measures, as appropriate for the measures.
Hospitals are encouraged to regularly check the QualityNet Web
site, http://www.QualityNet.org, for program updates and information.
We received no comments on these procedures and are finalizing them
with the clarification that we will use 3 years of Medicare FFS claims
data to calculate the measures.
h. Data Submission Requirements for Structural Measures
Structural measures assess the characteristics and capacity of the
provider to deliver quality healthcare. In the FY 2012 IPPS/LTCH PPS
proposed rule, we proposed to add one additional structural measure for
the FY 2014 payment determination, Participation in a Systematic
Clinical Database Registry for General Surgery. Beginning with FY 2013,
we proposed to align the submission deadline for all structural
measures with the submission deadline for the fourth calendar quarter
of the chart-abstracted measures.\34\ We proposed to update the period
of data collection that hospitals will submit the required registry
participation information once annually for the structural measures via
a Web-based collection tool between April 1, 2012 and May 15, 2012 with
respect to the time period of January 1, 2011 through December 31,
2011. This proposal will give CMS a more complete picture of registry
participation as well as synchronize data submissions for structural
and chart-abstracted measures. These measures do not require the
hospital to participate in a registry.
---------------------------------------------------------------------------

\34\ We corrected this language in the proposed rule in a
correction notice published at 76 FR 34633 to remove an incorrect
reference to these measures aligning in FY 2014, when in fact they
will be aligned starting in FY 2013.
---------------------------------------------------------------------------

Below is the list of structural measures we have adopted for the FY
2014 payment determination:

------------------------------------------------------------------------
FY 2014 Payment determination:
Topic Structural measures
------------------------------------------------------------------------
Cardiac Surgery...................... Participation in a
Systematic Database for Cardiac
Surgery.
Stroke Care.......................... Participation in a
Systematic Clinical Database
Registry for Stroke Care.

[[Page 51644]]

Nursing Sensitive Care............... Participation in a
Systematic Clinical Database
Registry for Nursing Sensitive
Care.
General Surgery...................... Participation in a
Systematic Clinical Database
Registry for General Surgery.*
------------------------------------------------------------------------
* New measure for FY 2014 proposed in the FY 2012 IPPS/LTCH PPS proposed
rule and adopted in this final rule.

Comment: Several commenters noted an error in the proposed rule
regarding the date of collection and the period of collection for the
proposed structural measure as well as the existing structural
measures.
Response: We issued a correction notice on this issue on June 14,
2011 (76 FR 34633 through 34634). The correction notice corrected both
the period of time for which the data will be corrected as well as the
timeframe during which we will actually collect the data. We
erroneously stated in the proposed rule at (76 FR 25898) that
collection would begin in July 2012 with respect to the time period
January 1, 2012 to June 30, 2012, instead of collection to begin in
April 2013 with respect to the time period January 1, 2012 through
December 31, 2012.
Comment: A few commenters supported the alignment of the data
collection for structural measures with the data submission deadline
for the fourth quarter of the chart-abstracted measures.
Response: We appreciate the commenters' support for this proposed
alignment.
After consideration of the public comments we received, we are
finalizing our proposal that, beginning with FY 2013, we are aligning
the submission deadlines for all structural measures with the
submission deadline for the fourth calendar quarter of the chart-
abstracted measures. For FY 2013, hospitals will be required to submit
the required registry participation information once annually for the
structural measures via a Web-based collection tool between April 1,
2012 and May 15, 2012 with respect to the time period of January 1,
2011 through December 31, 2011. For FY 2014, hospitals will be required
to submit the required registry participation information once annually
for the structural measures via a Web-based collection tool will be
between April 1, 2013 and May 15, 2013 with respect to the time period
of January 1, 2012 through December 31, 2012.
i. Data Submission and Reporting Requirements for Healthcare-Associated
Infection (HAI) Measures Reported via NHSN
As discussed above, in the FY 2012 IPPS/LTCH PPS proposed rule we
proposed to adopt 2 new HAI measures for the FY 2014 payment
determination and 3 HAI measures for FY 2015 payment determination. For
FY 2014, only the Catheter Associated Urinary Tract Infection will be
adopted. For FY 2015, we are adopting all of the three HAI measures
that we proposed: Healthcare Provider Influenza Vaccination, MRSA
Bacterimia and C. Difficile. Below is the list of HAI measures we are
finalizing for the FY 2014 and FY 2015 payment determinations:

------------------------------------------------------------------------
FY 2014 and 2015 Payment
determination: Adopted healthcare-
Topic associated infection measures
(CDC/NHSN)
------------------------------------------------------------------------
Surgical Site
Infection.*
Catheter Associated
Urinary Tract Infection.**
Clostridium
Difficile.***
Healthcare Provider
Influenza Vaccination.***
MRSA Bacteremia.***
------------------------------------------------------------------------
* Measures adopted for FY 2014 payment determination in the FY 2011 IPPS/
LTCH PPS final rule.
** Measure adopted for FY 2014 payment determination in this final rule.
*** Measures adopted for FY 2015 payment determination in this final
rule.

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 259219 through
25920), we proposed to update the current data submission and reporting
requirements for these proposed measures. Specifically, we proposed to
utilize the data submission and reporting standard procedures that have
been set forth by CDC for NHSN participation in general and for
submission of these measures to NHSN. We refer readers to the CDC's
NHSN Web site (http://www.cdc.gov/nhsn) for detailed data submission
and reporting procedures. We believe that these procedures are feasible
because they are already widely used by over 4,000 hospitals reporting
HAI data using the NHSN. Our proposal seeks to reduce hospital burden
by aligning CMS data submission and reporting procedures with NHSN
procedures currently used by hospitals, including hospitals complying
with 28 State HAI reporting requirements. The existing data collection
and submission timeframes for the HAI measures for the FY 2014 payment
determination, which we proposed to use for the HAI measures we have
proposed above, are shown below. Hospitals must submit their quarterly
data to NHSN for Hospital IQR Program purposes on or around the dates
shown in the table below (updates to this will be posted on the
QualityNet Web site).

Submission Timeframes for HAI Measures for the FY 2014 Payment
Determination
------------------------------------------------------------------------
Final submission
CDC-NHSN deadline for
Collection and hospital IQR
CY 2012 Infection Events quarterly report program FY 2014
generation payment
timeframe determination
------------------------------------------------------------------------
Q1 (Jan-Mar 2012)............... January 31st-- August 15, 2012.
August 15th.
Q2 (Apr-Jun 2012)............... April 30th-- November 15, 2012.
November 15th.
Q3 (Jul-Sep 2012)............... July 31st--Feb- February 15, 2013.
15th.
Q4 (Oct-Dec 2012)............... October 31st--May May 15, 2013.
15th.
------------------------------------------------------------------------

[[Page 51645]]

Hospitals would have until the Hospital IQR Program final
submission deadline to submit their quarterly data to NHSN. After the
final Hospital IQR Program submission deadline has occurred for each CY
2012 quarter, CMS will obtain the hospital-specific calculations that
have been generated by the NHSN for the Hospital IQR Program.
We invited public comment on this proposal.
Comment: A few commenters requested clarification of the data
collection dates for the MRSA and C. Difficile SIR measures for FY 2015
payment determination.
Response: For the FY 2015 payment determination, data collection
will begin with January 1, 2013 events.
After consideration of the public comments we received, we will
adopt the data submission and reporting standard procedures that have
been set forth by CDC for NHSN participation in general and for
submission of these measures to NHSN as listed above.
6. Chart Validation Requirements for Chart-Abstracted Measures
a. Changes to the Chart Validation Requirements and Methods for the FY
2012 Payment Determination and Subsequent Years
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25920 through
25922), we proposed several changes to the chart validation
requirements and methods we adopted in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50225 through 50229) for the FY 2012 payment determination
and subsequent years. In previous years, charts were requested by the
CMS CDAC contractor and hospitals were given 45 days from the date of
the request to submit the requested records. If any record(s) were not
received by the 45-day requirement, the CMS CDAC contractor assigned a
``zero'' validation score to each measure in a missing record. We
proposed to change the time period given to hospitals to submit medical
records to the CDAC contractor to 30 calendar days, and we proposed to
codify this proposal at 42 CFR 412.140(d)(1). This proposed change in
submission timeframe will align the current process with the
requirements in 42 CFR 476.78(b)(2), which currently allow only 30 days
for chart submission in the context of reviews by QIOs. We proposed
this deadline modification to reduce the time we need to complete
validation, and provide hospitals with feedback on their abstraction
accuracy. We believe that this linkage between Hospital IQR Program
validation discharge quarters and the same fiscal year's Hospital VBP
Program proposed performance period would improve the reliability and
accuracy of the Hospital VBP Program's chart-abstracted measures.
Hospitals that are subject to Hospital IQR payment reduction due to not
passing our validation requirement would be excluded from receiving a
Hospital VBP performance score and corresponding incentive payment
under section 1886(o)(1)(C)(ii)(I) of the Act. Thus, CMS would ensure
that the data submitted on chart-abstracted measures we adopt for the
Hospital VBP Program is accurate by virtue of validating it under the
validation procedures we have adopted for the Hospital IQR Program.
Comment: A few commenters recommended that CMS consider options to
receive electronic copies of records rather than paper records.
Response: We appreciate the feedback and will consider the
suggestion in developing future rulemaking to reduce the validation
burden to hospitals using electronic health records. We recognize that
many more hospitals will transition their recordkeeping to EHRs in the
coming years, and we will strive to provide the public with accurate
quality data while maintaining alignment with hospital recordkeeping
practices.
Comment: Most commenters supported the reduction in the time frame
for hospitals to submit the requested records to the CDAC contractor
from 45 calendar days to 30 calendar days if the reduction will improve
the timeliness of feedback to the hospitals.
Response: We appreciate the input and believe that the reduction
will improve the timeliness of feedback to the hospitals.
Comment: Some commenters oppose the reduction in the time frame as
this decrease in the timeframe would negatively impact hospitals'
capability to respond in a timely manner and could negatively affect
hospitals' ability to perform quality checks.
Response: We appreciate the comment, but believe that decreasing
the time frame for chart submission will allow CMS to provide more
timely feedback to hospitals on the validation results.
Comment: One commenter believed that validating Hospital VBP data
under the Hospital IQR Program data would efficiently use both CMS and
hospital resources.
Response: We appreciate the commenter's support for this proposal.
After consideration of the public comments we received, we are
adopting as final our proposal to change the time period given to
hospitals to submit medical records to the CDAC contractor from 45 to
30 calendar days, and are codifying this policy at 42 CFR
412.140(d)(1).
b. Supplements to the Chart Validation Process for the FY 2014 Payment
Determination and Subsequent Years
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25920 through
25922), we proposed to continue to use the supplements to the chart
validation requirements and methods we adopted in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50227 through 50229) for FY 2014 payment
determinations and future years with several proposed modifications.
We proposed to add hospitals to our validation sample if they were
open under their current CCNs in FY 2012 but not selected for
validation in the three previous annual Hospital IQR Program validation
samples. We proposed this addition to supplement our validation
approach to ensure that all eligible Hospital IQR Program hospitals are
selected for validation at least once every 4 years. We proposed this
addition starting in FY 2015 because FY 2015 would be the fourth year
that CMS would have used the random validation approach (which begins
in FY 2012 as adopted in the FY 2011 IPPS/LTCH PPS final rule). We
invited public comment on this proposal.
Comment: One commenter disagreed with the policy we adopted in the
FY 2011 IPPS/LTCH PPS final rule (75 FR 50229) to conduct random
sampling of hospitals, and believes that CMS should utilize the charts
provided to the QIOs to identify hospitals potentially submitting poor
quality data.
Response: Section 1886(b)(3)(B)(viii)(XI) of the Act states that
``the Secretary shall establish a process to validate measures
specified under this clause as appropriate. Such process shall include
the auditing of a number of randomly selected hospitals sufficient to
ensure validity of the reporting program under this clause as a whole
and shall provide a hospital with an opportunity to appeal the
validation of measures reported by such hospital.'' We believe that our
FY 2012 Hospital IQR Program validation process meets the requirement
regarding randomly selected hospitals in section
1886(b)(3)(B)(viii)(XI) of the Act. While we appreciate the commenter's
concern, we believe that by ensuring all hospitals are validated at
least once every four years, we will ensure that hospitals with poor
data are identified. In addition, we note that, under the policy that
we adopted in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50227 through
50229),

[[Page 51646]]

hospitals that fail validation for the FY 2012 payment determination
and subsequent years will be selected for validation the following year
to ensure deficiencies are corrected.
Comment: Most commenters supported a requirement that eligible
hospitals be selected at least once every four years for validation.
Most commenters also stated that because CMS intends to use the results
of Hospital IQR chart validation for the Hospital VBP Program, all
eligible hospitals should be regularly included in the chart validation
process.
Response: We appreciate the commenters' support for this proposal
to ensure that all hospitals are validated at least once every 4 years.
After considering the public comments we received, we are adopting
as final the proposal to supplement our validation approach to ensure
that all eligible Hospital IQR Program hospitals are selected for
validation at least once every 4 years.
Starting with the FY 2012 payment determination and continuing in
subsequent fiscal years, the chart validation process audits 800
randomly selected hospitals for the discharge quarters. This sample
size is sufficient to validate more than 22 percent of subsection (d)
hospitals in an applicable fiscal year and ensure accuracy of the
Hospital IQR Program quality data.
For the FY 2014 payment determination, we proposed to validate 24
chart-abstracted measures including 19 currently validated measures,
and 5 proposed additional measures. The FY 2014 proposed validation
reflects the 5 measures we proposed to add (2 EDT measures, Central
Line Associated Blood Stream Infection, Global Influenza Immunization,
and Global Pneumonia Immunization measures) and the 8 measures we
proposed to retire (AMI-1, AMI-3, AMI-4, AMI-5, HF-4, PN-4, PN-5c, and
SCIP Infection 6).
Validation of the HCAHPS measure is conducted through our oversight
activities. We provide oversight of all HCAHPS survey vendors and
hospitals self-administering the survey in order to ensure that the
data collection protocols are followed. We also provide oversight and
validation through our review of Quality Assurance Plans, site visits,
conference calls and detailed data analyses each quarter to ensure
there are no anomalies found in the data. In particular, we use site
visits to review all data collection activities, including data reviews
to track a discharged patient from sampling to survey administration to
data submission.
We proposed, starting with FY 2014 payment determinations, a modest
increase to the current Hospital IQR Program validation sample of SCIP,
AMI, HF, and PN cases. Specifically, we proposed to add three charts
per selected hospital per quarter to the validation sample. This
additional quarterly sample would enable us to validate the CLABSI
measure that we added to the Hospital IQR Program measure set beginning
with the FY 2014 payment determination. CLABSI is a relatively rare
event compared to SCIP, AMI, HF, and PN cases. In 2009, about 18,000
CLABSIs occurred in ICU patients in the United States, and these
infections were a major contributor to prolonged hospital stays and
inpatient mortality. We proposed a process to validate the CLABSI
measure that takes into account the relative infrequency of this event
and the case-finding methodology for it, specifically the requirements
for a positive blood culture result and the presence of a central
venous catheter in the patient at the time of, or within 48 hours
before, onset of the infection.
We recognize that the current validation process and sample size
for AMI, HF, PN, and SCIP measures is not likely to be sufficiently
reliable to detect systematic underreporting of CLABSI. Unlike the
current AMI, HF, PN, and SCIP chart-abstracted process of care
measures, CLABSI is a rarely occurring infection among acute care
inpatient discharges. We estimate that about 0.1 percent to 0.2 percent
of all acute care inpatient patient discharges nationwide involve
patients who are infected with a CLABSI. We believe that our current
Hospital IQR Program AMI, HF, PN, and SCIP sample sizes and sample
methods would not reliably validate CLABSI measure rates at the
hospital level because of the relatively rare occurrence of these
events. We also seek to target validation of the CLABSI measure to
minimize hospital burden in complying with our sample size proposals,
for which hospitals must find, photocopy, and return requested medical
records to CMS. If CMS did not utilize this targeted validation
approach for the CLABSI measure, hospitals would have to submit 200 to
300 additional randomly selected cases in order to effectively validate
this measure, given its rare occurrence. We believe that our proposed
CLABSI validation process addresses these limitations through the use
of a targeted incremental validation sample comprised of three charts
of possible CLABSI events, and will reliably validate the Hospital IQR
Program CLABSI measure while not overly burdening hospitals with
medical record requests.
Specifically, we proposed to identify sampled hospitals' three
quarterly potential CLABSI charts using a two-step selection process
that would target intensive care unit patients with bloodstream
infection (positive blood culture results) and a Central Venous
Catheter (CVC) provided by sampled hospitals to CMS. In the first step
of this process, a CMS contractor would require the 800 randomly
sampled hospitals to provide a quarterly list of all blood cultures
positive for infection status taken from intensive care units
conducting CLABSI surveillance during the discharge quarter. We are
aware that this list will include both reported CLABSI events and many
non-CLABSI events, including patients with and without CVCs. In
clinical terms, our intent in reviewing these positive blood culture
lists is to identify the information needed to determine whether the
blood culture isolate is a likely pathogen found at least once, or a
common skin commensal (CSC) found in two or more positive blood
cultures drawn on separate occasions. CSC's are microorganisms that are
commonly found on the skin and often indicate contamination of the
blood culture media rather than infection by the microorganism when it
is identified in a single blood culture test. Two sets of blood
cultures are needed to differentiate true infection from contamination.
The list of CSCs is comprised of the following organisms: diphtheroids
(Corynebacterium spp.); Bacillus spp. (not B. anthracis);
Priopionibacterium spp.; coagulase negative staphylococci including S.
epidermidis; viridans group streptococci; Aerococcus spp.; and
Micrococcus spp. This list of CSCs is also found at the NHSN Web site,
http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf. We would
also require hospitals to self-identify intensive care unit patients
with a CVC that are on this blood culture list. Using all of this
information, we would be able to identify intensive care unit patients
with a bloodstream infection and with a CVC (that is, candidate CLABSI
events) for subsequent sampling.
In the second step of this process, we would randomly sample these
candidate CLABSI events (ICU patients with a CVC and where a pathogen
was recovered at least once or the same CSC was cultured from 2 or more
blood cultures drawn on separate occasions). Specifically, the CMS CDAC
would require hospitals to submit up to 3 medical records each quarter
meeting these criteria, randomly selected by

[[Page 51647]]

CMS from among eligible charts. This number of medical records is
sufficient to detect unreported CLABSI events based on our sample size
analysis and experience from State health department validation
efforts. This proposed process utilizes the validation experience from
at least ten current State health department validation initiatives. In
addition, we proposed to randomly validate CLABSI data by abstracting
all necessary quality data from the 12 quarterly medical records in our
AMI, HF, PN, and SCIP targets already collected for Hospital IQR
Program validation as well as the 3 additional records we later propose
to collect for ED throughput/Immunization. Our intent in validating all
currently requested quarterly medical records for CLABSI is to assess
reliability of CLABSI measure rates from a random sample of patients
independent from the proposed 3 record sample selected using blood
culture lists and CVC presence to target underreporting of CLABSI
events to the CDC's NHSN. In our proposed 12 record random sample of
CLABSI events, we will not use blood culture list and CVC presence in
our sampling, since this sample is already drawn from the AMI, HF, PN,
and SCIP hospital reported data reported to CMS. By combining a random
and targeted sampling approach using two independent sources to
validate CLABSI data, we believe that we are adequately assessing the
accuracy and reliability of the CLABSI measure in accordance with
section 1886(b)(3)(B)(viii)(XI) of the Act.
We proposed to determine the CLABSI validation score using a
process that begins with the CMS contractor validation coordinator
comparing the CDAC's CLABSI infection status to the hospital's event
data reported to NHSN for the applicable quarter. For each medical
record reviewed, a hospital would receive a match only if the CMS
contractor validation coordinator determines equivalency between the
CMS contractor's determination of infection status and the infection
status reported to NHSN. For example, if one of the CMS-requested
validation medical records revealed CLABSI and the event was not
reported to the NHSN, then the hospital would receive a zero score for
the CLABSI measure for that validated record. If the CMS contractor
discovered that a second record in the CMS validation sample indicated
no CLABSI event, but a CLABSI was reported to the NHSN for the record,
the hospital would also receive a zero score for the CLABSI measure for
that validation record. Thus, hospitals would only receive a 100
percent CLABSI validation score for individual records if their CMS
validation records' CLABSI status was consistent with the information
reported, or not reported, to NHSN. In the above example, if the CMS
quarterly validation process identified that 13 out of 15 total sampled
records accurately reported the presence of a CLABSI or did not report
a CLABSI where none was present, then the hospital's CLABSI validation
score would be 13/15, or about 87 percent.
Comment: One commenter suggested that the CLABSI chart validation
process, which uses CDC criteria for identification of CLABSI events,
requires experienced interpretation and is more subjective than current
validation measure criteria. The commenter believed that CMS should
validate mismatches using a Certified Infection Control Practitioner.
The commenter recommended excluding the validation results for CLABSI
from the overall score for the initial year of validation and allowing
hospitals to appeal CLABSI mismatches regardless of the overall score
in order to educate hospitals on CLABSI mismatches.
Response: We appreciate the comment, and plan to provide
educational feedback on all validated CLABSI cases on match status and
abstracted reasons for CLABSI event status to hospitals. Based on the
relatively rare nature of CLABSI events, we anticipate a relatively
high match rate among hospitals surpassing the current 75 percent
passing threshold. Based on this information, we believe that the
proposed approach to validate CLABSI data is the least burdensome and
most statistically sound approach. We also believe that providing
hospitals with the opportunity to appeal validated cases that do not
affect the overall score would delay completion of the entire appeals
process.
Comment: Some commenters did not support what they believed to be a
manual and time consuming record identification process and expressed
concerned that CMS has not identified exactly what data elements should
be on the quarterly list of blood cultures positive for infection or
what format would be used for submitting the list to CMS.
Response: We appreciate the input and are aware of the additional
time required by this process. We included this burden in our Paperwork
Reduction Act burden request for public review and OMB consideration.
However, we believe the need to ensure that information reported to the
public is accurate and validated outweighs the additional burden. We
will provide additional information regarding the exact data elements
and format for submission of the quarterly list of blood cultures
positive for infection in future communications.
Comment: One commenter expressed concern that the proposed CLABSI
validation sample of three charts is not a sufficient sample.
Response: We appreciate the commenter's concern about the sample
size for validation. However, the number of charts to be validated for
CLABSI is actually 18 charts, not 3 charts. As stated above, in
addition to validating the 3 CLABSI charts submitted by hospitals as
part of the targeted CLABSI sample, we will also validate CLABSI data
elements on the other 15 quarterly charts that are submitted for the
AMI, HF, PN, SCIP and ED throughput/Immunization measures. Our intent
in including three additional quarterly charts in the CLABSI validation
sample is to target CLABSI events unreported to NHSN by using blood
culture lists and ICU status to increase targeting efficiency. In
addition, we weighed the burden to hospitals, the reliability of
hospital validation results in the sample size, and the program costs
of validation expenses when proposing the sample size. We believe these
considerations support our proposal to use a three-chart validation
sample for CLABSI.
Comment: One commenter expressed concern that the process of
requiring hospitals to submit two additional lists and three charts has
the potential to introduce new errors into the system and additional
penalties for hospitals. The commenter recommended that the proposal be
piloted and the burden assessed.
Response: We appreciate the input and are aware of the additional
time required by this process. However, we believe that this process
will allow us to validate the CLABSI measure in the most efficient way
possible. Although a pilot was not conducted, we collaborated with CDC
and used the experience of State hospital health departments in
validating CLABSI information in formulating this proposal.
Comment: One commenter was concerned that CMS has not estimated the
burden of work required for 800 hospitals to provide a quarterly list
of blood cultures positive for infection status taken from ICUs
conducting CLABSI surveillance during the discharge quarter. The
commenter believed that additional consideration should be given to the
time burdens on hospitals should they have to note on this list which
samples came from

[[Page 51648]]

patients with CVCs in the ICUs under surveillance. The commenter
believed that the practice of looking for unreported CLABSI cases among
charts sent for AMI, HF, PN and SCIP measures may not be fruitful
because only a small proportion of these patients will be in the ICU
with CVCs. The commenter also questioned whether the proposed scoring
model has been tested, if there has been any direct pilot experience
with matching this data against NHSN data, and if there are reasons why
cases omitted from NHSN would show up on the ICU blood culture list (or
vice versa).
Response: We appreciate the input and are aware of the additional
time required by this process. We included this burden in our Paperwork
Reduction Act burden request for public review and OMB consideration.
However, we believe the need to ensure that information reported to the
public is accurate and validated outweighs the additional burden.
Although a pilot was not conducted, we collaborated with CDC and used
the experience of State hospital health departments in validating
CLABSI information in formulating this proposal. We believe that this
process is less burdensome to hospitals than other options considered,
including CMS onsite chart review and larger samples. We recognize that
only a small proportion of cases for AMI, HF, PN, and SCIP patients
will be in the ICU, however, we believe that validating the existence
or absence of CLABSI and the associated match in NHSN for those limited
cases will result in an appropriately validated quality measure.
Comment: Several commenters urged CMS to evaluate whether or not
the list can be procured from information that is stored in the NHSN.
Response: The intent of the supplemental CLABSI sample of three
quarterly charts is to target CLABSI events unreported to NHSN by using
blood culture lists and ICU status to increase targeting efficiency. We
believe that using reported NHSN events as the sole validation sample
list would ignore the possibility of unreported CLABSI events. We
intend to continue our collaboration with CDC in the future to assess
and improve our validation process.
After consideration of the public comments we received, we are
adopting as final the proposal to identify sampled hospitals' three
quarterly potential CLABSI charts using the two-step selection process
outlined above as well as abstracting all necessary quality data from
the 15 quarterly medical records in our AMI, HF, PN, SCIP and ED
Throughput/Immunization charts already collected for Hospital IQR
Program validation.
Starting with the FY 2014 payment determination, we also proposed
to add a sixth quarterly sample, which would enable us to validate the
EDT measures and the Immunization for Influenza and Immunization for
Pneumonia global measures that we added to the Hospital IQR Program
measure set. We proposed to modify the current process (75 FR 50225-75
FR 50229) for these measures in two ways. First, we proposed to select
3 additional records each quarter from the records submitted by the 800
annually sampled hospitals. These records would only include principal
diagnoses and surgical procedures not already included in the AMI, HF,
PN, and SCIP populations eligible for validation sampling in these four
topic areas. Second, we would abstract EDT and the Immunization for
Influenza and Immunization for Pneumonia global measure data from the
15 quarterly AMI, HF, PN, SCIP and CLABSI records already submitted by
hospitals for Hospital IQR Program validation. We would validate 18
records per quarter for these measures. With the addition of this
sample of three records, we would ensure that all hospitals that
reported chart-abstracted Hospital IQR data in all principal procedure
and diagnosis codes would be eligible for sample selection for these
global measures, thus, starting in FY 2014, we would be validating a
total of 18 records per quarter per validated hospital in 6 strata (1)
SCIP, (2) AMI, (3) HF, (4) PN, (5) CLABSI, and (6) EDT/immunization
measures.
Comment: Several commenters supported the increased number of
charts for validation in the Hospital IQR Program and believe the
additional charts will enhance the validation process.
Response: We appreciate the commenters' support for this proposal.
After consideration of the public comments we received, starting
with FY 2014, we are adding a sixth quarterly sample to validate the
EDT measures and the Immunization for Influenza and Immunization for
Pneumonia global measures and to modify the current process as
described above.
7. QIO Regulation Changes for Provider Medical Record Deadlines
Possibly Including Serious Reportable Events
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25922 through
25923), we proposed changes to the QIO regulation text to require
submission of medical records within 21 days of serious reportable
events. Our State QIOs use information collected under the provision we
proposed to change, 42 CFR 476.78, to educate hospitals on medical
record abstraction accuracy, and to identify potential opportunities
for quality improvement through medical record review. It is our goal
to improve QIO work, such as quality improvement assistance,
beneficiary (or beneficiary representative) requested QIO quality of
care reviews, and QIO medical necessity reviews to achieve the
following three aims: (1) Improve individual care; (2) improve health
for populations; and (3) lower cost through improvement. QIOs serve a
critical role in advancing these three aims through their work with
Medicare providers and beneficiaries to advance quality care and
health.
To assist us in achieving these aims, we proposed changes to 42 CFR
476.78(b), along with minor editorial revisions. Specifically, we
proposed to add a new Sec. 476.78(b)(2)(ii) that would require the
submission of medical information within 21 days in those situations in
which a ``serious reportable event'' or other circumstance has been
identified during the course of a QIO review. For purposes of this
subsection, we proposed to define the term ``serious reportable event''
to be consistent with the NQF's definition of a serious reportable
event in its report ``Serious Reportable Events in Healthcare 2006
Update.'' These events include the following:
Surgical Events
Surgery performed on the wrong body part.
Surgery performed on the wrong patient.
Wrong surgical procedure performed on a patient.
Unintended retention of a foreign object in a patient
after surgery or other procedure.
Intraoperative or immediately postoperative death in an
ASA Class I patient.
Product or Device Events
Patient death or serious disability associated with the
use of contaminated drugs, devices or biologics provided by the
healthcare facility.
Patient death or serious disability associated with the
use or function of a device in patient care in which the device is used
or functions other than as intended.
Patient death or serious disability associated with
intravascular air embolism that occurs while being cared for in a
healthcare facility.
Patient Protection Events
Infant discharged to the wrong person.

[[Page 51649]]

Patient death or serious disability associated with
patient leaving the facility without permission.
Patient suicide, or attempted suicide, resulting in
serious disability while being cared for in a healthcare facility.
Care Management Events
Patient death or serious disability associated with a
medication error (for example, errors involving the wrong drug, wrong
dose, wrong patient, wrong time, wrong rate, wrong preparation or wrong
route of administration).
Patient death or serious disability associated with a
hemolytic reaction (abnormal breakdown of red blood cells) due to the
administration of ABO/HLA--incompatible blood or blood products.
Maternal death or serious disability associated with labor
or delivery in a low-risk pregnancy while being cared for in a
healthcare facility.
Patient death or serious disability associated with
hypoglycemia, the onset of which occurs while the patient is being
cared for in a healthcare facility.
Death or serious disability associated with failure to
identify and treat hyperbilirubinemia (condition where there is a high
amount of bilirubin in the blood) in newborns.
Stage 3 or 4 pressure ulcers acquired after admission to a
healthcare facility.
Patient death or serious disability due to spinal
manipulative therapy.
Artificial insemination with the wrong donor sperm or
wrong egg.
Environmental Events
Patient death or serious disability associated with an
electric shock while being cared for in a healthcare facility.
Any incident in which a line designated for oxygen or
other gas to be delivered to a patient contains the wrong gas or is
contaminated by toxic substances.
Patient death or serious disability associated with a burn
incurred from any source while being cared for in a healthcare
facility.
Patient death or serious disability associated with a fall
while being cared for in a healthcare facility.
Patient death or serious disability associated with the
use of restraints or bedrails while being cared for in a healthcare
facility.
Criminal Events
Any instance of care ordered by or provided by someone
impersonating a physician, nurse, pharmacist, or other licensed
healthcare provider.
Abduction of a patient of any age.
Sexual assault on a patient within or on the grounds of a
healthcare facility.
Death or significant injury of a patient or staff member
resulting from a physical assault (that is, battery) that occurs within
or on the grounds of a healthcare facility.
This proposed 21 day medical record deadline would be used when,
for example, in the QIO's judgment, delays in receiving medical
information could negatively undermine its efforts to evaluate the
quality of care provided or the facility's adherence to payment
policies. It also would enable QIOs to better utilize, and respond to,
information about adverse events gained from the quality reporting
program, in a timely fashion so that QIOs can have an improved and more
immediate impact on the quality of health care.
We also proposed a technical correction to 42 CFR 476.78(a) to
correct a cross-reference.
We invited public comment on our proposal to improve patient care
through QIO access to more rapid provider information about ``serious
reportable events'' and our proposed technical correction to 42 CFR
476.78(a).
Comment: One commenter supported the regulation changes to require
submission of medical information within 21 days of serious reportable
events and wanted the investigation of these most serious and NQF-
defined events to quickly evaluate the quality of care, to have a more
immediate impact, and to prevent other such terrible events from
occurring in a facility again.
Response: We agree with the commenter and appreciate the support
for this proposal.
Comment: One commenter expressed concern that asking hospitals to
report serious reportable events to both Patient Safety Organizations
and to QIOs would create a duplication and undue burden on hospitals.
Response: We appreciate the commenter's concern but wish to clarify
that this proposal does not change any existing requirements for
reporting serious reportable events. This proposal would simply reduce
the current submission requirement from 30 days to 21 days.
Comment: One commenter asked that CMS clarify the term ``medical
information.'' The commenter asked whether this term refers to the
complete medical record or to portions of the medical record. The
commenter also asked what CMS requires if the medical record is not yet
complete.
Response: We thank the commenter for these questions and refer the
commenter to 42 CFR 476.78(b) and 42 CFR 482.24. Hospitals, under these
regulations in our conditions of participation, are required to provide
patient care data and other pertinent information to the QIO at the
time the QIO is collecting review information that is required for the
QIO to make its determinations. This information includes, but is not
limited to, the medical record.
After consideration of the public comments we received, we are
adopting the requirement that hospitals submit medical information
within 21 days in those situations in which a ``serious reportable
event'' or other circumstance has been identified during the course of
a QIO review. We also are finalizing our proposed technical correction
to 42 CFR 476.78(a) to correct a cross-reference.
8. Data Accuracy and Completeness Acknowledgement Requirements for the
FY 2012 Payment Determination and Subsequent Years
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25923), we
proposed to require hospitals to continue to electronically acknowledge
their data accuracy and completeness once annually. However, we
proposed to change the submission deadline to be used for the FY 2013
Hospital IQR Program payment determination and subsequent years.\35\
This proposal will allow us to align the submission deadline with the
final quarter of the chart-abstracted measures. Hospitals will continue
to submit the required electronic acknowledgment that the data provided
to meet the FY 2013 Hospital IQR Program data submission requirements
is accurate and complete to the best of the hospital's knowledge at the
time of data submission.\36\ We proposed to make the submission
deadline for the Data Accuracy and Completeness Acknowledgement May 15,
2012 with respect to the time period of January 1, 2011 through
December 31, 2011. We invited public comment on this proposal.
---------------------------------------------------------------------------

\35\ In a correction notice published at (76 FR 34633), we
corrected an erroneous reference in the proposed rule to the fiscal
year for which it proposed to change the submission deadline for the
Data Accuracy and Completeness Acknowledgement. The reference to
this period in this sentence was changed from FY 2012 to FY 2013.
\36\ In a correction notice published at (76 FR 34633), we
corrected an erroneous reference in the proposed rule to the fiscal
year for which it proposed to change the submission deadline for the
Data Accuracy and Completeness Acknowledgement. The reference to
this period in this sentence was changed from FY 2012 to FY 2013.
---------------------------------------------------------------------------

Comment: A few commenters supported the alignment of the Data

[[Page 51650]]

Accuracy and Completeness Acknowledgement with the data submission
deadline for the fourth quarter of the chart-abstracted measures.
Response: We appreciate the commenters' support on this proposal.
After consideration of the public comments we received, we are
adopting the submission deadline for the Data Accuracy and Completeness
Acknowledgement of May 15, 2012 with respect to the time period of
January 1, 2011 through December 31, 2011.
9. Public Display Requirements for the FY 2014 Payment Determination
and Subsequent Years
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25923), we
proposed to continue, for the FY 2014 payment determination and
subsequent years, the approach we adopted in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50230) for public display requirements for the FY
2012 payment determination and subsequent years.
The Hospital IQR Program quality measures are typically reported on
the Hospital Compare Web site http://www.hospitalcompare.hhs.gov, but
on occasion are reported on other CMS Web sites. We require that
hospitals sign a Notice of Participation form when they first register
to participate in the Hospital IQR Program. Once a hospital has
submitted a form, the hospital is considered to be an active Hospital
IQR 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 us to publicly report the quality measures
included in the Hospital IQR 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.
We invited public comment on this proposal.
We did not receive any comments related to this proposal and are,
therefore, finalizing it.
10. Reconsideration and Appeal Procedures for the FY 2012 Payment
Determination
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25923 through
25925), we proposed to continue, for the FY 2012 payment determination
and subsequent years, the general approach we adopted in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50230) for reconsideration and appeal
procedures for the FY 2011 payment determination. We also proposed to
codify the requirements under this process at 42 CFR 412.140(e). We
discuss each of the regulatory provisions that we proposed, as well as
specific changes, below.
We proposed that the general deadline for submitting a request for
reconsideration in connection with the FY 2012 payment determination
will be 30 days from the date of receipt of the payment determination
notification. Historically, most reconsideration requests are based on
the failure to meet established data submission deadlines. While we
want to ensure that hospitals have an opportunity to request
reconsiderations when warranted, we also need to balance this goal with
our need to complete the reconsideration process in a timely manner and
with the hospitals' desire to obtain final decisions on their requests
in a timely manner. Therefore, we proposed to reduce the
reconsideration and appeal period from a deadline of November 1st 2012
to 30 days after hospital receipt of the payment determination
notification. Notifications will be sent via a trackable mail option
such as certified U.S. mail or registered mail. We include this change
in the proposed Sec. 412.140(e)(1).
As discussed more fully below, 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 2012 payment determination, we proposed
to continue utilizing many of the same procedures that we used for the
FY 2011 requests for reconsideration. However, we clarified that a
hospital must submit all documentation and evidence that supports its
request for reconsideration at the time that it submits its request.
This includes copies of any communications, such as e-mails that the
hospital believes demonstrate its compliance with the program
requirements, as well as all paper medical records that support the
hospital's rationale for seeking reconsideration. The information that
must be included when a hospital submits a reconsideration request has
been listed in proposed Sec. 412.140(e)(2). 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 Hospital IQR
Program requirements and should receive the full update to the
standardized amount.
--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 note that to the extent a hospital can
submit a request for reconsideration on-line, the burden on our staff
would be 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 Hospital IQR Program payment decision made
because the hospital failed the validation requirement, the hospital
must submit paper copies of all the medical records that it submitted
to the CDAC contractor each quarter for purposes of the validation.
Hospitals must submit this documentation to a CMS contractor. The
contractor will be a QIO support contractor, which has authority to
review patient level information under 42 CFR Part 480. We proposed to
post the address where hospitals can ship the paper charts on the
QualityNet Web site after we issue the FY 2012 IPPS/LTCH PPS final
rule.

Hospitals submitting a Hospital IQR Program validation
reconsideration request will have all data elements to be reconsidered
reviewed by CMS, and not their State QIO. (The State QIO is available
to conduct a quarterly validation appeal if requested to do so by a
hospital.)
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, a hospital that submits a reconsideration
request to CMS must receive a decision on that request prior to
submitting a PRRB appeal. We believe that the reconsideration process
is less costly for

[[Page 51651]]

both CMS and hospitals, and that it decreases the number of PRRB
appeals by resolving issues earlier in the reconsideration and appeals
process. We proposed language at Sec. 412.140(e)(3) stating that a
hospital that receives an adverse decision on its reconsideration
request may appeal that decision to the PRRB.
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 90
days from the receipt of the reconsideration request.
We proposed to continue for the FY 2012 Hospital IQR Program
reconsideration and future years the scope of review when a hospital
requests reconsideration because it failed our validation requirements,
which we adopted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
43892). The scope of this review will be as follows:
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 be reconsidered on the basis
of mismatched data elements. Only hospitals that fail to meet the
passing threshold for the quarterly validation would receive an
opportunity to appeal the validation results to their State QIO.
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.
3. Hospital requests reconsideration for medical records not
submitted to the CDAC contractor within the proposed 30 calendar day
deadline. Our review will initially be limited to determining whether
the CDAC contractor received the requested record within the proposed
30 calendar days, and whether the hospital received the initial medical
record request. If we determine during reconsideration that the CDAC
contractor did receive a paper copy of the requested medical record
within the proposed 30 calendar days, then we would abstract data
elements from the medical record submitted by the hospital. If we
determine that the hospital received a request for medical records and
did not submit the requested records within the proposed 30 day period,
CMS will not accept these records as part of the reconsideration. CMS
will not abstract data from charts not received timely by the CMS
contractor. Please note that this proposed language is also designed to
address those instances where the hospital's request is based on
``invalid record selections,'' which we have defined as medical records
submitted during the quarterly validation process that do not match the
patient's episode of care information as determined by the CMS
contractor as described above in situation 2, above ``Hospital requests
reconsideration for medical record copies submitted during the
quarterly validation process and classified as invalid record
selections.''
In sum, we proposed to continue to initially limit 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 CMS
contractor during the quarterly validation process. We would 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, we would abstract data elements from the medical record
submitted by the hospital as part of our review of its reconsideration
request.
If a hospital is dissatisfied with the result of a Hospital IQR
Program reconsideration decision, the hospital may file an appeal under
42 CFR Part 405, Subpart R (a PRRB appeal). We invited public comment
on the extent to which these proposed procedures will be less costly
for hospitals, and whether they will lead to fewer PRRB appeals.
Comment: Several commenters supported CMS' proposal to reduce the
timeframe for appeals from November 1st to 30 days from the date of
receipt of the payment determination notification because it would
shorten the reconsideration and appeals process, thereby allowing
hospitals who successfully appeal CMS' decision to receive their full
annual payment update in a more expedited manner.
Response: We agree and appreciate the commenters support for this
proposal.
Comment: One commenter opposed the proposal to shorten the
timeframe and argued that because many hospitals may decide to retain
an attorney for a reconsideration request, and because of the time it
takes to coordinate an appeal with an attorney, the deadline should
remain at November 1 annually.
Response: We appreciate the commenter's input regarding the time
necessary to coordinate a reconsideration request. However, we believe
that hospitals will have adequate time to evaluate whether to request
reconsideration under this proposal and that the benefits of a faster
reconsideration process outweigh any potential inconvenience to
hospitals.
In summary, we thank the commenters for their input. We believe our
reconsideration process, including the proposed shorter timeframe for
requesting reconsideration, is minimally burdensome. The form for
reconsiderations and a detailed description of the reconsideration
process are available at http://qualitynet.org >Hospitals-Inpatient>
APU Reconsideration.
After consideration of the public comments we received, we are
finalizing the reconsideration process we proposed, including the
proposal that the general deadline for submitting a request for
reconsideration in connection with the FY 2012 payment determination
will be 30 days from the date of receipt of the payment determination
notification.
11. Hospital IQR Program Disaster Waivers
In our experience, there have been times when hospitals have been
unable to submit required quality data due to extraordinary
circumstances that are not

[[Page 51652]]

within their control. It is our goal to not penalize hospitals for such
circumstances or unduly increase their burden during these times.
Therefore, in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25925) we
proposed to continue, for the FY 2014 and subsequent years payment
determinations, the process we adopted in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50225), for hospitals to request and for CMS to grant
waivers with respect to the reporting of required quality data when
there are extraordinary circumstances beyond the control of the
hospital. Under the process, in the event of extraordinary
circumstances, such as a natural disaster, not within the control of
the hospital, for the hospital to receive consideration for an
extension or waiver of the requirement to submit quality data for one
or more quarters, a hospital would submit to CMS a request form that
would be made available on the QualityNet Web site. The following
information should be noted on the form:
Hospital CCN;
Hospital Name;
CEO and any other designated personnel contact
information, including name, e-mail address, telephone number, and
mailing address (must include a physical address, a post office box
address is not acceptable);
Hospital's reason for requesting an extension or waiver;
Evidence of the impact of the extraordinary circumstances,
including but not limited to photographs, newspaper and other media
articles; and
A date when the hospital will again be able to submit
Hospital IQR Program data, and a justification for the proposed date.
The request form must be signed by the hospital's CEO. We proposed
that a request form must be submitted within 30, rather than 45, days
of the date that the extraordinary circumstance occurred. The QIO in
the hospital's State will forward the request form to CMS. Following
receipt of the request form, CMS will: (1) Provide a written
acknowledgement using the contact information provided in the request,
to the CEO and any additional designated hospital personnel, notifying
them that the hospital's request has been received; and (2) provide a
formal response to the CEO and any additional designated hospital
personnel using the contact information provided in the request
notifying them of our decision.
This proposal does not preclude CMS from granting waivers or
extensions to hospitals that have not requested them when we determine
that an extraordinary circumstance, such as an act of nature (for
example, hurricane), affects an entire region or locale. If CMS makes
the determination to grant a waiver or extension to hospitals in a
region or locale, CMS proposes to communicate this decision through
routine communication channels to hospitals, vendors and QIOs,
including but not limited to issuing memos, e-mails and notices on the
QualityNet Web site. We proposed to include an overview of this process
in proposed 42 CFR 412.140(c)(2). We invited public comment on this
proposal.
Comment: One commenter expressed concern with the proposed
reduction in the timeframe for submission noting that during truly
devastating events, it may take more than 30 days for complete
restoration of electronic communication that CMS depends upon to post
forms, post notices, and issue e-mails. The commenter recommended that
the waiver process not only be permitted electronically, but also
through use of U.S. Postal Service where electronic communications have
not been established.
Response: We appreciate the commenter's input and recognize that
during truly devastating events complete restoration of electronic
communication could take more than 30 days. However, the form can be
completed and submitted using the U.S. Postal Service, fax or
electronic submission. In addition, a hospital can request the
assistance of their State QIO to complete and submit the form. We also
note that we may grant an extension or waiver, to hospitals that have
not requested them, of one or more submission deadlines in
extraordinary circumstances that affect an entire region or locale.
Comment: Many commenters stated they had no objections to reducing
the timeframe for waiver submissions.
Response: We appreciate the commenters' support for the proposal.
After consideration of the public comments we received, we are
adopting as final the process that requires that a request form must be
submitted within 30, rather than 45, days of the date that the
extraordinary circumstance occurred.
12. Electronic Health Records (EHRs)
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
sought to prepare for future EHR submission of quality measures by
sponsoring the creation of electronic specifications for quality
measures under consideration for the Hospital IQR Program.
b. HITECH Act EHR Provisions
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 requirements for meaningful use of certified
EHR technology, which include reporting on quality measures using
certified EHR technology. With respect to the selection of quality
measures for this purpose, under section 1886(n)(3)(A)(iii) 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 Hospital IQR 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. All measures must be proposed for public comment prior to
their selection, except in the case of measures previously selected for
the Hospital IQR Program under section 1886(b)(3)(B)(viii) of the Act.
The final rule for the Medicare and Medicaid EHR Incentive Programs
includes 15 clinical quality measures for eligible hospitals and
critical access hospitals (75 FR 44418), 2 of which were previously
selected for the Hospital IQR Program under section 1886(b)(3)(B)(viii)
of the Act. The remaining 13 measures for these incentive programs are
being proposed for the Hospital IQR Program for the FY 2015 payment
determination.
We continue to believe there are important synergies with respect
to the two programs. 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
Hospital IQR Program. Through the EHR Incentive Programs we expect that
the submission of quality data through EHRs will provide a foundation
for establishing the capacity of hospitals to

[[Page 51653]]

send, and for CMS to receive, quality measures via hospital EHRs for
Hospital IQR Program measures in the future.
The HITECH Act requires that the Secretary seek to avoid redundant
and duplicative reporting, with specific reference to the Hospital IQR
Program for eligible hospitals. To the extent that quality measures are
included in both the Hospital IQR Program and the EHR Incentive
Programs, this would mean that Hospital IQR Program would need to
transition to use of certified EHR technology rather than manual chart
abstraction. We are considering what the most practical approach to
effect such a transition might be. One option is to select a date after
which chart-abstracted data would no longer be used in the Hospital IQR
Program. This would require sufficient advance notice to hospitals for
hospitals to report the data via certified EHR technology. At that
point, we believe that it is likely that nearly all IPPS hospitals will
have implemented certified EHR technology as incentivized by the HITECH
Act. Another option would be to allow hospitals to submit the same
measure for the Hospital IQR Program based on either chart-abstraction
or EHR-based reporting. This would require extensive testing to ensure
equivalence given that the data for the Hospital IQR Program supports
both the public reporting of such information and the Hospital VBP
Program. We are concerned that this option would not be feasible. We
invited public comment on the approach of selecting calendar year 2015
after which chart-abstracted data would no longer be accepted for the
Hospital IQR Program.
Comment: Many commenters overwhelmingly supported the alignment of
Hospital IQR Program measures with the EHR Incentive Programs'
meaningful use criteria for objective/measure. Some commenters
recommended that CMS monitor the adoption rate of EHRs in the EHR
Incentive Programs in order to gauge a target date for complete
transition. A few commenters supported the FY 2015 target date for
complete transition from chart-abstraction to EHR-based data collection
while several commenters doubted the EHR-readiness of some hospitals
and believed that 2020 is probably a more realistic date for a complete
transition. A commenter recommended the maintaining chart-abstraction
for small hospitals which may not be able to afford EHR technology.
Response: We thank the commenters for supporting our goal to
advance the Hospital IQR Program toward EHR-based reporting. As we
state in section IV.A.3.a of this final rule, we anticipate that most
hospitals will have the capability to report quality measures
electronically by 2015 because of the upcoming payment adjustments for
eligible hospitals that do not meet the criteria as meaningful users of
certified EHR technology.
Comment: Commenters also noted complete electronic measure testing,
validation, and comparison of measure outcomes obtained from chart-
abstraction and electronic specifications are crucial in the transition
process.
Response: As we move towards alignment and harmonization of
clinical quality measures reporting among federal reporting
initiatives, we plan to test, compare, and align these reporting
specifications to ensure consistency.
We thank the commenters for the comments and suggestions and we
will take them into account as we develop future proposals regarding
the transfer to EHR technology for chart-abstracted records under the
Hospital IQR Program.
Ultimately, we anticipate that all of the Hospital IQR measures
that are chart-abstracted will be e-specified and also included in the
EHR Incentive Programs. We envision a single reporting infrastructure
for electronic submission of these measures in the future, and will
strive to align the hospital quality initiative programs to seek to
avoid redundant and duplicative reporting of quality measures for
hospitals. We note that some important Hospital IQR Program quality
measures such as HCAHPS experience of care measures are based on survey
data and do not lend themselves to EHR reporting. Similarly, certain
outcome quality measures, such as the current Hospital IQR Program
readmission measures, are based on claims data rather than clinical
data. Thus, not all Hospital IQR quality measures will necessarily be
capable of being submitted through EHRs. As a consequence, not all
Hospital IQR Program measures would necessarily be appropriate for
inclusion in the EHR Incentive Programs.
We again note that the provisions in this FY 2012 IPPS/LTCH PPS
proposed rule do not implicate or implement any HITECH statutory
provisions. Those provisions are the subject of separate rulemaking and
public comment.

B. Hospital Value-Based Purchasing (VBP) Program

1. Background
Section 1886(o) of the Act requires the Secretary to establish a
Hospital VBP Program under which value-based incentive payments are
made in a fiscal year to hospitals meeting performance standards
established for a performance period for such fiscal year. Both the
performance standards and the performance period for a fiscal year are
to be established by the Secretary.
Section 1886(o)(1)(B) of the Act directs the Secretary to begin
making value-based incentive payments under the Hospital VBP Program to
hospitals for discharges occurring on or after October 1, 2012. These
incentive payments will be funded for FY 2013 through a reduction to
the FY 2013 base operating MS-DRG payment for each discharge of 1
percent, as required by section 1886(o)(7)(B)(i) of the Act.
Section 1886(o)(1)(C) of the Act provides that the Hospital VBP
Program applies to subsection (d) hospitals (as defined in section
1886(d)(1)(B) of the Act), but excludes from the definition of the term
``hospital,'' with respect to a fiscal year: (1) A hospital that is
subject to the payment reduction under section 1886(b)(3)(B)(viii)(I)
of the Act (the Hospital IQR Program) for such fiscal year; (2) a
hospital for which, during the performance period for the fiscal year,
the Secretary cited deficiencies that pose immediate jeopardy to the
health or safety of patients; and (3) a hospital for which there are
not a minimum number (as determined by the Secretary) of measures for
the performance period for the fiscal year involved, or for which there
are not a minimum number (as determined by the Secretary) of cases for
the measures that apply to the hospital for the performance period for
such fiscal year.
2. Overview of the Hospital Inpatient VBP Program
On April 29, 2011, we issued the Hospital Inpatient VBP Program
final rule to implement section 1886(o) of the Act (76 FR 26490, May 6,
2011). As described more fully in the Hospital Inpatient VBP Program
final rule, we adopted for the FY 2013 Hospital VBP Program 13 measures
that we have already adopted for the Hospital IQR Program, categorized
into two domains (76 FR 26495 through 26511). We grouped 12 clinical
process of care measures into a clinical process of care domain, and
placed the HCAHPS survey measure into a patient experience of care
domain. We adopted a 3-quarter performance period from July 1, 2011
through March 31, 2012 for these measures (76 FR 26494 through 26495).
To determine whether a hospital meets the proposed performance
standards for these measures, we will compare each hospital's
performance during this performance period to its performance

[[Page 51654]]

during a 3-quarter baseline period from July 1, 2009 through March 31,
2010 (76 FR 26493 through 26495).
We also finalized a methodology for assessing the total performance
of each hospital based on performance standards under which we will
score each hospital based on achievement and improvement ranges for
each applicable measure. We will calculate a Total Performance Score
for each hospital by combining the greater of the hospital's
achievement or improvement points for each measure to determine a score
for each domain, weighting each domain score (for the FY 2013 Hospital
VBP Program, the weights will be clinical process of care = 70 percent,
patient experience of care = 30 percent), and adding together the
weighted domain scores. We will convert each hospital's Total
Performance Score into a value-based incentive payment using a linear
exchange function. We refer readers to the Hospital Inpatient VBP
Program final rule for further explanation of the details of the FY
2013 Hospital VBP Program (76 FR 26490 through 26547).
For FY 2014, we also adopted in the Hospital Inpatient VBP Program
final rule 13 outcome measures comprised of 3 mortality measures, 2
AHRQ composite measures, and 8 hospital-acquired condition (HAC)
measures (76 FR 26511). These measures are set forth below.

Finalized Outcome Measures for the FY 2014 Hospital VBP Program
------------------------------------------------------------------------

------------------------------------------------------------------------
Mortality Measures (Medicare Acute Myocardial
Patients). Infarction (AMI) 30-day
mortality rate.
Heart Failure (HF) 30-
day mortality rate.
Pneumonia (PN) 30-day
mortality rate.
AHRQ Patient Safety Indicators Complication/patient
(PSIs), Inpatient Quality Indicators safety for selected indicators
(IQIs) Composite Measures. (composite).
Mortality for selected
medical conditions (composite).
Hospital Acquired Condition Measures. Foreign Object Retained
After Surgery.
Air Embolism.
Blood Incompatibility.
Pressure Ulcer Stages
III & IV.
Falls and Trauma:
(Includes: Fracture,
Dislocation, Intracranial
Injury, Crushing Injury, Burn,
Electric Shock).
Vascular Catheter-
Associated Infection.
Catheter-Associated
Urinary Tract Infection (UTI).
Manifestations of Poor
Glycemic Control.
------------------------------------------------------------------------

3. Additional FY 2014 Hospital VBP Program Measure
a. Background
Section 1886(o)(2)(A) of the Act requires the Secretary to select
for the Hospital VBP Program measures, other than readmission measures,
from the measures specified under section 1886(b)(3)(B)(viii) of the
Act for the Hospital IQR Program. Section 1886(o)(2)(B)(i) of the Act
requires the Secretary, with respect to value-based incentive payments
made for discharges occurring during FY 2013, to ensure that the
selected measures cover at least the following specified conditions or
topics: Acute Myocardial Infarction (AMI); Heart Failure (HF);
Pneumonia (PN); Surgeries, as measured by the Surgical Care Improvement
Project (SCIP); Healthcare-Associated Infections (HAIs), as measured by
the prevention metrics and targets established in the HHS Action Plan
to Prevent HAIs (available at: http://www.hhs.gov/ash/initiatives/hai/actionplan/index.html) (or any successor plan); and HCAHPS. Section
1886(o)(2)(B)(ii) of the Act requires the Secretary, with respect to
value-based incentive payments made for discharges occurring during FY
2014 or a subsequent year, to ensure that Hospital VBP Program measures
include efficiency measures, including measures of Medicare spending
per beneficiary.
Section 1886(o)(2)(C)(i) of the Act provides that the Secretary may
not select a measure with respect to a performance period for a fiscal
year unless the measure has been specified under the Hospital IQR
Program and included on the Hospital Compare Web site for at least one
year prior to the beginning of the performance period. Section
1886(o)(2)(C)(ii) of the Act provides that a measure selected under
section 1886(o)(2)(A) of the Act shall not apply to a hospital if the
hospital does not furnish services appropriate to the measure.
b. Efficiency Measure--Medicare Spending Per Beneficiary Measure--for
the FY 2014 Hospital VBP Program
(1) Introduction
Section 1886(o)(2)(B)(ii) of the Act requires the Secretary to
ensure that, for Hospital VBP discharges occurring during FY 2014 or a
subsequent year, the measures selected ``include efficiency measures,
including measures of `Medicare spending per beneficiary' * * *.''
Therefore, for the FY 2014 Hospital VBP Program, in the FY 2012 IPPS/
LTCH PPS proposed rule (76 FR 25927 through 25928), we proposed to
adopt a Medicare spending per beneficiary measure. We also proposed
this measure for inclusion in the Hospital IQR Program in the proposed
rule and we described it in detail in section IV.A.3.b.(2)(B) of the
proposed rule (76 FR 25896 through 25897). Our proposed and final
approaches to scoring this measure and including it in the Hospital VBP
Program are discussed below.
(2) Scoring the Medicare Spending per Beneficiary Measure
Section 1886(o)(5)(B)(ii) of the Act requires that the hospital
performance score be determined using the higher of its achievement or
improvement score for each measure. Therefore, in the FY 2012 IPPS/LTCH
PPS proposed rule (76 FR 25927 through 25928), we proposed to calculate
each hospital's achievement score and improvement score on the proposed
Medicare spending per beneficiary measure, in order to determine which
score will be used to calculate the Total Performance Score for the
hospital.
We proposed this scoring methodology because it is generally
similar to the methodology proposed for scoring the clinical process of
care and outcome measures in the Hospital Inpatient VBP Program
proposed rule (76 FR 2465 through 2471).
(A) Scoring Based on Achievement
We proposed to calculate a Medicare per beneficiary spending ratio
of the Medicare spending per beneficiary amount for each hospital to
the median Medicare spending per beneficiary amount across all
hospitals during the performance period. We proposed that a hospital
would earn between 1 and 10 achievement points on the Medicare

[[Page 51655]]

spending per beneficiary measure if its individual Medicare spending
per beneficiary ratio during the performance period falls at or between
the achievement threshold and the achievement benchmark for the
measure. We proposed to set the achievement threshold at the median
Medicare spending per beneficiary ratio across all hospitals during the
performance period. We proposed to set the benchmark at the mean of the
lowest decile of Medicare spending per beneficiary ratios during the
performance period. We proposed that a hospital whose individual
Medicare spending per beneficiary ratio fell below the achievement
threshold would score 0 achievement points on the measure, and that a
hospital whose individual Medicare spending per beneficiary ratio falls
at or above the achievement benchmark would score the maximum of 10
achievement points on the measure. We have clarified the scoring
language, as detailed below, to indicate that a hospital whose Medicare
spending per beneficiary ratio falls above the achievement threshold
would not score achievement points, because a lower ratio, within the
achievement range, results in higher points on this measure. We also
provided a narrative formula to illustrate the proposed calculation of
achievement points, which we have clarified below.
(B) Scoring Based on Improvement
In the FY 2012 IPPS/LTCH PPS proposed rule 76 FR 25927 through
25928), we proposed that a hospital would earn between 1 and 9
improvement points on the proposed Medicare spending per beneficiary
measure if its individual Medicare spending per beneficiary ratio
during the performance period falls within the improvement range. We
proposed to set the threshold for improvement at the hospital's own
Medicare spending per beneficiary ratio, as calculated during the
baseline period. We proposed a baseline period of May 15, 2010 through
February 14, 2011 for the Medicare spending per beneficiary measure and
discussed this proposal in section IV.B.3.b.(4) of the preamble of the
FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25928). We proposed that the
improvement benchmark would be equal to the achievement benchmark for
the performance period, which is the mean of the lowest decile of
Medicare spending per beneficiary ratios across all hospitals. We
proposed that a hospital whose Medicare spending per beneficiary ratio
is equal to or lower than its baseline period Medicare spending per
beneficiary ratio would score 0 improvement points on the measure We
have clarified the scoring language, as detailed below, to indicate
that a hospital whose Medicare spending per beneficiary ratio falls
above the improvement threshold (the hospital's own Medicare spending
per beneficiary during the baseline period) would not score improvement
points, because a lower ratio, within the improvement range, results in
higher points on this measure.
Comment: Several commenters suggested that the narrative scoring
examples included in the proposed rule were incorrect, because they
were similar to those used for scoring other quality measures. The
commenters believed the formulas did not apply to the spending per
beneficiary measure. One commenter noted that the scoring process
description should be clarified to indicate that a lower Medicare
spending per beneficiary ratio would result in a higher score on the
measure than would a higher Medicare spending per beneficiary ratio.
Response: We disagree that the narrative scoring examples were
incorrect. However, we agree that it would be beneficial to clarify the
examples, for consistency with the numeric examples. The narrative
examples in the proposed rule appeared in a different order than the
numeric examples, resulting in a negative number being divided by a
negative number and yielding a positive number. The numeric examples
result in a positive number being divided by a positive number, which
is again a positive number. In this final rule, we are clarifying the
narrative examples. We are clarifying the description of the scoring
process to indicate that a lower Medicare spending per beneficiary
ratio would result in a higher score on the measure, if it falls within
the achievement or improvement range, as suggested by a commenter.
Comment: One commenter requested clarification of the purpose of
calculating a ratio to the median spending amount rather than giving
consideration to the distribution of scores, and suggested evaluating
the distribution of scores by geographic region.
Response: The purpose of using a ratio in the Medicare spending per
beneficiary measure is to quantify a hospital's individual Medicare
spending per beneficiary amount, as compared to spending nationally.
The use of a ratio also facilitates our comparison of a hospital's
baseline Medicare spending per beneficiary, relative to national
Medicare spending per beneficiary, during the baseline period, to the
hospital's performance period Medicare spending per beneficiary,
relative to the national Medicare spending per beneficiary during the
performance period. We believe that comparison of standardized Medicare
spending per beneficiary ratios on a national level is the best way to
help hospitals understand where opportunities for improved efficiencies
lie.
After considering all public comments on scoring of the Medicare
spending per beneficiary measure, we are finalizing our proposal that a
hospital will earn between 1 and 10 achievement points on the Medicare
spending per beneficiary measure if its individual Medicare spending
per beneficiary ratio during the performance period falls at or between
the achievement threshold and the achievement benchmark for the
measure. We are finalizing the achievement threshold at the median
Medicare spending per beneficiary ratio across all hospitals during the
performance period. We are finalizing the benchmark at the mean of the
lowest decile of Medicare spending per beneficiary ratios during the
performance period. A hospital whose individual Medicare spending per
beneficiary ratio falls above the achievement threshold will score 0
achievement points on the measure, and a hospital whose individual
Medicare spending per beneficiary ratio falls at or below the
achievement benchmark will score the maximum of 10 achievement points
on the measure. A hospital whose individual Medicare spending per
beneficiary ratio falls at or below the achievement threshold, but
above the benchmark, will score between 1 and 9 points according to the
following formula:

[9 * ((achievement threshold - Hospital's performance period Medicare
spending per beneficiary ratio)/(achievement threshold - benchmark))] +
.5

We are finalizing our proposal that a hospital will earn between 1
and 9 improvement points on the proposed Medicare spending per
beneficiary measure if its individual Medicare spending per beneficiary
ratio during the performance period falls within the improvement range.
We are finalizing the threshold for improvement at the hospital's own
Medicare spending per beneficiary ratio, as calculated during the
baseline period. We are finalizing the baseline period of May 15, 2010
through February 14, 2011 for the Medicare spending per beneficiary
measure. We are finalizing that the improvement benchmark would be
equal to the achievement benchmark for

[[Page 51656]]

the performance period, which is the mean of the lowest decile of
Medicare spending per beneficiary ratios across all hospitals. A
hospital whose Medicare spending per beneficiary ratio is equal to or
higher than its baseline period Medicare spending per beneficiary ratio
will score 0 improvement points on the measure. If a hospital's score
on the measure during the performance period is less than its baseline
period score but above the benchmark (within the improvement range),
the hospital will receive a score of 0-9 according to the following
formula:

[10 * ((Hospital baseline period Medicare spending per beneficiary
ratio - Hospital performance period Medicare spending per beneficiary
ratio)/(Hospital baseline period Medicare spending per beneficiary
ratio - Benchmark)] - .5

(C) Example of Scoring the Medicare Spending per Beneficiary Measure
In the proposed rule, we provided the following numeric example of
scoring this measure:
If Hospital A had the following spending per beneficiary amounts
during the baseline and performance period:

Baseline = $10,105
Performance = $9,125;
and the median spending per beneficiary amounts across all hospitals
for the baseline and performance periods were:
Median Baseline = $11,672
Median Performance = $12,467;
then the Medicare spending per beneficiary ratios for Hospital A in the
baseline and performance periods would be:
Baseline Ratio = 0.866
Performance Ratio = 0.732.

The achievement threshold is the median ratio across all hospitals,
which would be 1.0. In this example, we assume a benchmark of 0.712. We
would calculate achievement and improvement points for Hospital A as
follows:

Achievement Points = 9 * (1.0 - 0.732) / (1.0 - 0.712) + 0.5 = 8.868
Improvement Points = 10 * (0.866 - 0.732) / (0.866 - 0.712) - 0.5 =
8.185

These points are rounded to yield 9 attainment points and 8
improvement points.
Because section 1886(o)(5)(B)(ii) of the Act, as added by section
3001 of the Affordable Care Act, requires that the hospital performance
score will be determined using the higher of attainment or improvement
score for each measure, the hospital in this example would receive 9
points on the Medicare spending per beneficiary measure.
Comment: One commenter stated that the scoring example was correct.
Response: We agree that this example is correct, and we have
clarified the narrative formulas, for consistency with this example, as
suggested by other commenters.
(D) Incorporation of Medicare Spending Per Beneficiary Measure Score
into the Overall Hospital Total Performance Score
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25928), we
proposed to incorporate the Medicare spending per beneficiary measure
score into the FY 2014 Hospital VBP Program as part of a new domain:
the ``Efficiency'' domain. The Medicare spending per beneficiary
measure score would be the Efficiency domain score for purposes of the
FY 2014 Hospital VBP Program. Consistent with the domain scoring method
in the Hospital Inpatient VBP Program final rule (76 FR 26490 through
26547), we proposed to determine the total earned points for the
Efficiency domain in general by adding the points earned for each
domain measure and dividing by the total possible points, then
multiplying that number by 100 percent. However, because we proposed to
adopt only one measure for the Efficiency domain for the FY 2014
Hospital VBP Program, the total points earned for the domain would be
the points earned on the Medicare spending per beneficiary measure. We
proposed that the total possible points that a hospital could earn for
the Efficiency domain for FY 2014 would be 10, which is equal to the
total possible points that the hospital could earn for the Medicare
spending per beneficiary measure. We proposed that the Efficiency
domain percentage score would be calculated for FY 2014 as follows:
Efficiency domain score = Total points earned on the Medicare spending
per beneficiary measure divided by 10, then multiplied by 100 percent.
Once the Efficiency domain score has been determined, we proposed
to assign it a weight for use in the calculation of the Total
Performance Score. We proposed FY 2014 domain weighting, additional FY
2014 measures, and other proposals for the FY 2014 Hospital VBP Program
in the CY 2012 OPPS/ASC proposed rule (76 FR 42354 through 42365).
Comment: Two commenters requested clarification of the proposed
weighting of the Efficiency domain.
Response: We proposed to weight the Efficiency domain at 20 percent
in the CY 2012 OPPS/ASC proposed rule (76 FR 42362 through 42363).
After considering the public comments we received on the proposals
for incorporation of Medicare spending per beneficiary measure score
into the overall hospital Total Performance Score, we are finalizing
our proposal to incorporate the Medicare spending per beneficiary
measure score into the FY 2014 Hospital VBP Program as part of a new
domain: The ``Efficiency'' domain. We are finalizing that the Medicare
spending per beneficiary measure score will be the Efficiency domain
score for purposes of the FY 2014 Hospital VBP Program. We are
finalizing our proposal to determine the total earned points for the
Efficiency domain by adding the points earned for each domain measure
and dividing by the total possible points, then multiplying that number
by 100 percent. For the FY 2014 payment adjustment, there is only 1
measure in the Efficiency domain, the Medicare spending per beneficiary
measure, and the total possible points are 10. We are finalizing that
the Efficiency domain percentage score would be calculated for FY 2014
as follows: Efficiency domain score = Total points earned on the
Medicare spending per beneficiary measure divided by 10, then
multiplied by 100 percent.
We are finalizing our proposal to assign a weight to the Efficiency
domain, for use in the calculation of the Total Performance Score. We
note that we proposed FY 2014 domain weighting, additional FY 2014
measures, and other proposals for the FY 2014 Hospital VBP Program in
the CY 2012 OPPS/ASC proposed rule (76 FR 42354 through 42365).
4. Efficiency Domain (Medicare Spending per Beneficiary Measure)
Performance Period and Baseline Period
Section 1886(o)(2)(C)(i) of the Act prohibits the Secretary from
selecting a measure for the Hospital VBP Program with respect to a
performance period unless it has been specified under the Hospital IQR
Program and included on the Hospital Compare Web site for at least 1
year prior to the beginning of such performance period. Section
1886(o)(8) of the Act requires that hospitals be notified of the
calculation of their value-based incentive payment no later than 60
days prior to the fiscal year involved. In order to comply with these
statutory requirements for the FY 2014 Hospital VBP Program, in the FY

[[Page 51657]]

2012 IPPS/LTCH PPS proposed rule (76 FR 25928), we proposed to adopt a
9-month period of performance from May 15, 2012 through February 14,
2013 for the proposed Medicare spending per beneficiary measure. If the
measure is adopted, this would allow for a 1-year display period on
Hospital Compare, a 60-day notification period, and would allow the
time needed for administrative processes. We noted that this would have
meant that only IPPS discharges occurring from May 15, 2012 through 90
days prior to February 14, 2013 would count as index stays for purposes
of creating the Medicare spending per beneficiary episodes. This was
because, as proposed, the Medicare spending per beneficiary measure
would have included a Medicare spending per beneficiary episode
spanning from 3 days prior to admission through 90-days post-discharge.
However, we have finalized a shorter Medicare spending per beneficiary
episode, which spans from 3 days prior to admission through 30 days
post-discharge. Therefore, discharges occurring within 30 days of the
end of the performance period will be counted as index admissions, as
described in section IV.A.3.b.(2)(B) of this final rule. The Medicare
spending per beneficiary episode is described in section
IV.A.3.b.(2)(B) of the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25896
through 25897), and in section IV.A.3.b.(2)(B) of this final rule.
For the purposes of calculating improvement points on the proposed
Medicare spending per beneficiary measure, it is necessary to establish
the baseline period to which the performance period score will be
compared. For purposes of the FY 2014 Hospital VBP Program, we proposed
to adopt a baseline period of May 15, 2010 through 90 days prior to
February 14, 2011 for this proposed measure. This proposal was intended
to indicate that only discharges occurring 90 days prior to the end of
the performance period would be counted as index admissions, because,
as proposed, the Medicare spending per beneficiary measure would have
included a Medicare spending per beneficiary episode spanning from 3
days prior to admission through 90-days post-discharge. However, we
have finalized a shorter Medicare spending per beneficiary episode,
which spans from 3 days prior to admission through 30 days post-
discharge. Therefore, discharges occurring within 30 days of the end of
the baseline period will be counted as index admissions, as described
in section IV.A.3.b.(2)(B) of this final rule. The proposed baseline
period is consistent with the baseline period that has been proposed
for the FY 2013 clinical process of care and patient experience of care
measures in the Hospital Inpatient VBP Program final rule (76 FR 26490
through 26547) because it precedes the performance period by 2 years.
We invited public comment on all of our proposals related to the
Efficiency Domain and Medicare spending per beneficiary measure.
Comment: A large number of commenters addressed the proposed period
of performance for the Medicare spending per beneficiary measure. All
but one of those commenters stated that implementation should be
delayed. Most commenters stated that the Medicare spending per
beneficiary measure was not posted on Hospital Compare in time to meet
the requirement of the Affordable Care Act that it be displayed there
for 1 year prior to the start of the performance period and that
therefore, CMS must choose another performance period for the measure.
A number of commenters specifically noted the language in section 3001
of the Affordable Care Act requiring measures of Medicare spending per
beneficiary be included in the calculation of value-based incentive
payments made for discharges occurring during fiscal year 2014 or a
subsequent fiscal year. Nine commenters stated that the measure should
be delayed pending the outcome of NQF study or endorsement. A few
commenters stated that the measure should be delayed until results of
IOM work can be incorporated, and several commenters suggested that CMS
wait for the outcome of its GROUPER study. A few commenters stated that
implementation should be delayed so that further analysis and testing
should be performed. One commenter stated that the performance period
was inappropriate, because it precedes the payment year, making it
impossible for hospitals to improve performance during the payment
year. That commenter further questioned the association of a baseline
year with the performance year. A few commenters suggested that the
Medicare spending per beneficiary measure should utilize a 12-month
performance period, similar to other VBP measures. One commenter stated
that the proposed period of performance should be implemented without
revision.
Response: We disagree with comments that this measure was not
included on Hospital Compare in a timely manner. The measure was
included on April 21, 2011, which is more than 1 year before the
proposed performance period start date of May 15, 2012. We disagree
with comments that we should use the Affordable Care Act language
regarding inclusion of a Medicare spending per beneficiary measure for
discharges occurring in ``a subsequent fiscal year'' to delay the
implementation of this measure. We believe that the Medicare spending
per beneficiary measure is an important step in encouraging hospitals
to redesign and coordinate care with other providers and suppliers of
care, and that its timely implementation is critical to incentivizing
hospitals to provide the highest-quality, most efficient care possible
to Medicare beneficiaries. We acknowledge that movement toward
consistency in performance periods across Hospital VBP Program
measures, to the extent possible, is an important goal. However we note
that some measures within the Hospital VBP Program, including the
Medicare spending per beneficiary measure, cannot initially have 12-
month periods of performance, due to statutory constraints on display
and notification timeframes.
In order to implement this measure for FY 2014, and to display it
on Hospital Compare for 1 year prior to the start of the performance
period, as required by statute, a 9-month period of performance is the
longest we are able to implement for the FY 2014 payment adjustment. We
note that all hospitals will have the same 9-month performance period
during which their Medicare spending per beneficiary ratios will be
compared. Therefore, we do not believe that any hospital will be
unfairly disadvantaged by this performance period. We will analyze and
consider the possibility of moving to a 12-month period of performance
for the Medicare spending per beneficiary measure in the future. In
response to the comment which questions the use of a performance period
which precedes the payment adjustment year, we note that the section
1886(o)(4) of the Act, as added by section 3001 of the Affordable Care
Act requires that the performance period for a fiscal year begin and
end prior to the beginning of that fiscal year. Section
1886(o)(5)(B)(ii) of the Act, as added by section 3001(a) of the
Affordable Care Act, requires that the hospital performance score be
determined using the higher of achievement or improvement points, and
we believe that the use of a baseline period is the best means of
comparison, in order to determine how much hospitals have improved on
this measure and calculate improvement

[[Page 51658]]

points. We disagree with comments in favor of delaying the
implementation of the Medicare spending per beneficiary measure for
further refinement or endorsement. We believe that the measure provides
an accurate comparison of hospital-specific Medicare spending per
beneficiary. We intend to perform ongoing analysis of this measure, in
order to continually improve it, but we believe that its prompt
implementation is an important step in ensuring that Medicare
beneficiaries receive high-quality, coordinated, and efficient care. We
appreciate the commenter's support for the implementation of this
measure as proposed.
Comment: A few commenters stated that the measure could first be
implemented for public reporting purposes, but not be attributed to
specific hospitals. Another commenter suggested that CMS could
implement the measure by first publishing spending on a per-region
basis.
Response: As stated above, we believe that the Medicare spending
per beneficiary measure is an important step in encouraging hospitals
to redesign and coordinate care with other providers and suppliers of
care, and that its prompt implementation is critical to incentivizing
hospitals to provide the highest-quality, most efficient care possible
to Medicare beneficiaries. This measure would be incorporated as one
component of the hospital's Total Performance Score for the Hospital
VBP Program.
In summary, after consideration of the public comments we received,
we are finalizing the following proposals, with regard to inclusion of
the Medicare spending per beneficiary measure in the FY 2014 Hospital
VBP Program. We are finalizing our proposal to include of the Medicare
spending per beneficiary measure in the FY 2014 Hospital VBP Program.
We are finalizing our proposal that a hospital will earn between 1 and
10 achievement points on the Medicare spending per beneficiary measure
if its individual Medicare spending per beneficiary ratio during the
performance period falls at or between the achievement threshold and
the achievement benchmark for the measure. We are finalizing the
achievement threshold at the median Medicare spending per beneficiary
ratio across all hospitals during the performance period. We are
finalizing the benchmark at the mean of the lowest decile of Medicare
spending per beneficiary ratios during the performance period. A
hospital whose individual Medicare spending per beneficiary ratio falls
above the achievement threshold will score 0 achievement points on the
measure, and a hospital whose individual Medicare spending per
beneficiary ratio falls at or below the achievement benchmark will
score the maximum of 10 achievement points on the measure. A hospital
whose individual Medicare spending per beneficiary ratio falls at or
below the achievement threshold, but above the benchmark, will score
between 1-9 points according to the following formula: [9 *
((achievement threshold- Hospital's performance period Medicare
spending per beneficiary ratio)/(achievement threshold-benchmark))] +
0.5.
We are finalizing our proposal that a hospital will earn between 1
and 9 improvement points on the proposed Medicare spending per
beneficiary measure if its individual Medicare spending per beneficiary
ratio during the performance period falls within the improvement range.
We are finalizing the threshold for improvement at the hospital's own
Medicare spending per beneficiary ratio, as calculated during the
baseline period. We are finalizing the baseline period of May 15, 2010
through February 14, 2011 for the Medicare spending per beneficiary
measure. We are finalizing the improvement benchmark would be equal to
the achievement benchmark for the performance period, which is the mean
of the lowest decile of Medicare spending per beneficiary ratios across
all hospitals. A hospital whose Medicare spending per beneficiary ratio
is equal to or higher than its baseline period Medicare spending per
beneficiary ratio will score 0 improvement points on the measure. If a
hospital's score on the measure during the performance period is less
than its baseline period score but above the benchmark (within the
improvement range), the hospital will receive a score of 0-9 according
to the following formula:

[10 * ((Hospital baseline period
Medicare spending per beneficiary ratio-Hospital performance period
Medicare spending per beneficiary ratio)/(Hospital baseline period
Medicare spending per beneficiary ratio-Benchmark)]-0.5.

We are finalizing our proposal to incorporate the Medicare spending
per beneficiary measure score into the FY 2014 Hospital VBP Program as
part of a new domain: the ``Efficiency'' domain. We are finalizing that
the Medicare spending per beneficiary measure score will be the
Efficiency domain score for purposes of the FY 2014 Hospital VBP
Program. We are finalizing our proposal to determine the total earned
points for the Efficiency domain by adding the points earned for each
domain measure and dividing by the total possible points, then
multiplying that number by 100 percent. For the FY 2014 payment
adjustment, there is only 1 measure in the Efficiency domain, the
Medicare spending per beneficiary measure, and the total possible
points are 10. We are finalizing that the Efficiency domain percentage
score would be calculated for FY 2014 as follows: Efficiency domain
score = Total points earned on the Medicare spending per beneficiary
measure divided by 10, then multiplied by 100 percent.
We are finalizing our proposal to assign a weight to the Efficiency
domain, for use in the calculation of the Total Performance Score. We
note that we proposed FY 2014 domain weighting, additional FY 2014
measures, and other proposals for the FY 2014 Hospital VBP Program in
the CY 2012 OPPS/ASC proposed rule (76 FR 42354 through 42365).
We are finalizing a 9-month period of performance from May 15, 2012
through February 14, 2013 for the Medicare spending per beneficiary
measure. We are finalizing a 9-month baseline period of May 15, 2010
through February 14, 2011. We are finalizing that only discharges
occurring within 30 days of the end of the baseline period will be
counted as index admissions for the purposes of establishing baseline
period Medicare spending per beneficiary episodes.
5. Simultaneous Specification of Additional Measures for the Hospital
VBP Program and the Hospital IQR Program
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25928), we
proposed to simultaneously specify additional measures for the Hospital
VBP Program and the Hospital IQR Program, as appropriate, for use in
both programs. Our rationale is to improve patient safety and quality
of care in an expedited manner that is compliant with applicable
statutory guidance. We noted that we used this approach in the FY 2012
IPPS/LTCH PPS proposed rule by proposing to add the Medicare spending
per beneficiary measure to both the Hospital VBP and Hospital IQR
Programs. We also stated that we would provide all associated
regulatory impact and policy rationale in future proposals for both
programs. We stated our belief that this proposal notifies stakeholders
through rulemaking and welcomed comments on this proposal.
Comment: Several commenters objected to the proposal to

[[Page 51659]]

simultaneously adopt measures for both the Hospital VBP Program and the
Hospital IQR Program. The commenters believed that such an approach is
inconsistent with section 1886(o)(2)(C)(i) of the Act, because they
believed that CMS is statutorily required to add measures to the
Hospital VBP Program only if they are specified under the Hospital IQR
Program and included on the Hospital Compare Web site for at least one
year prior to the beginning of the Hospital VBP performance period that
applies for the fiscal year.
Response: We believe that our proposal is consistent with section
1886(o)(2)(C)(i) of the Act. That provision prohibits the Secretary
from selecting a measure for the Hospital VBP Program unless the
measure ``has been specified under the Hospital IQR Program and
included on the Hospital Compare Web site for at least one year prior
to the beginning of the applicable performance period.'' This provision
does not require that a measure be specified for the Hospital IQR
Program before it is included on the Hospital Compare Web site, nor
does it require that we include on the Hospital Compare Web site
performance data on the measure prior to selecting the measure for the
Hospital VBP Program. We believe that by including measures on Hospital
Compare, we are providing the public with sufficient notice that we
might choose to select any or all of them for the Hospital IQR Program
measure set and, possibly simultaneously, for the Hospital VBP Program
measure set (provided the performance period for these measures begins
at least one year after their initial Hospital Compare inclusion and
other statutory requirements are met).
Comment: Some commenters supported CMS' proposal to simultaneously
specify measures in the Hospital IQR and Hospital VBP Programs. Some
commenters generally supported the alignment of Hospital IQR Program
and Hospital VBP Program measures.
Response: We appreciate the commenters' support of our proposal. We
believe that this policy will enable us to expand the measure set as
quickly as possible.
We note that we intend to provide as much notice as is feasibly
possible before proposing to select any measure for the Hospital VBP
Program. However, as we stated in the proposed rule, one of our main
goals is to adopt measures as expeditiously as possible for the purpose
of improving patient safety and the quality of care. After
consideration of the public comments received, we are finalizing our
proposal to adopt a policy under which we can simultaneously propose to
adopt measures for use in both the Hospital IQR and Hospital VBP
Programs.
6. Responses to Additional Hospital VBP Program Comments
We received additional comments regarding other aspects of the
Hospital VBP Program for which we did not make proposals in the FY 2012
IPPS/LTCH PPS proposed rule. We offer the following clarifications and
references in response to these comments.
Comment: Several commenters stated that the performance period for
the 8 HAC measures adopted for the FY 2014 Hospital VBP Program is
incorrect because the measures were not displayed on Hospital Compare
on March 3, 2011. These commenters further suggest that CMS must select
a new performance period to meet the statutory requirements.
Response: We disagree with commenters' assertion that we must
change the performance period for these measures. The 8 finalized HAC
measures were first included on Hospital Compare on March 3, 2011 in
the ``Highlights'' section and the Hospital Compare ``Glossary.'' We
believe that this display meets the requirement in section
1886(o)(2)(C)(i) that measures be included on the Hospital Compare Web
site for at least one year prior to the beginning of the performance
period that applies to the FY 2014 Hospital VBP Program. As stated in
the Hospital Inpatient VBP Program final rule (76 FR 26495), the FY
2014 performance period for the 8 finalized HAC measures will begin on
March 3, 2012.
Comment: Some commenters opposed the use of HAC measures in the
Hospital VBP Program, and argued that hospitals will be penalized on
those measures under two separate payment policies.
Response: As we stated in the Hospital Inpatient VBP Program final
rule, we view the Hospital VBP Program and the program authorized under
section 3008 of the Affordable Care Act as related but separate efforts
to reduce HACs. We intend to monitor the various interactions of
programs authorized by the Affordable Care Act and their overall impact
on providers and suppliers (76 FR 26504).
Comment: Some commenters suggested that CMS change the finalized
domain weighting scheme for the FY 2013 Hospital VBP Program and weight
all domains equally, arguing that doing so would help ``bend the cost
curve'' and create a more equitable payment system. Other commenters
expressed specific concern with the patient experience domain's
weighting at 30 percent, arguing that cultural, regional, and
educational differences can affect a patient's perspective of care.
Response: We disagree with the comments' suggestions that we alter
the domain weighting scheme we finalized for the FY 2013 Hospital VBP
Program. As we explained in the Hospital Inpatient VBP Program final
rule (76 FR 26526), we considered many factors when determining the
appropriate weight for the FY 2013 Hospital VBP Program, including the
number of measures in each domain, the reliability of individual
measure data, systematic effects of alternative weighting schemes on
hospitals according to their location and characteristics, and HHS
quality improvement priorities. We also believe that delivery of high-
quality, patient-centered care requires us to carefully consider the
patient's experience in the hospital inpatient setting.
Taking all of these considerations into account, we finalized the
use of a 70 percent clinical process of care and 30 percent patient
experience of care (HCAHPS) weighting scheme for the FY 2013 Hospital
VBP Program. We believe that assigning a 30 percent weight to the
patient experience of care domain is appropriate because the HCAHPS
measure is comprised of eight dimensions that address different aspects
of patient satisfaction. We believe the finalized 30 percent weight
appropriately balances hospitals' incentives to perform well on both
the clinical process measures and the HCAHPS survey.
We also refer readers to the CY 2012 OPPS/ASC proposed rule (76 FR
42362 through 76 FR 42363) for our proposed weighting scheme for the FY
2014 Hospital VBP Program.
We adopted a number of HCAHPS dimensions for the FY 2013 Hospital
VBP Program that assess the patient's communication experience with
hospital staff (including doctors and nurses), and communication
regarding medicines and discharge information. We believe that the
communication experience of all patients is a critical aspect of
quality of care, and one that should be measured and publicly reported
for all hospitals. Accordingly, the communication items have been an
integral part of HCAHPS since its national implementation in 2006, have
been included in the Hospital IQR Program since 2007, have been
publicly reported since 2008, and have been adopted in the Hospital VBP
Program in a manner that rewards hospitals for either their performance
compared to other hospitals, or their improvement

[[Page 51660]]

compared to their own previous performance.
Comment: One commenter argued that because urban safety net
hospitals typically serve a diverse patient population, these hospitals
are likely to score poorly on the communication dimensions of the
HCAHPS survey, and that for this reason, the use of HCAHPS in the
Hospital VBP Program would be detrimental to them. Several commenters
stated that CMS should distinguish safety net and urban safety net
hospitals from other hospitals because of the distinct challenges faced
by such hospitals and because such hospitals are disadvantaged by the
Hospital VBP Program, particularly the HCAHPS domain.
Response: We thank the commenters for their input. As we discussed
in the Hospital Inpatient VBP Program final rule (76 FR 26502), we
recognize that urban hospitals, particularly large ones, have
historically not performed as well on HCAHPS as rural hospitals.
However, our internal studies of HCAHPS results show that hospitals in
some urban areas scored in the top 25 percent of hospitals overall. We
believe that those results suggest that urban hospitals can achieve
high scores under the HCAHPS domain.
``Safety net'' hospital is not an official CMS term or category.
However, we are aware of several differing definitions of this term.
Employing a definition of ``Safety Net hospital'' created by the AHRQ,
we looked into the ability of safety net hospitals to score well on
HCAHPS in the Hospital VBP Program. We found 30 hospitals that meet all
three of AHRQ's criteria for Safety Net hospital: (1) high Medicaid
percentage; (2) high percentage of uncompensated care; and (3) located
in a high poverty county. Of these 30 hospitals, 3 hospitals (10
percent) fall in the top 10 percent of all hospitals in terms of
projected earned total HCAHPS points for the Hospital VBP Program. This
suggests that safety net hospitals can achieve the highest HCAHPS
Hospital VBP Program scores and at a similar rate to non-safety net
hospitals.
Comment: One commenter requested that CMS publicly report the
patient mix characteristics of each hospital, and publicly report the
non-patient-mix adjusted HCAHPS scores to allow hospitals to determine
the impact of patient-mix adjustment in Hospital VBP Program payments.
Response: We thank the commenter for the suggestion. We currently
provide patient-mix adjustment coefficients for HCAHPS measures on our
HCAHPS On-Line Web site, http://www.hcahpsonline.org, along with
instructions on how hospitals can derive the adjustments that apply to
their scores. We will consider the benefits of publicly reporting the
patient mix characteristics and the pre- and post-patient-mix adjusted
HCAHPS scores of participating hospitals.

C. Hospital Readmissions Reduction Program

1. Background
a. Overview
CMS is committed to promoting high quality health care and
improving patient health outcomes. Readmission to a hospital may be an
adverse event for patients and many times imposes a financial burden on
the health care system. Successful efforts to reduce preventable
readmission rates will improve quality of care while simultaneously
decreasing costs. Hospitals can work with their communities to lower
readmission rates and improve patient care in a number of ways, such as
ensuring patients are clinically ready to be discharged, reducing
infection risk, reconciling medications, improving communication with
community providers responsible for post-discharge patient care,
improving care transitions, and ensuring that patients understand their
care plans upon discharge.
Many studies have demonstrated the effectiveness of these types of
in-hospital and post-discharge interventions in reducing the risk of
readmission, confirming that hospitals and their partners have the
ability to lower readmission rates.^{37 38 39} These types of
efforts taken during and after a hospitalization have been shown to be
effective in reducing readmission rates in geriatric populations
generally,^{40 41} as well as for multiple specific conditions.
Moreover, such interventions can be cost saving. For example, in the
case of heart failure, improved hospital \42\ and post-discharge
care,^{43 44} including pre-discharge planning,^{45 46}
home-based follow-up, and patient education,^{47 48} have been
shown to lower heart failure readmission rates, suggesting that heart
failure readmission rates might be reduced if proven interventions were
more widely adopted. Financial incentives to reduce readmissions will
in turn promote improvement in care transitions and care coordination,
as these are important means of reducing preventable readmissions.\49\
---------------------------------------------------------------------------

\37\ Gwadry-Sridhar FH, Flintoft V, Lee DS, Lee H, Guyatt GH: A
systematic review and meta-analysis of studies comparing readmission
rates and mortality rates in patients with heart failure. Arch
Intern Med. 2004;164(21):2315-2320.
\38\ McAlister FA, Lawson FM, Teo KK, Armstrong PW.: A
systematic review of randomized trials of disease management
programs in heart failure. AmJMed. 2001;110(5):378-384.
\39\ Krumholz HM, Amatruda J, Smith GL, et al.: Randomized trial
of an education and support intervention to prevent readmission of
patients with heart failure. J Am Coll Cardiol. 2002;39(1):83-89.
\40\ Coleman EA, Parry C, Chalmers S, Min SJ.: The care
transitions intervention: Results of a randomized controlled trial.
Arch Intern Med. 2006;166:1822-8.
\41\ Naylor MD, Brooten D, Campbell R, Jacobsen BS, Mezey MD,
Pauly MV, Schwartz JS.: Comprehensive discharge planning and home
follow-up of hospitalized elders: A randomized clinical trial. JAMA.
1999;281:613-20.
\42\ Gwadry-Sridhar FH, Flintoft V, Lee DS, Lee H, Guyatt GH.: A
systematic review and meta-analysis of studies comparing readmission
rates and mortality rates in patients with heart failure. Arch
Intern Med. 2004;164(21):2315-2320.
\43\ Lappe JM, Muhlestein JB, Lappe[acute] DL, et al.:
Improvements in 1-year cardiovascular clinical outcomes associated
with a hospital-based discharge medication program. Ann Intern Med.
2004;141(6):446-453.
\44\ Phillips CO, Wright SM, Kern DE, Singa RM, Shepperd S,
Rubin HR.: Comprehensive discharge planning with postdischarge
support for older patients with congestive heart failure: A
metaanalysis [published correction appears in JAMA.
2004;292(9):1022]. JAMA. 2004;291(11): 1358-1367.
\45\ Rich MW, Beckham V, Wittenberg C, Leven CL, Freedland KE,
Carney RM.: A multi disciplinary intervention to prevent the
readmission of elderly patients with congestive heart failure. N
Engl J Med. 1995;333(18):1190-1195.
\46\ Schneider JK, Hornberger S, Booker J, Davis A, Kralicek R.:
A medication discharge planning program: Measuring the effect on
readmissions. Clin Nurs Res. 1993;2(1):41-53.
\47\ Koelling TM, Johnson ML, Cody RJ, Aaronson KD.: Discharge
education improves clinical outcomes in patients with chronic heart
failure. Circulation. 2005;111(2):179-185.
\48\ Krumholz HM, Amatruda J, Smith GL, et al.: Randomized trial
of an education and support intervention to prevent readmission of
patients with heart failure. J Am Coll Cardiol. 2002;39(1):83-89.
\49\ Coleman EA.: 2005. Background Paper on Transitional Care
Performance Measurement. Appendix I. In: Institute of Medicine,
Performance Measurement: Accelerating Improvement. Washington, DC:
National Academy Press.
---------------------------------------------------------------------------

In its 2007 ``Report to Congress: Promoting Better Efficiency in
Medicare,'' \50\ MedPAC noted the potential benefit to patients of
lowering readmissions and suggested payment strategies that would
incentivize hospitals to reduce these rates. MedPAC identified 7
conditions and procedures that accounted for almost 30 percent of
potentially preventable readmissions: Heart failure; chronic
obstructive pulmonary disease; pneumonia; acute myocardial infarction;
coronary artery bypass graft surgery; percutaneous transluminal
coronary angioplasty; and other vascular procedures.
---------------------------------------------------------------------------

\50\ Medicare Payment Advisory Commission (MedPAC). Report to
Congress: Promoting Greater Efficiency in Medicare; 2007. Available
at http://www.medpac.gov/documents/Jun07_EntireReport.pdf. Accessed
January 10, 2011.
---------------------------------------------------------------------------

To promote quality of care, CMS developed hospital quality of care

[[Page 51661]]

measures that compare patient outcomes across different hospitals.
These measures, including hospital risk-standardized readmission
measures for Acute Myocardial Infarction (AMI), Heart Failure (HF) and
Pneumonia (PN), were originally developed for public reporting as a
part of the Hospital IQR Program. We adopted the HF readmission measure
for the Hospital IQR Program in the FY 2009 IPPS final rule for the FY
2010 payment determination (73 FR 48606) and the AMI and PN readmission
measures in the CY 2009 OPPS/ASC final rule with comment period for the
FY 2010 payment determination (73 FR 68781). Details about the
methodology used for these measures may be found on the Web site at:
http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841.
As described above, readmission rates are important markers of
quality of care, particularly of the care of a patient in transition
from an acute care setting to a non-acute care setting, and improving
readmissions can positively influence patient outcomes and the cost of
care. The above hospital risk-standardized readmission measures are
endorsed by the National Quality Forum (NQF) and have been publicly
reported on Hospital Compare Web site since 2009 (http://www.hospitalcompare.hhs.gov) to encourage quality improvement and lower
readmission rates. In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR
25928 through 25937), we proposed that the readmission measures for
these three conditions be used for the Hospital Readmissions Reduction
Program under section 1886(q) of the Act, as added by section 3025 of
the Affordable Care Act. Below is a discussion of the proposals we
included regarding these measures, the public comments we received
regarding these proposals, our response to these public comments, and
our final policy decisions.
b. Statutory Basis for the Hospital Readmissions Reduction Program
Section 3025 of the Affordable Care Act, as amended by section
10309 of the Affordable Care Act, added a new subsection (q) to section
1886 of the Act. Section 1886(q) of the Act establishes the ``Hospital
Readmissions Reduction Program'' effective for discharges from an
``applicable hospital'' beginning on or after October 1, 2012, under
which payments to those hospitals under section 1886(d) of the Act will
be reduced to account for certain excess readmissions.
In this year's IPPS rulemaking, we address: (i) Those aspects of
the Hospital Readmissions Reduction Program that relate to the
conditions and readmissions to which the Hospital Readmissions
Reduction Program will apply for the first program year beginning
October 1, 2012; (ii) the readmission measures and related methodology
used for those measures, as well as the calculation of the readmission
rates; and (iii) public reporting of the readmission data. Specific
information regarding the payment adjustment required under section
1886(q) of the Act will be proposed in next year's IPPS/LTCH PPS
proposed rule. Although we did not propose specific policies regarding
the payment adjustment under the Hospital Readmissions Reduction
Program in the FY 2012 IPPS/LTCH PPS proposed rule, we believe that it
is still important to set forth the general framework of the Hospital
Readmissions Reduction Program, including the payment adjustment
provisions, in order for the public to understand how the measures
discussed and finalized in this rulemaking will affect certain hospital
payments beginning in FY 2013.
Section 1886(q)(1) of the Act sets forth the methodology by which
payments to ``applicable hospitals'' will be adjusted to account for
excess readmissions. Pursuant to section 1886(q)(1) of the Act,
payments for discharges from an ``applicable hospital'' will be an
amount equal to the product of the ``base operating DRG payment
amount'' and the adjustment factor for the hospital for the fiscal
year. That is, the ``base operating DRG payments'' are reduced by an
adjustment factor that accounts for excess readmissions. Section
1886(q)(1) of the Act requires the Secretary to make payments for a
discharge in an amount equal to the product of ``the base operating DRG
payment amount'' and ``the adjustment factor'' for the hospital in a
given fiscal year. Section 1886(q)(2) of the Act defines the base
operating DRG payment amount as ``the payment amount that would
otherwise be made under subsection (d) (determined without regard to
subsection (o) [the Hospital VBP Program]) for a discharge if this
subsection did not apply; reduced by * * * any portion of such payment
amount that is attributable to payments under paragraphs (5)(A),
(5)(B), (5)(F), and (12) of subsection (d).'' Paragraphs (5)(A),
(5)(B), (5)(F), and (12) of subsection(d) refer to outlier payments,
IME payments, DSH payments, and payments for low volume hospitals,
respectively.
Furthermore, section 1886(q)(2)(B) of the Act specifies special
rules for defining ``the payment amount that would otherwise be made
under subsection (d)'' for certain hospitals. Specifically, section
1886(q)(2)(B) of the Act states that ``[i]n the case of a Medicare-
dependent, small rural hospital (with respect to discharges occurring
during fiscal years 2012 and 2013) or a sole community hospital * * *
the payment amount that would otherwise be made under subsection (d)
shall be determined without regard to subparagraphs (I) and (L) of
subsection (b)(3) and subparagraphs (D) and (G) of subsection (d)(5).''
We intend to propose regulations to implement the statutory provisions
related to the definition of ``base operating DRG payment amount'' in
the FY 2013 IPPS/LTCH PPS proposed rule.
Section 1886(q)(3)(A) of the Act defines the ``adjustment factor''
for an applicable hospital for a fiscal year as equal to the greater of
``(i) the ratio described in subparagraph (B) for the hospital for the
applicable period (as defined in paragraph (5)(D)) for such fiscal
year; or (ii) the floor adjustment factor specified in subparagraph
(C).'' Section 1886(q)(3)(B) of the Act in turn describes the ratio
used to calculate the adjustment factor. It states that the ratio is
``equal to 1 minus the ratio of--(i) the aggregate payments for excess
readmissions * * *; and (ii) the aggregate payments for all discharges
* * *.'' Section 1886(q)(3)(C) of the Act describes the floor
adjustment factor, which is set at 0.99 for FY 2013, 0.98 for FY 2014,
and 0.97 for FY 2015 and subsequent fiscal years.
Section 1886(q)(4) of the Act sets forth the definitions of
``aggregate payments for excess readmissions'' and ``aggregate payments
for all discharges'' for an applicable hospital for the applicable
period. The term ``aggregate payments for excess readmissions'' is
defined in section 1886(q)(4)(A) of the Act as ``the sum, for
applicable conditions * * * of the product, for each applicable
condition, of (i) the base operating DRG payment amount for such
hospital for such applicable period for such condition; (ii) the number
of admissions for such condition for such hospital for such applicable
period; and (iii) the ``Excess Readmission Ratio * * * for such
hospital for such applicable period minus 1.'' The ``Excess Readmission
Ratio'' is a hospital-specific ratio based on each applicable
condition. Specifically, section 1886(q)(4)(C) of the Act defines the
Excess Readmission Ratio as the ratio of ``risk-adjusted readmissions
based on actual readmissions'' for an applicable hospital

[[Page 51662]]

for each applicable condition, to the ``risk-adjusted expected
readmissions'' for the applicable hospital for the applicable
condition.
Section 1886(q)(5) of the Act provides definitions of ``applicable
condition,'' ``expansion of applicable conditions,'' ``applicable
hospital,'' ``applicable period,'' and ``readmission.'' The term
``applicable condition,'' which we addressed in detail below in section
IV.C.3.a. of this preamble, is defined as a ``condition or procedure
selected by the Secretary among conditions and procedures for which:
(i) Readmissions * * * represent conditions or procedures that are high
volume or high expenditures * * * and (ii) measures of such
readmissions * * * have been endorsed by the entity with a contract
under section 1890(a) * * * and such endorsed measures have exclusions
for readmissions that are unrelated to the prior discharge (such as a
planned readmission or transfer to another applicable hospital).'' The
term ``expansion of the applicable condition'' refers to the
Secretary's authority, beginning with FY 2015, ``to the extent
practicable, [to] expand the applicable conditions beyond the 3
conditions for which measures have been endorsed * * * to the
additional 4 conditions that have been identified by the Medicare
Payment Advisory Commission in its report to Congress in June 2007 and
to other conditions and procedures as determined appropriate by the
Secretary.''
Section 1886(q)(5)(C) of the Act defines ``applicable hospital,''
that is, a hospital subject to the Hospital Readmissions Reduction
Program, as a ``subsection (d) hospital or a hospital that is paid
under section 1814(b)(3) [of the Act], as the case may be.'' The term
``applicable period,'' as defined by section 1886(q)(5)(D) of the Act,
``means, with respect to a fiscal year, such period as the Secretary
shall specify.'' As explained in the FY 2012 IPPS/LTCH PPS proposed
rule and in this final rule, the ``applicable period'' is the period
from which data are collected in order to calculate various ratios and
adjustments under the Hospital Readmissions Reduction Program.
Section 1886(q)(6) of the Act sets forth the reporting requirements
for hospital-specific readmission rates. Section 1886(q)(7) of the Act
limits administrative and judicial review of certain determinations
made pursuant to section 1886(q) of the Act. Finally, section
1886(q)(8) of the Act requires the Secretary to collect data on
readmission rates for all hospital inpatients for ``specified
hospitals'' in order to calculate the hospital-specific readmission
rates for all hospital inpatients and to publicly report these
readmission rates.
2. Implementation of the Hospital Readmissions Reduction Program
a. Overview
We intend to implement the requirements of the Hospital
Readmissions Reduction Program in the FY 2012, FY 2013, and future
IPPS/LTCH PPS rulemaking cycles.
Comment: A few commenters supported CMS' implementation of the
Hospital Readmissions Reduction Program and CMS's implementation
approach. One commenter specifically appreciated the phased-in approach
for implementation.
Response: We appreciate the commenters' support for the Hospital
Readmissions Reduction Program and the phased-in approach we have
taken.
Comment: Some commenters urged that, prior to next year's
rulemaking in which CMS will discuss and implement the provisions
related to the payment adjustment and other outstanding issues, CMS
hold a series of stakeholder calls to solicit input in the development
of the Hospital Readmissions Reduction Program.
Response: We appreciate the comments on our implementation process
of the Hospital Readmissions Reduction Program. We intend to solicit
formal public input on our proposal related to the readmissions
reduction through rulemaking. In addition, the public can provide input
on proposals related to the Hospital Readmissions Reduction Program
through the Hospital Open Door Forums calls that we hold periodically
to provide hospitals with information on various issues and to listen
to questions and concerns from hospitals. The public can find out more
information about the Hospital Open Door Forums, including when they
will be held, on the CMS Web site: http://www.cms.gov/OpenDoorForums/18_ODF_Hospitals.asp#TopOfPage.
Comment: One commenter expressed concern that the Hospital
Readmissions Reduction Program's payment adjustments are likely to have
a disproportionate impact on rural hospitals.
Response: We appreciate the comment on the impact of the Hospital
Readmissions Reduction Program on rural hospitals. We note that we did
not propose policies related to the Hospital Readmissions Reduction
Program payment adjustment in the proposed rule. Therefore, this
comment is outside the scope of the issues addressed in the proposed
rule. As discussed in more detail below, we plan to propose policies
related to the implementation of the payment adjustment set forth in
section 1886(q) of the Act in the FY 2013 IPPS/LTCH PPS proposed rule.
We will consider this comment when formulating these policies.
Comment: One commenter stated that the simultaneous implementation
of the readmissions reduction measures for AMI, HF, and PN in the
Hospital Readmissions Reduction Program and the Hospital IQR Program
would cause ``double jeopardy,'' that is, the hospital would be
penalized twice for care provided to the same patients.
Response: While the readmissions measures that we proposed for the
Hospital Readmissions Reduction Program are also part of the Hospital
IQR Program, hospitals are not assessed under the Hospital IQR Program
based on their performance on the measures. Rather, under the Hospital
IQR Program, hospitals are only required to participate in the program
and to report the measure in order to avoid a payment reduction,
regardless of their performance on the reported measures. Moreover, the
readmission measures included in the Hospital IQR Program are not
eligible to be included in the Hospital VBP Program. In the case of the
three proposed NQF-endorsed 30-day risk standardized readmissions
measures for AMI, HF, and PN, no additional information is required of
hospitals because we use information that is already submitted on
Medicare Part A and Part B claims for payment purposes. The Hospital
Readmissions Reduction Program includes a payment adjustment based on
the hospital's performance with regard to the claims-based readmissions
measures. Therefore, in this situation, we do not believe hospitals
will be penalized twice based on the same readmissions measures.
However, we intend to monitor any potential interactions that the
Hospital Readmissions Reduction Program may have with other programs.
We anticipate implementing the readmissions payment adjustment through
future rulemaking.
Comment: One commenter expressed concern about a number of
potential unintended consequences that could result from the Hospital
Readmissions Reduction Program, including premature discharge of
patients, providers avoiding certain types of patients who are more ill
or complicated and therefore likely to be readmitted. Another commenter
suggested that the Hospital Readmissions Reduction Program resulted in
increased pressure on emergency physicians not to readmit

[[Page 51663]]

patients within the 30-day window. This commenter also expressed
concerns that physicians in emergency departments do not have access to
the patient's record if they have had a recent inpatient stay at
another hospital.
Response: We appreciate the commenters pointing out these potential
unintended consequences of the Hospital Readmissions Reduction Program.
As part of our implementation of the Hospital Readmissions Reduction
Program, we will monitor trends to determine if there are unintended
consequences of the policy, such as systematic shifting, diversion, and
delays in care, in order to assess and take appropriate action to
minimize any such unintended consequences.
Comment: One commenter stated that it is important to ensure that
transplant centers are not unduly penalized by the Hospital
Readmissions Reduction Program, when transplant patients are readmitted
for infections caused by the transplantation of organs from marginal
donors.
Response: The three applicable conditions for readmission measures
only apply to patients discharged with a primary diagnosis code for
AMI, HF, and PN, and do not apply to transplant patients who have
contracted infections from the transplantation of infected organs.
Therefore, patient admissions for transplants and corresponding
discharges with those primary codes are not included in the index
hospitalizations counted for these measures. However, if a transplant
recipient is subsequently admitted with AMI, HF or PN and is readmitted
within 30 days, the readmission would be included in the readmissions
methodology. Therefore, we do not believe that transplant centers would
be disproportionately penalized by the Hospital Readmissions Reduction
Program.
Comment: One commenter stated that it is important for hospitals to
be able to track patients who are subsequently admitted to other
hospitals and requested that CMS develop patient identifiers that would
allow for this tracking. Two commenters stated that hospitals need a
mechanism to track and understand patient readmissions in real time.
Response: We recognize the value in being able to track patients'
readmissions to other hospitals real time both for a hospital's
internal quality improvement purpose, and for validating our
readmission measure criteria. We thank the commenters for their
suggestions, and we will consider whether it is operationally possible
to provide these data to hospitals and whether sharing these data would
be consistent with patient privacy considerations.
Comment: One commenter recommended that CMS provide hospitals with
their expected readmission ratio and actual readmission counts on a
quarterly basis, as well as claims data for the prior 12 months for any
readmission attributed to them.
Response: To provide the measures quarterly, including the expected
readmission rates and the actual counts of readmissions, is resource
intensive. We thank the commenters for their suggestions and will
consider them if resources allow us to do so in the future. The
readmission measures are calculated using the data from the claims that
hospitals submitted to CMS for payment. Therefore, hospitals should
have access to at least their own facility's patient claims data for
the prior 12 months for any readmission attributed to them.
We thank the commenters for these suggestions. We will consider
whether it is operationally possible to provide hospitals with these
measures quarterly and the patient data for any readmission attributed
to the hospitals. In addition we will look into whether sharing these
patient data would be consistent with patient privacy considerations.
Comment: Two commenters requested that data be made available to
advocacy and watchdog organizations so that the proposed measures can
be replicated and validated independently prior to the end of the
comment period. One commenter recommended that CMS' calculations,
including its methodology for all risk adjustments and how it
calculates hospital-specific observed and expected rates be made
available to the public so that CMS' work can be replicated and
verified.
Response: We have made the methodology reports for risk-adjusting
the proposed measures and the software (in SAS format) to calculate the
measures publicly available through https://www.Qualitynet.org.
However, because of the comparative nature inherent to the calculating
the measures, we note that the statistical models used to calculate the
measures require data from all applicable hospitals, and cannot be
replicated using only a single hospital's data. With regard to
providing data to advocacy and watchdog groups for independent
validation, we have provided the downloadable files on the Hospital
Compare Web site. The downloadable files contain the aggregate-level
data that we publicly reported. As we noted above, we will consider
whether it is operationally possible to provide additional data to
third parties and whether sharing these data would be consistent with
patient privacy considerations.
b. Provisions in the FY 2012 IPPS/LTCH PPS Final Rule
As explained above, the adjustment factor set forth in section
1886(q) of the Act does not apply to discharges until FY 2013.
Therefore, we are able to implement the Hospital Readmissions Reduction
Program over two years. We are first addressing issues such as the
selection of readmission measures and the calculation of the Excess
Readmission Ratio, which will then be used, in part, to calculate the
readmission payment adjustment factor. Specifically, in the FY 2012
IPPS/LTCH PPS proposed rule and in this final rule, we addressed
portions of section 1886(q) of the Act related to the following
provisions:
Selection of applicable conditions;
Definition of ``readmission;''
Measures for the applicable conditions chosen for
readmission;
Methodology for calculating the Excess Readmission Ratio;
Public reporting of the readmission data; and
Definition of ``applicable period.''
With respect to the topics of ``measures for readmission'' for the
applicable conditions, and ``methodology for calculating the Excess
Readmission Ratio,'' we are specifically addressing the following:
Index hospitalizations;
Risk Adjustment;
Risk Standardized Readmission Rate;
Data sources; and
Exclusion of Certain Readmissions.
c. Provisions To Be Included in the FY 2013 IPPS/LTCH PPS Proposed Rule
In the FY 2013 IPPS/LTCH PPS rulemaking, we will address the
provisions in section 1886(q) of the Act that are related to the
payment adjustment, as well as the rest of the provisions in section
1886(q) of the Act that are not addressed in the FY 2012 IPPS/LTCH PPS
rulemaking. Specifically, in the FY 2013 IPPS/LTCH PPS proposed rule,
we plan to address section 1886(q) of the Act related to the following
provisions:
Base operating DRG payment amount, including policies for
SCHs and MDHs;
Adjustment factor (both the ratio and floor adjustment
factor);
Aggregate payments for excess readmissions;
Applicable hospital.

We believe it is appropriate to first address the readmission
measures and

[[Page 51664]]

the calculation of the Excess Readmission Ratio that will be used, in
part, to calculate the readmission payment adjustment factor and the
application of the readmission payment adjustment factor to inpatient
hospital payments. We believe the 2-year rulemaking schedule provides
adequate time and opportunities for careful consideration of the
various aspects of the Hospital Readmissions Reduction Program by both
CMS and stakeholders prior to implementation of the Hospital
Readmissions Reduction Program in FY 2013.
Comment: One commenter asked that cancer hospitals payment based on
limits set by the Tax Equity and Fiscal Responsibility Act of 1982 be
exempt from the Hospital Readmissions Reduction Program.
Response: We appreciate the comment, but we note that this comment
is not within the scope of the proposals in the FY 2012 IPPS/LTCH PPS
proposed rule regarding the Hospital Readmissions Reduction Program. In
the proposed rule, we noted that we plan to address the provisions of
section 1886(q)(5)(C) of the Act related to the definition of
``applicable hospital'' in the FY 2013 IPPS/LTCH PPS proposed rule.
Comment: Several comments addressed the payment adjustment under
section 1886(q) of the Act. One commenter expressed appreciation that
the readmission payment adjustment factor would not be applied to
Medicare DSH, IME, or outlier payments. Some commenters believed that
the readmission payment adjustment factor should only be applied to
discharges following readmissions and not all discharges. Other
commenters believed that the formula set forth in the statute to
calculate the aggregate payments due to excess readmissions would
result in a payment penalty that is too severe. Commenters also stated
that the formula to calculate the aggregate payments due to excess
readmissions should be the product of the Excess Readmission Ratio, the
average base DRG operating payment, and the expected number of
readmissions, rather than the current statutory language that defines
aggregate payments for excess readmissions as the product of the total
number of admissions for the condition, the average base DRG payment
for the condition, and the Excess Readmission Ratio.
Commenters also stated that the statutory formula is inconsistent
and combines quantities that are not comparable because the Excess
Readmission Ratio is based on the ratio of risk-adjusted actual
readmissions to risk-adjusted expected readmissions and that ratio,
which is based on readmissions, is applied to the total number of
admissions. Commenters believed that the statutory formula is contrary
to Congressional intent, because the monetary savings if the formula
were implemented consistent with the statute is far greater than the
CBO score of the provision. Commenters suggested that CMS adopt a less
literal and rigid interpretation of the statute or seek a technical
amendment to the law.
Response: We appreciate the comments on the readmission payment
adjustment factor, but we again note that we did not propose policies
related to the Hospital Readmissions Reduction Program payment
adjustment in the proposed rule. Therefore, these comments are not
within the scope of issues discussed in the FY 2012 IPPS/LTCH PPS
proposed rule. We will consider these comments when formulating
policies related to the Hospital Readmissions Reduction Program payment
adjustment in next year's IPPS/LTCH PPS rulemaking.
d. Expansion of the Applicable Conditions To Be Included in the Future
Rulemaking
Pursuant to section 1886(q)(5)(B) of the Act, beginning in FY 2015,
the Secretary ``shall, to the extent practicable,'' expand the list of
applicable conditions for the Hospital Readmissions Reduction Program
beyond the three conditions described in section 1886(q)(5)(A) of the
Act to include additional conditions that have been identified by
MedPAC as high cost or high volume in its 2007 Report to Congress, as
well as other conditions as determined appropriate by the Secretary. We
plan to implement this provision of the Hospital Readmissions Reduction
Program in future rulemaking.
Comment: A few commenters expressed support for the future
expansion of applicable conditions for the Hospital Readmissions
Reduction Program. One commenter requested that CMS consider some often
undertreated clinical conditions that commonly afflict hospital
patients (such as disorders associated with abnormal sodium level).
Some commenters urged CMS to provide details about expansion of the
applicable conditions soon so that they can begin interventions to
improve readmissions for these conditions.
Response: We appreciate the commenters' support and their proactive
approach to reduce hospital readmissions. We will take these
suggestions into account as we continue to implement the Hospital
Readmissions Reduction Program in the future. We plan to consider the
remaining four conditions that accounted for almost 12 percent of
potentially preventable readmissions as identified by the MedPAC in its
2007 ``Report to Congress'' as well as other conditions as determined
appropriate by the Secretary.\51\
---------------------------------------------------------------------------

\51\ Medicare Payment Advisory Commission (MedPAC). Report to
Congress: Promoting Greater Efficiency in Medicare; 2007. Available
at http://www.medpac.gov/documents/Jun07_EntireReport.pdf. Accessed
January 10, 2011.
---------------------------------------------------------------------------

Comment: One commenter stated that complying with the Hospital
Readmissions Reduction Program measure requirements and concurrently
undergoing the adoption of EHR technology is overwhelming. The
commenter requested delaying the expansion of applicable conditions
until after 2015, when the EHR transition is projected to be complete.
Response: We appreciate the commenter's concerns. The Secretary is
authorized under section 1886(q)(5)(B) of the Act to expand the list of
applicable conditions beginning in FY 2015. Therefore, we believe
hospitals would have sufficient time to prepare to address both the
HITECH EHR Incentive Program and the Hospital Readmissions Reduction
Program. We will collaborate with stakeholders to assess the impact of
expanding the list of applicable conditions as 2015 approaches.
Comment: Another commenter suggested that, if CMS were to adopt the
Healthcare Associated Infection (HAI) measure of Clostridium Difficile
infection proposed for the Hospital IQR Program, it should consider
adopting a readmission measure for Clostridium Difficile infection for
the Hospital Readmissions Reduction Program for FY 2013 or a subsequent
year because doing so would help to achieve the goals of the HHS Action
Plan to Prevent HAIs.
Response: We appreciate the commenter's suggestion. However, we
want to clarify that there is currently no NQF-endorsed readmission
measure that covers the condition of Clostridium Difficile infection
that could have been considered as an applicable condition for FY 2013.
For the FY 2013 payment determination for the Hospital Readmissions
Reduction Program, we are required to adopt NQF-endorsed measures for
the high cost/high expenditure conditions that are selected.
For the Hospital IQR Program, we proposed and are finalizing the
clostridium Difficile infection measure that was listed among the
targeted metrics in the HHS Action Plan to Prevent HAIs, and we believe
that doing

[[Page 51665]]

so will further the goals of the Action Plan. In the future, should
this condition meet the statutory criteria and should a readmission
measure for the condition be established that also meets the statutory
criteria, we will consider it for future expansion of the Hospital
Readmissions Reduction Program in accordance with the applicable
condition requirements set forth in section 1886(q)(5) of the Act.
3. Provisions for the Hospital Readmissions Reduction Program
a. Applicable Conditions for the FY 2013 Hospital Readmissions
Reduction Program
Section 1886(q) of the Act sets forth payment adjustments for
applicable hospitals to account for excess readmissions, for applicable
conditions, that are high volume or high expenditure, in the hospital.
These payment adjustments are determined based on the occurrence of
readmissions for ``applicable conditions.'' When selecting ``applicable
conditions,'' the Secretary must select among conditions and procedures
for which (1) readmissions are ``high volume or high expenditure''; and
(2) ``measures of such readmissions'' have been endorsed by the entity
with a contract under section 1890(a) of the Act'' (currently NQF) and
(3) such endorsed measures have exclusions for readmissions that are
unrelated to the prior discharge (such as a planned readmission or
transfer to another applicable hospital).'' Consistent with these
requirements, in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25931),
we proposed to include AMI, HF, and PN as ``applicable conditions'' for
the FY 2013 Hospital Readmissions Reduction Program. As set forth
below, we believe these conditions meet the criteria for ``applicable
conditions'' under section 1886(q)(5)(A) of the Act. We also note that
in MedPAC's 2007 Report to Congress that we discussed in section
IV.C.1.a. of this preamble, MedPAC listed three conditions (AMI, HF,
and PN) as priorities for hospital-specific public reporting of
readmission rates.
With regards to the first criterion, that readmissions of
``applicable conditions'' be ``high volume or high expenditure,''
MedPAC identified AMI, HF, and PN as being among the seven conditions
and procedures associated with approximately 30 percent of potentially
preventable readmissions, based on an 3M analysis conducted for MedPAC
of 2005 MedPAR (Medicare FFS hospital claims). Of these seven
conditions and procedures, HF and PN were the highest in terms of
volume and expenditures.
In addition, in our analysis of the 235 diagnostic categories for
hospitalization based on 2008 Medicare hospital claims data, HF and PN
were first and second, respectively, as the most frequent diagnostic
category for both total admissions and total readmissions. AMI was
ninth among the 235 conditions in terms of frequency of admission and
8th in frequency of readmission. Therefore, we believe that AMI, HF and
PN consitute high volume and high expenditure conditions particularly
as this term relates to hospital admission and readmission.
With regards to the second criterion, we believe that measures of
readmissions for these applicable conditions also meet the statutory
requirements. Section 1886(q)(5)(A)(ii) of the Act requires that each
``applicable condition'' have ``measures of readmissions'' that ``(I)
have been endorsed by the entity with a contract under section 1890(a)
[of the Act]; and (II) such endorsed measures have exclusions for
readmissions that are unrelated to the prior discharge (such as a
planned readmission or transfer to another applicable hospital).'' As
discussed in section IV.C.3.c. of this preamble, we believe selecting
AMI, HF, and PN as ``applicable conditions'' is consistent with this
statutory requirement. The NQF (the entity with a contract under
section 1890(a) of the Act) has endorsed ``measures of readmissions''
for each of these three conditions, and those NQF-endorsed measures
``have exclusions for readmissions that are unrelated to the prior
discharge (such as a planned readmission or transfer to another
applicable hospital).''
We believe AMI, HF, and PN meet both prongs of the definition of
``applicable condition.'' Therefore, in the FY 2012 IPPS/LTCH PPS
proposed rule, we proposed to include AMI, HF, and PN as ``applicable
conditions'' for the Hospital Readmissions Reduction Program for FY
2013. We invited public comment on this proposal.
Comment: One commenter encouraged CMS to carefully review and
address the selection of applicable conditions. One commenter urged CMS
to exercise caution in implementing financial incentives to reduce
readmission of patients for pneumonia and COPD because of the clinical
variability and uncertainty involving the effectiveness of
interventions for such patients.
Response: We note that we did not propose a COPD-based measure in
the FY 2012 IPPS/LTCH PPS proposed rule, but we will take the comment
into consideration should we consider proposing COPD as an applicable
condition in future rulemaking. In the case of pneumonia, we note that
studies suggest optimal care for pneumonia during the index
hospitalization may reduce the risk of subsequent
readmission.^{52 53} Furthermore, as we discussed above,
pneumonia meets all of the statutory criteria to be included as a
readmissions measure for the Hospital Readmissions Reduction Program
for FY 2013.
---------------------------------------------------------------------------

\52\ Dean NC, Bateman KA, Donnelly SM, et al. 2006. Improved
clinical outcomes with utilization of a community-acquired pneumonia
guideline. Chest 130(3):794-799.
\53\ Gleason PP, Meehan TP, Fine JM, et al. 1999. Associations
between initial antimicrobial therapy and medical outcomes for
hospitalized elderly patients with pneumonia. Arch Intern Med
159(21):2562-2572.
---------------------------------------------------------------------------

As we discussed in the proposed rule, we believe the three
applicable conditions that we have selected for the Hospital
Readmissions Reduction Program for FY 2013 meet the stringent selection
criteria as laid out in the statute and are conditions for which
hospital interventions can lead to reduced readmissions. Specific
interventions evaluated under the QIO 9th Statement of Work for
reducing readmissions are listed at: http://www.cfmc.org/caretransitions/files/toolkit/intervention/QIO%20Developed%20Tools/Interventions_by_Driver_031011.pdf. We believe these three
applicable conditions are most appropriate for the Hospital
Readmissions Reduction Program.
Comment: One commenter stated that using only three applicable
conditions in the FY 2013 Hospital Readmissions Reduction Program will
create opportunities for gaming.
Response: We believe that the commenter was suggesting that
hospitals might change coding practices to avoid identifying patients
with AMI, HF, or PN. We plan to monitor trends in admissions and
readmissions to ensure there no systematic shift in patients' primary
discharge diagnoses codes occurs as a result of implementation of the
Hospital Readmissions Reduction Program.
After consideration of the public comments we received, we are
finalizing the proposed applicable

[[Page 51666]]

conditions of AMI, HF, and PN for use in the Hospital Readmissions
Reduction Program for FY 2013.
b. Definition of ``Readmission''
Section 1886(q)(5)(E) of the Act defines ``readmission'' as, ``in
the case of an individual who is discharged from an applicable
hospital, the admission of the individual to the same or another
applicable hospital within a time period specified by the Secretary
from the date of such discharge.'' The definition further states that
``[i]nsofar as the discharge relates to an applicable condition for
which there is an endorsed measure * * * such time period (such as 30
days) shall be consistent with the time period specified for such
measure.''
The three NQF-endorsed readmission measures define a readmission as
occurring when a patient is discharged from the applicable hospital to
a non-acute setting (for example, home health, skilled nursing,
rehabilitation or home) and then is admitted to the same or another
acute care hospital within a specified time period from the time of
discharge from the index hospitalization (http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841. The time period specified for these measures is 30 days.
Because the measures as endorsed by NQF are calculated based on
readmissions occurring within 30 days, in the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25931 through 25932), we proposed 30 days as the
time period specified from the date of discharge for the purpose of
defining readmission for the Hospital Readmissions Reduction Program.
The 30-day time period also meets the requirement set forth in section
1886(q)(5)(E) of the Act that the time period specified by the
Secretary for defining a readmission be consistent with the time period
specified for the endorsed measures. We invited public comment on our
proposal to adopt, without revision, a proposed definition of
readmission with a time period of 30 days from the date of discharge
from the index hospitalization as set forth in the existing NQF-
endorsed measures.
Comment: One commenter asked how multiple readmissions will be
calculated.
Response: The readmissions measures are designed to measure whether
a patient experienced at least one readmission within 30 days of an
initial (or ``index'') discharge as a single binary (yes/no) event,
rather than counting the number of readmissions experienced within 30
days of discharge as a separate readmissions. For any given patient,
only the first readmission they have will be counted for the Hospital
Readmissions Reduction Program. In addition, only one readmission
during the 30 days following the discharge from the initial
hospitalization will count as a readmission for purposes of calculating
the ratios set forth in section 1886(q) of the Act. For any given
patient, none of the subsequent readmissions they experience within 30
days after discharge would be counted as a new ``index'' admission
(that is, an admission evaluated in the measure for a subsequent
readmission). Any eligible admission after the 30-day time period will
be considered a new index admission.
Comment: One commenter recommended defining ``readmission'' to mean
``readmission to the same hospital'' because hospitals cannot control
the admitting practices of other institutions.
Response: Section 1886(q)(5)(E) of the Act, as added by the
Affordable Care Act, defines ``readmission'' as ``in the case of an
individual who is discharged from an applicable hospital, the admission
of the individual to the same or another applicable hospital.'' We do
not believe that the commenter's suggestion to limit the definition of
readmission to only those readmissions to the same hospital is
consistent with the statutory definition of ``readmission.'' The
statutory definition, which is consistent with the definition of
``readmission'' in the NQF-endorsed measures, captures the more than 20
percent of readmissions that occur at a hospital that is different from
the hospital where the initial admission took place. We believe this is
the appropriate approach. Although hospitals may not have influence
over the admitting practices of outside institutions, we believe that
hospitals can communicate effectively with post-acute care providers
and take other measures that can better prepare a patient for discharge
to reduce the risk of readmission.
After consideration of the public comments we received, we are
finalizing our proposal to adopt the definition of readmission as
occurring when a patient is discharged from the applicable hospital and
then is admitted to the same or another acute care hospital within a
specified time period from the time of discharge from the index
hospitalization.
c. Readmission Measures and Related Methodology
(1) Readmission Measures for Applicable Conditions
As explained above, section 1886(q)(5)(A)(ii) of the Act requires
that each ``applicable condition'' selected by the Secretary has
``measures of readmissions'' that ``have been endorsed by the entity
with a contract under section 1890(a) [of the Act]'' and that ``such
endorsed measures have exclusions for readmissions that are unrelated
to the prior discharge.'' In the FY 2012 IPPS/LTCH PPS proposed rule
(76 FR 25932), we proposed to adopt three NQF-endorsed, hospital risk-
standardized readmission measures for AMI, HF, and PN which are
currently included in the Hospital IQR Program. These existing measures
are:
Acute Myocardial Infarction [AMI] 30-day Risk Standardized
Readmission Measure (NQF 0505);
Heart Failure [HF] 30-day Risk Standardized Readmission
Measure (NQF 0330); and
Pneumonia [PN] 30-day Risk Standardized Readmission
Measure (NQF 0506).
CMS adopted these measures for the Hospital IQR Program in the FY
2009 IPPS/LTCH PPS final rule for the FY 2010 payment determination (73
FR 48606) and the CY 2009 OPPS/ASC final rule with comment period (73
FR 68781). The NQF (the entity with a contract under section 1890(a) of
the Act) has endorsed each of these ``measures of readmissions'' and,
as explained in more detail below, those NQF-endorsed measures ``have
exclusions for readmissions that are unrelated to the prior
discharge.'' Therefore, we believe these measures meet the statutory
requirements for selection for the Hospital Readmissions Reduction
Program, and we proposed them, without modification, as measures for
the program.
Comment: Many commenters suggested changes to specific aspects of
the three NQF-endorsed 30-day readmission measures for AMI, HF, and PN
(for example, exclusions for unrelated readmissions and risk-adjustment
of the readmission measures). These comments are summarized and
included in the sections of this document that discuss those specific
aspects of the measures.
Response: For the FY 2013 Hospital Readmission Reduction Program,
the statute requires us to adopt NQF-endorsed measures for the 3
conditions selected. We have proposed to use the three measures as
currently NQF endorsed. As we discuss below in the

[[Page 51667]]

section regarding NQF endorsement of the measures, we believe that
altering specific aspects of the measures that are part of the NQF
endorsed methodology (such as exclusions and risk adjustment) would be
inconsistent with the statutory requirement to use NQF-endorsed
readmission measures.
Comment: One commenter supported CMS' proposal to adopt, without
alteration, the three NQF-endorsed 30-day readmission measures for AMI,
HF, and PN.
Response: We appreciate the commenter's support of the readmission
measures.
After consideration of the public comments we received, we are
finalizing three readmission reduction measures for the FY 2013
Hospital Readmissions Reduction Program: AMI 30-day risk standardized
readmission measure, HF 30-day risk standardized readmission measure,
and PN 30-day risk standardized readmission measure.
(2) NQF Endorsement of Measures of Readmissions
We note that these measures and their underlying methodologies were
NQF-endorsed. In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25932),
we proposed to adopt, for purposes of the Hospital Readmissions
Reduction Program, the measures and related methodologies as they are
currently endorsed by NQF. This includes the currently endorsed 30-day
time window, risk-adjustment methodology, and exclusions for certain
readmissions that comprise the measures. We stated our belief that our
proposal to adopt, without modification, these measures of readmission
is consistent with the statutory language, which requires the measures
of readmissions to be ``endorsed by the entity with a contract under
section 1890(a) [of the Act].'' If we were to modify the endorsed
measures, we are concerned that they would no longer be considered
``endorsed.'' If the NQF were to later endorse a revised measure for
one of these conditions, we would then propose through notice and
comment rulemaking that the revised measure be used prospectively for
purposes of the Hospital Readmissions Reduction Program.
We welcomed public comment on our proposal to use, for each of the
proposed applicable conditions, existing measures as endorsed by the
NQF.
We did not receive any public comments specifically on the NQF-
endorsement of the three proposed readmission measures. Therefore, we
are finalizing the three NQF-endorsed Hospital Readmissions Reduction
Program measures as proposed for the FY 2013 Hospital Readmissions
Reduction Program.
(3) Endorsed Measures With Exclusions for Unrelated Readmissions
Section 1886(q)(5)(A)(i)(ii)(II) of the Act requires that each of
the readmission measures also have ``exclusions for readmissions that
are unrelated to the prior discharge (such as a planned readmission or
transfer to another applicable hospital).'' The three NQF-endorsed
readmission measures that we proposed in the FY 2012 IPPS/LTCH PPS
proposed rule for inclusion in the Hospital Readmissions Reduction
Program have exclusions that meet this statutory requirement. Under
each measure, certain unrelated readmissions are not taken into account
when determining the number of readmissions under the measures.
The AMI 30-day risk standardized readmission measure, as endorsed
by the NQF and as proposed in the FY 2012 IPPS/LTCH PPS proposed rule,
has exclusions for certain unrelated readmissions. Because admissions
for Percutaneous Transluminal Coronary Angioplasty (PTCA) or Coronary
Artery Bypass Graft (CABG) may be staged or are typically scheduled
readmissions for patients initially admitted for AMI, the AMI 30-day
risk standardized readmission measure does not count as readmissions
those admissions after discharge that include PTCA or CABG procedures,
unless the principal discharge diagnosis for the readmission is one of
the following diagnoses that are not consistent with a scheduled
readmission: Heart failure, acute myocardial infarction, unstable
angina, arrhythmia, and cardiac arrest (that is, readmissions with
these diagnoses and a PTCA or CABG procedure are counted as
readmissions). We adopted this approach when first developing this
measure after consultation with clinical experts, including
cardiologists, and review of relevant readmissions data.
During the development of the readmission measures for both HF and
PN, we similarly asked clinical experts to identify planned
readmissions for these conditions, that is, those which would not count
as a readmission, after an admission for HF or PN. Specifically, the
clinical experts were asked whether there were common follow-up causes
of readmissions for a scheduled procedure that represented a
continuation of care after either a HF or PN admission, respectively.
No such related, planned procedures were identified as occurring
commonly after the index admissions for HF or PN at the time of the
development of the Hospital IQR Program measures. Therefore, no similar
exclusions exist for the HF and PN measures of readmissions as they are
currently endorsed.
The three NQF-endorsed risk-standardized readmission measures that
we proposed in the FY 2012 IPPS/LTCH PPS proposed rule exclude
transfers to other acute care facilities from each of the readmission
measures. The NQF-endorsed proposed measures consider these multiple
contiguous hospitalizations to be a single acute episode of care. The
measures attribute the readmission for transferred patients to the
hospital that ultimately discharges the patient to a non-acute care
setting (for example, to home or a skilled nursing facility). Thus, in
the case of a patient who is transferred between two or more hospitals,
if the patient is readmitted in the 30 days following the final
hospitalization, the measures attribute such a readmission to the
hospital that discharged the patient to a non-acute care setting. We
believe that the exclusion of transfers to other applicable hospitals
under the measures is sufficient to meet the requirement set forth in
section 1886(q)(5)(A)(ii)(II) of the Act that certain ``unrelated''
readmissions be excluded from the measures selected for use in the
program.
Comment: Many commenters stated that the current set of existing
exclusions for unrelated readmissions did not meet Congress' intent,
which they believed requires additional exclusions for certain
readmissions. These commenters noted that although the AMI measure
contains exclusion for certain planned procedures, neither the heart
failure nor the pneumonia measures contain such exclusions.
Response: We thank the commenters for sharing their views on
exclusions for the proposed readmission measures. Section 1886(q)(5)(A)
of the Act requires us to select as the initial readmission measures
those that are endorsed by the entity with a contract under section
1890(a) (currently the NQF), and that have exclusions for readmissions
that are unrelated to the prior discharges (such as a planned
readmission or transfer to another applicable hospital). The statute
does not state that the measures must account for all possible
unrelated readmissions. Moreover, adding exclusions would be
inconsistent with the statute, which requires us to adopt the measures
as endorsed by the NQF, and the endorsements currently include specific
exclusions for unrelated readmissions, which include transfers.
We recognize that there could conceivably be additional
readmissions

[[Page 51668]]

that could properly be excluded from the readmission measures, and we
intend to further explore if there are any such readmissions. If we
determine that changes should be made to the measures used for the
Hospital Readmissions Reduction Program in FY 2013, we will bring them
to NQF for review for continued endorsement for the measures and would
subsequently propose the revised measure for use in the Hospital
Readmissions Reduction Program in future rulemaking.
Comment: Several commenters urged CMS to ``* * * conduct a study to
thoroughly determine the common reasons for planned readmissions, as
well as determine a subset of readmissions that are unrelated to a
patient's initial admission. * * *'' These commenters also recommended
three possible interim steps: (1) Not counting readmissions for certain
patients (cancer, trauma, burns, end-stage renal disease, psychiatric
disorders, substance abuse, and rehabilitation); (2) allowing a coding
modifier on hospital claims to identify planned readmissions; or (3)
using existing classification schemes such as MS-DRGs or AHRQ's
classification system (http://www.hcup-us.ahrq.gov/toolssoftware/ccs/ccs.jsp), the clinical classification software, which ``groups
diagnoses and procedure codes into clinically meaningful groups'' to
identify related readmissions (and to exclude readmissions that are not
identified as related).
Response: We appreciate the commenters' suggestions. As part of our
ongoing implementation of the Hospital Readmissions Reduction Program,
we intend to further explore whether there are other readmissions that
could be excluded from the readmission measures finalized in this rule,
and we expect that we will solicit public input on this issue in future
rulemaking. However, again we note that because the FY 2013 measures
must be NQF-endorsed, any changes to the measures used for the program
in FY 2013 would have to be brought to NQF for review for continued
endorsement before we could, in future rulemaking, propose the measures
for use in the Hospital Readmissions Reduction Program.
Comment: Some commenters expressed concern that inappropriate
transfers from acute care hospitals to a different acute care hospital
might occur. Several of these commenters requested that CMS monitor
transfers to ensure that potentially high-risk patients are not
unnecessarily transferred in an attempt to artificially reduce hospital
readmission rates.
Response: We note that the NQF-endorsed readmission measures as
finalized in this rule are designed to count all readmissions unless
they meet the planned procedure definition for AMI or involve a
transfer to another acute care hospital. This approach is consistent
with section 1886(q)(5)(ii)(II) of the Act which requires that
``endorsed measures have exclusions for readmissions that are unrelated
to the prior discharge (such as a planned readmission or transfer to
another applicable hospital).''
With regard to the commenters' concerns about hospitals
transferring patients to another acute care institution to avoid being
accountable for readmissions, we will consider future monitoring of
transfer rates to assess if there are any unexpected changes in
transfer patterns in response to the Hospital Readmissions Reduction
Program.
Comment: Two commenters expressed concern regarding the
appropriateness of the exclusion criteria for unrelated readmissions
for use in measures when applied to hospitals that treat specialized
patient populations, such as LTCHs and IPPS-exempt cancer hospitals.
One commenter emphasized the importance to rural hospitals of not
counting unrelated or planned readmissions. Another commenter suggested
that CMS not count readmissions related to random events such as falls
or readmissions that occur during natural disasters or states of
emergency. One commenter suggested a method of reporting
``nonreportable'' admissions via the claims payment system. One
commenter believed that the upcoming implementation of ICD-10 would
enhance CMS' ability to identify and remove readmissions related to
random events.
Response: We thank the commenters for their input on exclusion
criteria, and we will consider these suggestions as we continue to
implement the Hospital Readmissions Reduction Program. The proposed
NQF-endorsed readmission measures were designed as ``all-cause''
readmission measures (that is, they count readmission regardless of the
reason for readmission) because, from a patient perspective,
readmission from any cause is an adverse event. Similarly, as we
discussed above, many cases of seemingly unrelated diagnoses may, in
fact, correspond to the original hospitalization, and differentiation
is not always possible solely on the basis of the admitting diagnosis
for the readmission. For instance, a patient with heart failure who
develops a hospital-acquired infection may ultimately be readmitted
with sepsis. In this context, we believe that the NQF-endorsed
readmission measure for heart failure appropriately considers the
readmission to be related to the care the patient received for heart
failure during the first hospitalization.
In our view, readmissions that are truly unrelated to the
hospitalization should not affect some hospitals more than others,
because these readmissions should have the same probability of
occurring for similarly situated patients, regardless of where the
patient was initially hospitalized. We also note that planned
readmissions are easier to identify, especially those that are elective
and scheduled in advance either as follow-on care for a procedure
following a hospitalization or that have been scheduled by outpatient
providers, and are not indicative of care quality.
Comment: One commenter stated there is another readmission measure
available that has excludes greater numbers of unrelated readmissions
and is in use in a State.
Response: The readmissions measure referred to by the commenter is
3M's Potentially Preventable Readmission measure and is in use in the
State of Florida. This measure was reviewed by NQF in 2009 and was not
endorsed (NQF HOE-007-08). It is our understanding that the
NQF's Steering Committee's decision not to endorse the measure
reflected the Committee's concern about the measure's approach to
identifying preventable readmissions. The measure developer specified
over 98,000 admission-readmission diagnoses pairs (for example, a heart
failure admission followed by readmission for a fall) as either
clinically related and therefore preventable or not related and
therefore not preventable. The NQF Steering Committee did not think
these judgments were reliable, and it rejected the measure in part on
this basis. We agree with the Steering Committee that this measure did
not accurately specify what is related or unrelated simply by looking
at the diagnoses for the admission and the readmission.
After consideration of the public comments we received, we are
finalizing the NQF-endorsed measures with exclusions for unrelated
conditions, as proposed.
(4) Methodology of Readmission Measures
In the following section, we describe the major components of the
measure methodology of the three NQF-endorsed risk-standardized
readmission measures for AMI, HF and PN that we proposed for the
implementation of the Hospital Readmissions Reduction Program.

[[Page 51669]]

Additional details about each of these measures may be found online at
http://www.QualityNet.org>Hospital-Inpatient>Readmission
Measures>methodologies. This Web page is located at http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841.
Briefly, as is described in more detail in the sections below, the
measures are risk-standardized rates of readmission. For each hospital,
qualifying index hospitalizations are identified based on the principal
discharge diagnosis of the patient and the inclusion/exclusion criteria
(section IV.C.3.c.(4)(A) of this preamble on index hospitalizations).
Each hospitalization is evaluated for whether the patient had a
readmission to an acute care setting in the 30-days following discharge
(section IV.C.3.c.(4)(B) of this preamble on readmission). Patient-risk
factors, including age, and chronic medical conditions are also
identified from inpatient and outpatient claims for the 12-months prior
to the hospitalization for risk-adjustment (section IV.C.3.c.(4)(D) of
this preamble on risk-adjustment). The readmissions, sample size for
each hospital, and patient risk-factors are then used to calculate a
risk-standardized readmission ratio for each hospital. For the purposes
of publicly-reporting the measures, this risk-standardized readmission
ratio is then multiplied by the national crude rate of readmission for
the given condition to produce a risk-standardized readmission rate
(RSRR) (section IV.C.3.c.(5)(B) of this preamble).
(A) Index Hospitalization
An index hospitalization for each of the readmission measures is
the hospitalization from which we evaluate the 30 days after discharge
for possible readmissions. The measures, as endorsed by the NQF,
evaluate eligible hospitalizations and readmissions of Medicare
patients discharged from an applicable hospital (as defined by section
1886(q)(5)(C) of the Act) having a principal discharge diagnosis for
the measured condition in an applicable period. The NQF-endorsed
measures, as specified, exclude patients under 65 year of age.
The discharge diagnoses for each applicable condition are based on
a list of specific ICD-9-CM codes for that condition. These codes are
listed in the 2010 Measures Maintenance Technical Report: Acute
Myocardial Infarction, Heart Failure, and Pneumonia 30-Day Risk-
Standardized Readmission Measures. They also are posted on the
QualityNet Web site: http://www.QualityNet.org>Hospital-
Inpatient>Readmission Measures>methodologies. See http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841.
The current NQF-endorsed CMS 30-day risk standardized readmission
measures exclude the following admissions from the group of index
hospitalizations:
Hospitalizations for patients with an in-hospital death
(because they are not eligible for readmission);
Hospitalizations for patients without at least 30 days
post-discharge enrollment in Medicare FFS (because the 30-day
readmission outcome cannot be assessed in this group);
Hospitalizations for patients discharged against medical
advice (because providers did not have the opportunity to deliver full
care and prepare the patient for discharge).
Hospitalizations for patients under the age of 65.
Comment: One commenter noted that admissions related to disaster
preparedness or recovery should be excluded from the measures. One
commenter noted that the nature of traumatic injuries is such that
certain medical conditions are not always readily apparent upon
admission and lead to the need for readmission.
Response: We appreciate the commenter's recommendation, and we
intend to consider whether to it would be appropriate to allow waivers
for extraordinary regional or local circumstances, such as natural
disasters that are not in the control of the hospital. Any such process
would be proposed in a future rulemaking.
(B) Readmission
As explained above, the initial hospitalization assessed for a
readmission is called the index hospitalization. The proposed measures,
as endorsed by the NQF, define readmission as a second admission to
another acute care hospital within 30 days of the index
hospitalization. Under the proposed measures, as endorsed by the NQF, a
patient who is readmitted twice within 30 days simply is counted as
having been readmitted; this patient's readmissions are not counted
differently than a patient with a single readmission within 30 days of
discharge.
With the exception of the exclusions discussed previously
(transfers and planned readmissions, as discussed in the Exclusions for
Unrelated Readmissions section above), the proposed measures, as
currently endorsed by the NQF, include readmissions for all causes,
without regard to the principal diagnosis of the readmission. There are
several reasons for this approach. First, from the patient's
perspective, readmission from any cause is an adverse event. Second,
although we would expect few hospitals to use gaming strategies, we
strive to make sure that measures do not create incentives for
hospitals to do so. Limiting the readmissions to particular diagnoses
creates an opportunity for hospitals to potentially avoid having
readmissions counted by changing coding practices. Further, doing so
could create a perverse incentive whereby hospitals begin to avoid
patients with conditions that are part of the readmissions measures.
Third, as discussed above, there are not currently any clinically and
technically sound and accepted strategies for accurately identifying
readmission that are unrelated to hospital quality based on the
documented cause of readmission. Finally, we believe it is important
that hospitals strive to reduce readmissions from all causes, not just
for patients with conditions that happen to be readmissions measures.
While the measures do not presume that each readmission is preventable,
interventions have generally shown reductions in all types of
readmissions (including both related and unrelated readmissions). The
NQF measures are intended to provide incentives for hospitals to reduce
readmissions and not to achieve zero readmissions.
(C) Time Window
The three proposed measures, as endorsed by the NQF, count
readmissions within a 30-day period from the date of the initial
discharge from the index hospitalization. The timeframe of 30 days is a
clinically meaningful period for hospitals, in collaboration with their
medical communities, to reduce readmission risk. This time period for
assessing readmission is an accepted standard in research and
measurement. We believe that during this 30-day time period, hospital
and community partners can take steps to reduce risk by ensuring
patients are clinically ready to be discharged, improving communication
across providers, reducing risks of infections, and educating patients
on symptoms to monitor whom to contact with questions and where and
when to seek follow-up care can influence readmission rates.
Comment: One commenter suggested the proposed 30-day time period
(time window) is too long and should be reduced to 15 days. Another
commenter

[[Page 51670]]

supported the 30-day time window, but indicated that they preferred 15
days.
Response: The proposed timeframe of 30 days from the date of the
initial discharge from the index hospitalization is the timeframe that
has been NQF-endorsed as part of the three readmission measures. The
timeframe of 30 days is considered an acceptable standard in both the
research and measurement communities as this time period is long enough
to capture a substantial proportion of readmissions attributable to an
index hospitalization, a greater proportion than captured in just 15
days, and yet it is short enough that outcomes can be attributed to and
influenced by hospital care and the early transition to the outpatient
setting. The use of the 30-day timeframe is also a clinically
meaningful period for hospitals to collaborate with their communities
in an effort to reduce readmissions. Multiple studies have shown that
interventions by hospitals can make an impact on 30-day readmission
rates.^{54 55 56} Finally, we again note that, as required
under the Act, we proposed the measures as they were endorsed by the
NQF. Since the NQF-endorsed measures use a 30-day time period, we are
finalizing our proposal to count readmissions within a 30-day period
from the date of the initial discharge from the index hospitalization.
---------------------------------------------------------------------------

\54\ Benbassat J, Taragin M. 2000. Hospital readmissions as a
measure of quality of health care: advantages and limitations. Arch
Intern Med 160(8):1074-1081.
\55\ Benbassat J, Taragin M. 2000. Hospital readmissions as a
measure of quality of health care: advantages and limitations. Arch
Intern Med 160(8):1074-1081.
\56\ Jonas M, Grossman E, Boyko V, et al. 1999. Relation of
early and one-year outcome after acute myocardial infarction to
systemic arterial blood pressure on admission. Am J Cardiol 84:162-
165.
---------------------------------------------------------------------------

(D) Risk Adjustment
Section 1886(q)(4)(C)(i)(I) of the Act requires that the number of
readmissions used in the Excess Readmission Ratio be risk adjusted.
This language requires us, when comparing hospitals' readmission rates,
to account for differences in the severity of illnesses of the patients
that hospitals treat. Risk adjustment essentially ``levels the playing
field'' for comparing hospital performance by taking into account that
some hospitals' patients are sicker than others on admission and
therefore have a higher risk of readmission.
The methodology for calculating the RSRRs under the NQF-endorsed
measures that we proposed adjusts for key factors that are clinically
relevant and have strong relationships with the outcome (for example,
patient demographic factors, patient co-existing medical conditions,
and indicators of patient frailty). Under the current NQF-endorsed
methodology, these covariates are obtained from Medicare claims
extending 12 months prior to, and including, the index admission. This
risk-adjustment approach adjusts for differences in the clinical status
of the patient at the time of the index admission as well as for
demographic variables.
A complete list of the variables used for risk adjustment and the
clinical and statistical process for selecting the variables for each
NQF-endorsed measure, as proposed, is available in the publicly-
available technical documentation of the existing measures for AMI, HF,
and PN. The risk adjustment variables for each condition are presented
in the 2010 Measures Maintenance Technical Report: Acute Myocardial
Infarction, Heart Failure, and Pneumonia 30-Day Risk-Standardized
Readmissions Measures that are posted on http://www.QualityNet.org>Hospital-Inpatient>Readmission Measures>Resources.
The variables used are Condition Categories that group ICD-9-CM codes
into clinically coherent variables. The 2010 Condition Category-ICD-9-
CM Crosswalk provides a map to the specific ICD-9-CM codes in each
variable and is also posted on http://www.QualityNet.org>Hospital-
Inpatient>Readmission Measures>Measure Calculation Methodology or
readers may use the following Web site address: http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841.
Comment: Many commenters argued that CMS should risk-adjust for
patient characteristics beyond the medical diagnosis, age and gender
currently included in the NQF-endorsed risk adjustment methodology.
Specifically, commenters believed that patient race, language, life
circumstances, environmental factors, and socioeconomic status (SES)
should be included in the risk-adjustment methodology, because these
factors also have an impact on health outcomes. Commenters expressed
concern that without adding these adjustment factors, the Hospital
Readmissions Reduction Program may disproportionately affect hospitals
serving a large number of minorities, and by penalizing these
hospitals, the program could in turn disproportionately harm minority
patients. Commenters stated that failure to account for these factors
could result in ``disparate-impact discrimination,'' potentially
violating Title VI of Civil Rights Act and 45 CFR 80.3.
Response: We do not agree that the use of the current NQF-endorsed
risk adjustment methodology in the Hospital Readmissions Reduction
Program will harm minorities. The proposed readmission measures are
risk-standardized readmission measures that adjust for case-mix
differences based on the clinical status of the patient at the time of
admission to the hospital. That is, they are risk-adjusted for certain
key variables (for example, age, sex, co-morbid diseases and indicators
of patient frailty) that are clinically relevant and/or have been found
to have strong relationships with the outcome. To the extent that race
or SES results in certain patient groups having a greater disease
burden, those factors are accounted for in the measure. A more complete
description of the risk adjustment model and its development is
available on the QualityNet Web site (http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841).
However, these measures are not adjusted for other factors such as
race, English language proficiency or SES. We believe such additional
adjustments are not appropriate because the association between such
patient factors and health outcomes can be due, in part, to differences
in the quality of health care received by groups of patients with
varying race/language/SES. Differences in the quality of health care
received by certain racial and ethnic groups may be obscured if the
measures risk-adjust for race and ethnicity. Additionally, risk-
adjusting for patient race, for instance, may suggest that hospitals
with a high proportion of minority patients are held to different
standards of quality than hospitals treating fewer minority patients.
We appreciate the concerns of hospitals that care for
disproportionately large numbers of disadvantaged populations. Our
analysis indicates that better quality of care is achievable regardless
of the demographics of the hospital's patients. (See: Medicare Hospital
Quality Chartbook 2010).
---------------------------------------------------------------------------

\57\ http://www.cms.gov/HospitalQualityInits/20_OutcomeMeasures.asp#TopOfPage.
---------------------------------------------------------------------------

Although we believe the current risk-adjustment methodology
properly accounts for different patient circumstances, we will monitor
whether the Hospital Readmissions Reduction Program has a disparate
impact on

[[Page 51671]]

hospitals that care for large numbers of disadvantaged patients. If
such an impact is found, we will consider whether additional program
modifications would be appropriate and consistent with the statutory
requirements and intent of the program. For example, one option might
be to refine the measures themselves to include factors such as SES in
the risk adjustment. We also note that there are programs that provide
technical and financial support that may assist hospitals in improving
performance on the readmission measures included in the Hospital
Readmissions Reduction Program such as the Community Based Care
Transitions program authorized under section 3026 of the Affordable
Care Act and the Partnership for Patients, a new public-private
partnership that will help improve the quality, safety and
affordability of health care. In addition, assistance in lowering
readmission rates is available from the Quality Improvement
Organizations.
Comment: Several commenters suggested that trauma hospitals and
safety-net hospitals are at increased risk of being subject to a
payment adjustment under the Hospital Readmissions Reduction Program
because of insufficient risk-adjustment for ``case-mix'' or the fact
that their patients are sicker, lack access to appropriate post-
discharge care, may suffer numerous chronic conditions, and may have
substance abuse or behavioral problems. Another commenter expressed
concern that coding does not capture patients in palliative care or
those readmitted from hospice, but acknowledged that CMS risk
adjustment methodology is the state of the art at present.
Response: We thank the commenters for their input. As noted above,
our analyses suggest that trauma and safety net hospitals caring for
high proportions of at-risk patients can, and frequently do, perform as
well on the readmission measures as those hospitals with fewer at-risk
patients (see: Medicare Hospital Quality Chartbook 2010, pp 14-19).
We do not exclude hospice patients or those who have elected
palliative care from the readmission measures because we do not believe
that it is appropriate to differentiate, as to the appropriateness of
care provided, between patients who have elected hospice or palliative
care and those who have not.
After consideration of the public comments we received, we are
finalizing the risk-adjustment methodology as proposed and endorsed by
the NQF.
(E) Applicable Period
Section 1886 (q)(5)(D) of the Act authorizes the Secretary to
specify the ``applicable period'' with respect to a fiscal year.
Currently, for Hospital IQR Program public reporting purposes, we use 3
years of data (three 12-month increments) to calculate the three
proposed readmission measures. This provides substantially more data
than a 1- or 2-year timeframe and increases the precision of the
measure in distinguishing performance among hospitals. Additionally, it
is advantageous to have three years worth of data for purposes of
displaying the three proposed readmission measures on Hospital Compare
where we categorize hospital performance into one of three discrete
categories: ``Better than the US national rate,'' ``No different than
the US national rate,'' and ``Worse than the US national rate.''
For the FY 2013 Hospital Readmissions Reduction Program, in the FY
2012 IPPS/LTCH PPS proposed rule (76 FR 25934), we proposed to use 3
years of data for discharges from July 1, 2008 through June 30, 2011 as
the applicable period upon which to calculate Excess Readmission Ratios
for each of the three proposed measures. Based on our experience with
the Hospital IQR Program, we believe that this timeframe increases the
precision of the measures in distinguishing performance among
hospitals. However, for purposes of the Hospital Readmissions Reduction
Program, we will not be categorizing hospital performance in three
categories; rather, we will be using the measures to calculate Excess
Readmission Ratios for the three conditions. In the FY 2012 IPPS/LTCH
PPS proposed rule (76 FR 25934), we proposed to use a 3-year data
period spanning July 1, 2008 through June 30, 2011, as the applicable
period for determining the FY 2013 Hospital Readmissions Reduction
Program payment adjustment. We indicated that we are currently
conducting analyses to determine an appropriate data period (for
example, 1 year, 2 years, 3 years) that will yield reliable Excess
Readmission Ratios for the three proposed measures, and that we intend
to consider both the positive and negative consequences of using longer
or shorter data periods for this program. We also indicated that should
our analysis or public comment indicate that a shorter data period
yields Excess Readmission Ratios with acceptable reliability, we may
consider finalizing a shorter time period.
We invited public comment and suggestions on the topic of an
appropriate length for the applicable period to consider for the three
proposed readmission measures for FY 2013.
Comment: Many commenters recommended that CMS shorten the proposed
applicable period of 3 years so that only more recent data would be
used for the Hospital Readmissions Reduction Program. Some commenters
urged CMS to shorten the timeframe because the commenters believed it
was unfair to assess hospital performance on data that occurred during
2008, which is ``long before [the Hospital Readmissions Reduction
Program provision] was passed * * *''
Response: We thank the commenters' for their views regarding the
data used for the measures. We proposed 3 years as the applicable
period because we believe that this time period would ensure the
proposed measures covers a sufficient number of applicable patients for
hospital performance to be fairly portrayed. For example, from 2006
through 2008, only 2,500 of the 4,500 qualifying hospitals for the
Hospital Readmissions Reduction Program reported at least 25 discharges
for AMI during that time period.
As stated above, we indicated that we are currently conducting
analyses to determine if a different data period (for example, 1 or 2
years) might also yield reliable Excess Readmission Ratios for the
three proposed measures. We intend to consider both the positive and
negative consequences of using longer or shorter data periods for this
program. If our analysis or public comments indicate that a shorter
data period yields Excess Readmission Ratios with acceptable
reliability, we may consider finalizing a shorter time period.
Because we did not receive any public comments demonstrating that a
shorter period would yield reliable and meaningful results upon which
differences in hospital performance could be appropriately
distinguished, and because our own analysis indicated that 3 years
continues to be an appropriate period, we are finalizing 3 years as the
applicable period for the FY 2013 Hospital Readmissions Reduction
Program.
(F) Data Sources
As discussed above, the adjustment under section 1886(q) of the Act
is made to the ``base operating DRG payment amount,'' and components of
the ratio used to determine a hospital's adjustment factor also use
that payment amount. Payments under section 1886 of the Act, including
the ``base operating DRG payment amount,'' are made for services
furnished to Medicare's fee-for-

[[Page 51672]]

service population under part A. Therefore, for purposes of
implementing the Hospital Readmissions Reduction Program under section
1886(q) of the Act, in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR
25934), we proposed to use Medicare claims data for the Medicare FFS
population over the age of 65 only. This is the same universe of claims
used for calculating the NQF-endorsed measures for the purposes of the
Hospital IQR Program.
The administrative data sources for the risk adjustment analyses
are Medicare administrative claims datasets that contain FFS inpatient
and outpatient (Medicare Parts A and B) claims information in the prior
12 months and subsequent one month for patients admitted in each of
these years. In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25934),
we proposed to use claims from the index hospitalization included the
measure and from the prior 12 months from all of these data sources to
gather risk factors. If the patient does not have any claims in the 12
months prior to the index hospitalization admission, only comorbidities
from the included admission are used.
We welcomed public comment on this proposal.
We did not receive any public comments on this proposal. Therefore,
we are finalizing the data sources used for the Hospital Readmissions
Reduction Program as proposed in the FY 2012 IPPS/LTCH PPS proposed
rule.
(G) Minimum Number of Discharges for Applicable Conditions
Section 1886(q)(4)(C)(II)(ii) of the Act authorizes the Secretary
to exclude readmissions for an applicable condition for which there are
``fewer than a minimum number (as determined by the Secretary).''
Currently, for public reporting purposes under the Hospital IQR
Program, only hospitals with at least 25 discharges for each of the
three proposed applicable conditions are included in the display of the
three proposed readmission measures on Hospital Compare. We chose this
number of discharges for the Hospital IQR Program based on our findings
that using fewer cases did not provide sufficiently reliable
information on hospital performance. In general, the larger the number
of cases, the more reliable the information. In the FY 2012 IPPS/LTCH
PPS proposed rule (76 FR 25935), we indicated that we are currently
conducting additional analyses to further evaluate the appropriate
minimum number of discharges needed to yield reliable Excess
Readmission Ratios for the three proposed measures. However, based on
our experience with the Hospital IQR Program, in the FY 2012 IPPS/LTCH
PPS proposed rule (76 FR 25934 through 25935), we proposed to use the
current threshold of 25 discharges for each of the three measures for
the Hospital Readmissions Reduction Program. However, we indicated that
should our analysis or public comment indicate that a different minimum
number of discharges would be more appropriate for this program, we
would consider finalizing a different number.
We invited public comment and suggestions on the topic of
appropriate minimum number of discharges to consider for the three
proposed readmission measures.
Comment: Several commenters supported the proposed minimum number
of 25 discharges. Other commenters stated that 25 discharges is too
small a number to reliably profile hospitals.
Response: We appreciate hearing from commenters regarding the
proposed minimum number of discharges. We continue to believe that 25
discharges is the appropriate cut-off. As noted in the proposed rule,
we have been using 25 cases as the minimum sample size for publicly
reporting hospital quality measures on Hospital Compare Web site for
the Hospital IQR Program. Hospitals are familiar with this threshold.
We also proposed to use this threshold of 25 discharges for each of the
three measures to calculate the Excess Readmission Ratios because we
believe this number helps maximize hospital participation and at the
same time ensures that we achieve reasonable reliability for profiling
hospital performance.
After consideration of the public comments we received, we are
finalizing our proposal to use 25 discharges as the minimum number of
discharges for applicable conditions for the FY 2013 Hospital
Readmissions Reduction Program. We note that analyses to determine
appropriate sample size to yield reliable Excess Readmission Ratios for
the three readmission measures are ongoing. If the results of our
analyses suggest that a different minimum number of discharges would be
more appropriate, we will propose to revise the minimum number
accordingly through future rulemaking.
(H) Reporting Hospital-Specific Readmission Rates
Section 1886(q)(6)(A) of the Act requires the Secretary to ``make
information available to the public regarding readmission rates of each
subsection (d) hospital under the [readmissions reduction] program.''
Section 1886(q)(6)(B) of the Act requires the Secretary to ``ensure
that a subsection (d) hospital has the opportunity to review and submit
corrections for, the information to be made public with respect to the
hospital * * * prior to such information being made public.'' Section
1886(q)(6)(C) of the Act requires the Secretary to post the hospital-
specific readmission information on the Hospital Compare Web site in an
easily understandable format.
We currently report information on the three readmission rates that
we are finalizing in this rule on the Hospital Compare Web site for
each subsection (d) hospital. We provide hospitals with an opportunity
to preview their readmission rates for 30 days prior to posting on the
Web site. In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25935), we
proposed to use a similar process and timeframe for the rates
calculated for the Hospital Readmissions Reduction Program. Through
this process, hospitals will be able to review the information and
submit to CMS corrections in advance of the information to be made
public. We will review all such correction submissions and determine
the appropriateness of any revisions. We will inform the hospital
requesting corrections of our findings, and we will make any
appropriate revisions to the information to be made available to the
public regarding the hospital's readmission rates.
We invited public comment on this proposal.
Comment: Several commenters supported our proposal to use a preview
period and public reporting process that is similar to that used in the
Hospital IQR Program. Two commenters requested more information about
how the information will be presented on the Hospital Compare Web site.
One recommended that more specific data on actual readmission rates be
portrayed.
Response: We appreciate the commenters' support for the proposed
reporting procedure for hospital-specific readmission rates. This
reporting procedure will be different from what is reported with the
Hospital IQR Program. The Hospital IQR Program identifies hospitals on
Hospital Compare as being better than, no different than, or worse than
the national rate for readmission. However, the Hospital Readmissions
Reduction Program will include hospital-specific readmission rates.
Comment: One commenter requested clarification on ``what grounds
and with

[[Page 51673]]

what data'' a hospital might appeal its calculated expected
readmissions ratio.
Response: As stated earlier, hospitals will be able to review the
information and submit to CMS corrections related to their readmission
rate in advance of the information to be made public. We will review
all such correction submissions and determine the appropriateness of
any revisions. The policies regarding what aspects of the readmission
rates are subject to corrections, as well as specifics regarding the
review and correction process will be proposed in future rulemaking. We
will consider the commenter's concern as we develop our proposal.
After consideration of the public comments we received, we are
finalizing the proposed reporting procedure for hospital-specific
readmission rates for the FY 2013 Hospital Readmissions Reduction
Program.
(I) Readmission Rates for All Patients
Section 1886(q)(8)(A) of the Act requires the Secretary to
calculate readmission rates for all patients for a ``specified
hospital'' for an applicable condition and ``other conditions deemed
appropriate by the Secretary for an applicable period.'' Section
1886(q)(8)(D)(ii) of the Act defines ``specified hospital'' as: ``a
subsection (d) hospital; hospitals described in clauses (i) through (v)
of subsection (d)(1)(B) (psychiatric hospitals, rehabilitation
hospitals, children's hospitals, LTCHs, and cancer hospitals); and, as
determined feasible and appropriate by the Secretary, other hospitals
not otherwise described. * * *'' Such information is to be calculated
in the same manner as used to calculate readmission rates for hospitals
with respect to the postings on the CMS Hospital Compare Web site.
Section 1886(q)(8)(C) of the Act requires specified hospitals, or a
State or an appropriate entity on behalf of the hospitals, to submit to
the Secretary, in a form, manner and time specified by the Secretary,
data and information determined necessary to calculate the all patient
readmission rates. Section 1886(q)(8)(D) of the Act defines ``all
patients'' to mean patients who are treated on an inpatient basis and
discharged from a specified hospital. In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25935), we did not propose any specific policies
to implement section 1886(q)(8) of the Act, but we invited public
comment and suggestions for issues related to implementation of these
provisions, such as the mechanisms to collect the all-patient data, the
collection of patient identifiers to track patient care history across
multiple settings to conduct risk adjustment for outcome measures, what
entities could submit all patient data on behalf of hospitals, and more
generally, the requirement for all patient data submission.
Comment: One commenter supported the calculation of all-patient
readmission rates. Another commenter supported the decision to defer
proposals for the collection of data necessary for readmission rates of
all patients to allow CMS enough time to put the underlying
infrastructure in place. One commenter suggested allowing hospitals to
either submit data directly to CMS, or through a third party that is
not another payer.
Response: We appreciate the comments provided on this issue. As we
stated in the proposed rule, we will take them into account in the
calculation and reporting of readmission rates for all patients in
future rulemaking.
(5) Excess Readmission Ratio
(A) Statutory Background
Section 1886(q)(4)(C) of the Act requires the Secretary to develop
a risk-adjusted ``Excess Readmission Ratio.'' The Excess Readmission
Ratio will be used in the calculation of ``aggregate payments for
excess readmissions'' as required under section 1886(q)(4)(A)(iii) of
the Act, which, in turn, is used to determine the adjustment factor
under section 1886(q)(3) of the Act. Specifically, section
1886(q)(4)(C)(i) of the Act states that the term `` `excess readmission
ratio' means, with respect to an applicable condition for a hospital
for an applicable period, the ratio * * * of * * * the risk adjusted
readmissions based on actual readmissions * * * to * * * the risk
adjusted expected readmissions. * * *'' The Act also requires that the
numerator and denominator of the ratio, that is, ``risk adjusted
readmissions based on actual readmissions'' and the ``risk adjusted
expected readmissions,'' be determined ``consistent with a readmission
measure methodology that has been endorsed under paragraph
(5)(A)(ii)(I) [of the Act].''
(B) Excess Readmission Ratio Methodology
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25935 through
25936), we proposed to use the risk-standardized ratio calculated for
the NQF-endorsed measures for AMI, HF, and PN as the ``Excess
Readmission Ratio.'' This risk-standardized ratio (Excess Readmission
Ratio), as required by the Act, is a ratio of ``risk adjusted
readmission based on actual'' to ``risk adjusted expected
readmissions.'' Moreover, use of this ratio meets the statutory
requirement that the numerator and denominator of the ratio be
determined in a manner that is ``consistent with'' an NQF-endorsed
readmission measure methodology.
The proposed ratio is a measure of relative performance. If a
hospital performs better than an average hospital that admitted similar
patients (that is, patients with the same risk factors for readmission
such as age and comorbidities), the ratio will be less than one. If a
hospital performs worse than average, the ratio will be greater than
one. Hospitals with a ratio greater than one have excess readmissions
relative to average quality hospitals with similar types of patients.
As part of the Hospital IQR Program, the risk-standardized ratio is
used to generate the measure results for these three measures that are
reported on Hospital Compare Web site. The risk-standardized ratio is
the unique result produced by the measures for each hospital for each
condition to assess relative hospital performance. Hospitals may not be
familiar with this ratio because the measure result reported on
Hospital Compare for each hospital and each condition is this ratio
multiplied by a constant (the national raw rate of readmission for the
condition), and it is currently presented as the risk-standardized
readmission rate (RSRR). Multiplying by a constant transforms the ratio
into a rate (the risk-standardized readmission rate) that is better
understood by the public. Thus Hospital Compare results for CMS
readmission measures are computed as follows:

[Hospital risk-standardized ratio] X [national raw readmission rate]
(i) Numerator and Denominator of the Risk-Standardized Ratio (Excess
Readmission Ratio)
The NQF-endorsed measures, which we are finalizing in this rule for
the Hospital Readmissions Reduction Program, calculate this risk-
standardized ratio (Excess Readmission Ratio) using hierarchical
logistic modeling, which is a widely accepted statistical method that
evaluates relative hospital performance based on outcomes such as
readmission. The method adjusts for variation across hospitals in how
sick their patients are when admitted to the hospital (and therefore
variation in hospitals' patients' readmission risk) as well as the
variation in the number of patients that a hospital treats to reveal
difference in

[[Page 51674]]

quality. The detailed methodology for these measures is publicly-
available and the calculation ``SAS packs'' are made available upon
request. This is the calculation software that permits the measures to
be calculated. We describe the key details of the methodology here.
In order to model the extent to which hospitals affect patients'
risk of readmission, this statistical model first analyzes data on all
the patients discharged from all hospitals for a given condition that
indicate for each patient what comorbidities were present when the
patient was admitted and whether or not the patient was readmitted and
calculates:
How much variation in hospital readmission rates overall
is accounted for by variation across hospitals in patients' individual
risk factors (such as age and other medical conditions); a risk weight
(beta-coefficient) is calculated for each patient risk factor at all
hospitals. The specific approach and variables used in the risk
adjustment are discussed below.
How much variation in readmission rates is accounted for
by hospitals' contribution to readmission risk, after adjusting for
differences in readmission due to differences in patients' risk
factors. The model estimates the amount by which a specific hospital
increases or decreases patients' risk of readmission relative to an
average hospital based on the hospitals actual readmission relative to
hospitals with similar patients. The estimated amount each hospital
contributes (or subtracts) from its patients readmission risk compared
to hospitals with similar patients is called the ``hospital-specific
readmission effect.'' It is used only in the numerator to estimate the
adjusted actual readmissions. The hospital-specific effect will be
negative for a hospital above the national average (that is, with lower
than average adjusted rates of readmissions), positive for a hospital
below the national average (that is, with higher than average adjusted
rates of readmissions), and close to zero for an average hospital. If
there are no quality differences resulting in excess readmissions among
hospitals (if all hospitals had the same readmission rates relative to
hospitals with similar patients), the hospital-specific effects for all
hospitals will be zero and the ratio for all hospitals will be one.
Comment: One commenter expressed concern that multiplying the ratio
by the national raw rate of readmissions could inflate the readmission
rate for a given hospital.
Response: As discussed above, the Excess Readmission Ratio is
calculated using hierarchical logistic regression which produces an
adjusted actual (or ``predicted'') number in the numerator and an
``expected'' number in the denominator. The expected calculation is
similar to that for logistic regression--it is the sum of all patients'
expected probabilities of readmission given their risk factors and the
risk of readmission at an average hospital. The excess readmissions
ratio is multiplied by the national readmission rate for reporting of
risk-standardized readmission rates to the public as a part of the
Hospital IQR Program for ease of interpretation. This serves to
standardize all hospitals rates to the national rate but should not be
interpreted as the unadjusted rate for a given hospitals. Depending on
the hospital's performance it may be higher or lower than the
hospital's raw readmission rate. The Hospital Readmissions Reduction
Program uses the Excess Readmission Ratio rather than the raw
readmission rate.
(ii) Numerator Calculation--Adjusted Actual Readmissions
For each hospital, the numerator of the ratio used in the NQF-
endorsed methodology (actual adjusted readmissions) is calculated by
estimating the probability of readmission for each patient at that
hospital and summing up over all the hospital's patients to get the
actual adjusted number of readmissions for that hospital. This
estimated probability of readmission for each patient is calculated
using:
The hospital-specific effect (probability of readmission
relative to the probability of readmission at an average hospital);
The intercept term for the model (this is the average
hospital-specific effect and is the same for all hospitals and for both
numerator and denominator equations). The intercept term is the
probability of readmission for each patient when the value of all the
patient risk factors is zero;
The probability of readmission contributed by each of the
patients' risk factors (risk adjustment coefficients multiplied by the
patient's risk factors, X)
Mathematically, the numerator equation can be expressed as:
[GRAPHIC] [TIFF OMITTED] TR18AU11.016

[[Page 51675]]

Comment: One commenter requested clarification on how the numerator
calculation of probable readmissions is related to the adjusted actual
readmission. The commenter suggested that CMS take actual readmissions
(observed) divided by the expected readmission.
Response: As explained in the FY 2012 IPPS/LTCH PPS proposed rule
and this final rule, consistent with the requirements in section
1886(q)(4)(C)(i)(I) of the Act, the numerator is the adjusted actual
number of readmissions, which is the sum of the probability of
readmission for all patients admitted at the particular hospital given
the patients' risk factors and the hospitals estimated contribution to
readmission risk. This estimated contribution to readmission risk--the
hospital-specific effect discussed in the rule--is derived from the
hospital's actual readmission rate relative to hospitals with similar
patients. Thus, the numerator is each hospital's adjusted actual
readmissions. This approach to calculating the numerator, although more
complex than that used for logistic regression, is the method
traditionally used in hierarchical regression modeling and is
statistically more accurate given the type of data being used. Other
methods may overestimate the differences between hospitals.
(iii) Denominator Calculation--Expected Readmissions (at an Average
Quality Hospital Treating the Same Patients)
The denominator of the risk-standardized ratio (Excess Readmission
Ratio) under this NQF-endorsed methodology sums the probability of
readmission for each patient at an average hospital. This probability
is calculated using:
The intercept term for the model (the same for all
hospitals and for both numerator and denominator equations); and
The increase or decrease in the probability of readmission
contributed by each of the patients' risk factors (risk adjustment
coefficients multiplied by the patient's risk factors, X).
This can be expressed mathematically as:
[GRAPHIC] [TIFF OMITTED] TR18AU11.017

Thus, the ratio compares the total adjusted actual readmissions at
the hospital to the number that would be expected if the hospital's
patients were treated at an average hospital with similar patients.
Hospitals with more adjusted actual readmissions than expected
readmissions will have a risk-standardized ratio (Excess Readmission
Ratio) greater than one.
Because the ratio is risk-adjusted, a hospital may have high crude
readmission rates (number of 30-day readmissions among patients with
the applicable condition divided by number of admissions for patients
with the applicable condition) yet have a risk-standardized ratio
(Excess Readmission Ratio) less than one. For example, if a hospital
with a higher than average raw readmission rate cares for very sick
patients, the ratio may show that the adjusted actual number of
readmissions (the numerator), which accounts for the case-mix, is
actually lower than what would be expected for an average hospital
caring for these patients (denominator) and therefore the Excess
Readmission Ratio, as proposed, will be less than one, demonstrating
that this hospital performs better than average, despite having a high
crude readmission rate. Similarly, if a hospital has a seemingly low
unadjusted readmission rate but cares for a very low risk population of
patients, it may be found to have an adjusted actual number of
readmissions that is higher than the expected number of readmissions,
and therefore a ratio greater than one.
In summary, in the FY 2012 IPPS/LTCH PPS proposed rule, we proposed
to use the risk-standardized readmission ratio of the NQF-endorsed
readmission measures as the Excess Readmission Ratio. The ratio is a
measure of relative performance. If a hospital performs better than an
average hospital that admitted similar patients (that is, patients with
the same risk factors for readmission such as age and comorbidities),
the ratio will be less than 1.0. If a hospital performs worse than
average, the ratio will be greater than 1.0.
We welcomed public comment on our proposal to use this methodology
for

[[Page 51676]]

calculating the ``risk adjusted readmissions based on actual
readmissions'' as well as the ``risk adjusted expected readmissions''
used to determine the Excess Readmission Ratio, as set forth in section
1886(q)(5)(C) of the Act.
Comment: Some commenters interpreted the Affordable Care Act as
requiring CMS to calculate observed and expected rates and, therefore,
these commenters suggested that CMS revise the measures to use the
calculation of observed and expected rates. Some commenters compared
the hierarchical modeling approach to the logistic regression model,
which produces an expected rate for the denominator and uses the
observed (raw count of readmission) for the numerator. One commenter
requested CMS to provide reasons for not using a conventional observed
over expected ratio in the methodology.
Response: We appreciate the commenter's thoughts on the Excess
Readmission Ratio. Consistent with the statutory requirement that the
Secretary must develop a risk-adjusted Excess Readmission Ratio that is
the ratio of ``the risk adjusted readmissions based on actual
readmission, as determined consistent with a readmission measure
methodology that has been endorsed under paragraph (5)(A)(ii)(I) * * *
to the risk adjusted expected readmissions,'' we proposed to calculate
the Excess Readmission Ratio using hierarchical modeling (rather than
logistic regression, which produces an observed over expected ratio).
We believe that hierarchical modeling is a more appropriate
statistical approach for hospital outcomes measures than the
calculation of observed over expected ratio using the logistic
regression model for various reasons. First, the hierarchical model
meets the requirement under section 1886(q)(4)(C)(i)(I) of the Act for
NQF-endorsement and risk-adjustment. Second, we believe that
hierarchical modeling is a more appropriate statistical approach given
the structure of the data and the underlying assumption of such
measures which is that hospital quality of care influences 30-day
readmission rates. Patients are clustered within hospitals and, as
such, have a shared exposure to the hospital's quality processes. The
advantage of using the hierarchical modeling is that it accounts for
the clustering of patients within hospitals. Third, hierarchical models
distinguish within-hospital variation and between-hospital variation in
the estimation of the hospital's contribution to the risk of mortality.
The estimation of the hospital's influence on patient outcomes is more
noticeable. Finally, within hierarchical models, we can account for
both differences in case mix and sample size to more fairly profile
hospital performance. If we did not use hierarchical modeling, we may
overestimate variation and potentially mischaracterize hospitals'
performance with respect to readmissions.
After consideration of the public comments we received, we are
finalizing the proposed methodology for readmission measures, including
the definitions of ``index hospitalization,'' ``readmission,'' ``time
window,'' ``risk adjustment methodology,'' ``applicable periods,''
``data sources,'' ``minimum number of discharges for applicable
conditions,'' and ``reporting hospital-specific readmission rates,'' as
proposed, for use in the FY 2013 Hospital Readmissions Reduction
Program.

D. 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 payment adjustment
for RRCs such that they are not subject to the 12-percent cap on DSH
payments that is applicable to other rural hospitals. RRCs 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 2012 includes data from all urban hospitals nationwide,
and the regional values for FY 2012 are the median CMI values of urban
hospitals within each census region, excluding those hospitals with

[[Page 51677]]

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 2010 (October
1, 2009 through September 30, 2010), and include bills posted to CMS'
records through March 2011.
For the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25938), 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,
2011, they must have a CMI value for FY 2010 that is at least--
1.5292; 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. (We refer readers to the table set forth
in the FY 2012 IPPS/LTCH PPS proposed rule at 76 FR 25938.)
The final CMI criteria for FY 2012 are based on the latest
available data (FY 2010 bills received through March 2011). 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, 2011, they must have a CMI value for
FY 2010 that is at least--
1.5305; or
The median CMI value (not transfer-adjusted) for urban
hospitals (excluding hospitals with approved teaching programs as
identified in Sec. 413.75) calculated by CMS for the census region in
which the hospital is located.
The 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).................... 1.3237
2. Middle Atlantic (PA, NJ, NY)............................ 1.3745
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..... 1.4589
4. East North Central (IL, IN, MI, OH, WI)................. 1.4620
5. East South Central (AL, KY, MS, TN)..................... 1.3996
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......... 1.4456
7. West South Central (AR, LA, OK, TX)..................... 1.5689
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............... 1.6277
9. Pacific (AK, CA, HI, OR, WA)............................ 1.5169
------------------------------------------------------------------------

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 2012 IPPS/LTCH PPS
proposed rule (76 FR 25938 and 25939), we proposed to update the
regional standards based on discharges for urban hospitals' cost
reporting periods that began during FY 2009 (that is, October 1, 2008
through September 30, 2009), which are the latest cost report data
available at the time the proposed rule was developed.
Therefore, in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25938
and 25939), 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, 2011, must have, as the number
of discharges for its cost reporting period that began during FY 2009,
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 2012 IPPS/LTCH PPS proposed rule at 76 FR
25939).)
Based on the latest discharge data available at this time, that is,
for cost reporting periods beginning on or after October 1, 2011, the
final median numbers 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)................... 8,141
2. Middle Atlantic (PA, NJ, NY)........................... 11,919
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV).... 11,422
4. East North Central (IL, IN, MI, OH, WI)................ 8,981
5. East South Central (AL, KY, MS, TN).................... 7,528
6. West North Central (IA, KS, MN, MO, NE, ND, SD)........ 8,116
7. West South Central (AR, LA, OK, TX).................... 6,426
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY).............. 9,608
9. Pacific (AK, CA, HI, OR, WA)........................... 8,900
------------------------------------------------------------------------

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 under this final rule.
We reiterate that, if an osteopathic hospital is to qualify for RRC
status for cost reporting periods beginning on or after October 1,
2011, the hospital would be required to have at least 3,000 discharges
for its cost reporting period that began during FY 2009.

E. Payment Adjustment for Low-Volume Hospitals (Sec. 412.101)

1. Background
Section 1886(d)(12) of the Act, as added by section 406(a) of
Public Law 108-173, provides for a payment adjustment to account for
the higher costs per discharge for low-volume hospitals under the IPPS,
effective beginning FY 2005. The additional payment adjustment to a
low-volume hospital provided for under section 1886(d)(12) of the Act
is ``in addition to any payment calculated under this section.''
Therefore, the additional payment adjustment is based on the per
discharge amount paid to the qualifying hospital under section 1886 of
the Act. In other words, the low-volume add-on payment amount is based
on all other per discharge payments made under section 1886 of the Act,
including capital, DSH, IME, and outliers. For SCHs and MDHs, the low-
volume add-on payment amount is based on either the Federal rate or the
hospital-specific rate, whichever results in a greater operating IPPS
payment. Sections 3125 and 10314 of the Affordable Care Act amended the
definition of a low-volume hospital under section 1886(d)(12)(C) of the
Act. Sections 3125 and 10314 of the Affordable Care Act also revised
the methodology for calculating the payment adjustment for low-volume
hospitals.
Prior to the amendments made by the Affordable Care Act, section
1886(d)(12)(C)(i) of the Act defined a low-volume hospital as ``a
subsection (d) hospital (as defined in paragraph (1)(B)) that the
Secretary determines is

[[Page 51678]]

located more than 25 road miles from another subsection (d) hospital
and that has less than 800 discharges during the fiscal year.'' Section
1886(d)(12)(C)(ii) of the Act further stipulates that the term
``discharge'' means ``an inpatient acute care discharge of an
individual regardless of whether the individual is entitled to benefits
under Part A.'' Therefore, the term ``discharge'' refers to total
discharges, not merely Medicare discharges. Furthermore, under section
406(a) of Public Law 108-173, which initially added subparagraph (12)
to section 1886(d) of the Act, the provision requires the Secretary to
determine an applicable percentage increase for these low-volume
hospitals based on the ``empirical relationship'' between ``the
standardized cost-per-case for such hospitals and the total number of
discharges of such hospitals and the amount of the additional
incremental costs (if any) that are associated with such number of
discharges.'' The statute thus mandates that the Secretary develop an
empirically justifiable adjustment based on the relationship between
costs and discharges for these low-volume hospitals. The statute also
limits the adjustment to no more than 25 percent.
Based on an analysis we conducted for the FY 2005 IPPS final rule
(69 FR 49099 through 49102), a 25-percent low-volume adjustment to all
qualifying hospitals with less than 200 discharges was found to be most
consistent with the statutory requirement to provide relief to low-
volume hospitals where there is empirical evidence that higher
incremental costs are associated with low numbers of total discharges.
In the FY 2006 IPPS final rule (70 FR 47432 through 47434), we stated
that a multivariate analyses supported the existing low-volume
adjustment implemented in FY 2005. Therefore, the low-volume adjustment
of an additional 25 percent would continue to be provided for
qualifying hospitals with less than 200 discharges.
2. Temporary Changes for FYs 2011 and 2012
Section 1886(d)(12) of the Act was amended by sections 3125 and
10314 of the Affordable Care Act. The changes made by these sections of
the Affordable Care Act are effective only for discharges occurring
during FYs 2011 and 2012. Beginning with FY 2013, the preexisting low-
volume hospital payment adjustment and qualifying criteria, as
implemented in FY 2005, will resume. Specifically, as discussed above,
the provisions of the Affordable Care Act revised the definition of a
low-volume hospital and also revised the methodology for calculating
the payment adjustment for low-volume hospitals for FYs 2011 and 2012.
Sections 3125(3) and 10314(1) of the Affordable Care Act amended
the qualifying criteria for low-volume hospitals under section
1886(d)(12)(C)(i) of the Act to make it easier for hospitals to qualify
for the low-volume adjustment. Specifically, the revised provision
specifies that, for FYs 2011 and 2012, a hospital qualifies as a low-
volume hospital if it is ``more than 15 road miles from another
subsection (d) hospital and has less than 1,600 discharges of
individuals entitled to, or enrolled for, benefits under Part A during
the fiscal year.'' In addition, section 1886(d)(12)(D) of the Act, as
added by section 3125(4) and amended by section 10314 of the Affordable
Care Act, provides that the payment adjustment (the applicable
percentage increase) is to be determined ``using a continuous linear
sliding scale ranging from 25 percent for low-volume hospitals with 200
or fewer discharges of individuals entitled to, or enrolled for,
benefits under Part A in the fiscal year to 0 percent for low-volume
hospitals with greater than 1,600 discharges of such individuals in the
fiscal year.''
Section 3125(3)(A) of the Affordable Care Act revised the distance
requirement of ``25 road miles'' to ``15 road miles'' for FYs 2011 and
2012 such that a low-volume hospital is required to be only more than
15 road miles, rather than more than 25 road miles, from another
subsection (d) hospital for purposes of qualifying for the low-volume
payment adjustment in FYs 2011 and 2012. The mileage requirement will
revert back to ``more than 25 road miles'' for fiscal years after FY
2012.
Sections 3125(3)(B) and 10314(1) of the Affordable Care Act revised
the discharge requirement for FYs 2011 and 2012 to less than 1,600
discharges of individuals entitled to, or enrolled for, benefits under
Medicare Part A during the fiscal year. Prior to enactment of the
Affordable Care Act, under section 1886(d)(12) of the Act, as added by
section 406(a) of Public Law 108-173, the discharge requirement to
qualify as a low-volume hospital is less than 800 total discharges
annually, which includes discharges of both Medicare and non-Medicare
patients. This discharge requirement will apply also for fiscal years
after FY 2012.
Section 3125(4) of the Affordable Care Act added section
1886(d)(12)(D) to the Act, and section 10314(2) of the Affordable Care
Act further modified that section of the Act. Section 1886(d)(12)(D) of
the Act, as modified, revises the methodology for calculating the
payment adjustment under section 1886(d)(12)(A) of the Act for low-
volume hospitals for discharges occurring in FYs 2011 and 2012. For FY
2010 and prior fiscal years, and beginning again in FY 2013, sections
1886(d)(12)(A) and (B) of the Act require the Secretary to determine an
applicable percentage increase for low-volume hospitals based on the
``empirical relationship'' between ``the standardized cost-per-case for
such hospitals and the total number of discharges of such hospitals and
the amount of the additional incremental costs (if any) that are
associated with such number of discharges.'' The statute thus requires
the Secretary to develop an empirically justifiable adjustment based on
the relationship between costs and discharges for these low-volume
hospitals. The statute also limits the adjustment to no more than 25
percent. Based on analyses we conducted for the FY 2005 IPPS final rule
(69 FR 49099 through 49102) and the FY 2006 IPPS final rule (70 FR
47432 through 47434), a 25-percent low-volume adjustment to all
qualifying hospitals with less than 200 discharges was found to be most
consistent with the statutory requirement to provide relief to low-
volume hospitals where there is empirical evidence that higher
incremental costs are associated with low numbers of total discharges.
However, section 1886(d)(12)(D) of the Act, as added by the Affordable
Care Act, provides that, for discharges occurring in FYs 2011 and 2012,
the Secretary shall determine the applicable percentage increase using
a continuous linear sliding scale ranging from an additional 25-percent
payment adjustment for hospitals with 200 or fewer Medicare discharges
to a 0-percent additional payment adjustment for hospitals with more
than 1,600 Medicare discharges.
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275
and 50414), we revised our regulations at 42 CFR 412.101 to reflect the
changes to the payment adjustment for low-volume hospitals provided for
by the provisions of the Affordable Care Act. We also clarified the
existing regulations to indicate that a hospital must continue to
qualify as a low-volume hospital in order to receive the payment
adjustment in that year; that is, it is not based on a one-time
qualification. Furthermore, we established a procedure for a hospital
to request low-volume hospital status.
Specifically, in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238
and

[[Page 51679]]

50414), we revised our regulations at Sec. 412.101(b)(2)(ii) to
provide that, to qualify for the low-volume payment adjustment in FYs
2011 and 2012, a hospital must be located more than 15 road miles from
the nearest subsection (d) hospital. We also defined, at Sec.
412.101(a), the term ``road miles'' to mean ``miles'' as defined at
Sec. 412.92(c)(i). This change in the qualifying criteria from 25 to
15 road miles is applicable only for FYs 2011 and 2012, but the
definition of ``road miles'' continues to apply even after the distance
requirement reverts to 25 road miles beginning in FY 2013.
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50239
and 50414), we revised our regulations at Sec. 412.101(b)(2)(ii) to
provide that, to qualify for the low-volume adjustment in FYs 2011 and
2012, a hospital must have fewer than 1,600 ``Medicare discharges''
during the fiscal year based on the hospital's Medicare discharges from
the most recently available MedPAR data as determined by CMS. We also
revised the regulations to specify at Sec. 412.101(a) that the term
``Medicare discharges'' means a ``discharge of inpatients entitled to
Medicare Part A, including discharges associated with individuals whose
inpatient benefits are exhausted or whose stay was not covered by
Medicare and also discharges of individuals enrolled in a MA
organization under Medicare Part C.''
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50240 through
50241), we adopted a continuous linear sliding scale equation to
determine the low-volume payment adjustment for FYs 2011 and 2012 for
eligible low-volume hospitals with Medicare discharges of more than 200
and less than 1,600 (that is, from 201 to 1,599 Medicare discharges).
Consistent with the statute, for FYs 2011 and 2012 for eligible low-
volume hospitals with 200 or fewer Medicare discharges, we established
a low-volume payment adjustment of 25 percent.
Under the regulations at Sec. 412.101(c)(2), for FYs 2011 and
2012, the low-volume adjustment is determined as follows:
Low-volume hospitals with 200 or fewer Medicare discharges
will receive a low-volume adjustment of an additional 25 percent for
each discharge.
Low-volume hospitals with Medicare discharges of more than
200 and fewer than 1,600 will receive for each discharge a low-volume
adjustment of an additional percent calculated using the formula: [(4/
14)-(Medicare discharges/5600)]. For additional information on the
mathematical interpretation of this formula, we refer readers to the FY
2011 IPPS/LTCH PPS final rule (75 FR 50241).
While we revised the qualifying criteria and the payment adjustment
for low-volume hospitals for FYs 2011 and 2012, consistent with the
amendments made by the Affordable Care Act, we also noted in the FY
2011 IPPS/LTCH PPS final rule (75 FR 50240) that we did not modify the
process for requesting and obtaining the low-volume hospital payment
adjustment. In general, in order to qualify for the low-volume hospital
payment adjustment, a hospital must provide to its fiscal intermediary
or MAC sufficient evidence to document that it meets the discharge and
distance requirements. The fiscal intermediary or MAC will determine,
based on the most recent data available, if the hospital qualifies as a
low-volume hospital, so that the hospital will know in advance whether
or not it will receive a payment adjustment and, if so, the applicable
add-on percentage. The fiscal intermediary or MAC and CMS may review
available data, in addition to the data the hospital submits with its
request for low-volume hospital status, in order to determine whether
or not the hospital meets the qualifying criteria.
3. Discharge Data Source To Identify Qualifying Low-Volume Hospitals
and Calculate the Payment Adjustment (Percentage Increase) for FY 2012
As described above, for FYs 2005 through 2010 and FY 2013 and
subsequent years, since the discharge determination is made based on
the hospital's number of total discharges, the hospital's most recently
submitted cost report is used to determine if the hospital meets the
criteria to receive the low-volume payment adjustment in the current
year (Sec. 412.101(b)(2)(i)). For FYs 2011 and 2012, the hospital's
Medicare discharges from the most recently available MedPAR data, as
determined by CMS, are used to determine if the hospital meets the
discharge criteria to receive the low-volume payment adjustment in the
current year (Sec. 412.101(b)(2)(ii)). As also described above, the
applicable low-volume percentage increase is determined using a
continuous linear sliding scale equation that results in a low-volume
adjustment ranging from an additional 25 percent for hospitals with 200
or fewer Medicare discharges to a 0 percent additional payment
adjustment for hospitals with 1,600 or more Medicare discharges.
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50241), we
established that, for FY 2011, the low-volume payment adjustment would
be determined using Medicare discharge data for FY 2009 from the March
2010 update of the MedPAR files, as these were the most recent
available data. We also stated that we expected to use Medicare claims
data from FY 2010 to determine the low-volume payment adjustment for FY
2012, as these would be the most recent available data at that time.
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25941), we
proposed that, for FY 2012, qualifying low-volume hospitals and their
payment adjustment would be determined using Medicare discharge data
from the most recent update of the FY 2010 MedPAR file, that is, the
December 2010 update, as these data were the most recent data available
at that time. We also proposed that if more recent FY 2010 Medicare
discharge data are available (such as data from the March 2011 update
of the MedPAR files), we would use such data in the final rule. Table
14 in the proposed rule (which was listed in section VI. of the
Addendum to the proposed rule and available via the Internet) listed
the ``subsection (d)'' hospitals with fewer than 1,600 Medicare
discharges based on the December 2010 update of the FY 2010 MedPAR
files and their proposed FY 2012 low-volume payment adjustment. We
noted that eligibility for the proposed low-volume payment adjustment
for FY 2012 is also dependent upon meeting (if the hospital is
qualifying for the low-volume payment adjustment for the first time in
FY 2012), or continuing to meet (if the hospital qualified in FY 2011)
the mileage criteria specified at Sec. 412.101(b)(2)(ii). In addition,
we proposed a procedure for a hospital to request low-volume hospital
status for FY 2012 (as described below).
Comment: Commenters supported the proposal to update the Medicare
discharge data upon which to base the low-volume hospital adjustment
for FY 2012 (we note that there were no public comments opposed to the
proposal). In addition, a few commenters urged CMS to explore ways to
continue increased payments to the hospitals that received additional
payments in FYs 2011 and 2012 under the temporary expansion of the low-
volume hospital adjustment provided for by the Affordable Care Act
rather than revert to the prior low-volume hospital adjustment policy
for FY 2013 and subsequent years.
Response: We appreciate the commenters' support. We are finalizing
our proposal to determine the FY 2012 low-volume hospitals and their
payment adjustments based on the number of

[[Page 51680]]

Medicare discharges from the most recent update of the FY 2010 MedPAR
file. Specifically, we will make these determinations using the March
2011 update, as these data are the most recent data available. Table
14, which is referenced in section VI. of the Addendum to this final
rule and available via the Internet on the CMS Web site, lists the
``subsection (d)'' hospitals with fewer than 1,600 Medicare discharges
based on the March 2011 update of the FY 2010 MedPAR file and their
payment adjustments for FY 2012. The eligibility for the low-volume
payment adjustment for FY 2012 is also dependent upon meeting (if the
hospital is qualifying for the low-volume payment adjustment for the
first time in FY 2012), or continuing to meet (if the hospital
qualified in FY 2011) the mileage criteria specified at Sec.
412.101(b)(2)(ii).
With regard to commenters who urged CMS to explore ways to continue
the enhanced low-volume hospital payment adjustment beyond FYs 2011 and
2012, we note that the statute restricts the temporary increases in the
low-volume payment adjustments to FYs 2011 and 2012. Therefore,
beginning with FY 2013, the low-volume hospital qualifying criteria and
the amount of the payment adjustment to such hospitals will revert back
to those policies that were in effect prior to the amendments made by
the Affordable Care Act.
We note that the list of hospitals with fewer than 1,600 Medicare
discharges in Table 14 does not reflect whether or not the hospital
meets the mileage criterion, and a hospital also must be located more
than 15 road miles from any other IPPS hospital in order to qualify for
a low-volume hospital payment adjustment in FY 2012.
In order to receive a low-volume hospital payment adjustment under
Sec. 412.101, a hospital must notify and provide documentation to its
fiscal intermediary or MAC that it meets the mileage criterion. The use
of a Web-based mapping tool, such as MapQuest, as part of documenting
that the hospital meets the mileage criterion for low-volume hospitals,
is acceptable. The fiscal intermediary or MAC will determine if the
information submitted by the hospital, such as the name and street
address of the nearest hospitals, location on a map, and distance (in
road miles, as defined in the regulations at Sec. 412.101(a)) from the
hospital requesting low-volume hospital status, is sufficient to
document that it meets the mileage criterion. If not, the fiscal
intermediary or MAC will follow up with the hospital to obtain
additional necessary information to determine whether or not the
hospital meets the low-volume mileage criterion. In addition, the
fiscal intermediary or MAC will refer to the hospital's Medicare
discharge data determined by CMS (for FY 2012 as shown in Table 14 of
this final rule (which is listed in section VI. of the Addendum to this
final rule and available via the Internet)), to determine whether or
not the hospital meets the discharge criterion, and the amount of the
payment adjustment, once it is determined that both the mileage and
discharge criteria are met. The Medicare discharge data shown in Table
14, as well as the Medicare discharge data for all ``subsection (d)''
hospitals with claims in the March 2011 update of the FY 2010 MedPAR
file, is also available on the CMS Web site for hospitals to check
their Medicare discharges to help them to decide whether or not to
apply for low-volume hospital status.
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25941), we
proposed that for FY 2012, a hospital must make its request for low-
volume hospital status in writing to its fiscal intermediary or MAC by
September 1, 2011, in order for the applicable low-volume percentage
add-on to be applied to payments for its discharges beginning on or
after October 1, 2011. This proposal is similar to the policy we
established in the FY 2011 IPPS/LTCH PPS final rule (75 FR 20574
through 20575). We did not receive any public comments on this proposed
procedure. Therefore, in this final rule, we are finalizing this
procedure for a hospital to request low-volume hospital status for FY
2012. We also are finalizing our proposal that a hospital that
qualified for the low-volume payment adjustment in FY 2011 may continue
to receive a low-volume payment adjustment in FY 2012, without
reapplying, if it continues to meet the Medicare discharge criterion,
based on the latest available FY 2010 MedPAR data (as finalized above
and shown in Table 14) and the distance criterion. However, the
hospital must verify in writing to its fiscal intermediary or MAC that
it continues to be more than 15 miles from any other ``subsection (d)''
hospital no later than September 30, 2011. Further, similar to the
policy we established for FY 2011 (Transmittal 2060, Change Request
7134; October 1, 2010), we are finalizing our proposal with regard to
requests for low-volume hospital status for FY 2012 received after
September 1, 2011. In such cases, if the hospital meets the criteria to
qualify as a low-volume hospital, the fiscal intermediary or MAC will
apply the applicable low-volume adjustment in determining payments to
the hospital's FY 2012 discharges prospectively within 30 days of the
date of the fiscal intermediary's or MAC's low-volume status
determination.

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

1. Background
Section 1886(d)(5)(B) of the Act provides for an additional payment
amount under the IPPS for hospitals that have residents in an approved
graduate medical education (GME) program in order to reflect the higher
indirect patient care costs of teaching hospitals relative to
nonteaching hospitals. The regulations regarding the calculation of
this additional payment, known as the indirect medical education (IME)
adjustment, are located at Sec. 412.105.
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. Changes to the policies regarding counting residents
for both IME and direct GME payment purposes as a result of the
implementation of sections 5503 through 5506 of the Affordable Care Act
were issued in a final rule published in the Federal Register on
November 24, 2010 (75 FR 72133).
2. IME Adjustment Factor for FY 2012
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

[[Page 51681]]

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 2012, the formula
multiplier is 1.35. We estimate that application of this formula
multiplier for the FY 2012 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.
Comment: Several commenters supported CMS' proposal to maintain the
IME formula multiplier at 1.35. Commenters stated they support the
continued IME adjustment factor because IME payments are an important
part of guaranteeing both a strong cardiothoracic surgery and general
surgery workforce, both of which are currently facing increasing
shortages. Another commenter stated that it supported maintaining the
current level of IME payments because it is an important funding source
for safety net teaching hospitals.
Response: We appreciate the commenters' support. We note that the
IME formula multiplier is set by Congress; any change to the multiplier
would require a legislative change. Therefore, we are finalizing our
proposal that the IME formula multiplier for FY 2012 be set at 1.35,
which we estimate will result in an increase in IPPS payments of 5.5
percent for every approximately 10-percent increase in the hospital's
resident-to-bed ratio.

G. Payment Adjustment for Medicare Disproportionate Share Hospitals
(DSHs) and Indirect Medical Education (IME) (Sec. Sec. 412.105 and
412.106)

1. Background
Section 1886(d)(5)(F) of the Act provides for additional Medicare
payments to subsection (d) hospitals that serve a significantly
disproportionate number of low-income patients. The Act specifies two
methods by which a hospital may qualify for the Medicare
disproportionate share hospital (DSH) adjustment. Under the first
method, hospitals that are located in an urban area and have 100 or
more beds may receive a Medicare DSH payment adjustment if the hospital
can demonstrate that, during its cost reporting period, more than 30
percent of its net inpatient care revenues are derived from State and
local government payments for care furnished to needy patients with low
incomes. This method is commonly referred to as the ``Pickle method.''
The second method for qualifying for the DSH payment adjustment,
which is the most common, is based on a complex statutory formula under
which the DSH payment adjustment is based on the hospital's geographic
designation, the number of beds in the hospital, and the level of the
hospital's disproportionate patient percentage (DPP). A hospital's DPP
is the sum of two fractions: the ``Medicare fraction'' and the
``Medicaid fraction.'' The Medicare fraction (also known as the ``SSI
fraction'' or ``SSI ratio'') is computed by dividing the number of the
hospital's inpatient days that are furnished to patients who were
entitled to both Medicare Part A (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 hospital acute care inpatient days. Regulations
located at Sec. 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).
As we did in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25942),
we are combining, under section IV.G.2. of this preamble, 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)(i) and for counting patient
days for purposes of the DSH payment adjustment at Sec.
412.106(a)(1)(ii).
2. Policy Change Relating to the Exclusion of Hospice Beds and Patient
Days From the Calculation of the Medicare DSH Payment Adjustment and
the IME Payment Adjustment
a. Background
As discussed in the FY 2004 IPPS final rule (68 FR 45415 through
45420), when determining a hospital's Medicare DSH payment, our policy
is to include patient days in hospital units or wards that would be
directly included in determining the allowable costs of inpatient
hospital care payable under the IPPS on the Medicare cost report. Under
this policy, CMS uses the level of care generally provided in such a
unit or ward as a proxy for determining the level of care provided to a
particular patient on a particular day within that unit. As stated in
the FY 2004 IPPS final rule, our policy is ``not intended to focus on
the level or type of care provided to individual patients in a unit,
but rather on the level and type of care provided in the unit as a
whole.'' (68 FR 45417) In the FY 2005 IPPS final rule, we amended this
policy to specifically exclude observation and swing days from the
patient day count. In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR
25942 and 25943), we proposed to establish an additional exclusion with
respect to counting bed days and patient days for patients receiving
hospice services in an inpatient setting of a hospital.
b. Hospice Inpatient Services
Section 1861(dd)(1) of the Act defines hospice care to include a
limited set of ``items and services provided to a terminally ill
individual by, or by others under arrangements made by, a hospice
program under a written plan (for providing such care to such
individual) established and periodically reviewed by the individual's
attending physician

[[Page 51682]]

and by the medical director.'' Among those items and services specified
under section 1861(dd)(1)(G) of the Act is ``short-term inpatient care
(including both respite care and procedures necessary for pain control
and acute and chronic symptom management) in an inpatient facility
meeting such conditions as the Secretary determines to be appropriate
to provide such care, but such respite care may be provided only on an
intermittent, nonroutine, and occasional basis and may not be provided
consecutively over longer than five days.'' Based on these statutory
definitions of hospice care, the Secretary, through regulation at Sec.
418.302, has grouped hospice care services into four categories for
payment purposes. Two of these payment categories describe hospice
services in an inpatient setting: Inpatient respite care day and
general inpatient care day.
Section 418.302(b)(3) of the regulations defines an inpatient
respite care day as ``a day on which the individual who has elected
hospice care receives care in an approved facility on a short-term
basis for respite.'' Section 40.2.2 of Chapter 9 of the Medicare
Benefit Policy Manual (https://www.cms.gov/manuals/Downloads/bp102c09.pdf) further describes an inpatient respite care day as a
short-term inpatient day provided only when necessary to relieve family
members or other caregivers caring for the individual at home. Under
the Act, inpatient respite care is limited to 5 consecutive days for a
given stay. Similarly, the regulations at Sec. 418.302(b)(4) describe
a general inpatient care day as ``a day on which an individual who has
elected hospice care receives general inpatient care in an inpatient
facility for pain control or acute or chronic symptom management which
cannot be managed in other settings.''
Section 40.1.5 of Chapter 9 of the Medicare Benefit Policy Manual
provides that general inpatient care is appropriate when care for pain
control or acute or chronic symptom management cannot feasibly be
provided in another setting. This section of the Medicare Benefit
Policy Manual further states that such care is ``not equivalent to a
hospital level of care.'' That hospice care is not hospital level care
is further supported by the provision at Sec. 418.202(e), which
provides that general inpatient care and inpatient respite care hospice
services can be ``provided in a participating hospice inpatient unit,
or a participating hospital or [skilled nursing facility], that
additionally meets the standards in Sec. 418.202(a) and (e) regarding
staffing and patient areas * * * [and] must conform to the [hospice
provider's] written plan of care.''
Furthermore, hospice services provided in an inpatient hospital
setting are not payable under the IPPS. Rather, at this time, these
services are payable under two of the four prospectively determined
all-inclusive categories of care under the hospice payment system. In
the FY 2004 IPPS final rule (68 FR 45418), we stated that we believed
it ``reasonable to interpret the phrase `hospital's patient days,' to
mean only the hospital's inpatient days at a level of care that would
be covered under the IPPS as a means to determine an IPPS payment
adjustment.'' In that rule, we acknowledged that it would be
``administratively inefficient and impracticable'' to calculate a
hospital' inpatient days based on a determination of whether a
particular patient in a particular inpatient bed for a particular stay
is receiving a level of care that would be covered under the IPPS (68
FR 45418). Accordingly, we adopted a policy under which we use the
level of care that is generally provided in particular units or wards
as a proxy for determining whether the care provided to a particular
patient is of a type that would be covered under the IPPS. However, we
have recognized exceptions to this policy for certain categories of
nonacute care, even if that care is provided in an acute care unit.
Therefore, in the FY 2012 IPPS/LTCH PPS proposed rule, we proposed
to revise Sec. 412.106(a)(1)(ii) to exclude patient days associated
with hospice patients receiving inpatient hospice services in an
inpatient hospital setting from the Medicare and Medicaid fractions of
the DPP. We also proposed to amend our cost reporting instructions
accordingly. Our proposal to exclude hospice inpatient days was
analogous to our decision in the FY 2005 IPPS final rule to exclude
observation and swing-bed days from the Medicare and Medicaid fractions
of the DPP. In that rule, we stated that our policies to exclude
observation days and swing-bed days from the count of patient days
``stem from the fact that although the services are provided in beds
that would otherwise be available to provide an IPPS level of services,
these days are not payable under the IPPS * * *'' (69 FR 49097).
Similarly, our proposal to exclude inpatient hospice days stemmed from
the fact that these days are not acute care services generally payable
under the IPPS.
We noted in the proposed rule that, on rare occasions, patients
receiving care under a third payment category, routine home care, may
also receive services in an inpatient hospital setting. Unlike
inpatient respite care or general inpatient services, routine home care
services are not intended to be provided in a hospital setting. For the
same reasons stated above, such days should also be excluded from the
Medicare and Medicaid fractions of the DPP.
We also proposed to exclude from the hospital's bed count days
associated with hospice patients who receive inpatient hospice services
in the hospital for purposes of both the IME payment adjustment and the
DSH payment adjustment. The rules for counting hospital beds for the
purposes of the IME adjustment are codified in the IME regulations at
Sec. 412.105(b), which is cross-referenced in Sec. 412.106(a)(1)(i)
for purposes of the DSH payment adjustment. Our bed counting policy is
to include bed days available for IPPS-level acute care hospital
services. Inpatient hospice services provided in an acute unit or ward
are occasional, alternative uses of acute inpatient beds that would
otherwise be considered available for IPPS-level acute care hospital
services (as long as other criteria for a bed to be considered as an
available bed are met under Sec. 412.105(b)). A bed used for inpatient
hospice services on a given day is not available to be used for IPPS-
level services. Therefore, we proposed to revise Sec. 412.105(b)(4) to
state that such hospice days are excluded from the counts of available
beds for purposes of the IME payment adjustment. Because the same rules
govern the counting of available beds for purposes of the DSH payment
adjustment under Sec. 412.106(a)(1)(i), under the proposal, hospice
days would also be excluded from the count of available beds for
purposes of the DSH payment adjustment.
In the proposed rule, we noted that there is a circumstance in
which a hospital will provide IPPS-level acute care hospital services
to a hospice patient for which it would receive payment under the IPPS.
This occurs when a Medicare beneficiary receiving hospice care under
his or her hospice benefit requires acute care hospital services to
treat a condition unrelated to his or her hospice plan of care. For
example, an individual who has elected the hospice benefit could be
treated in the inpatient hospital setting for a condition or illness,
such as a broken bone, that is unrelated to his or her terminal
illness. Under these circumstances, the patient is receiving acute care
hospital services of the sort payable under the IPPS. As such,
consistent with Sec. 412.106(a)(1)(ii), we did not propose to exclude
these patient

[[Page 51683]]

days from the Medicare and Medicaid fractions of the DPP or from the
count of available beds under Sec. 412.105(b)(4) and Sec.
412.106(a)(1)(i).
We further noted that hospitals may have hospice units that are
separate and distinct from their acute care inpatient units. Under
existing regulations at Sec. 412.105(b)(3) and Sec.
412.106(a)(1)(ii)(A), services provided in distinct nonacute care
inpatient units are excluded from the patient day and bed day count.
Our proposal with respect to inpatient hospice services did not change
or affect this policy.
Comment: Several commenters believed that the proposal would have
an immaterial impact on providers' DSH payment adjustments while
creating an unnecessary administrative burden to the extent that
providers would have to take steps to identify the excluded days. The
commenters requested that CMS reevaluate the administrative burden
created by the need to identify hospice days in light of what the
commenters describe as the immaterial impact of hospice days on the DSH
payment adjustments.
Response: We do not agree with the commenters that our proposal
would create an undue administrative burden for providers. Hospitals
already identify hospice patients for the purpose of billing and
payment. Because hospice patients in an inpatient setting are already
being specifically identified for other purposes, we do not believe it
would be an undue administrative burden for hospitals to identify and
exclude these patients for purposes of the DSH payment adjustment.
Comment: Commenters requested clarification regarding the effective
date of the proposal, including whether the regulation change is
intended to be prospective. The commenters also questioned whether the
change in policy would be reflected on the cost report.
Response: Our proposal to exclude hospice bed days from the
calculation of the DSH payment adjustment is a regulation change that
will be effective for cost reporting periods beginning on or after
October 1, 2011. As we stated in the proposed rule, we plan to amend
the cost reporting instructions to reflect our change in policy.
Comment: A few commenters requested that CMS not apply the intern-
to-resident bed (IRB) ratio cap with respect to the proposed removal of
hospice bed days from the calculation of the DSH payment adjustment.
Instead, the commenters requested that hospitals be allowed to exclude
these inpatient hospice days from their prior year's IRB ratio for
purposes of applying that ratio as the cap on the hospital's current
year IRB ratio.
Response: We believe the commenters are referring to a provision
that was included in the Balanced Budget Act of 1997, known as the cap
on the intern and resident-to-bed (IRB) ratio that is applicable to the
IME payment that teaching hospitals receive under the IPPS. Under
section 1886(d)(5)(B)(vi)(I) of the Act, and implemented in the
regulations at Sec. 412.105(a)(1)(i), a hospital's IRB ratio in the
current cost reporting period generally cannot exceed, or is capped by,
the value of the IRB ratio in the preceding cost reporting period.
Therefore, if a teaching hospital's IRB ratio increases in the current
cost reporting period relative to the prior cost reporting period, its
receipt of an increase in IME payment as a result of that increase to
the IRB ratio is delayed by 1 year. Because, effective for cost
reporting periods beginning on or after October 1, 2011, certain
inpatient hospice bed days are to be excluded from the count of
available beds under Sec. 412.105(b)(4), assuming there are no changes
in the FTE resident count in the numerator of the IRB ratio from the
cost reporting period occurring prior to October 1, 2011, a reduced bed
count in the cost reporting period that begins on or after October 1,
2011, could cause an increase in the IRB ratio. However, because the
prior cost reporting period's bed count would still reflect the
inclusion of the inpatient hospital beds, the IRB ratio for the cost
reporting period that begins on or after October 1, 2011 will be capped
by the lower IRB ratio from the preceding period, thereby limiting the
IME payment somewhat for the cost reporting period that begins on or
after October 1, 2011.
We do not agree with the commenters' request to not apply the IRB
ratio cap with respect to inpatient hospice days by permitting teaching
hospitals to exclude the inpatient hospice days from the denominator of
the IRB ratio of the prior period. While it is true that the law and
regulations permit teaching hospitals to make adjustments to their
prior year IRB ratios under certain circumstances such as for Medicare
GME affiliation agreements, new programs, or absorption of residents
displaced by another hospital's closure, we do not believe a similar
exception is warranted under this policy. In this instance, no harm is
occurring to either the teaching hospital or residents in the GME
programs as a result of not including the bed days of hospice
inpatients in the denominator of the IRB ratio. Rather, it is simply a
matter of receiving an increased IME payment immediately in the current
cost reporting period, or, through application of the IRB ratio cap, on
a 1-year delay in the following cost reporting period. In fact, the
intent of the IRB ratio cap is to modulate such changes in a hospital's
IRB ratio from year to year. Therefore, we are not waiving the IRB
ratio cap effective for cost reporting periods that begin on or after
October 1, 2011.
Comment: One commenter requested that CMS begin implementation of
the Affordable Care Act amendments to the DSH payment adjustment
provisions of the Act through this rulemaking.
Response: We believe that this comment is outside of the scope of
the proposed rule. The referenced statutory changes made by the
Affordable Care Act do not go into effect in FY 2012 and were not
addressed in this year's proposed rule.
After consideration of the public comments we received, we are
adopting our proposed policies without modifications. In summary, we
are excluding inpatient hospice days from the patient day count under
Sec. 412.106(a)(1)(ii) (for DSH) and the bed day count under Sec.
412.105(b) (for IME) and under Sec. 412.106(a)(1)(i) (for DSH).

H. Medicare-Dependent, Small Rural Hospitals (MDHs) (Sec. 412.108)

1. Background
Under the IPPS, separate special payment protections are provided
to a Medicare-dependent, small rural hospital (MDH). MDHs are paid for
their hospital inpatient services based on the higher of the Federal
rate or a blended rate based in part on the Federal rate and in part on
the MDH's hospital-specific rate. Section 1886(d)(5)(G)(iv) of the Act
defines an MDH as a hospital that is located in a rural area, has not
more than 100 beds, is not an SCH, and has a high percentage of
Medicare discharges (that is, not less than 60 percent of its inpatient
days or discharges either in its 1987 cost reporting year or in two of
its most recent three settled Medicare cost reporting years). The
regulations at 42 CFR 412.108 set forth the criteria that a hospital
must meet to be classified as an MDH.
Although MDHs are paid under an adjusted payment methodology, they
are still IPPS hospitals paid under section 1886(d) of the Act. Like
all IPPS hospitals paid under section 1886(d) of the Act, MDHs are paid
for their discharges based on the DRG weights calculated under section
1886(d)(4) of the Act.

[[Page 51684]]

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 rate based on the hospital's
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 highest.
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 accurately
forecast the outlier payments, the amount of the DSH adjustment or the
IME adjustment, all of which are applicable only to payments based on
the Federal rate and not to payments based on the hospital-specific
rate. The fiscal intermediary or MAC makes a final adjustment at the
settlement of the cost report 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 determination in accordance
with the procedures set forth in 42 CFR Part 405, Subpart R, which
govern provider payment determinations and appeals.
2. Extension of the MDH Program
As we discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR
50286 and 50287), section 3124 of the Affordable Care Act extended the
MDH program from the end of FY 2011 (that is, for discharges occurring
before October 1, 2011) to the end of FY 2012 (that is, for discharges
occurring before October 1, 2012). Under prior law, as specified in
section 5003(a) of Public Law 109-171 (DRA 2005), the MDH program was
to be in effect through the end of FY 2011 only. Section 3124(a) of the
Affordable Care Act amended sections 1886(d)(5)(G)(i) and
1886(d)(5)(G)(ii)(II) of the Act to extend the MDH program and payment
methodology from the end of FY 2011 to the end of FY 2012, by striking
``October 1, 2011'' and inserting ``October 1, 2012''. Section 3124(b)
of the Affordable Care Act also made conforming amendments to sections
1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the Act. Section 3124(b)(2)
of the Affordable Care Act also amended section 13501(e)(2) of OBRA
1993 to extend the provision permitting hospitals to decline
reclassification as an MDH through FY 2012. In the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50287 and 50414), we amended the regulations at
Sec. 412.108(a)(1) and (c)(2)(iii) to reflect the statutory extension
of the MDH program through FY 2012. In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25944), we did not propose any additional changes
to this regulatory text for FY 2012.
We did not receive any public comments regarding the extension of
the MDH program.

I. Certified Registered Nurse Anesthetist (CRNA) Services Furnished in
Rural Hospitals and CAHs (Sec. 412.113)

Section 2312 of the Deficit Reduction Act of 1984 (Pub. L. 98-369)
provided for reimbursement to hospitals on a reasonable cost basis for
the costs that certain hospitals incur in connection with the services
of certified registered nurse anesthetists (CRNAs). Section 2312(c)
provided that pass-through payment of CRNA costs was effective for cost
reporting periods beginning on or after October 1, 1984, and before
October 1, 1987. Section 9320 of the Omnibus Budget Reconciliation Act
of 1986 (Pub. L. 99-509) (which established a fee schedule for the
services of nurse anesthetists) amended section 2312(c) of Public Law
98-369 by extending the CRNA pass-through provision through cost
reporting periods beginning before January 1, 1989. In addition, Public
Law 99-509 amended section 1861 of the Act to add a new subsection
(bb), which provides that CRNA services include anesthesia services and
related care furnished by a CRNA. Section 1861(bb)(2) of the Act states
that the term ``certified registered nurse anesthetist'' includes an
anesthesiologist assistant. Section 608 of the Family Support Act of
1988 (Pub. L. 100-485) extended pass-through payments for CRNA services
through 1991 and amended section 9320 of Public Law 99-509 by including
language referring to eligibility for pass-through payments for CRNA
services if the facility is ``* * * a hospital located in a rural area
(as defined for purposes of section 1886(d) of the Social Security
Act).'' Reasonable cost-based payment for CRNA services was extended
indefinitely by section 6132 of the Omnibus Budget Reconciliation Act
of 1989 (Pub. L. 101-239).
Section 1886(d) of the Act defines ``rural'' as any area outside an
urban area. This definition of ``rural'' was in effect when Public Law
100-485 was implemented. In 1999, the Balanced Budget Refinement Act
(Pub. L. 106-113) amended section 1886(d)(8) of the Act by adding a new
subparagraph (E), which permits a hospital physically located in an
urban area to apply for reclassification to be treated as rural. In
addition, Public Law 106-113 made a corresponding change to section
1820(c)(2)(B)(i) of the Act, which specifies the rural location
requirement for CAH designation, by adding the phrase ``or is treated
as being located in a rural area pursuant to section 1886(d)(8)(E).''
The regulations implementing pass-through payments for anesthesia
services and related care furnished by qualified nonphysician
anesthetists (that is, both CRNAs and anesthesiologist assistants)
employed by a hospital or CAH, are located at Sec. 412.113(c). In the
FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24010), we proposed to
revise Sec. 412.113(c)(2)(i)(A) to state that, effective for cost
reporting periods beginning on or after October 1, 2010, CAHs and
hospitals that have reclassified as rural pursuant to section
1886(d)(8)(E) of the Act and Sec. 412.103 of the regulations also are
rural for purposes of section 1886(d) of the Act and, therefore, are
eligible to be paid based on reasonable cost for anesthesia services
and related care furnished by a qualified nonphysician anesthetist.
After consideration of the public comments, in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50303), we adopted a policy that would allow
otherwise eligible critical access hospitals (CAHs) or hospitals, that
have reclassified from urban to rural status under section
1886(d)(8)(E) of the Act and 42 CFR 412.103, to receive reasonable cost
payments for anesthesia services and related care furnished by
qualified nonphysician anesthetists (also referred to in this section
as CRNA pass-through payments), effective for cost reporting periods
beginning on or after October 1, 2010. After the issuance of the final
rule, we received an inquiry from a public commenter who indicated that
CMS had misunderstood its submitted comment on the FY 2011

[[Page 51685]]

IPPS/LTCH PPS proposed rule in which the commenter stated that the
policy should be effective on the basis of a calendar year, not a cost
reporting period, since as a rule a hospital can only begin receiving
CRNA pass-through payments at the beginning of a calendar year. Our
response to this public comment in the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50303) indicated that it was unnecessary to modify the effective
date in the final rule because ``if the provision is effective for cost
reporting periods beginning on or after October 1, 2010, it will also
be in effect for the calendar year beginning January 1, 2011.'' While
this statement was accurate, it did not take into account that if a
hospital's cost reporting period begins on or after January 1, 2011,
the hospital would be ineligible to receive CRNA pass-through payments
until the beginning of the next calendar year, on January 1, 2012.
Under the finalized policy in the FY 2011 IPPS/LTCH PPS final rule,
hospitals reclassifying from urban to rural areas with cost reporting
periods beginning between October 1, 2010, and December 31, 2010, would
be able to first receive CRNA pass-through payments effective January
1, 2011, while hospitals with cost reporting periods beginning on or
after January 1, 2011, would not be able to receive CRNA pass-through
payments until one year later on January 1, 2012.
In an interim final rule with comment period included in the
Federal Register on November 24, 2010 (75 FR 72256), we stated that our
intention in the FY 2011 IPPS/LTCH PPS final rule was not to make the
provision for CRNA pass-through payment for anesthesia services and
related care furnished by qualified nonphysician anesthetists effective
January 1, 2011, for some hospitals and CAHs and January 1, 2012, for
other hospitals and CAHs. We stated our belief that the provision would
be more equitable if it had a uniform effective date for all eligible
hospitals and CAHs. While we considered changing the effective date to
January 1, 2011, for all hospitals and CAHs to begin receiving CRNA
pass-through payments under this provision, we noted that our
regulations at 42 CFR 412.113(c)(2)(iii) state that the hospital or CAH
must demonstrate to its fiscal intermediary prior to the start of the
calendar year that it meets the requirements for receiving CRNA pass-
through payments. For this reason, we stated our belief that the best
option was to adopt an effective date of December 2, 2010, for all
hospitals and CAHs, which we provided for in the interim final rule
with comment period. With an effective date of December 2, 2010, any
hospital or CAH, regardless of its specific fiscal year beginning date,
was provided the opportunity to demonstrate prior to January 1, 2011,
that it met the requirements for receiving CRNA pass-through payments
beginning January 1, 2011. In the interim final rule with comment
period, we amended the regulations at Sec. 412.113(c)(2)(i)(A) to
provide for an effective date of December 2, 2010, for all eligible
hospitals and CAHs to receive CRNA pass-through payments for anesthesia
services and related care furnished by qualified nonphysician
anesthetists.
As we indicated in the FY 2012 IPPS/LTCH PPS proposed rule, in this
final rule, we are responding to the one public comment received on the
interim final rule with comment period and setting forth our final
policy.
Comment: One commenter supported CMS' decision to change the
effective date of the policy to December 2, 2010, because this change
will allow all eligible hospitals and CAHs to begin receiving CRNA
pass-through payments effective January 1, 2011.
Response: We appreciabe the commenter's support. In this final
rule, we are finalizing the effective date established in the interim
final rule with comment period.
We received two additional comments in response to the FY 2012
IPPS/LTCH PPS proposed rule.
Comment: One commenter suggested that CMS consider, for future
rulemaking, an increase in the limit on the number of procedures and
FTE hours that a facility may have and remain qualified for reasonable
cost-based reimbursement for services furnished by qualified
nonphysician anesthetists. The commenter stated that this increase
would ensure better coverage for emergency rooms and surgery cases,
which would support patient services and improve patient safety and
efficiency of treatment. Another commenter stated that while it
appreciated and supported changing the regulations to permit CRNA pass-
through payments for reclassified hospitals, it urged CMS to permit
hospitals in Lugar counties the same benefit.
Response: Because we did not propose any further changes to the
CRNA pass-through payment policy in the FY 2012 IPPS/LTCH PPS proposed
rule, we consider these comments to be outside the scope of the
proposed rule. Therefore, we are not responding to these comments in
this final rule. However, we may consider these public comments in the
development of future rulemaking.
After consideration of the public comments we received, we are
finalizing the effective date of December 2, 2010, that was established
in the interim final rule with comment period. Effective December 2,
2010, in addition to hospitals and CAHs geographically located in rural
areas, as defined in Sec. 412.62(f), and are not deemed to be located
in an urban area under Sec. 412.64(b)(3), hospitals and CAHs that have
reclassified as rural under the regulations at Sec. 412.103 are also
eligible to receive CRNA pass-through payments.

J. Additional Payments for Qualifying Hospitals With Lowest Per
Enrollee Medicare Spending

1. Background
Section 1109 of the Affordable Care Act requires additional
payments for FYs 2011 and 2012 for ``qualifying hospitals.'' Section
1109(d) defines a ``qualifying hospital'' as a ``subsection (d)
hospital * * * that is located in a county that ranks, based upon its
ranking in age, sex and race adjusted spending for benefits under parts
A and B * * * per enrollee within the lowest quartile of such counties
in the United States.'' Therefore, a ``qualifying hospital'' is one
that meets the following conditions: (1) It is a ``subsection (d)
hospital'' as defined in section 1886(d)(1)(B) of the Act; and (2) it
is located in a county that ranks within the lowest quartile of
counties based upon its spending for benefits under Medicare Part A and
Part B per enrollee adjusted for age, sex, and race. Section 1109(b) of
the Affordable Care Act makes available $400 million to qualifying
hospitals for FY 2011 and FY 2012. Section 1109(c) of the Affordable
Care Act requires the $400 million to be divided among each qualifying
hospital in proportion to the ratio of the individual qualifying
hospital's FY 2009 IPPS operating hospital payments to the sum of total
FY 2009 IPPS operating hospital payments made to all qualifying
hospitals.
Section 1109 is one of several provisions in the Affordable Care
Act that addresses concerns about how Medicare makes adjustments for
geographic differences in the cost of providing services and geographic
variation in the volume and intensity of health care spending. Some
other provisions in the Affordable Care Act that relate to concerns
about geographic variation in Medicare payments include:
Section 3102(a), which provides a floor of 1.0 on the
physician fee schedule work geographic practice cost

[[Page 51686]]

index (GPCI) through the end of CY 2010 (later extended by the Medicare
and Medicaid Extension Act of 2010 through the end of CY 2011);
Section 3102(b), as amended by section 1108 of the
Affordable Care Act, which requires that only one-half of the relative
cost differences in employee wages and office rents be reflected in the
practice expense GPCIs in 2010 and 2011;
Section 10324, which provides for a floor on the wage
index and the practice expense GPCI in frontier States (defined as 50
percent or more of the counties in the State having a population
density of less than 6 people per square mile).
These provisions provide temporary adjustments in payments while
other initiatives are underway to evaluate geographic adjustment
factors that are used in Medicare's payment systems. For instance,
section 3101 of the Affordable Care Act requires the Secretary, not
later than January 1, 2012, to make appropriate adjustments to the
practice expense GPCI considering alternative data sources such as the
American Community Survey for the nonphysician employee portion of the
GPCI. Section 3137 of the Affordable Care Act requires the Secretary to
submit to Congress a report that includes a plan to reform the hospital
wage index system under section 1886 of the Act by December 31, 2011.
In addition to these provisions, the Secretary has contracted with the
Institute of Medicine (IOM) to study the hospital wage index and the
physician fee schedule GPCI. The IOM released its first report to CMS
on June 1, 2011. The report provides an evaluation and assessment of:
(1) The empirical validity of the adjustment factors (the hospital
wage index and physician fee schedule GPCI);
(2) The methodology used to determine the adjustment factors;
(3) Measures used for the adjustment factors, taking into account--
Timeliness of data and frequency of revisions to such
data;
Sources of data and the degree to which such data are
representative of costs; and
Operational costs of providers who participate in
Medicare.
The report includes recommendations for the Secretary to consider.
It is available on the Web site at: http://iom.edu/Reports/2011/Geographic-Adjustment-in-Medicare-Payment-Phase-I-Improving-Accuracy.aspx. We are looking forward to reviewing IOM's report and
acting expeditiously on its recommendations to improve Medicare's
payment systems and better adjust for geographic differences in the
cost of hospital labor as well as the cost of operating a physician
practice.
2. Methodology for Identifying Qualifying Hospitals and Eligible
Counties
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50303 through
50342), we finalized our methodology for distributing the $400 million
to qualifying hospitals located in the lowest quartile of counties in
per enrollee Medicare spending. First, we provided our methodology for
determining the bottom quartile of counties with the lowest Medicare
Part A and Part B spending adjusted by age, sex, and race for the
purpose of disbursing the available $400 million. We developed an
adjustment model by age, sex, and race, as required under the
provisions of section 1109. We then applied this adjustment to the
county Medicare Part A and Part B spending data to account for the
demographics of the Medicare beneficiaries in those counties. After
those adjustments were applied, we determined the Medicare Part A and
Part B spending by county per enrollee. As we explained in the final
rule, our methodology for determining the Medicare Part A and Part B
spending per enrollee by county adjusted for age, sex, and race is
similar to the methodology we use to calculate risk adjustment models
for Medicare Advantage (MA) ratesetting. For more information on the
methodology we used to calculate the county Medicare per enrollee
spending rates, we refer readers to the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50303 through 75 FR 50307).
In addition, in the FY 2011 IPPS/LTCH PPS final rule, we developed
a methodology to identify the qualifying hospitals located in each of
the eligible counties. As we stated earlier, section 1109 defines a
qualifying hospital as a ``subsection (d) hospital'' (as defined for
purposes of section 1886(d) of the Act) that is ``located in'' an
eligible county. A subsection (d) hospital is defined in section
1886(d)(1)(B) of the Act, in part, as a ``hospital located in one of
the 50 States or the District of Columbia.'' Therefore, we excluded
Puerto Rico hospitals and CAHs from the provisions of section 1109
because they do not meet the definition of a ``subsection (d)
hospital.''
In the FY 2011 IPPS/LTCH PPS final rule, we identified ``qualifying
hospitals'' based on their Medicare provider number (now referred to as
the ``CMS certification number'' (CCN)) because this number is used by
hospitals to identify themselves on their Medicare cost reports. We
also provided that, in order to meet the definition of a ``qualifying
hospital,'' the hospital, as identified by its CCN, must: (1) Have
existed as a subsection (d) hospital as of April 1, 2010; (2) be
geographically located in an eligible county; and (3) have received
IPPS operating payments (in accordance with section 1886(d) of the Act)
under its CCN in FY 2009. We used the Online Survey, Certification and
Reporting (OSCAR) database to determine a hospital's county location
associated with that CCN. We also specified that the address listed for
a hospital's CCN must be currently located in a qualifying county in
order for a hospital to meet the definition of a ``qualifying
hospital.'' For more information on how we identified the qualifying
hospitals, we refer readers to the FY 2011 IPPS/LTCH PPS final rule (75
FR 50307 and 50308). We note that we did not propose to clarify, nor in
this final rule are we clarifying, the application of our definition in
section IV.J.4. of this preamble.
3. Determination of Annual Payment Amounts
The third step in the implementation of section 1109 of the
Affordable Care Act required that we determine the payment amount that
each qualifying hospital would receive. Specifically, section 1109(c)
of the Affordable Care Act required that the payment amount for a
qualifying hospital be determined ``in proportion to the portion of the
amount of the aggregate payments under section 1886(d) of the Social
Security Act to the hospital for fiscal year 2009 bears to the sum of
all such payments to all qualifying hospitals for such fiscal year.''
As specified in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50310
through 50312), we determined that a qualifying hospital's payment
amount will be based on the proportion of its IPPS operating payments
made in FY 2009 under section 1886(d) of the Act relative to the total
IPPS operating payments made to all qualifying hospitals in FY 2009
under section 1886(d) of the Act. The FY 2009 IPPS operating payments
made under section 1886(d) of the Act includes DRG and wage-adjusted
payments made under the IPPS standardized amount with add-on payments
for operating DSH, operating IME, operating outliers, and new
technology (collectively referred to in this preamble as the IPPS
operating payment amount). We used the March 2010 update of the FY 2009
MedPAR hospital inpatient claims data to determine the IPPS operating
payment amounts for each qualifying hospital in order to calculate the
proportion of money that each qualifying hospital

[[Page 51687]]

would receive under this provision. For more information on the
methodology we used to calculate the payment determinations, we refer
readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50310 through 75
FR 50312).
4. Eligible Counties and Qualifying Hospitals
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50312 through
50342), we published the list of eligible counties, that is, the lowest
quartile of counties with Medicare Part A and Part B spending per
enrollee adjusted for age, sex, and race, the qualifying hospitals
located in those counties, and the qualifying hospitals' payment
weighting factors, for purposes of making payments under section 1109
for FY 2011 and FY 2012. We identified 3,142 counties in the United
States. Therefore, there are 786 eligible counties (rounded from 785.5
eligible counties). Of those 786 eligible counties, there are only 273
counties in which qualifying hospitals are located, using the
methodology that we finalized in the FY 2011 IPPS/LTCH PPS final rule.
Using CCNs, we identified 416 IPPS hospitals that are currently located
in those eligible counties and that received IPPS operating payments in
FY 2009.
In response to public comments on the FY 2011 IPPS/LTCH PPS
proposed rule, in the FY 2011 IPPS/LTCH PPS final rule, we corrected
the list of eligible counties by replacing two counties on our list of
eligible counties (adding Crooks County, OR and Bottineu County, ND).
However, we did not identify any qualifying hospitals located in those
two eligible counties. Therefore, we provided the public an opportunity
to notify CMS by August 30, 2010, if there were any qualifying IPPS
hospitals located in either of the two newly added counties. We stated
that if we added qualifying hospitals in these counties as a result of
accurate notification from the public, we would publish a revised list
of qualifying hospitals and their payment weighting factors on the CMS
Web site after August 30, 2010. We did not receive any public comments
that there were qualifying hospitals located in Crooks County, OR or
Bottineu County, ND. Therefore, the list of eligible counties and
qualifying hospitals that was finalized in Tables 1 and 2 in the FY
2011 IPPS/LTCH PPS final rule remained valid for distribution of
payments under section 1109 for FY 2011 and FY 2012.
In auditing our determination of qualifying hospitals prior to the
distribution of payments for FY 2011, we found that the following
providers on the list of qualifying hospitals which we finalized in the
FY 2011 IPPS/LTCH PPS final rule were not subsection (d) hospitals in
FY 2011:

------------------------------------------------------------------------
CMS Certification No. Provider name
------------------------------------------------------------------------
110231................................. Landmark Hospital of Athens
LLC.
130024................................. Bonner General Hospital.
130069................................. SW Idaho Advanced Care.
130070................................. Complex Care Hospital of Idaho.
160156................................. Continuing Care Hospital at St.
Luke's.
250112................................. Calhoun Health Services.
260221................................. Select Specialty Hospital--
Springfield Inc.
270002................................. Holy Rosary Healthcare.
320088................................. Advanced Care of South New
Mexico.
330010................................. Amsterdam Memorial Hospital.
500143................................. Providence St. Peter Chemical
Dependency Center.
------------------------------------------------------------------------

Because these providers were not subsection (d) hospitals in FY
2011, the statute precludes them from being qualifying hospitals
eligible to receive section 1109 payments for FY 2011. In the FY 2012
IPPS/LTCH PPS proposed rule (76 FR 25947), we proposed to clarify that,
in applying our definition of qualifying hospitals for making payments
under section 1109 of the Affordable Care Act, these 11 providers (and
other providers that do not meet the statutory definition) are not
qualifying hospitals and, therefore, are removed from the list of
qualifying hospitals. Furthermore, we proposed to clarify that, in
order to meet the definition of ``qualifying hospital'' under section
1109 for FY 2012, a hospital that is on the list of qualifying
hospitals in the proposed rule must meet the statutory criteria of a
``qualifying hospital'' for some portion of FY 2012 (a hospital must be
a subsection (d) hospital for some part of FY 2012).
In addition, we noted that, prior to the issuance of the FY 2012
final rule and prior to making section 1109 payments for FY 2012, we
intend to review providers' status vis-[agrave]-vis the statutory
definition of qualifying hospital. Accordingly, we noted that, in this
FY 2012 final rule and again prior to distribution of section 1109
payments for FY 2012, we would update the list of qualifying hospitals
and payment weighting factors based on these findings. We indicated
that, in addition to the opportunity to submit comments on the proposed
rule, we were proposing to provide hospitals an opportunity after the
FY 2012 IPPS rulemaking cycle to notify CMS whether any qualifying
hospitals removed from the list have been removed in error and to
notify CMS if a hospital is on the list of qualifying hospitals and
will not be a qualifying hospital (for example, a subsection (d)
hospital) for any or all part of FY 2012. We also stated that the
public would be allowed to submit input on these two topics via e-mail
to Nisha Bhat, [email protected]. All information, including
relevant documentation, must be received by November 1, 2011.
5. Payment Determinations and Distributions for FY 2011 and FY 2012
Under section 1109(b) of the Affordable Care Act, the total pool of
payments available to qualifying hospitals for FY 2011 and FY 2012 is
$400 million. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50308
through 50310), we stated that we would distribute $150 million for FY
2011 and $250 million for FY 2012. We stated that we would distribute
payments to the qualifying hospitals through an annual one-time payment
during each of FY 2011 and FY 2012 through their Medicare contractor
(fiscal intermediary or MAC). We instructed qualifying hospitals to
report these additional payments on their Medicare hospital cost report
corresponding to the appropriate cost reporting period that the
hospitals receive the payments and that hospitals should report these
payments on the ``Other adjustment'' line on Worksheet E, Part A of the
Medicare hospital cost report Form 2552. We noted that we require these
payments to be reported on the cost report for tracking purposes only
and that these additional payments will not be adjusted or settled by
the fiscal intermediary or MAC on the cost report.
In the FY 2012 IPPS/LTCH PPS proposed rule, we noted that at the
time of the issuance of the proposed rule, we had not yet made the
payments to the qualifying hospitals for FY 2011. As we stated in the
FY 2011 IPPS/LTCH PPS final rule, and again in the FY 2012 proposed
rule, we will make the FY 2011 payments during FY 2011 (that is, by
September 30, 2011). However, in the proposed rule, we indicated that
we were notifying the public that we intended to change the method we
would use to distribute the payment for FY 2011 and FY 2012, in order
to ease the reporting burden on hospitals. Rather than making a one-
time annual payment to the qualifying hospitals through their Medicare
contractor using the Medicare cost report, in the proposed rule, we
indicated that we planned to make payments to the qualifying hospitals
through a one-time

[[Page 51688]]

annual payment made by one Medicare contractor who would directly pay
all of the qualifying hospitals. We stated that we would send each
qualifying hospital a letter stating the specifics of how the hospital
will receive its payments. Because these one-time annual payments would
be made through a special process outside of the scope of normal
payments by their Medicare contractor, the hospitals' Medicare
contractor would no longer need to track the payment amounts made to
the hospitals under this provision. We believed this would simplify and
expedite the payment process so that one Medicare contractor is
responsible for overseeing the distribution of payments. In addition,
we believed that this simplified process would ease the administrative
burden within CMS to track that payments have been properly made to the
qualifying hospitals. In addition, the burden to hospitals is reduced
because hospitals would no longer have to report these additional
payments on their Medicare hospital cost report corresponding to the
appropriate cost reporting period for which the hospitals receive
payments in FY 2011 or FY 2012 (as we instructed in the FY 2011 IPPS/
LTCH PPS final rule and note above).
In the FY 2011 IPPS/LTCH PPS final rule, we also stated that we
would make only one determination of eligible counties and qualifying
hospitals for FY 2011 and FY 2012, with the caveat that we would accept
additional public input on the limited issue of whether there are any
qualifying hospitals in the two newly identified eligible counties. As
we stated earlier, we did not receive any public input on qualifying
hospitals for the two newly identified eligible counties. However, as
we describe above, 11 hospitals that were included on the list of
qualifying hospitals do not meet the statutory criteria in section 1109
of the Affordable Care Act. Therefore, in the proposed rule, we
proposed to revise our list of qualifying hospitals and their payment
weighting factors finalized in the FY 2011 IPPS/LTCH PPS final rule to
exclude these 11 hospitals. As explained in the FY 2011 IPPS/LTCH PPS
final rule, we finalized in that rule (to the best of our ability) the
list of eligible counties and qualifying hospitals once for ease of
implementation of the section 1109 provision and to allow hospitals to
plan their budgets accordingly. We indicated that the proposed revision
of our determination to exclude these 11 hospitals would result in
changes to the payment weighting factors. We proposed to update the
payment weighting factors accordingly. Therefore, we proposed to
distribute the remaining $250 million in FY 2012 to those qualifying
hospitals included in the proposed rule based on the payment weighting
factors proposed in the proposed rule. In addition, in order to
distribute the section 1109 payments for FY 2011 in as timely a manner
as possible, we indicated that we intended to make preliminary section
1109 payments for FY 2011 using the proposed list of qualifying
providers and payment weighting factors using the payment method
described above. We stated that if additional hospitals are deleted
from the proposed list of qualifying hospitals for FY 2011 because they
do not meet the statutory criteria, the payment weighting factors would
need additional revision. If this situation occurs, we proposed to
further amend the payment weighting factors for payments to be made in
FY 2012 so that each qualifying hospital receives its appropriate share
of the total $400 million.
We referred readers to the CMS Web site at: http://www.cms.gov/AcuteInpatientPPS/TopOfPage for the tables listed below. The tables
were included collectively as the ``Section 1109 Files'' for the FY
2012 IPPS/LTCH proposed rule.
The final list of eligible counties that was published in
the FY 2011 IPPS/LTCH PPS final rule. We noted that we were not
updating this table.
The finalized list of qualifying hospitals, location, and
payment weighting factors (based on the March 2010 update of the FY
2009 MedPAR file); based on the proposed clarifications described above
for FY 2011.
The distribution of the $400 million for FY 2011 and FY
2012 by State based on the proposed list of qualifying hospitals,
location, and payment weighting factors.
We noted that the Web address for this Web site was effective as of
April 19, 2011, and that, in the future, these tables may be archived
to the Web site at: http://www.cms.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
Comment: Commenters supported CMS' continuation of its policy to
distribute the remaining of the $400 million allocated under the
provision of section 1109 of the Act in FY 2012. Commenters also
supported CMS' proposal to make one-time annual payments through one
Medicare contractor rather than individual Medicare contractors.
Commenters asked CMS to provide the name and the contact information of
the contractor who will be making the one-time annual payments to the
qualifying hospitals. In addition, commenters urged CMS to notify the
qualifying hospitals of the timing of their FY 2011 and FY 2012
payments.
Response: We appreciate the commenters' support of the
implementation of the section 1109 provision. Qualifying hospitals
received their share of the $150 million for their FY 2011 payments on
July 14, 2011. The payments were made directly to the hospitals by one
Medicare contractor. We will continue this payment process for FY 2012.
If hospitals have questions with regard to this process, they can
contact their Medicare contractor or CMS directly.
As we proposed, we are providing hospitals, in addition to the
opportunity to submit comments on the proposed rule, the opportunity
after the FY 2012 IPPS rulemaking cycle to notify CMS as to whether any
qualifying hospitals removed from the list have been removed in error
and to notify CMS if a hospital is on the list of qualifying hospitals
and will not be a qualifying hospital (for example, a subsection (d)
hospital) for any part of FY 2012. The public is allowed to submit
input on these two topics via e-mail to Nisha Bhat,
[email protected] by November 1, 2011. Given the November 1, 2011
deadline for hospitals to comment on the list of qualifying hospitals
to receive section 1109 payments for FY 2012, we plan to distribute
$250 million to the qualifying hospitals for FY 2012 in the end of 2011
or early 2012.
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25947), we
identified 11 providers that were not subsection(d) hospitals in FY
2011 and, therefore, do not qualify to receive section 1109 payments
for FY 2011. In preparation of this final rule, we again reviewed our
list of qualifying hospitals and have found that an additional
hospital, Columbia Regional Hospital (CNN 260178), has not been a
subsection(d) hospital for any part of FY 2011 and, therefore, does not
meet the statutory criteria to receive payments under section 1109 for
FY 2011 and FY 2012. We have revised the list of qualifying hospitals
and their payment weighting factors for FY 2011 accordingly. In
addition, we found that the following hospitals have converted to
become CAHs during FY 2011 and will not be subsection (d) hospitals in
FY 2012.

[[Page 51689]]

320069.............................. Miners' Colfax Medical Center.
------------------------------------------------------------------------

Thus, these two hospitals will receive payments under section 1109
for FY 2011 but they will no longer qualify to receive payments for FY
2012. We have posted the list of qualifying hospitals and payment
weighting factors for FY 2012 on the CMS Web site.
We refer readers to the CMS Web site at: http://www.cms.gov/AcuteInpatientPPS/TopOfPage for the tables listed below. The tables are
included collectively as the ``Section 1109 Files'' for the FY 2012
IPPS/LTCH final rule.
The final list of eligible counties that was published in
the FY 2011 IPPS/LTCH PPS final rule. We note that we were not updating
this table.
The finalized list of qualifying hospitals, location, and
payment weighting factors (based on the March 2010 update of the FY
2009 MedPAR file); based on the clarifications finalized above for FY
2011.
The proposed list of qualifying hospitals, location, and
payment weighting factors (based on the March 2010 update of the FY
2009 MedPAR file) based on the clarifications above for FY 2012. The
final list of qualifying hospitals, location, and payment weighting
factors for FY 2012 will be posted after comments on the accuracy of
the list of qualifying hospitals are received and evaluated after
November 1, 2011.
The distribution of the $400 million for FY 2011 and FY
2012 by State based on the proposed list of qualifying hospitals,
location, and payment weighting factors.
The Web address for this Web site is effective on the date of
display of this final rule and, in the future, these tables may be
archived to the Web site at: http://www.cms.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.

K. Changes in the Inpatient Hospital Update

1. FY 2012 Inpatient Hospital Update
In accordance with section 1886(b)(3)(B)(i) of the Act, each year
we update the national standardized amount for hospital inpatient
operating costs by a factor called the ``applicable percentage
increase.'' Prior to enactment of the Affordable Care Act, section
1886(b)(3)(B)(i)(XX) of the Act set the applicable percentage increase
equal to the rate-of-increase in the hospital market basket for
subsection (d) hospitals (hereafter referred to as ``IPPS hospitals'')
in all areas, subject to the hospital submitting quality information
under rules established by the Secretary in accordance with section
1886(b)(3)(B)(viii) of the Act. For hospitals that did not provide
these data, the update was equal to the market basket percentage
increase less an additional 2.0 percentage points. The update for the
hospital-specific rates for SCHs and MDHs is set by section
1886(b)(3)(B)(iv) of the Act as discussed further below.
As discussed below in section IV.K.3. of this preamble, section
1886(b)(3)(B) of the Act, as amended by sections 3401(a) and 10319(a)
of the Affordable Care Act, sets the applicable percentage increase
under the IPPS for FY 2012 as equal to the rate-of increase in the
hospital market basket for IPPS hospitals in all areas (which is
currently based on the second quarter 2011 forecast of the FY 2006-
based IPPS market basket), subject to a reduction of 2.0 percentage
points if the hospital fails to submit quality information under rules
established by the Secretary in accordance with section
1886(b)(3)(B)(viii) of the Act, and then subject to an adjustment based
on changes in economy-wide productivity (the multifactor productivity
(MFP) adjustment), and an additional reduction of 0.1 percentage point.
Sections 1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of the Act, as added by
section 3401(a) of the Affordable Care Act, state that application of
the MFP adjustment and the additional FY 2012 adjustment of 0.1
percentage point may result in the applicable percentage increase being
less than zero.
In accordance with section 1886(b)(3)(B) of the Act, as amended by
section 3401(a) of the Affordable Care Act, in the FY 2012 IPPS/LTCH
PPS proposed rule (76 FR 25949), based on IHS Global Insight, Inc.'s
(IGI's) first quarter 2011 forecast of multifactor productivity (MFP),
we proposed an MFP adjustment (the 10-year moving average of MFP for
the period ending FY 2012) of 1.2 percent.
Consistent with current law, and based on IGI's first quarter 2011
forecast of the FY 2012 market basket increase, we proposed an
applicable percentage increase to the FY 2012 operating standardized
amount of 1.5 percent (that is, the FY 2012 estimate of the market
basket rate-of-increase of 2.8 percent less an adjustment of 1.2
percentage points for economy-wide productivity and less 0.1 percentage
point) for hospitals in all areas, provided the hospital submits
quality data in accordance with our rules. For hospitals that do not
submit quality data, we proposed an applicable percentage increase to
the operating standardized amount of -0.5 percent (that is, the FY 2012
estimate of the market basket rate-of-increase of 2.8 percent, less 2.0
percentage points for failure to submit quality data, less an
adjustment of 1.2 percentage points for economy-wide productivity, and
less an additional adjustment of 0.1 percentage point).
We did not receive any public comments on these proposals to
implement the applicable percentage increase. However, we did receive
public comments concerning our proposed MFP adjustment. We address
these public comments in section IV.K.3. of this preamble. For this
final rule, in accordance with section 1886(b)(3)(B) of the Act, as
amended by section 3401(a) of the Affordable Care Act, we are
finalizing an applicable percentage increase to the FY 2012 operating
standardized amount of 1.9 percent (that is, the FY 2012 estimate of
the market basket rate-of-increase of 3.0 percent less an adjustment of
1.0 percentage point for economy-wide productivity and less 0.1
percentage point) for hospitals in all areas, provided the hospital
submits quality data in accordance with our rules. For hospitals that
do not submit quality data, we are finalizing an applicable percentage
increase to the operating standardized amount of -0.1 percent (that is,
the FY 2012 estimate of the market basket rate-of-increase of 3.0
percent, less 2.0 percentage points for failure to submit quality data,
less an adjustment of 1.0 percentage point for economy-wide
productivity, and less an additional adjustment of 0.1 percentage
point). We note that, for the proposed rule, we used the first quarter
2011 forecast of the FY 2006-based IPPS market basket rate-of-increase.
For this final rule, we used the most recent data available, which was
the second quarter 2011 forecast of the FY 2006-based IPPS market
basket rate-of-increase. Similarly, for the proposed rule, we used
IGI's first quarter 2011 forecast of MFP. For this final rule, we used
the most recent data available, which was IGI's second quarter 2011
forecast of MFP. We also note that between the proposed and final
rules, we also incorporated Bureau of Labor Statistics (BLS) revised
historical data for MFP from 1987 to 2010, with 2010 being a
preliminary value.
In the proposed rule, we proposed to revise the existing
regulations at 42 CFR 412.64(d) to reflect the current law.
Specifically, in accordance with section 1886(b)(3)(B) of the Act, as
amended by sections 3401(a) and 10319(a) of the Affordable Care Act, we
proposed to

[[Page 51690]]

add a new paragraph (iv) to Sec. 412.64(d)(1) to set the applicable
percentage increase to the FY 2012 operating standardized amount as the
percentage increase in the market basket index, subject to a reduction
of 2.0 percentage points if the hospital fails to submit quality
information under rules established by the Secretary in accordance with
section 1886(b)(3)(B)(viii) of the Act, and then subject to a
multifactor productivity adjustment and, lastly, subject to the
additional reduction of 0.1 percentage point. We did not receive any
public comments on this proposal. Therefore, in this final rule, we are
adopting as final, without modification, the proposed changes to Sec.
412.64(d) to reflect current law.
Section 1886(b)(3)(B)(iv) of the Act provides that the applicable
percentage increase to the hospital-specific rates for SCHs and MDHs
equals the applicable percentage increase set forth in section
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all
other hospitals subject to the IPPS). Therefore, the update to the
hospital specific rates for SCHs and MDHs is also subject to section
1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and
10319(a) of the Affordable Care Act. Accordingly, in the FY 2012 IPPS/
LTCH PPS proposed rule (76 FR 25949), we proposed an update to the
hospital-specific rates applicable to SCHs and MDHs of 1.5 percent for
hospitals that submit quality data or -0.5 percent for hospitals that
fail to submit quality data. We did not receive any public comments on
this proposal. Therefore, for this final rule, we are finalizing an
update to the hospital-specific rates applicable to SCHs and MDHs of
1.9 percent for hospitals that submit quality data or -0.1 percent for
hospitals that fail to submit quality data. As we noted above, for the
proposed rule, we used IGI's first quarter 2011 forecast of the FY
2006-based IPPS market basket rate-of-increase. For this final rule, we
used the most recent data available, which was IGI's second quarter
2011 forecast of the FY 2006-based IPPS market basket rate-of-increase.
Similarly, for the proposed rule, we used IGI's first quarter 2011
forecast of MFP. For this final rule, we used the most recent data
available, which was IGI's second quarter 2011 forecast of MFP. We also
note that between the proposed rule and the final rule, we also
incorporated BLS revised historical data for MFP from 1987 to 2010,
with 2010 being a preliminary value. For FY 2012, the regulations in
Sec. Sec. 412.73(c)(16), 412.75(d), 412.77(e), 412.78(e), and
412.79(d) already contain provisions that set the update factor for
SCHs and MDHs equal to the update factor applied to the national
standardized amount for all IPPS hospitals. Therefore, as we proposed,
we are not making further changes to these five regulatory provisions
to reflect the FY 2012 update factor for SCHs and MDHs.
2. FY 2012 Puerto Rico Hospital Update
Puerto Rico hospitals are paid a blended rate for their inpatient
operating costs based on 75 percent of the national standardized amount
and 25 percent of the Puerto Rico-specific standardized amount. Section
1886(d)(9)(C)(i) of the Act is the basis for determining the applicable
percentage increase applied to the Puerto Rico-specific standardized
amount. Section 401(c) of Public Law 108-173 amended section
1886(d)(9)(C)(i) of the Act, which states that, for discharges
occurring in a fiscal year (beginning with FY 2004), the Secretary
shall compute an average standardized amount for hospitals located in
any area of Puerto Rico that is equal to the average standardized
amount computed under subclause (I) for fiscal year 2003 for hospitals
in a large urban area (or, beginning with FY 2005, for all hospitals in
the previous fiscal year) increased by the applicable percentage
increase under subsection (b)(3)(B) for the fiscal year involved.
Therefore, the update to the Puerto Rico-specific operating
standardized amount equals the applicable percentage increase set forth
in section 1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a)
and 10319(a) of the Affordable Care Act (that is, the same update
factor as for all other hospitals subject to the IPPS). Accordingly, in
the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25949), we proposed an
applicable percentage increase to the Puerto Rico-specific operating
standardized amount of 1.5 percent. We did not receive any public
comments on this proposal. Therefore, for this final rule, we are
finalizing an applicable percentage increase to the Puerto Rico-
specific operating standardized amount of 1.9 percent. As we noted
above, for the proposed rule, we used IGI's first quarter 2011 forecast
of the FY 2006-based IPPS market basket rate-of-increase. For this
final rule, we used the most recent data available, which was IGI's
second quarter 2011 forecast of the FY 2006-based IPPS market basket
rate-of-increase. Similarly, for the proposed rule, we used IGI's first
quarter 2011 forecast of MFP. For this final rule, we used the most
recent data available, which was IGI's second quarter 2011 forecast of
MFP. We also note that between the proposed rule and the final rule, we
also incorporated BLS revised historical data for MFP from 1987 to
2010, with 2010 being a preliminary value.
For FY 2012, under the authority of section 1886(d)(9)(C)(i) of the
Act, as amended by section 401(c) of Public Law 108-173, we proposed to
revise the existing regulations at Sec. 412.211(c) to set the update
factor for the Puerto Rico-specific operating standardized amount equal
to the update factor applied to the national standardized amount for
all IPPS hospitals (76 FR 25949). We did not receive any public
comments on this proposal. Therefore, in this final rule, we are
adopting as final, without modification, the proposed changes to Sec.
412.211(c) to reflect current law.
3. Productivity Adjustment
Section 3401(a) of the Affordable Care Act amended section
1886(b)(3)(B) of the Act to require certain adjustments to the
``applicable percentage increase'' to the operating IPPS. One such
change is to require that, in FY 2012 (and in subsequent fiscal years),
the applicable percentage increase be annually adjusted by changes in
economy-wide productivity. Section 1886(b)(3)(B)(xi)(II) of the Act, as
added by section 3401(a) of the Affordable Care Act, defines this
productivity adjustment as equal to the 10-year moving average of
changes in annual economy-wide, private nonfarm business multifactor
productivity (MFP) (as projected by the Secretary for the 10-year
period ending with the applicable fiscal year, calendar year, cost
reporting period, or other annual period) (the ``MFP adjustment''). The
Bureau of Labor Statistics (BLS) is the agency that publishes the
official measure of private nonfarm business MFP. We refer readers to
the BLS Web site at: http://www.bls.gov/mfp to obtain the BLS
historical published MFP data.
The projection of MFP is currently produced by IHS Global Insight,
Inc. (IGI), an economic forecasting firm. In order to generate a
forecast of MFP, IGI replicated the MFP measure calculated by the BLS
using a series of proxy variables derived from its U.S. macroeconomic
models. These models take into account a broad range of factors that
influence the total U.S. economy. IGI forecasts the underlying proxy
components such as Gross Domestic Product (GDP), capital, and labor
inputs required to estimate MFP and then combines those projections
according to the BLS methodology. In Table IV.K.1 below, we identify
each of the major MFP component series

[[Page 51691]]

employed by the BLS to measure MFP. We also provide the corresponding
concepts forecasted by IGI and determined by IGI and CMS to be the best
available proxies for the BLS series.

Table IV.K.1--Multifactor Productivity Component Series Employed by the Bureau of Labor Statistics and IHS
Global Insight
----------------------------------------------------------------------------------------------------------------
BLS series IGI series
----------------------------------------------------------------------------------------------------------------
Real value-added output, constant 2005 dollars. Non-housing, non-government, nonfarm real GDP, Billions of
chained 2005 dollars--annual rate.
Private nonfarm business sector labor input; 2005 = Hours of all persons in private non-farm establishments,
100.00. 2005 = 100.00, adjusted for labor composition effects.
Aggregate capital inputs; 2005 = 100.00. Real effective capital stock used for full employment GDP,
Billions of chained 2005 dollars.
----------------------------------------------------------------------------------------------------------------

IGI found that the historical growth rates of the BLS components
used to calculate MFP and the IGI components identified are consistent
across all series and, therefore, suitable proxies for calculating MFP.
We have included below a more detailed description of the methodology
used by IGI to construct a forecast of MFP, which is aligned closely
with the methodology employed by the BLS. For more information
regarding the BLS method for estimating productivity, we refer readers
to the BLS Web site at: http://www.bls.gov/mfp/mprtech.pdf.
At the time of the development of this FY 2012 final rule, the BLS
had published a historical time series of private nonfarm business MFP
for 1987 through 2010, with 2010 being a preliminary value. Using this
historical MFP series and the IGI forecasted series, the IGI had
developed a forecast of MFP for 2011 through 2021, as described below.
To create a forecast of BLS' MFP index, the forecasted annual
growth rates of the ``non-housing, non-government, nonfarm, real GDP,''
``hours of all persons in private non-farm establishments adjusted for
labor composition,'' and ``real effective capital stock'' series
(ranging from 2011 to 2021) are used to ``grow'' the levels of the
``real value-added output,'' ``private nonfarm business sector labor
input,'' and ``aggregate capital inputs'' series published by the BLS.
Projections of the ``hours of all persons'' measure are calculated
using the difference between projections of the BLS index of output per
hour and real GDP. This difference is then adjusted to account for
changes in labor composition in the forecast interval.
Using these three key concepts, MFP is derived by subtracting the
contribution of labor and capital inputs from output growth. However,
in order to estimate MFP, we need to understand the relative
contributions of labor and capital to total output growth. Therefore,
two additional measures are needed to operationalize the estimation of
the IGI MFP projection: Labor compensation and capital income. The sum
of labor compensation and capital income represents total income. The
BLS calculates labor compensation and capital income (in current dollar
terms) to derive the nominal values of labor and capital inputs. IGI
uses the ``nongovernment total compensation'' and ``flow of capital
services from the total private nonresidential capital stock'' series
as proxies for the BLS' income measures. These two proxy measures for
income are divided by total income to obtain the shares of labor
compensation and capital income to total income. In order to estimate
labor's contribution and capital's contribution to the growth in total
output, the growth rates of the proxy variables for labor and capital
inputs are multiplied by their respective shares of total income. These
contributions of labor and capital to output growth are subtracted from
total output growth to calculate the ``change in the growth rates of
multifactor productivity'':

MFP = Total output growth-((labor input growth * labor compensation
share) + (capital input growth * capital income share))

The change in the growth rates (also referred to as the compound
growth rates) of the IGI MFP are multiplied by 100 in order to
calculate the percent change in growth rates (the percent change in
growth rates are published by the BLS for its historical MFP measure).
Finally, the growth rates of the IGI MFP are converted to index levels
based to 2005 to be consistent with the BLS' methodology. For
benchmarking purposes, the historical growth rates of IGI's proxy
variables were used to estimate a historical measure of MFP, which was
compared to the historical MFP estimate published by the BLS. The
comparison revealed that the growth rates of the components were
consistent across all series and, therefore, validated the use of the
proxy variables in generating the IGI MFP projections. The resulting
MFP index was then interpolated to a quarterly frequency using the
Bassie method for temporal disaggregation. The Bassie technique
utilizes an indicator (pattern) series for its calculations. IGI uses
the index of output per hour (published by the BLS) as an indicator
when interpolating the MFP index.
As described in section I. of the Addendum to this final rule, we
proposed to determine the IPPS market basket percentage increase for FY
2012, which is used to determine the FY 2012 applicable percentage
increase, based on the FY 2006-based IPPS market basket. The FY 2006-
based IPPS market basket was finalized and adopted in the FY 2010 IPPS/
LTCH PPS final rule (74 FR 43843). Section 3401(a) of the Affordable
Care Act amended section 1886(b)(3)(B) of the Act in part by adding a
new clause (xi) which requires that, after determining the applicable
percentage increase for a fiscal year, ``such percentage increase shall
be reduced by the productivity adjustment described in subclause (II)''
(which we refer to as the ``MFP adjustment''). Section
1886(b)(3)(B)(i)(XX) of the Act establishes the applicable percentage
increase for FY 2007 and each subsequent fiscal year as equal to the
rate-of-increase (that is, the percentage increase) in the hospital
market basket for IPPS hospitals, subject to the hospital submitting
quality data under rules established by the Secretary in accordance
with section 1886(b)(3)(B)(viii) of the Act and to other statutory
adjustments, including the productivity adjustment.
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25951), we
proposed that the MFP adjustment be subtracted from the FY 2012
operating applicable percentage increase. We proposed that the end of
the 10-year moving average of changes in the MFP should coincide with
the end of the

[[Page 51692]]

appropriate FY update period. Because the applicable percentage
increase is reduced by the MFP adjustment, we believed it is
appropriate for the numbers associated with both components of the
calculation (the underlying market basket percentage increase used to
determine the applicable percentage increase and the productivity
adjustment) to line up so that changes in market conditions are
aligned. Therefore, for the FY 2012 update, the MFP adjustment is
calculated as the 10-year moving average of changes in MFP for the
period ending September 30, 2012. We proposed to round the final annual
adjustment to the one-tenth of one percentage point level up or down as
applicable according to conventional rounding rules (that is, if the
number we are rounding is followed by 5, 6, 7, 8, or 9, we would round
the number up; if the number we are rounding is followed by 0, 1, 2, 3,
or 4, we would round the number down).
In accordance with section 1886(b)(3)(B) of the Act, as amended by
section 3401(a) of the Affordable Care Act, we proposed to base the FY
2012 market basket update used to determine the applicable percentage
increase for the IPPS on the first quarter 2011 forecast of the FY
2006-based IPPS market basket, which was estimated to be 2.8 percent.
This percentage increase, subject to the hospital submitting quality
data under rules established by the Secretary in accordance with
section 1886(b)(3)(B)(viii) of the Act, was then reduced by the
proposed MFP adjustment (the 10-year moving average of MFP for the
period ending FY 2012) of 1.2 percent, which was calculated as
described above and based on IGI's first quarter 2011 forecast. We also
proposed that if more recent data were subsequently available (for
example, a more recent estimate of the market basket and MFP
adjustment), we would use such data, if appropriate, to determine the
FY 2012 market basket update and MFP adjustment in the final rule.
Following application of the productivity adjustment, the applicable
percentage increase is then reduced by 0.1 percentage point, as
required by section 1886(b)(3)(B)(xii) of the Act, as added and amended
by sections 3401 and 10319(a) of the Affordable Care Act (as discussed
in section I. of the Addendum to this final rule).
Comment: One commenter expressed concern about the impact of the
proposed productivity adjustment, the Affordable Care Act mandated
reduction, and the documentation and coding adjustment. The commenter
specifically stated that further reductions cannot be sustained and
will continue to deplete scarce resources, making hospitals' mission of
providing high quality care to patients even more challenging.
Response: As the commenter acknowledged, the Affordable Care Act
requires that a productivity adjustment and a 0.1 percentage point
reduction be applied to IPPS provider payment updates for FY 2012.
Therefore, CMS is mandated to apply these adjustments to the IPPS
hospital payments for FY 2012. We refer readers to section II.D. of
this preamble for our responses to public comments on the documentation
and coding adjustment.
After consideration of the public comments we received and based on
a more recent estimate of the market basket and MFP adjustment, we are
finalizing our proposed method for calculating and applying the MFP
adjustment. In accordance with section 1886(b)(3)(B) of the Act, as
amended by section 3401(a) of the Affordable Care Act, we base the FY
2012 market basket update used to determine the applicable percentage
increase for the IPPS on IGI's second quarter 2011 forecast of the FY
2006-based IPPS market basket rate-of-increase, which is estimated to
be 3.0 percent. This percentage increase, subject to the hospital
submitting quality data under rules established by the Secretary in
accordance with section 1886(b)(3)(B)(viii) of the Act, is then reduced
by the MFP adjustment (the 10-year moving average of MFP for the period
ending FY 2012) of 1.0 percent, which was calculated as described above
and based on IGI's second quarter 2011 forecast. Following application
of the productivity adjustment, the applicable percentage increase is
then reduced by 0.1 percentage point, as required by section
1886(b)(3)(B)(xii) of the Act, as added and amended by sections 3401
and 10319(a) of the Affordable Care Act (as discussed in section I. of
the Addendum to this final rule).

L. Additional Payments to Hospitals With High Percentage of End-Stage
Renal Disease (ESRD) Discharges (Sec. 412.104)

Under existing regulations at Sec. 412.104(a), we provide
additional Medicare payments to a hospital for inpatient services
provided to Medicare beneficiaries with end-stage renal disease (ESRD)
who receive dialysis during a hospital stay if the hospital's ESRD
Medicare beneficiary discharges, excluding certain MS-DRGs noted below,
where the beneficiary receives dialysis during the inpatient stay, are
10 percent or more of its total Medicare discharges. These additional
payments are intended to lessen the impact of the added costs for
hospitals that deliver inpatient dialysis services to a high
concentration of ESRD Medicare beneficiaries. The regulation provides
that discharges classified into MS-DRG 652 (Renal Failure), MS-DRG 682
(Renal Failure with MCC), MS-DRG 683 (Renal Failure with CC), MS-DRG
684 (Renal Failure without CC/MCC), and MS-DRG 685 (Admit for Renal
Dialysis) are excluded from the calculation of ESRD Medicare
beneficiary discharges for purposes of determining a hospital's
eligibility for these additional payments. We excluded these MS-DRGs
because they include payment for the cost of inpatient dialysis
treatments.
The current Medicare cost reporting instructions in the Provider
Reimbursement Manual, Part II (PRM-II), at section 3630.1, require
hospitals to enter as the denominator of the calculation on Line 5
``total Medicare discharges as reported on Worksheet S-3, Part I,''
excluding discharges for the dialysis MS-DRGs. As drafted, this
instruction includes only discharges for beneficiaries enrolled in
original fee-for-service Medicare in the denominator of the
calculation. In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25951),
we proposed to clarify that our policy is that the term ``Medicare
discharges'' used in Sec. 412.104(a) refers to discharges of all
beneficiaries entitled to Medicare Part A. Discharges associated with
individuals entitled to Medicare Part A include discharges of
individuals receiving benefits under original Medicare, discharges of
individuals whose inpatient benefits are exhausted or whose stay was
not covered by Medicare, and discharges for individuals enrolled in
Medicare Advantage Plans, cost contracts under section 1876 of the Act
(health maintenance organizations (HMOs)) and competitive medical plans
(CMPs). Consistent with this proposed clarification, these discharges
would be included in the denominator of the calculation for the purpose
of determining eligibility for the ESRD additional payment to
hospitals. Similarly, for the numerator of this calculation, all
discharges of ESRD beneficiaries who are entitled to Medicare Part A
and who receive inpatient dialysis, subject to the exclusions of
certain discharges classified into MS-DRGs 652, 682, 683, 684, and 685,
would be included in the determination of eligibility for the
additional payment to hospitals. We also stated that we intended to
revise

[[Page 51693]]

section 3630.1 of the PRM-II to reflect this clarification.
Comment: One commenter disagreed with our proposed clarification to
include Medicare Advantage discharges in the denominator of the
calculation for the purpose of determining eligibility for the ESRD
additional payment to hospitals. The commenter believed that CMS is
inconsistent in its policies regarding the treatment of Medicare
Advantage days and asserted that legally these discharges should not be
treated the same as discharges of patients who are enrolled in original
Medicare Part A.
Response: We do not agree with the assertion of the commenter.
Beneficiaries who elect to receive their benefits through Medicare
Advantage remain entitled to benefits under Medicare Part A while
enrolled in Part C. For example, the hospice benefit is administered
under Medicare Part A, regardless of whether an individual has elected
to enroll in Part C. Thus, if a beneficiary enrolled in a Medicare
Advantage plan elects to receive hospice care, that benefit is
administered under the traditional fee-for-service model and not by the
beneficiary's Medicare Advantage plan. If, while receiving hospice
care, the beneficiary also needs hospital inpatient care unrelated to
the condition that caused the beneficiary to elect hospice care, the
cost of that care would still be administered by the beneficiary's
Medicare Advantage plan. As a result, it is possible for a beneficiary
enrolled in a Medicare Advantage plan to receive benefits administered
under Part A and Part C simultaneously. Beneficiaries enrolled in
Medicare Advantage plans are entitled to benefits under Part A, and we
believe it is appropriate to include in the denominator all discharges
of individuals entitled to Part A, regardless of whether their benefits
are administered by a Medicare Advantage plan or by traditional fee-
for-service Medicare.
Comment: One commenter indicated that including these days in both
the numerator and denominator would limit a hospital's ability to
qualify for the additional payment. The commenter disagreed with
including the additional discharges in both the numerator and
denominator and advocated that the additional discharges should be
added to only the numerator.
Response: We acknowledge the commenter's concerns. However, there
is no policy or legal rationale to treat these days differently for the
purpose of the numerator and denominator of this calculation. We
recognize that this may make it somewhat more difficult for some
hospitals to qualify for this add-on payment, but note that it may
allow some hospitals more opportunity to qualify if a large proportion
of their Medicare Advantage patient discharges are for Medicare
beneficiaries with ESRD.
Comment: Several commenters expressed concern that the instructions
in section 3630.1 of the PRM-II currently do not include these days on
the Medicare Cost Report Worksheet S-3. They also believed there are
difficulties when identifying those discharges not associated with
original Medicare Part A.
Response: We intend to revise these instructions to reflect the
clarification in this final rule.
Comment: One commenter suggested that CMS define more clearly the
effective date of the clarification.
Response: As explained above, beneficiaries who elect to receive
their benefits through Medicare Advantage remain entitled to benefits
under Part A and must be included in the computation of ``Medicare
discharges'' for purposes of determining whether a hospital qualifies
for additional payments under Sec. 412.104(a). However, the PRM-II
instructions currently do not provide for discharges associated with
individuals enrolled in Medicare Advantage plans to be included in the
calculation. Accordingly, this clarification is needed to ensure that
hospitals understand that beneficiaries who have elected to receive
their benefits through Medicare Advantage must be included in the ESRD
add-on payment calculation. We intend to revise the PRM-II instructions
to require that beneficiaries enrolled in MA plans be included in both
the numerator and demoninator of this calculation. The revised
instructions will be effective for cost reporting periods starting on
or after October 1, 2011.
After consideration of the public comments we received, we are
finalizing our clarification that the term ``Medicare discharges'' used
in Sec. 412.104(a) of the regulations refers to discharges of all
beneficiaries entitled to Medicare Part A. Individuals entitled to
Medicare Part A include individuals receiving benefits under original
Medicare, individuals whose inpatient benefits are exhausted or whose
stay was not covered by Medicare, and individuals enrolled in Medicare
Advantage Plans, cost contracts under section 1876 of the Act (HMOs),
and CMPs. Consistent with this clarification, these discharges, subject
to the exclusions of certain discharges classified into MS-DRGs 652,
682, 683, 684, and 685, must be included in the denominator of the
calculation for the purpose of determining eligibility for the ESRD
additional payment to hospitals. Similarly, for the numerator of this
calculation, all discharges of ESRD beneficiaries who are entitled to
Medicare Part A and who receive inpatient dialysis, excluding
discharges for the dialysis MS-DRGs, must be included in the
determination of eligibility for the ESRD additional payment to
hospitals. We intend to revise the instructions under section 3630.1 of
the PRM-II to reflect this clarification. The revised instructions will
apply to cost reporting periods beginning on or after October 1, 2011.

M. Changes to the Reporting Requirements for Pension Costs for Medicare
Cost-Finding Purposes

1. Background

Currently, certain pension costs may be allowable costs under
Medicare to the extent such costs are related to the reasonable and
necessary cost of providing patient care and represent costs actually
incurred. Reasonable cost reimbursement is addressed in section
1861(v)(1)(A) of the Act. Section 1861(v)(1)(A) of the Act defines
``reasonable cost,'' in part, as the cost actually incurred, excluding
costs found to be unnecessary in the efficient delivery of needed
health services. Section 1861(v)(1)(A) of the Act does not specifically
address the determination of reasonable costs, but authorizes the
Secretary to promulgate regulations and principles to be applied in
determining reasonable costs.
We have issued regulations implementing this provision of the Act,
including 42 CFR 413.9(a), which provide that payments ``must be based
on the reasonable cost of services covered under Medicare and related
to the care of beneficiaries.'' In addition, Sec. 413.9(c)(2) states
that ``The provision in Medicare for payment of reasonable cost of
services is intended to meet the actual costs.'' Further, the
regulations at 412.9(c)(3) state that ``Reasonable cost includes all
necessary and proper expenses incurred in furnishing services * * *.''
Therefore, in accordance with the statute, the regulations include two
principles that help guide the determination of which expenses may be
considered allowable reasonable costs that can be paid under Medicare;
that is, such costs must be ``related'' to the care of Medicare
beneficiaries, and such costs must actually be ``incurred.''
Consistent with these provisions, we have issued instructions in
section 2142 of the Provider Reimbursement Manual, Part I (PRM-I) for
determining and reporting qualified defined benefit

[[Page 51694]]

pension costs on the cost report for Medicare cost-finding purposes.
For Medicare wage index purposes, the cost reporting instructions in
section 3605.2 of the Provider Reimbursement Manual, Part II (PRM-II)
for Worksheet S-3, Part II, Lines 13 through 20, require hospitals to
comply with the requirements in section 2142 of the PRM-I.
Specifically, section 2142.5 of the PRM-I defines the current
period liability for pension cost (that is, the maximum allowable
pension cost) based on the actuarial accrued liability, normal cost,
and unfunded actuarial liability. Under section 2142.4(A) of PRM-I,
these liability measurements are to be computed in accordance with the
Employee Retirement Income Security Act of 1974 (ERISA), regardless of
whether or not the pension plan is subject to ERISA. Also, section
2142.6(A) of the PRM-I requires the current period liability for
pension cost to be funded in order to be allowable. In addition,
section 2142.6(C) of the PRM-I allows for funding in excess of the
current period liability to be carried forward and recognized in future
periods. We note that, on March 28, 2008, CMS published Revision 436, a
technical clarification to section 2142 of the PRM-I.
Under ERISA, the actuarial accrued liability and normal cost are
typically determined on an ongoing plan basis using long-term, best-
estimate assumptions. The interest assumption reflects the average
rates of return expected over the period during which benefits were
payable, taking into account the investment mix of plan assets. Pension
costs for plans not subject to ERISA (such as church plans and plans
sponsored by public sector employers) also are typically based on the
actuarial accrued liability and normal cost using long-term, best
estimate assumptions.
The Pension Protection Act (PPA) of 2006 (Pub. L. 109-280) amended
ERISA. Under the PPA amendments to ERISA, the actuarial accrued
liability and normal cost are no longer used as a basis for determining
ERISA minimum required or maximum tax deductible contributions. ERISA
contribution limits are now based on a ``funding target'' and ``target
normal cost'' measured on a settlement basis using the current market
interest rates for investment grade corporate bonds that match the
duration of the benefit payouts. The Internal Revenue Service (IRS)
publishes the applicable interest rate tables on a monthly basis.
Because pension liabilities are very sensitive to changes in the
interest rate used to discount future benefit payouts, pension costs
based on the PPA ``funding target'' and ``target normal cost'' values
are expected to be less stable than those based on the pre-PPA
traditional long-term, best-estimate assumptions, which change
infrequently. Furthermore, plans not subject to the ERISA requirements,
as amended by the PPA, are not likely to use the new ``funding target''
and ``target normal cost'' basis for determining pension costs, and
ERISA plans are not likely to continue to report costs developed using
the actuarial accrued liability and normal cost based on long-term
basis, best estimate assumptions. Accordingly, there is no longer a
standard actuarial basis used by all plans.
In response to the PPA amendments to ERISA, we began a review of
the rules for determining pension costs for Medicare cost-finding and
wage index purposes. As an interim measure, we issued a Joint Signature
Memorandum (JSM) in November 2009 that contained instructions and a
spreadsheet to assist hospitals and Medicare contractors in determining
the annual allowable defined benefit pension cost for the FY 2011 wage
index (JSM/TDL-10061, 11-20-09, December 3, 2009). Although these
instructions were released for purposes of the wage index, they also
serve as interim guidance for Medicare cost-finding purposes.
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25951 through
25953), we proposed to revise our policy for determining pension cost
for Medicare purposes. As mentioned above, due to the ERISA rules, as
amended by the PPA, there is no longer a standard actuarial cost basis
used by all types of plans. Therefore, we proposed to no longer rely on
actuarial computations to determine the maximum annual cost limitation
for Medicare. Instead, the general parameters of our proposal would
maintain the current requirement that pension costs must be funded to
be reportable, and would require all hospitals to report the actual
pension contributions funded during the reporting period, on a cash
basis.
In addition, under this cash basis approach, we proposed separate
methodologies for measuring pension costs for Medicare cost-finding
purposes (discussed below under section IV.M.2. of this preamble) and
for purposes of updating the wage index (discussed in section III.D.2.
of this preamble). It was necessary to have two distinct proposals in
order to address the different goals of determining a hospital's
payments and updating the average hourly wage to establish the
geographic area wage index. The function of the wage index is to
measure relative hospital labor costs across areas. This function is
distinct from Medicare payment determinations, where the goal is to
measure the actual costs incurred by individual hospitals. These two
distinct proposals would require separate updated instructions to
section 2142 of the PRM-I for Medicare cost-finding purposes and
section 3605.2 of the PRM-II for purposes of the wage index. Below is a
detailed discussion of the new methodology for reporting pension costs
for Medicare cost-finding purposes. A full discussion of our policy for
reporting pension costs under the wage index is discussed in section
III.D.2. of this preamble, along with a summary of the public comments
we received, our responses, and statements of our final policy.
We note that we stated in the proposed rule that we ``would require
all hospitals to report the actual pension contributions funded during
the reporting period, on a cash basis.'' Our intent was for ``reporting
period'' to refer to the hospital's Medicare ``cost reporting period''
rather than another defined reporting period since for cost-finding
purposes pension costs are reported on a Medicare cost report basis.
Similarly, below in the following discussions, the term ``reporting
period'' refers to a Medicare cost reporting period.
The final policy below reflects our commitment to the general
principles of the President's Executive Order released January 18,
2011, entitled ``Improving Regulation and Regulatory Review.''
2. Allowable Defined Benefit Pension Plan Cost for Medicare Cost-
Finding Purposes
As mentioned above, the defined benefit pension plan costs
(hereafter referred to as ``pension costs'') reported for Medicare
payment purposes should reflect the actual costs incurred by an
individual provider. In the FY 2012 IPPS/LTCH PPS proposed rule, we
proposed to retain the policy in the current manual requiring pension
costs to be funded in order to be reportable. We believe funding is an
appropriate basis because it measures the actual expenditure towards
the current period liability for pensions. We also proposed to continue
to limit the current period liability for pension costs (that is,
maximum annual allowable pension costs). However, we proposed to change
the methodology for calculating the limit on the current period
liability. We proposed that this methodology would be effective for
cost reporting periods beginning on or after October 1, 2011.

[[Page 51695]]

Specifically, we proposed a limit on the current period liability
equal to 150 percent of the average contributions made during the three
consecutive reporting periods out of the five most recent reporting
periods which produce the highest average. We believe a threshold of
150 percent is appropriate for the following reasons: First, the
proposed threshold should be adequate to allow for typical fluctuations
in contributions and for inflation. Second, we believe a threshold is
necessary to limit the current period liability in order to ensure that
reported pension costs are reasonable and do not reflect excessive or
advance funding in any particular year. In addition, the proposed limit
would help ensure that pension costs in the current year are reasonable
because we expect the limit to capture pension costs which relate
exclusively to patient care services furnished in the current cost
reporting period.
The proposed 150-percent limit was established based on an analysis
of historical contribution data submitted by pension plans subject to
ERISA and published by the U.S. Department of Labor (DOL). Based on our
analysis of the DOL contribution data, we expect that pension costs in
excess of the limit will only occur in a small number of cases. We
believe the use of readily available historical contribution data to
establish the limitation will avoid the complexity of a limitation
based on technical actuarial measurements. A limit based on average
contributions made during the three consecutive reporting periods out
of the five most recent reporting periods which produce the highest
average will help to ensure that periods when no contributions (or only
minimal contributions) are made will not dramatically reduce the limit
in subsequent periods.
We believe use of a 5-year look-back period will minimize the
administrative burden on providers that would be associated with a
longer period. We also believe using the three consecutive reporting
periods which produce the highest average contributions will better
reflect a typical average pension cost while use of contributions for
any three periods, even nonconsecutive periods, could introduce
atypical results. Specifically, using the three highest nonconsecutive
years of contributions in the 5-year look-back period may overstate the
average contribution. However, because excessive contributions tend to
reduce future funding requirements, we believe it would be unusual for
excessive contributions to occur in three consecutive periods.
While we proposed a limit, we recognized there may be situations
when pension costs in excess of the 150-percent limit might be
reasonable, such as a funding requirement imposed by a third party,
that is, ERISA's minimum funding requirement, statute or collective
bargaining agreement. Therefore, we proposed to allow hospitals with
contributions in excess of the proposed limit to submit documentation
demonstrating that all or a portion of the ``excess'' costs are
reasonable and necessary for a particular cost reporting period. In
addition, we believe that providers' pension costs in excess of the
150-percent limit that are not considered reasonable for the current
cost reporting period are likely to be prefunded pension costs
attributable to the patient care services for a future cost reporting
period. Therefore, similar to the current instruction in section
2142.6(C) of the PRM-I, we proposed to continue to use a carry forward
policy. Specifically, we proposed that current period contributions in
excess of the 150-percent limit that are not considered reasonable for
the current cost reporting period under the proposed review process be
carried forward and reported in future period(s) as the applicable
limit for the future period(s) will allow. In the proposed rule we
inadvertently stated that ``Medicare contractors'' would be required to
maintain historical data in order to determine the 150-percent limit
and track any carry forward amounts. However, we intended to write that
``providers'' would be required to maintain historical data in order to
determine the 150-percent limit and track any carry forward amounts. We
also indicated that we anticipate making a worksheet available for this
purpose.
We solicited public comments as to documentation or criteria that
would be appropriate to make a determination as to whether excess costs
are reasonable and necessary. We also invited public comments on the
proposal and indicated special interest in receiving public comments
related to our proposal to limit the reportable pension amount.
Comment: A number of commenters suggested CMS convene a Medicare
Technical Advisory Group (MTAG) before establishing a policy on pension
costs.
Response: An MTAG is not required by statute. Engaging in notice
and comment rulemaking provides sufficient process for developing a
policy on this issue. In addition, the actuarial terminology used in
section 2142 of PRM-I is no longer used under ERISA as amended by the
PPA. Accordingly, we believe it is important to address the pension
cost issue as expeditiously as possible.
Comment: Many commenters supporting an MTAG also stated that an
MTAG might recommend adoption of Generally Accepted Accounting
Principles (GAAP) (with no funding limit) for the wage index, leading
CMS to also adopt GAAP as the basis for cost-finding purposes, provided
those costs are funded either during the cost reporting period or
within 12 months after the end of the cost reporting period. Commenters
also suggested that CMS consider any needed modifiers (to GAAP) for
either underfunded or overfunded plans. One commenter noted that a
proposal to base pension expense for both the wage index and for cost-
finding purposes on a 3-year average of actual funding is inconsistent
with the other principles of the cost report relying on GAAP and
accrual versus cash-basis accounting. The commenters stated that
pension funding should be treated the same as the liquidation of
liabilities, to be paid within 1 year after the end of the cost
reporting period, or with approval of an exception, within 3 years.
Response: Pension costs determined in accordance with GAAP (as
promulgated by the Financial Accounting Standards Board) are somewhat
unique compared to other types of costs under GAAP because pension
costs under GAAP are not dependent on the amount funded. Therefore, in
order to ensure that this policy is consistent with CMS policy that
costs must be funded in order to be reportable, it was necessary to
diverge from GAAP principles in this instance. Furthermore, since GAAP
with a funding requirement for Medicare cost-finding purposes would
require the GAAP pension expense to be modified to account for any
prepaid costs (overfunding) or accrued costs (underfunding), we believe
this would create unnecessary complexity.
Under the new policy, pension costs are based on the amount funded
during the cost reporting period plus any carry forward amounts,
subject to the 150-percent limitation. A provision to allow recognition
of funding which occurs within 1 year after the end of the reporting
period (or 3 years with approval) could result in confusion as to which
period funding should be attributed. The period during which funding
will be measured (and upon which costs determined) must be clearly and
consistently defined.
We do not believe that pension costs determined under the new
policy will be materially different from those that

[[Page 51696]]

would result under GAAP with a funding requirement because in either
case, pension costs would be limited to the amount funded (including
any carry forward contributions). Furthermore, we believe our policy
offers more flexibility for providers to establish and follow a funding
strategy that meets their organizational objectives.
Comment: A number of commenters supported the proposed limit on the
current period liability equal to 150-percent of the average
contributions made during the three consecutive cost reporting periods
out of the five most recent cost reporting periods that produce the
highest average. They particularly appreciated the additional provision
allowing a hospital with pension contributions in excess of the
proposed limit to submit documentation demonstrating that all or a
portion of the ``excess'' costs are reasonable and necessary for a
specific cost reporting period.
Response: We appreciate the commmenters' support of our proposal.
We recognize there may be situations when pension costs in excess of
the 150-percent limit are reasonable and necessary and should be
reportable as a current period cost. Therefore, as proposed, this final
policy will allow a provider to submit documentation to show that
``excess'' contributions are reasonable and necessary and should be
recognized as current period costs.
Comment: One commenter asked CMS to clarify how the limit would be
determined if there was a plan or corporate merger, if a provider
adopted a new plan or increased benefits under an existing plan, or
became a new Medicare provider. The commenter expressed concern that,
although the limit would be easy to administer, it would ignore real
costs in these situations.
Response: In a merger situation (either a plan merger or corporate
merger), the contribution history should include all contributions made
by a provider to a defined benefit plan (either a predecessor plan or
the current plan) during the 5-year look-back period. Under a
systemwide (multiple-employer) pension plan, the contribution history
for each participating provider should reflect only the plan
contributions attributed to that provider. For a provider who is new to
the Medicare program, the contribution history used to determine the
limit should include all pension contributions made during the 5-year
look-back period (which is used to develop the 3 year average),
including periods, before the provider was part of the Medicare
program. In the case of a newly adopted plan, the 5-year look-back
period and/or the 3-year averaging period will be limited to the number
of cost reporting periods the provider sponsored a defined benefit
pension plan. In the case of a benefit improvement, we believe the 150-
percent limit (which includes a 50-percent margin for cost increases)
will be adequate since the cost of benefit improvements is typically
spread over a period of years. In any of these situations, a provider
may submit documentation to show that contributions in excess of the
150 percent limit are reasonable and necessary and should be allowable
as a current period cost.
Comment: One commenter asked for clarification as to which cost
reporting periods will be used to determine the limit on allowable
pension costs. Specifically, the commenter asked if CMS will base the
limit on the hospital's five most recent settled cost reports or as-
filed cost reports. Another commenter asked what timeframe constitutes
``recent'' cost reporting periods.
Response: The historical contribution data required to compute the
limit are not currently reflected on the cost reports. Therefore,
settled or as-filed cost reports are not used for the calculation. (We
are exploring ways to modify the cost report to show the actual
contributions made in each cost reporting period as well as the pension
cost for the current period after application of the 150-percent
limit.) Instead, the 150-percent limit will be based on the actual
pension plan contributions made by a provider as shown on statements
provided by the pension plan trustee or insurance carrier, or as
reflected on Schedule B or SB of IRS Form 5500. In the case of a
systemwide (multiple employer) pension plan, the home office will need
to identify the contributions attributed to each participating
provider. The limit will be based on the average contributions for the
three highest consecutive cost reporting periods out of the five most
recent cost reporting periods ending with the current cost reporting
period.
Comment: One commenter asked whether the hospital would be required
to submit documentation regarding its pension contributions in excess
of the limit to the Medicare contractor or to CMS. The commenter also
inquired as to how the reasonableness and necessity of the excess
contribution will be determined and how the determination of
reasonableness will be reported to the provider.
Response: We have not yet finalized the specific procedure to be
used when requesting approval of excess contributions. Further details
will be provided as soon as possible, after publication of this final
rule. Each request will be reviewed on a facts and circumstances basis.
We are not setting forth specific criteria for determining whether a
pension cost is reasonable and necessary for the current reporting
period because that may prevent us from responding to circumstances
that we may not have anticipated and recognizing costs that are
reasonable for the current period. However, examples of when approval
will be likely be granted include excess contributions required to
satisfy a funding requirement imposed by law or under a collective
bargaining agreement, or to avoid ERISA funding restrictions.
Comment: There were a number of technical questions and requests
for clarification on specific aspects of the proposed policy. One
commenter requested that CMS clarify whether allowable pension costs
for cost-finding will be based on cash contributions, subject to the
150 percent limit, regardless of whether the pension plan shows a
current period liability under ERISA or another method. Another
commenter observed ``the funding limit is based on 150 percent of three
consecutive cost reporting periods out of recent reporting with the
highest average and noted that this is similar in nature to the GME/IME
three year rolling average in its complexities.'' This commenter asked
if the data would be actual contributions from prior years, or would it
be the contributions that were limited by a previous 150-percent limit.
Response: Under the revised policy, pension contributions up to the
150-percent limit will not be subject to actuarial requirements under
ERISA, GAAP or otherwise. However, a provider with costs in excess of
the limit will have the option to submit actuarial data to demonstrate
that those costs are reasonable and necessary for the current cost
reporting period and should therefore be included as current period
pension costs.
The historical contributions used to determine the 150-percent
limit would be the actual cash contributions made by the provider to
the pension plan, without regard to the 150-percent limit applicable to
any prior period.
The following example is provided to show the calculation of the FY
2012 pension cost for a provider with a September 30 fiscal year (FY)
cost reporting end date:

[[Page 51697]]

Contributions made in the five most recent cost reporting
periods:

October 1, 2011--September 30, 2012: $2,000,000
October 1, 2010--September 30, 2011: 5,000,000
October 1, 2009--September 30, 2010: 4,000,000
October 1, 2008--September 30, 2009: 5,000,000
October 1, 2007-September 30, 2008: 6,000,000

October 1, 2011 Carry Forward Balance: $1,000,000
The 150-percent limit for FY 2012 will be based on contributions
for FYs 2008 through 2010 because these represent the highest three
consecutive years of contributions out of the 5 most recent years. The
average contribution for those 3 highest consecutive years is
($4,000,000 + $5,000,000 + $6,000,000)/3 = $5,000,000. The limit equals
$7,500,000 (150 percent of $5,000,000).
The provider's cash funding in the current cost reporting period
(FY 2012) is $2,000,000 (none of which was reported as a pension cost
in a prior period). The provider has also documented a carry forward
balance of $1,000,000, which represents the cash basis contributions
made prior to the effective date of the new policy which were not
recognized as costs in a prior cost reporting period. For FY 2012, the
provider may claim the full $3,000,000 ($2,000,000 in current period
contributions plus $1,000,000 in carry forward contributions) because
the amount does not exceed the $7,500,000 limit. If the provider's
carry forward balance had been $8,000,000, only $7,500,000 would be
reportable as a current period cost due to the 150 percent limit. In
that case, the remaining $2,500,000 ($2,000,000 current period
contributions + $8,000,000 carry forward balance -$7,500,000 current
period 150 percent limit) should be reflected as a carry forward
balance for the following year.
Comment: One commenter asked if current period pension expense
would be calculated similar to previous years and would still be
subject to the liquidation of liability requirements (that is, funded
within 1 year of accrual). The same commenter speculated that there may
be confusion on how to determine the allowable pension expense, given
the various terms used between GAAP, PRM, IRS, and ERISA. The commenter
asked for examples of how to compute allowable pension expense and to
provide a crosswalk or revise the terms from the CMS manuals to GAAP
and/or IRS terminology.
Response: Generally, Pension costs for cost-finding purposes will
no longer be based on actuarially determined measurements. We are aware
that there may be confusion due to differences in actuarial terminology
and cost methodology applicable for various purposes. This is a key
reason why we are no longer requiring actuarial cost measurements to
determine pension costs. Accordingly, no crosswalk is needed to
reconcile differences in terminology. Furthermore, under the new
policy, pension costs will be determined on a cash basis rather than an
accrual basis. Funding which occurs after the end of a cost reporting
period will be considered as a pension funding for the subsequent cost
reporting period, subject to the 150-percent limit in that year. Under
the new policy, the liquidation of liability provision will no longer
apply. However, the liquidation of liability provision would still be
in effect for the cost reporting period immediately prior to the
effective date of this new policy. An example of the calculation of the
allowable pension cost under the new policy was included in our
response to a previous comment.
Comment: One commenter recommended that there should be specific
statements in the cost report that pension costs for cost-finding will
be treated differently from pension costs for the wage index. The
commenter also suggested separate PRM cost reporting instructions for
the Medicare cost report versus the Medicare wage index, given that
there will be separate methodologies for determining pension costs.
Response: We are implementing different pension cost policies for
wage index and cost-finding purposes. Accordingly, the PRM will be
revised to include separate and distinct pension cost provisions for
wage index and cost finding purposes.
We would like to thank the provider community for their public
comments regarding our proposed policy for reporting pension costs for
Medicare cost-finding purposes. After considering their concerns and
suggestions, we are finalizing our proposal for reporting pension costs
for Medicare cost-finding purposes for the reasons set forth in the
proposed rule (76 FR 25951 through 25953) and as explained in this
final rule. This new policy is effective for cost reporting periods
beginning on and after October 1, 2011.
Under this final policy, a provider's pension cost for cost-finding
purposes will equal the cash basis contribution deposits (made within
the current cost reporting period and not reflected as a pension cost
for a prior cost reporting period) plus any carry forward
contributions, subject to a limitation. The limitation is equal to 150
percent of the average pension contributions made by the provider
during the highest 3 consecutive cost reporting periods out of the 5
most recent cost reporting periods (ending with the current cost
reporting period). In the case of a newly adopted plan, the 5-year
look-back period and/or the 3-year averaging period will be limited to
the number of cost reporting periods the provider sponsored a qualified
defined benefit pension plan.
This final policy allows a provider with current period
contributions and carry forward contributions in excess of the 150-
percent limit to submit documentation to show that all or a portion of
the excess contributions are reasonable and necessary and should
therefore be reportable as current period pension costs. Pension
contributions in excess of the reportable amount can be carried forward
and reported in a subsequent cost reporting period, subject to the 150-
percent limitation. As of the effective date of this new policy,
providers should establish a carry forward balance to account for any
contributions made prior to the effective date of the new policy (on a
cash basis) that were not reflected as pension costs in a prior period.
The carry forward balance must then be updated annually to reflect any
increases (current period contributions in excess of the reportable
amount) or decreases (carry forward balances which are recognized as a
current period pension cost). The provider must ensure that there is no
duplication of recognized contributions in accounting for carry forward
contributions. In addition, providers must document, and maintain for
audit, the data used to establish the carry forward balance and any
subsequent updates.
Under this revised policy, contributions are to be determined on a
cash basis. Section 2305 of the PRM-I (liquidation of liabilities
provision) will be amended, effective for cost reporting periods
subject to this new policy, to exclude qualified defined benefit
pension plan costs. The liquidation of liabilities provision will
continue to apply to contributions made to liquidate pension costs for
cost reporting periods prior to the effective date of this revised
policy. We plan to make future amendments to conform existing
regulations and PRM-I provisions with this final policy.

[[Page 51698]]

N. Rural Community Hospital Demonstration Program

1. Background
Section 410A(a) of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA), Public Law 108-173, required the
Secretary to establish a demonstration program to test the feasibility
and advisability of establishing ``rural community hospitals'' to
furnish covered inpatient hospital services to Medicare beneficiaries.
The demonstration program pays rural community hospitals for such
services under a cost-based methodology for Medicare payment purposes
for covered inpatient hospital services furnished to Medicare
beneficiaries. A rural community hospital, as defined in section
410A(f)(1) of MMA, is a hospital that--
Is located in a rural area (as defined in section
1886(d)(2)(D) of the Act) or is treated as being located in a rural
area under section 1886(d)(8)(E) of the Act;
Has fewer than 51 beds (excluding beds in a distinct part
psychiatric or rehabilitation unit) as reported in its most recent cost
report;
Provides 24-hour emergency care services; and
Is not designated or eligible for designation as a CAH
under section 1820 of the Act.
Section 410A(a)(4) of Public Law 108-173, in conjunction with
paragraphs (2) and (3) of section 410A(a), provided that the Secretary
was to select for participation no more than 15 rural community
hospitals in rural areas of States that the Secretary identified as
having low population densities. Using 2002 data from the U.S. Census
Bureau, we identified the 10 States with the lowest population density
in which rural community hospitals were to be located in order to
participate in the demonstration program: Alaska, Idaho, Montana,
Nebraska, Nevada, New Mexico, North Dakota, South Dakota, Utah, and
Wyoming. (Source: U.S. Census Bureau, Statistical Abstract of the
United States: 2003.)
We originally solicited applicants for the demonstration program in
May 2004; 13 hospitals began participation with cost reporting years
beginning on or after October 1, 2004. In 2005, 4 of these 13 hospitals
withdrew from the program and became CAHs. In a notice published in the
Federal Register on February 6, 2008 (73 FR 6971), we announced a
solicitation for up to 6 additional hospitals to participate in the
demonstration program. Four additional hospitals were selected to
participate under this solicitation. These four additional hospitals
began under the demonstration program payment methodology with the
hospital's first cost reporting period starting on or after July 1,
2008. At that time, there were 13 hospitals participating in the
demonstration program.
Five hospitals (3 of the hospitals were among the 13 hospitals that
were original participants in the demonstration program and 2 of the
hospitals were among the 4 hospitals that began the demonstration
program in 2008) withdrew from the demonstration program during CYs
2009 and 2010. (Three of these hospitals indicated that they would be
paid more for Medicare inpatient services under the rebasing option
allowed under the SCH methodology provided for under section 122 of the
Medicare Improvements for Patients and Providers Act of 2008 (Pub. L.
110-275). One hospital restructured to become a CAH, and one hospital
closed.) So far in CY 2011 one hospital has withdrawn from the
demonstration, saying that a large number of managed care patients has
made the demonstration methodology unfavorable. These actions left 7 of
the pre-expansion participating hospitals (that is, hospitals that were
selected to participate in either 2004 or 2008), participating in the
demonstration program as of June 1, 2011.
In addition, section 410A(c)(2) of Public Law 108-173 required
that, ``[i]n conducting the demonstration program under this section,
the Secretary shall ensure that the aggregate payments made by the
Secretary do not exceed the amount which the Secretary would have paid
if the demonstration program under this section was not implemented.''
This requirement is commonly referred to as ``budget neutrality.''
Generally, when we implement a demonstration program on a budget
neutral basis, the demonstration program is budget neutral in its own
terms; in other words, the aggregate payments to the participating
hospitals do not exceed the amount that would be paid to those same
hospitals in the absence of the demonstration program. Typically, this
form of budget neutrality is viable when, by changing payments or
aligning incentives to improve overall efficiency, or both, a
demonstration program may reduce the use of some services or eliminate
the need for others, resulting in reduced expenditures for the
demonstration program's participants. These reduced expenditures offset
increased payments elsewhere under the demonstration program, thus
ensuring that the demonstration program as a whole is budget neutral or
yields savings. However, the small scale of this demonstration program,
in conjunction with the payment methodology, makes it extremely
unlikely that this demonstration program could be viable under the
usual form of budget neutrality. Specifically, cost-based payments to
participating small rural hospitals are likely to increase Medicare
outlays without producing any offsetting reduction in Medicare
expenditures elsewhere. Therefore, a rural community hospital's
participation in this demonstration program is unlikely to yield
benefits to the participant if budget neutrality were to be implemented
by reducing other payments for these same hospitals.
In the past seven IPPS final regulations, spanning the period for
which the demonstration program has been implemented, we have adjusted
the national inpatient PPS rates by an amount sufficient to account for
the added costs of this demonstration program, thus applying budget
neutrality across the payment system as a whole rather than merely
across the participants in the demonstration program. As we discussed
in the FY 2005, FY 2006, FY 2007, FY 2008, FY 2009, FY 2010, FY 2011
IPPS final rules (69 FR 49183; 70 FR 47462; 71 FR 48100; 72 FR 47392;
73 FR 48670; 74 FR 43922, and 75 FR 50343 respectively), we believe
that the language of the statutory budget neutrality requirements
permits the agency to implement the budget neutrality provision in this
manner. In light of the statute's budget neutrality requirement, we are
finalizing a methodology to calculate a budget neutrality adjustment
factor to the FY 2012 national IPPS rates.
2. Changes to the Demonstration Program Made by the Affordable Care Act
Sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111-
148) amended section 410A of Public Law 108-173, which established the
rural community hospital demonstration program. Sections 3123 and 10313
of the Affordable Care Act changed the rural community hospital
demonstration program in several ways. First, the Secretary is required
to conduct the demonstration program for an additional 5-year period
that begins on the date immediately following the last day of the
initial 5-year period under section 410A(a)(5) of Public Law 108-173,
as amended (section 410A(g)(1) of Pub. L. 108-173, as added by section
3123(a) of the Affordable Care Act and further amended by section 10313
of that Act). Further, the

[[Page 51699]]

Affordable Care Act requires that, in the case of a rural community
hospital that is participating in the demonstration program as of the
last day of the initial 5-year period, the Secretary shall provide for
the continued participation of such rural hospital in the demonstration
program during the 5-year extension, unless the hospital makes an
election, in such form and manner as the Secretary may specify, to
discontinue participation (section 410A(g)(4)(A) of Pub. L. 108-173, as
added by section 3123(a) of the Affordable Care Act and further amended
by section 10313 of such Act). In addition, the Affordable Care Act
provides that during the 5-year extension period, the Secretary shall
expand the number of States with low population densities determined by
the Secretary to 20 (section 410A(g)(2) of Pub. L. 108-173, as added by
section 3123(a) and amended by section 10313 of the Affordable Care
Act). Further, the Secretary is required to use the same criteria and
data that the Secretary used to determine the States under section
410A(a)(2) of Public Law 108-173 for purposes of the initial 5-year
period. The Affordable Care Act also allows not more than 30 rural
community hospitals in such States to participate in the demonstration
program during the 5-year extension period (section 410A(g)(3) of Pub.
L. 108-173, as added by section 3123(a) of the Affordable Care Act and
as further amended by section 10313 of such Act). Additionally, we note
that we indicated in the FY 2011 IPPS final rule (75 FR 50343) that
section 410A(g)(4)(b) of Public Law 108-173 as added by section 3123(a)
of the Affordable Care Act and as further amended by section 10313 of
that Act provides that the amount of payment under the demonstration
program for covered inpatient hospital services furnished in a rural
community hospital [other than services furnished in a psychiatric or
rehabilitation unit of the hospital that is a distinct part] is the
reasonable costs of providing such services for discharges occurring in
the first cost reporting period beginning on or after the first day of
the 5-year extension period. We want to clarify that we believe that
section 410A(g)(4)(B) of Public Law 108-173, as added by section
3123(a) of the Affordable Care Act and as further amended by section
10313 of such Act, provides this with respect to a rural community
hospital that is participating in the demonstration program under
section 410A as of the last day of the initial 5-year period.
Specifically, the Affordable Care Act requires that in the case of a
rural community hospital that is participating in the demonstration as
of the last day of the initial 5-year period, the Secretary in
calculating payments under subsection (b) shall substitute under
paragraph (1)(A) the phrase ``the reasonable costs of providing such
services for discharges occurring in the first cost reporting period
beginning on or after the first day of the 5-year extension period''
for the phrase ``the reasonable costs of providing such services for
discharges occurring in the first cost reporting period beginning on or
after the implementation of the demonstration.'' The phrase ``the
reasonable costs of providing such services for discharges occurring in
the first cost reporting period beginning on or after the
implementation of the demonstration'' does not precisely track the
language in section 410A(b)(1)(A) of Public Law 108-173. Therefore, we
cannot delete and replace it as described in the Affordable Care Act.
However, we believe the language of section 410A(g)(4)(B)(i) of Public
Law 108-173, as amended, is clear. Namely, a rural community hospital
that is participating in the demonstration as of the last day of the
initial 5-year period shall be paid for its covered inpatient hospital
services ``the reasonable costs of providing such services for
discharges occurring in the first cost reporting period beginning on or
after the first day of the 5-year extension period.'' (This methodology
does not apply to services furnished in a psychiatric or rehabilitation
unit of the hospital which is a distinct part.) For discharges
occurring in a subsequent cost reporting period during the
demonstration, the formula in section 410A(b)(1)(B) of Public Law 108-
173, as amended, would apply to such hospitals. That is, the payment
will be the lesser of reasonable cost or the target amount. We
calculate the target amount in the second cost reporting period by
taking the reasonable costs of providing covered inpatient hospital
services in the first cost reporting period beginning on or after the
first day of the 5-year extension and increasing it by the IPPS market
basket percentage increase (as defined in section 1886(b)(3)(B)(iii) of
the Act) for that particular cost reporting period. We calculate the
target amount in subsequent cost reporting periods by taking the
preceding cost reporting period's target amount and increasing it by
the IPPS market basket percentage increase (as defined in section
1886(b)(3)(B)(iii) of the Act) for that particular cost reporting
period. (We note that, in calculating target amounts, we utilize the
IPPS market basket percentage increase as defined in section
1886(b)(3)(B)(iii) of the Act, as opposed to the applicable percentage
increase as defined in section 1886(b)(3)(B)(i) of the Act. We note
that section 410A(b)(2)(B) of Public Law 108-173, in pertinent part,
provides that target amounts are ``increased by the applicable
percentage increase (under clause (i) of section 1886(b)(3)(B) of the
Social Security Act * * *) in the market basket percentage increase (as
defined in clause (iii) of such section) for that particular cost
reporting period.'' The phrase ``applicable percentage increase (under
clause (i) of section 1886(b)(3)(B) of the Social Security Act * * *)
in the market basket percentage increase * * *'' is ambiguous, as there
is no applicable percentage increase in the market basket percentage
increase. Because the focus of the provision is the amount of the IPPS
market basket percentage increase, we believe the provision is
addressing the IPPS market basket percentage increase, and not the
applicable percentage increase, which includes other adjustments to the
market basket percentage increase. Further, because section
410A(b)(2)(B) of Public Law 108-173 is addressing target amounts under
the demonstration, we believed it was logical to read the statute as
providing for an update structure mimicking the update structure for
target amounts of reasonable cost-based providers like children's and
cancer hospitals, as well as RNCHIs. This rationale applies any time we
use the IPPS market basket percentage increase to update target amounts
in the demonstration. With respect to hospitals that are newly joining
the demonstration, they are paid the reasonable costs of providing
covered inpatient hospital services, other than services furnished in a
psychiatric or rehabilitation unit of the hospital which is a distinct
part, for discharges occurring in the hospital's first cost reporting
period beginning on or after the implementation of the demonstration
program (section 410A(b)(1)(A) of Public Law 108-173). We have
determined that each of these new hospitals will begin participating in
the demonstration with its first cost reporting period beginning on or
after April 1, 2011. We chose this date because it follows immediately
upon the notification of the hospitals of their acceptance to the
demonstration and it will allow the hospitals to begin participation in
the demonstration as soon as possible. With respect to rural community
hospitals newly joining the demonstration, for discharges occurring

[[Page 51700]]

in a subsequent cost reporting period under the demonstration program,
the formula in section 410A(b)(1)(B) of Public Law 108-173, as amended,
would apply. That is, payments will be the lesser amount of reasonable
costs or the target amount. We calculate the target amount in the
second cost reporting period by taking the reasonable costs of
providing covered inpatient hospital services in the first cost
reporting period and increasing it by the IPPS market basket percentage
increase for that particular cost reporting period. We calculate the
target amount in subsequent cost reporting periods by taking the
preceding cost reporting period's target amount and increasing it by
the IPPS market basket percentage increase for that particular cost
reporting period. In addition, various other technical and conforming
changes were made to section 410A of Public Law 108-173 by section
3123(a) of the Affordable Care Act and as further amended by section
10313 of that Act.
We published a solicitation for applications for additional
participants in the Rural Community Hospital Demonstration Program in
the Federal Register on August 30, 2010 (75 FR 52960). Applications
were due on October 14, 2010. The 20 States with the lowest population
density, which are eligible for the demonstration program are: Alaska,
Arizona, Arkansas, Colorado, Idaho, Iowa, Kansas, Maine, Minnesota,
Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota,
Oklahoma, Oregon, South Dakota, Utah, and Wyoming (Source: U.S. Census
Bureau, Statistical Abstract of the United States: 2003). We approved
19 new hospitals for participation in the demonstration program. We
reported in the proposed rule that we were waiting for these hospitals
to respond as to whether they accept the terms and conditions
stipulated for their participation in the demonstration; and,
therefore, we based cost estimates for the demonstration for this new
set of hospitals based on the assumption that all 19 hospitals would
elect to participate. We proposed that if fewer were actually to make
this election, we would accordingly adjust the demonstration cost
estimates in this final rule. At the end of the response period, 18 of
the 19 selected hospitals accepted the terms of conditions of the
demonstration and agreed to participate; one hospital declined
participation. Therefore, we are basing the cost estimates for this
final rule on the assumption that 18 of these newly participating
hospitals will participate in the demonstration during FY 2012.
3. FY 2012 Budget Neutrality Adjustment
In order to ensure that the demonstration is budget neutral as is
required by the statute, in the FY 2012 IPPS/LTCH PPS proposed rule (76
FR 25955 through 25960), we proposed to adjust the national IPPS rates
to account for any added costs attributable to the demonstration
program. Specifically, we proposed that the budget neutrality
adjustment would account for: (1) The estimated costs of the
demonstration program in FY 2012 for the 8 currently participating
hospitals (``pre-expansion participating hospitals''); (2) the
estimated costs of the demonstration in FY 2012 for the 19 hospitals
newly selected to begin participation in the demonstration program; and
(3) the amount by which the costs of the demonstration program, as
indicated by settled cost reports for cost reporting periods beginning
in FYs 2007 and 2008 for hospitals participating in the demonstration
program during FYs 2007 and 2008, exceeded the amount that was
identified in the FY 2007 and FY 2008 IPPS final rules as the budget
neutrality offsets for FYs 2007 and 2008.
We are finalizing our proposed methodology except where specified
below. We note that we proposed that if updated data became available
for the final rule, we would use them to estimate the costs of the
demonstration program in FY 2012. For this final rule, we have updated
data which resulted in various components of the methodology being
updated. We explain in more detail below in sections IV.N.3. a. and b.
the specific changes.
a. Component of the FY 2012 Budget Neutrality Adjustment That Accounts
for Estimated FY 2012 Demonstration Program Costs of the ``Pre-
Expansion Participating Hospitals''
In the proposed rule, we noted that eight hospitals that were
selected for participation in either 2004 or 2008 are currently
continuing to participate in the extension period mandated by the
Affordable Care Act. (We refer to these hospitals as ``pre-expansion
participating hospitals'' in this preamble discussion of the rural
community hospital demonstration program.) (In the proposed rule, we
said that hospitals were selected in 2005; this was a mistake.
Hospitals were selected for the demonstration only in 2004 and in
2008.) In the proposed rule, the component of the FY 2012 budget
neutrality adjustment to the national IPPS rates that accounts for the
estimated demonstration program costs in FY 2012 for the eight ``pre-
expansion participating hospitals'' was calculated by utilizing three
separate methodologies: one methodology for the six hospitals that had
participated in the demonstration program since its inception and that
we indicated were continuing to participate in the demonstration
program (``originally participating hospitals''); a second methodology
for one hospital that is currently participating in the demonstration
program and that was among the four hospitals that joined the
demonstration program in 2008; and a third methodology for the other
hospital that is currently participating in the demonstration program
that was among the four hospitals that joined the demonstration program
in 2008. Different methods were used for these three sets of hospitals
because the data available to us to estimate the demonstration program
costs for each was different. We are finalizing the above methodology,
except as explained previously, certain aspects of the methodology have
been updated in this final rule based on updated data. We also note
that the number of hospitals that were selected for participation in
either 2004 or 2008 and that are currently continuing to participate in
the extension period decreased by one for this final rule since one of
the ``originally participating'' hospitals left the demonstration. In
order to account for this decrease, we adjusted the methodology
described above and explained in detail below by reducing the number of
pre-expansion participating hospitals used in the calculation from
eight to seven and reducing the number of originally participating
hospitals used in the calculation from six to five. We have updated
cost report data available for this final rule, consistent with our
proposal to use updated data in the final rule to the extent they are
available. Specifically, in the following description, we are
identifying for one of the pre-expansion participating hospitals that
there is a more recently finalized cost report available (as compared
to the ``as submitted cost report'' used in the proposed rule). We are
updating various components of the payment methodology to reflect the
newly available finalized cost report for this hospital. In the
following description, we are identifying which cost reports are the
same as those identified in the proposed rule, and we also identify the
one that has changed.
(1) Consistent with the proposed rule, and for this final rule, for
the five (six in the proposed rule) ``originally participating
hospitals,'' that is,

[[Page 51701]]

hospitals that have participated in the project since its inception and
that are continuing to participate, the estimate of the portion of the
budget neutrality adjustment that accounts for the estimated FY 2012
demonstration program costs is based on data from their settled cost
reports applicable to the second year of the demonstration--that is,
for cost reporting periods ending in FY 2007. We are using these cost
reports because they are the most recent finalized cost reports and,
thus, we believe their accounting of costs is the most accurate
indicator available to us at this time to estimate FY 2012
demonstration costs.
(2) For one of the two hospitals that joined the demonstration
program in 2008, and that is still participating, we proposed to
estimate the FY 2012 demonstration program costs under section 410A of
Public Law 108-173 as amended based on data from its as submitted cost
report beginning January 1, 2008. For this final rule, because we have
received a finalized cost report for the cost report period beginning
January 1, 2009, we are using updated cost report data for this
hospital.
(3) The remaining hospital of the seven (eight in the proposed
rule) ``pre-expansion participating hospitals'' which began
participation in FY 2008 is an Indian Health Service provider.
Historically, the hospital has not filed standard Medicare cost
reports. Under the proposed rule, and for this final rule, we used its
full ``as submitted'' cost report filed for the period beginning
October 1, 2008 to estimate its FY 2012 costs. We used this ``as
submitted'' cost report because as the most recent cost report we
believe it allows us to estimate FY 2012 costs accurately.
As we proposed, for this final rule, we are using the same general
methodology used for the FY 2011 IPPS/LTCH PPS final rule, but
providing more detail. The methodology for calculating the estimated FY
2012 demonstration cost for the seven (eight in the proposed rule)
``pre-expansion participating hospitals'' is as follows:
Step 1: As proposed, in this final rule, in order to calculate
demonstration costs for each of the five (six in the proposed rule)
``originally participating hospitals'' for the cost reporting period
ending in FY 2007, we subtracted the amount it would have otherwise
been paid under the applicable payment system(s) for covered inpatient
hospital services without the demonstration during such period (as
indicated on the settled cost report for this period) from the amount
paid to it for such services under the reasonable cost methodology in
section 410A(b) of Public Law 108-173 (as indicated on the settled cost
report for this period). Steps 1(a) through (c) below are performed to
calculate FY 2007 demonstration costs for these five hospitals. (As
proposed, for this final rule, we are using final settled cost reports
ending in FY 2007 to represent FY 2007 demonstration costs for each of
these hospitals because a substantial portion of the months included
within these cost report years (respective to each hospital) fall
within FY 2007, and, therefore we believe that for purposes of this
analysis it is appropriate to consider data from these cost reports to
represent FY 2007 inpatient costs for the demonstration during that
period.) In addition, we note that throughout the remainder of the
preamble discussion on the budget neutrality adjustment for the rural
community hospital demonstration we refer to ``covered inpatient
hospital services'' as that term is defined in section 410A(f)(2) of
Public Law 108-173 as amended as ``inpatient hospital services.'' We
also note that the phrase ``the reasonable cost methodology'' means the
reasonable cost methodology in section 410A(b) of Public Law 108-173 or
the reasonable cost methodology in section 410A(b) of Public Law 108-
173, as amended, as applicable in the particular situation.
Step 1(a): As proposed, for this final rule, first, for
each hospital, we subtracted the amount that would otherwise be paid
under the IPPS for the hospital's inpatient hospital services
(excluding those associated with swing beds) for the cost reporting
period ending in FY 2007 (as indicated on the settled cost report for
this period) from the amount paid for such services under the
reasonable cost methodology (as indicated on the settled cost report
for this period). The result of this difference is each hospital's
demonstration costs for its inpatient hospital services (excluding
those associated with swing beds) for the cost reporting period ending
in FY 2007. (We used the amount the hospital would otherwise be paid
under the IPPS as indicated above because this is the payment
methodology under which the hospital's beds (excluding swing beds)
would be paid in the absence of the demonstration. This rationale
applies throughout the preamble discussion on the rural community
hospital demonstration budget neutrality adjustment whenever this is a
component of the methodology.)
Step 1(b): As proposed, for this final rule, next, with
respect to the hospitals that have swing beds, we subtracted the amount
the hospital would otherwise be paid under section 1888(e)(7) of the
Act for the inpatient hospital services associated with the swing beds
for the cost reporting period ending in FY 2007 (as indicated in the
settled cost report for this period) from the amount paid for such
services under the reasonable cost methodology (as indicated in the
settled cost report for such period). The result of this difference is
each hospital's demonstration costs associated with its swing beds for
the cost reporting period ending in FY 2007. (We used the amount the
hospital would otherwise be paid under section 1888(e)(7) of the Act as
indicated above because this is the payment methodology under which the
hospital's swing beds would be paid in the absence of the
demonstration. This rationale applies throughout the preamble
discussion on the rural community hospital demonstration budget
neutrality adjustment whenever this is a component of the proposed
methodology.)
Step 1(c): Next, under the proposed rule, in order to
calculate total estimated FY 2010 demonstration costs for all six (five
in this final rule) hospitals, we added together the differences
calculated above in Step 1(a) and Step 1(b) as applicable for each of
the six hospitals and then multiplied this sum by the IPPS market
basket percentage increases for FYs 2008 through 2010, which were
adopted in the respective IPPS final rules and a 2-percent annual
volume adjustment for the years 2008 through 2010.
We note that, for this final rule, for purposes of Step 1(c), in
order to calculate total estimated FY 2010 demonstration costs for all
five hospitals, we added together the differences calculated above in
Step 1(a) and Step 1(b) as applicable for each of the five hospitals
and then multiplied this sum by the IPPS market basket percentage
increases for FYs 2008 through 2010, which were adopted in the
respective IPPS final rules and a 3-percent annual volume adjustment
for the years 2008 through 2010. For this final rule, we are using a 3-
percent volume adjustment. In the proposed rule, we proposed to include
a volume adjustment in the methodology for calculating demonstration
costs recognizing that the volume of services provided in small rural
hospitals tend to fluctuate. In this final rule, we have revised the
volume adjustment from the 2-percent amount stated in the proposed
rule, which was based on an assessment at the inception of the
demonstration as to the growth in volume of services, to 3 percent
based on updated data. Three percent per year is the current estimate
nationwide as to the rate of increase in

[[Page 51702]]

the number of Medicare fee-for-service discharges.
As we proposed, for this final rule, we are applying the applicable
IPPS market basket percentage increases described above to model
estimated FY 2010 demonstration costs because we believe that this
update factor appropriately indicates the trend of increase in hospital
operating costs. Further, this approach is consistent with the agency's
use of the IPPS market basket percentage increase to update the rate-
of-increase limits (which is a reasonable cost-based methodology) for
children's and cancer hospitals as well as RNCHIs. Therefore, we
believe it enables us to estimate appropriately demonstration costs
that are tied to a reasonable cost-based methodology. Also, this
approach is consistent with how we update target amounts under the
demonstration under section 410A(b)(2)(B) of Public Law 108-173. We
note that the rationale provided herein for utilizing an IPPS market
basket percentage increase and a 3-percent annual volume adjustment to
estimate demonstration costs is applicable throughout the preamble
discussion on the rural community hospital budget neutrality adjustment
whenever these factors are used to model the trend of increase and
volume increases in the budget neutrality adjustment methodology
finalized in this final rule.
As a side note, as a special feature of the demonstration, we added
a supplemental worksheet to the standard hospital cost report which is
completed by the fiscal intermediary in the final settlement for these
five ``originally participating hospitals.'' This supplemental
worksheet includes the calculation of the hospital's first year
reasonable costs of inpatient hospital services (excluding those
associated with swing beds) as set forth in section 410A of Public Law
108-173, and, in addition, for the hospital's second year cost reports
(those cost reports ending in FY 2007), the target amount (that is, the
previous year's Medicare reasonable cost amount for inpatient hospital
services updated by the IPPS market basket percentage increase as
provided in section 410A(b)(2)(B) of Pub. L. 108-173). (This
supplemental worksheet also includes a calculation of the amount that
would otherwise be paid for the hospital's inpatient hospital services
under the IPPS, as is ordinarily presented on the standard hospital
cost report. For hospitals that have swing beds, this supplemental
worksheet also includes the following: the estimated amount the
hospital would otherwise be paid under section 1888(e)(7) of the Act
for the inpatient hospital services associated with the hospital's
swing beds; the estimated amount the hospital would be paid under the
reasonable cost methodology for the inpatient hospital services
provided in its swing beds, and the hospital's target amount for its
swing beds.
Step 2: In the proposed rule, in order to calculate estimated FY
2008 demonstration costs for the non-Indian Health Service hospital
that began the demonstration program in 2008, we subtracted the
estimated amount it would have otherwise been paid for inpatient
hospital services without the demonstration under the applicable
payment system(s) (as indicated on its ``as submitted'' cost report
beginning January 1, 2008) from the estimated costs of such services
under the reasonable cost methodology (as indicated on the ``as
submitted'' cost report for this period). We proposed that Steps 2(a)
through (c) below would be performed to calculate this amount.
Step 2(a): Specifically, we subtracted the estimated amount that
would otherwise be paid under the IPPS for the hospital's inpatient
hospital services (excluding swing beds) for the cost reporting period
beginning January 1, 2008 (as indicated on the ``as submitted'' cost
report) from the estimated amount to be paid for such services under
the reasonable cost methodology (as indicated on the ``as submitted''
cost report for such period).
Step 2(b): Next, we subtracted the estimated amount that
would otherwise be paid under section 1888(e)(7) of the Act for the
inpatient hospital services associated with the swing beds during the
cost reporting period beginning January 1, 2008 (as indicated on the
``as submitted'' cost report) from the estimated amount to be paid for
such services under the reasonable cost methodology as indicated on the
``as submitted'' cost report for such period.
Step 2(c): We added together the differences calculated in
Steps 2(a) and (b) above to obtain the hospital's total estimated FY
2008 demonstration cost.
Step 2(d): Then, in order to calculate the hospital's
estimated FY 2010 demonstration costs, we took the amount calculated in
Step 2(c) above and multiplied it by the IPPS market basket percentage
increases for FYs 2009 and 2010 as adopted in the respective IPPS final
rules and a 2-percent annual volume adjustment for FY 2010.
For this final rule, we have updated data available for this non-
Indian service hospital, which began the demonstration in 2008;
specifically, we have a finalized cost report for the cost reporting
period beginning January 1, 2009. This cost report has calculations for
the reasonable cost of inpatient services, determined in accordance
with the principles of section 410A of Pub. L 108-173, as well as what
the cost amounts would be for the hospital absent the demonstration.
Therefore, in this final rule, with respect to Step 2, in order to
calculate estimated FY 2009 demonstration costs for the non-Indian
Health Service hospital that began the demonstration program in 2008,
we subtracted the estimated amount it would have otherwise been paid
for inpatient hospital services without the demonstration under the
applicable payment system(s) (as indicated on the final settled cost
report beginning January 1, 2009) from the estimated costs of such
services under the reasonable cost methodology (as indicated on the
final settled cost report for this period). Steps 2(a) through (c)
below are performed to calculate this estimated amount for the final
rule. We note that we are using the cost report beginning January 1,
2009 to represent FY 2009 demonstration costs for this hospital because
it corresponds most precisely to FY 2009 and, therefore, we believe
correctly represents FY 2009 inpatient costs for the demonstration for
that period.
Step 2(a): Specifically, we subtracted the estimated
amount that would otherwise be paid under the IPPS for the hospital's
inpatient hospital services (excluding swing beds) for the cost
reporting period beginning January 1, 2009 (as indicated on the
finalized settled cost report) from the estimated amount to be paid for
such services under the reasonable cost methodology (as indicated on
the finalized settled cost report for such period).
Step 2(b): Next, we subtracted the estimated amount that
would otherwise be paid under section 1888(e)(7) of the Act for the
inpatient hospital services associated with the swing beds during the
cost reporting period beginning January 1, 2009 (as indicated on the
finalized settled cost report) from the estimated amount to be paid for
such services under the reasonable cost methodology as indicated on the
finalized settled cost report for such period.
Step 2(c): We added together the differences calculated in
Steps 2(a) and (b) above to obtain the hospital's total estimated FY
2009 demonstration cost.
Step 2(d): Then, in order to calculate the hospital's
estimated FY 2010 demonstration costs, we took the amount calculated in
Step 2(c) above and multiplied it by the IPPS market basket percentage
increase for FY 2010 as adopted in the respective IPPS final

[[Page 51703]]

rule and a 3-percent annual volume adjustment for FY 2010 since the
volume adjustment has been updated in this final rule. Whereas we
proposed updates for FYs 2009 and 2010 in the proposed rule, we are
only using an update for the latter year in this final rule because we
are using more recent cost and payment data, which are obtained from
the cost report for cost report period beginning January 1, 2009.
Step 3: Under the proposed rule, and for this final rule, in order
to calculate the estimated FY 2009 demonstration costs for the Indian
Health Service provider, we subtracted the estimated amount the
hospital would have otherwise been paid for inpatient hospital services
without the demonstration under the applicable payment system (as
indicated on the ``as submitted'' cost report beginning October 1,
2008) from the estimated costs for such services under the reasonable
cost methodology (as indicated in the ``as submitted'' cost report for
such period). As proposed, for this final rule, Step 3(a) below is
performed to calculate this amount. (As proposed, for this final rule,
we are using the cost report beginning October 1, 2008 to represent FY
2009 demonstration costs for this hospital because it corresponds most
precisely to FY 2009 and, therefore, we believe correctly represents FY
2009 inpatient costs for the demonstration for that period.)
Step 3(a): Specifically, we subtracted the estimated
amount the hospital would have otherwise been paid for inpatient
hospital services under the IPPS in the cost reporting period beginning
October 1, 2008 without the demonstration (as indicated on the ``as
submitted'' cost report for this period) from the estimated amount to
be paid under the reasonable cost methodology for such services (as
indicated in the ``as submitted'' cost report for such period). We note
that this provider had no swing beds, therefore, we did not estimate
any portion of the costs under section 1888(e)(7) of the Act.
Step 3(b): Next, under the proposed rule, in order to
calculate the Indian Health Service provider's estimated FY 2010
demonstration costs, we multiplied the difference calculated in Step
3(a) above by the IPPS market basket percentage increase for FY 2010
adopted in the FY 2010 IPPS/LTCH PPS final rule and the 2-percent
annual volume adjustment.
For this final rule, for purposes of step 3(b), in order to
calculate the Indian Health Service provider's estimated FY 2010
demonstration costs, we multiplied the difference calculated in Step
3(a) above by the IPPS market basket percentage increase for FY 2010
adopted in the FY 2010 IPPS/LTCH PPS final rule and a 3-percent annual
volume adjustment.
Step 4: In the proposed rule, in order to calculate total estimated
FY 2010 demonstration costs for all eight ``pre-expansion participating
hospitals'', we then added the estimated FY 2010 demonstration costs
calculated with proposed rule data in Steps 1(c), 2(d), and 3(b) above.
For purposes of this final rule, with respect to Step 4, in order
to calculate total estimated FY 2010 demonstration costs for all seven
``pre-expansion participating hospitals'', we then added the estimated
FY 2010 demonstration costs calculated with the final rule data in
Steps 1(c), 2(d), and 3(b) above.
Step 5: Next, under the proposed rule, in order to calculate total
estimated FY 2012 demonstration costs for all eight (seven in this
final rule) ``pre-expansion hospitals,'' we multiplied the amount
calculated with proposed rule data in Step 4 above by the FY 2011 IPPS
market basket percentage increase adopted in the FY 2011 IPPS/LTCH PPS
final rule and the proposed FY 2012 IPPS market basket percentage
increase contained elsewhere in the FY 2012 IPPS/LTCH PPS proposed rule
and a 2-percent annual volume adjustment for FYs 2011 and 2012.
Under this final rule, for purposes of Step 5, in order to
calculate total estimated FY 2012 demonstration costs for all seven
``pre-expansion hospitals,'' we multiplied the amount calculated in
Step 4 above with the final rule data by the FY 2011 IPPS market basket
percentage increase adopted in the FY 2011 IPPS/LTCH PPS final rule and
the FY 2012 IPPS market basket percentage increase contained elsewhere
in the final rule and a 3-percent annual volume adjustment for FYs 2011
and 2012. We used the FY 2012 IPPS market basket percentage increase
adopted in this final rule because it is the most current estimate
available at the time of this rule. (The FY 2012 IPPS market basket
percentage increase adopted in this final rule is used when the FY 2012
IPPS market basket percentage is used to model the trend of increase
which is used in the final budget neutrality adjustment methodology for
the reason set forth previously.) Thus, for this final rule, we arrived
at the total estimated FY 2012 demonstration costs for all seven
currently participating hospitals which must be offset, which is
$20,255,315.
b. Portion of the FY 2012 Budget Neutrality Adjustment That Accounts
for Estimated FY 2012 Demonstration Program Costs for Hospitals Newly
Selected to Participate in the Demonstration Program
Section 410A(g)(3) of Public Law 108-173, as added by section 3123
of the Affordable Care Act and as further amended by section 10313 of
such Act, provides that ``[n]otwithstanding subsection (a)(4), during
the 5-year extension period, not more than 30 rural community hospitals
may participate in the demonstration program under this section.'' In
the proposed rule, we indicated that 19 hospitals were newly selected
to join the demonstration and, therefore, our proposed budget
neutrality adjustment was based on data for Medicare inpatient costs
and payments from recently submitted cost reports for these 19
hospitals. As indicated in section IV.N.2. of this preamble, 18
hospitals accepted the terms of conditions of the demonstration and
agreed to participate. Based on this updated data, for this final rule,
we had to adjust our budget neutrality adjustment to account for the
estimated costs associated with the 18 hospitals, as opposed to 19
hospitals, that have agreed to participate. As proposed, in order to
ensure budget neutrality for the newly selected hospitals, we are
including a component in the budget neutrality adjustment factor to the
FY 2012 national IPPS rates to account for the estimated FY 2012 costs
of those new hospitals. As we proposed, for this final rule, we are
generally using ``as submitted'' cost reports to estimate demonstration
costs because they are the most recent cost reports and, therefore, we
believe most accurately reflect the hospital's cost and payment for
Medicare inpatient services in the respective year. We note that
hospitals were required to submit pages from their most recent cost
reports with their applications. For 13 of these hospitals, these cost
reports had end dates in FY 2009; for the 5 remaining hospitals, they
had end dates in FY 2010. Therefore, in various steps in the
methodology below, we begin various estimates with FY 2009 if the
hospital submitted a cost report ending in FY 2009, and FY 2010 if the
hospital submitted a cost report ending in FY 2010.
As we proposed, for this final rule, we are using the following
methodology in order to estimate FY 2012 demonstration program costs
for the 18 newly selected hospitals. This methodology differs from that
in the FY 2011 IPPS/LTCH PPS final rule,

[[Page 51704]]

because, at that time, hospitals had not been selected for
participation, and thus we had no data specific to those hospitals that
would enter the demonstration as a result of its expansion mandated by
the Affordable Care Act.
Step 1(a): For each hospital that submitted a cost report ending in
FY 2009, we subtracted the estimated amount that would be paid for its
inpatient hospital services (excluding those associated with swing
beds) under the IPPS for such period (as indicated on the ``as
submitted'' cost report for such period) from the estimated amount for
reasonable costs for such services (as indicated on the ``as
submitted'' cost report for such period) in order to calculate the
difference between the hospital's estimated cost and payment for its
inpatient hospital services (excluding those associated with swing
beds) during the cost reporting period ending in FY 2009.
Step 1 (b): For each hospital that submitted a cost report ending
in FY 2010, we subtracted the estimated amount that would be paid for
its inpatient hospital services (excluding those associated with swing
beds) under the IPPS (as indicated on the ``as submitted'' cost report
for such period) from the estimated amount for the reasonable cost for
such services (as indicated on the ``as submitted'' cost report for
such period) in order to calculate the difference between the
hospital's estimated costs and payment for its inpatient hospital
services (excluding those associated with swing beds) during such
period.
Step 1(c): While a portion of the 18 newly selected hospitals that
have swing beds reported estimated costs for those beds, some hospitals
did not, namely a portion of the hospitals that submitted cost reports
ending in FY 2009. Therefore, we needed to gap-fill in order to account
for this issue. For each of the hospitals with swing beds that
submitted cost reports ending in FY 2009, but that did not submit with
its application estimated costs associated with those swing beds, we
assigned an estimated cost for its swing beds based on an average of
the estimated cost-payment difference associated with the swing beds of
the newly participating hospitals that reported such data on their
applications. We are assigning estimated costs based on the average of
the cost-payment difference for those hospitals that submitted these
data, because these hospitals represent a sample of hospitals chosen
for the demonstration, which we believe can accurately reflect costs
and payment. We believe that these amounts, derived from the
applications of the hospitals that submitted these data, accurately
reflect this sample because they are hospitals of similar size and
circumstances. Furthermore, these hospitals, which submitted the data,
were chosen from the same set of States as the overall set of the newly
selected hospitals. As proposed, for this final rule, we utilized the
methodology in Steps 1(c)(i) through (c)(iii) below to calculate this
amount, except we note that, as explained previously, the annual volume
adjustment and FY 2012 IPPS market basket percentage increase have
changed from the proposed to this final rule based on updated data:
Step 1(c)(i): For each of the hospitals with swing beds
that submitted with its application both a cost report ending in FY
2009 and estimated costs of those swing beds during such period, we
calculated its estimated cost-payment difference for those swing beds
(that is, we subtracted the amount that the hospital estimates will be
paid under section 1888(e)(7) of the Act for the inpatient hospital
services associated with its swing beds for such period from the amount
that the hospital estimates it would be paid for the reasonable costs
for such services during such period as those amounts are reported on
the hospital's application) by simply taking this amount from the
hospital's application.
Step 1(c)(ii): Then, for each of the hospitals with swing
beds that submitted with its application both a cost report ending in
FY 2010 and the estimated costs of those swing beds during such period,
we calculated the difference between the estimated costs and payment
for those swing beds for such period by simply taking this amount from
the hospital's application. (We note that all hospitals that had swing
beds and that submitted cost reports ending in FY 2010 with their
application supplied data on the estimated cost and payment for swing
bed services on these cost reports.)
Step 1(c)(iii): Next, we totaled all of the individual
amounts calculated under Steps 1(c)(i) and (c)(ii) above and then
divided this amount by the total number of hospitals that provided data
on estimated costs on swing beds in their applications. We used the
result of this computation as the estimated cost for the swing beds for
each of the hospitals that failed to submit estimated costs for those
beds with their applications.
Step 1(d): Then, in order to calculate the total costs
during the cost reporting period ending in FY 2009 for each hospital
that submitted a cost report ending in FY 2009, we did the following:
(a) If the hospital had no swing beds, its total estimated costs for
such period is the difference calculated under Step 1(a); (b) If the
hospital had swing beds, we added the difference calculated under Step
1(a) with the difference calculated under Step 1(c)(i) or Step
1(c)(iii) as applicable.
Step 1(e): Next, in order to calculate total estimated FY
2009 costs for all of the hospitals that submitted cost reports ending
in FY 2009 with their applications, we added together all of the total
estimated costs that were calculated for each such hospital under Step
1(d) above. We note that we believe that using cost reports ending in
FYs 2009 and 2010 best reflect costs and payment in FYs 2009 and 2010
because these cost reports most closely respond to those fiscal years.
Step 1(f): Then, in order to calculate the total estimated
FY 2011 costs for the newly selected hospitals that submitted cost
reports ending in FY 2009 with their applications, we multiplied the
amount calculated in Step 1(e) above by the FYs 2010 and 2011 IPPS
market basket percentage increases adopted in the respective IPPS/LTCH
PPS final rules as well as a 3-percent (2-percent in the proposed rule)
annual volume adjustment for each of FYs 2010 and 2011.
Step 1(g): Then, in order to calculate the total estimated
FY 2010 costs for each hospital that submitted a cost report ending in
FY 2010, we did the following: (a) If the hospital had no swing beds,
its total estimated costs is the difference calculated under Step 1(b);
(b) If the hospital had swing beds, we added the difference calculated
under Step 1(b) with the difference calculated under Step 1(c)(ii).
Step 1(h): Next, in order to calculate the total FY 2010
costs for all of the hospitals that submitted FY 2010 cost reports with
their applications, we added together all of the total estimated FY
2010 costs calculated for each such hospital under Step 1(g) above.
Step (1)(i): Then, we calculated the total estimated FY
2011 costs for all of the newly selected hospitals that submitted cost
reports ending in FY 2010 by multiplying the amount calculated in Step
1(h) above by the FY 2011 IPPS market basket percentage increase
adopted in the respective IPPS/LTCH PPS final rule as well as a 3-
percent (2-percent in the proposed rule) annual volume adjustment for
FY 2011.
Step (1)(j): Next, in order to calculate total estimated
FY 2012 demonstration costs for all of the 18 newly selected hospitals,
we added together the amounts calculated in Steps 1(f) and 1(i) above
and then multiplied

[[Page 51705]]

this sum by the IPPS FY 2012 market basket percentage increase
contained elsewhere in this final rule and a 3-percent annual volume
adjustment for FY 2012. (We note that, for the proposed rule, we
multiplied the amounts calculated in Steps 1(f) and 1(i) by the
proposed FY 2012 IPPS market basket percentage increase contained
elsewhere in the proposed FY 2012 IPPS\LTCH PPS proposed rule and a 2-
percent annual volume adjustment. As explained previously, these
factors have changed in this final rule based on updated data.) The
amount of the estimated FY 2012 demonstration costs for the 18 newly
selected hospitals, which must be offset, is $32,196,745.
c. Portion of the FY 2012 Budget Neutrality Adjustment to Offset the
Amount by Which the Costs of the Demonstration Program in FYs 2007 and
2008 Exceeded the Amount That was Identified in the FYs 2007 and 2008
IPPS Final Rules as the Budget Neutrality Offset for FYs 2007 and 2008
In addition, we proposed that, in order to ensure that the
demonstration program in FYs 2007 and 2008 was budget neutral, we would
incorporate a component into the budget neutrality adjustment factor to
the FY 2012 national IPPS rates, which would offset the amount by which
the demonstration program costs as indicated by settled cost reports
beginning in FYs 2007 and 2008 for hospitals participating in the
demonstration program during FYs 2007 and 2008 exceeded the amount that
was identified in the FYs 2007 and 2008 IPPS final rules as the budget
neutrality offset for FYs 2007 and 2008. Specifically, we proposed the
following methodology (this is the same methodology as used in the FY
2011 IPPS/LTCH PPS final rule, but we added detail):
Step One: Calculate the costs of the demonstration program
for each of FYs 2007 and 2008 according to the settled cost reports
that began in FYs 2007 or 2008 for the then participating hospitals
(which represent the third and fourth years of the demonstration
program for each of the then participating hospitals) and then add
these two sums together. The costs of the demonstration program for
each of FYs 2007 and 2008 is the difference resulting from subtracting
the total amount that would otherwise be paid to the then participating
hospitals under the applicable payment system(s) (that is, under the
IPPS and under section 1888(e)(7) of the Act to the extent the
participating hospital had swing beds) without the demonstration from
the amount paid to those hospitals under the demonstration payment
methodology in section 410A(b) of Public Law 108-173. (We proposed to
use these settled cost reports, which represent the third and fourth
years of the demonstration program for each of the then participating
hospitals, because we believed they correctly represent inpatient costs
for the demonstration program during each of those 2 years. These
settled cost reports represent the third and fourth years of the
demonstration, because the demonstration started with cost report start
dates on or after October 1, 2004. Therefore, the first year of the
demonstration program would be represented by cost reports with a start
date between October 1, 2004 and September 30, 2005 (that is, FY 2005;
the second year of the demonstration program is represented by cost
reports with start date between October 1, 2005 and September 30, 2006
(FY 2006); the third year of the demonstration program is represented
by cost reports with start date between October 1, 2006 and September
30, 2007 (FY 2007); the fourth year of the demonstration program is
represented by cost reports with start date between October 1, 2007 and
September 30, 2008 (FY 2008).
Step Two: Subtract the amount that was offset by the
budget neutrality adjustment for FYs 2007 and 2008 ($9,197,870 for FY
2007 and $9,681,893 for FY 2008) from the combined costs of the
demonstration program in FYs 2007 and 2008 as calculated in Step one.
Step Three: The result of Step two is a dollar amount, for
which we would calculate a factor that would offset such amounts and
would be incorporated into the overall proposed budget neutrality
adjustment to the proposed national IPPS rates for FY 2012. This
specific component to the overall budget neutrality adjustment for FY
2012 would account for the difference between the combined costs of the
demonstration program in FYs 2007 and 2008 and the amount of the budget
neutrality adjustment published in the FYs 2007 and 2008 IPPS final
rules and, therefore, would ensure that the demonstration program is
budget neutral for FYs 2007 and 2008.
Because of delays in the settlement process for the demonstration
hospitals' third and fourth year cost reports, that is, for cost
reporting periods starting in each FYs 2007 and 2008 respectively, we
were unable in the proposed rule to state the costs of the
demonstration program corresponding to FYs 2007 and 2008 for purposes
of determining the amount by which the costs corresponding to FYs 2007
and 2008 exceeded the amount offset by the budget neutrality adjustment
for FYs 2007 and 2008. Similarly, for this final rule, we are unable to
identify the specific numeric amount representing this offsetting
process that can be incorporated into the budget neutrality adjustment
applied to the national IPPS rates due to delays in the settlement
process for the demonstration hospitals' third and fourth year cost
reports. We note that we anticipate that they may be available for the
FY 2013 IPPS/LTCH PPS proposed and final rules. Therefore, the
estimated adjustment to the national IPPS rates in this final rule
cannot include a component to account for these costs.
For this FY 2012 IPPS/LTCH PPS final rule, the estimated amount for
which an adjustment to the national IPPS rates is being calculated is
the sum of the amounts specified in sections IV.N.3.a. and IV N.3.b. of
this final rule, which is $52,452,060 (this estimate does not account
for the numeric result of the method in IV.N.3.c.). Sections IV.N.3.a.
and IV.N.3.b. of this final rule state dollar amounts, which represent
estimated costs attributable to the demonstration program for the
respective component of the overall estimated calculation of the final
budget neutrality factor for FY 2012. This estimated amount is based on
the specific assumptions identified, as well as from data sources that
are used because they represent either the most recently finalized,
(that is, settled) or, if ``as submitted,'' recently available cost
reports.
Comment: One commenter pointed out that if the newly participating
hospitals' cost reports for the preceding year are not settled, or the
hospital is appealing certain determinations made by the fiscal
intermediary or MAC, the target amount for any year under the
demonstration program may be subject to change. The commenter asked
whether cost reports would have to be reopened to reflect the final
settlement of the years in which the respective target amount is
developed.
Response: We will approach this issue consistent with standard cost
report review.

O. Bundling of Payments for Services Provided to Outpatients Who Later
Are Admitted as Inpatients: 3-Day Payment Window

1. Background
Section 1886(a)(4) of the Act includes in the definition of
``operating costs of inpatient hospital services'' the cost of
diagnostic services (including clinical diagnostic laboratory tests)
``or other services related to the admission'' (as defined by the
Secretary) furnished by

[[Page 51706]]

the hospital (or by an entity that is wholly owned or operated by the
hospital) to the patient during the 3 days preceding the date of the
patient's admission to a subsection (d) hospital subject to the IPPS.
For a non-subsection (d) hospital (psychiatric hospitals and units,
inpatient rehabilitation hospitals and units, long-term care hospitals,
children's hospitals, and cancer hospitals), the statutory payment
window is 1 day preceding the date of the patient's admission.
Section 102(a)(1) of the Preservation of Access to Care for
Medicare Beneficiaries and Pension Relief Act of 2010 (Pub. L. 111-192,
enacted on June 25, 2010) specifies that the term in section 1886(a)(4)
of the Act, ``other services related to the admission'', includes ``all
services that are not diagnostic services (other than ambulance and
maintenance renal dialysis services) for which payment may be made
under this title [Title XVIII] that are provided by a hospital (or an
entity wholly owned or wholly operated by the hospital) to a patient--
(A) on the date of the patient's inpatient admission; or (B) during the
3 days (or, in the case of a hospital that is not a subsection (d)
hospital, during the 1 day) immediately preceding the date of admission
unless the hospital demonstrates (in a form and manner, and at a time,
specified by the Secretary) that such services are not related (as
determined by the Secretary) to such admission.'' Public Law 111-192
makes no changes to the existing policy regarding billing for
diagnostic services.
Under the 3-day (or 1-day) payment window policy, all outpatient
diagnostic services furnished to a Medicare beneficiary by a hospital
(or an entity wholly owned or operated by the hospital), on the date of
a beneficiary's admission or during the 3 days (1 day for a non-
subsection (d) hospital) immediately preceding the date of a
beneficiary's inpatient hospital admission, must be included on the
Part A bill for the beneficiary's inpatient stay at the hospital. All
outpatient nondiagnostic services provided by the hospital (or an
entity wholly owned or wholly operated) on the date of the inpatient
admission or during the 3 days (1 day for a non-subsection (d)
hospital) immediately preceding the date of a beneficiary's inpatient
hospital admission are deemed related to the admission and must be
billed with the inpatient stay unless the hospital attests that
specific nondiagnostic services are unrelated to the hospital claim.
Further, section 102(c) of Public Law 111-192 prohibits the
reopening of a claim, adjusting a claim, or making payments pursuant to
any request for payment under Title XVIII, submitted by an entity
(including a hospital or an entity wholly owned or operated by the
hospital), for services (as described in section 102(c)(2) of Pub. L.
111-192), for purposes of treating, as unrelated to a patient's
inpatient admission, services provided during the 3 days (or, in the
case of a hospital that is not a subsection (d) hospital, during the 1
day) immediately preceding the date of the patient's inpatient
admission. Services described in section 102(c)(2) of Public Law 111-
192 are other services related to the admission which were previously
included on a claim or request for payment submitted under Part A of
Title XVIII for which a reopening, adjustment, or request for payment
under Part B of Title XVIII, was not submitted prior to June 25, 2010
for purposes of treating, as unrelated to a patient's inpatient
admission.
In an interim final rule with comment period issued in the Federal
Register on August 16, 2010 (75 FR 50346 through 50349), we discussed
and made changes to the Medicare regulations pertaining to the 3-day
payment (or, if applicable, 1-day) window policy in order to comport
with the requirements of section 102 of Pub. L. 111-192. We refer
readers to that interim final rule with comment period for further
information about the 3-day (or, if applicable, 1-day) payment window
policy. We had received public comments on the August 16, 2010 interim
final rule with comment period, and we indicated in the FY 2012 IPPS/
LTCH PPS proposed rule that we planned to address these public comments
as well as any public comments we may receive on the proposals in the
proposed rule in this FY 2012 IPPS/LTCH PPS final rule.
Comment: One commenter supported the statutory and regulatory
changes made to the 3-day payment window provision. One commenter asked
for clarification of the timeframe for submitting claims based on the
requirements of section 102(c) of Public Law 111-192. The commenter's
understanding is that a hospital must have identified any unrelated
nondiagnostic services for which it wished to bill separately on an
outpatient claim for services provided prior to June 25, 2010, and
cannot file an adjustment claim now to unbundle any such services from
the inpatient admission if it did not originally do so prior to June
25, 2010. The commenter's assumption is that providers can file an
adjustment claim for services that have been billed since June 25,
2010. The commenter suggested that CMS make a simple statement to that
effect so it is unambiguous to providers that this statutory provision
only applies to services provided prior to June 25, 2010.
Response: Section 102(c) of Public Law 111-192 prohibits us from
reopening a claim, adjusting a claim, or making payment pursuant to any
request for payment, submitted for other services related to the
admission, which were previously included on a claim or request for
payment for which a reopening, adjustment, or request for payment under
Part B was not submitted prior to June 25, 2010. Hospitals may bill
Medicare separately for outpatient nondiagnostic services furnished
prior to June 25, 2010, provided that: (1) The services are not related
to an inpatient stay (the determination of ``related'' for services
furnished prior to June 25, 2010 is based on guidance published in the
Federal Register on February 11, 1998 (63 FR 6866)); (2) such services
were not previously included on a Medicare claim; and (3) the claim
meets all applicable filing deadlines.
Section 102(c) of Public Law 111-192 does not preclude a provider
from submitting a new Medicare Part B claim and a Part A adjustment
claim for the purpose of unbundling outpatient services that the
provider believes were improperly bundled with an inpatient claim, in
circumstances where all of the following conditions are met: (a) The
outpatient services were furnished to a beneficiary on or after June
25, 2010; (b) the outpatient services were not provided on the same
calendar day as a beneficiary's inpatient admission; (c) the outpatient
services were nondiagnostic; (d) the provider attests that the
outpatient services were clinically unrelated to the beneficiary's
inpatient admission and such claim is supported by documentation in the
patient's medical record; and (e) the claim meets all applicable filing
deadlines.
Comment: Some commenters urged CMS to consider providing guidance
as to how providers may establish policies and procedures for
identifying nondiagnostic services that are unrelated to the admission,
and what those policies and procedures should consider in making this
determination. One of the commenters recognized that CMS looks to
hospitals to make this determination, but given the volume of questions
about the payment window policy for Medicare both prior to and since
the statutory change, the commenter stated that it seems many hospitals
remain confused about how to make that determination.
Some commenters requested that CMS clearly define ``clinically

[[Page 51707]]

associated'' outpatient nondiagnostic services in the Medicare Claims
Processing Manual to avoid further confusion in the hospital community
regarding what constitutes unrelated outpatient nondiagnostic services.
According to one of the commenters, lack of a clear definition of
clinically associated services could cause confusion and more
complications under post-review audits.
One commenter supported the continued use of an exact match (for
all digits) between the ICD-9-CM principal diagnosis code assigned for
both the preadmission services and the inpatient stay to identify
services that are clinically associated with the admission. Another
commenter did not support using ICD-9-CM codes to define what is
related and what is not related and suggested that all continuous
services are by definition related services.
According to one of the commenters, it will be substantially
difficult for billing systems to present an opportunity for the
hospital to determine when to unbundle such services in any reasonable
way short of holding claims from being generated and submitted for what
may amount to a very large number of inpatient claims, and this may
serve to slow down the billing process for those claims. The commenter
contended that most billing systems for hospital services have
capabilities to define bundling rules for diagnostic services that
should always be bundled into the inpatient admission for billing
purposes. However, for bundling of nondiagnostic services (or for
unbundling), the commenter believed that a manual process was necessary
so that hospitals would not make perfunctory decisions regarding when
to bundle or not bundle. The commenter was concerned that this could
lead to hospitals always making the determination to bundle to save the
administrative time, effort, and cost to unbundle or to define rules to
always unbundle particular nondiagnostic services without assuring that
they should truly be unbundled.
Response: In accordance with section 1886(a)(4) of the Act,
outpatient nondiagnostic services furnished within the 3-day (or, if
applicable, 1-day) window that are related to an inpatient admission
must be bundled with the billing of the inpatient stay. An outpatient
nondiagnostic service is related to the admission if it is clinically
associated with the reason for a patient's inpatient admission. As we
discussed above and in the interim final rule with comment period
issued in the Federal Register on August 16, 2010 (75 FR 50346 through
50349), section 102 of Public Law 111-192 broadened the definition of
related outpatient nondiagnostic services. Adopting the definition that
CMS had prior to June 25, 2010, for related nondiagnostic services, as
suggested by one of the commenters (that is, there would need to be an
exact match (all 5 digits) between the principal diagnosis code
assigned for both the preadmission services and the inpatient stay)
would be too narrow and would impermissibly limit the number and scope
of outpatient nondiagnostic services that are clinically related to the
admission and should be bundled with the inpatient stay payment.
In response to the commenter who requested that all continuous
services (for example, inpatient admission through the emergency
department, hospitalization for complications after outpatient surgery,
among others) be considered related services and be included in the
inpatient stay, we believe that may result in services being bundled in
the inpatient stay that are not related to the admission. However, we
will take these comments into consideration as we develop updates to
the Medicare instructions in the future.
Comment: One commenter urged CMS to delay the effective date of
this policy to April 1, 2011, because--
(1) Hospitals did not have a policy in place on June 25, 2010, and
have not programmed their billing systems to accommodate this policy
retroactively. According to the commenter, to ask hospitals to
retroactively implement this policy presents a major burden with regard
to system changes, as well as claims rebilling and/or adjusting; and
(2) The creation of the condition code or modifier is administered
through the National Uniform Billing Committee and should follow that
body's guidelines that state approved changes are usually effective
April 1, October 1, or about 90 days after approval, as appropriate.
Response: Section 102(a) of Public Law 111-192 pertains to the 3-
day (or 1-day) payment window and was effective for services furnished
on or after the date of enactment, June 25, 2010. CMS does not have the
authority to delay the enactment of this law.
Comment: Some commenters were concerned that hospitals have not
historically included the diagnosis and procedures codes from the
outpatient services on the inpatient claim, only the charges. The
commenters were concerned that inclusion of the diagnosis codes from
the outpatient claim could impact the MS-DRG assignment as well as have
health statistic and quality reporting implications.
The commenters also were concerned with the administrative burden
of having to recode the outpatient procedures from CPT-4 codes, which
are reported in the outpatient setting, to ICD-9-CM codes, which are
reported in the inpatient setting. The commenters also raised questions
regarding the type of documentation that will be required to support
adding the code to an inpatient claim.
Response: As we specified in a memorandum to hospitals explaining
the policy changes pertaining to nondiagnostic services subject to the
payment window (dated August 9, 2010 and distributed to hospitals
through the fiscal intermediaries/MACs), hospitals must include on a
Medicare claim for a beneficiary's inpatient stay the diagnoses,
procedures, and charges for all preadmission outpatient diagnostic
services and all admission-related preadmission outpatient
nondiagnostic services. We note that, in combining on the inpatient
bill the diagnoses, procedures, and charges for the outpatient
services, a hospital must convert CPT-4 codes to ICD-9-CM codes and
include outpatient diagnostic and admission-related nondiagnostic
services that span the period of the payment window. We are aware that
the inclusion of some diagnosis codes reported on the outpatient claim
that are bundled into the inpatient stay may affect the MS-DRG
assignment. Also, the inclusion of an outpatient surgical procedure
that is converted from CPT-4 coding to ICD-9-CM coding for inpatient
reporting may affect the MS-DRG assignment of the inpatient claim. The
law requires that preadmission diagnostic services and related
nondiagnostic services be included on the claim for the inpatient
admission. Therefore, in some cases, including such services on the
inpatient claim may affect the MS-DRG assignment and, when
appropriately included, is permissible.
The process of bundling claims has remained unchanged. That is, the
bundling of claims incorporates transferring all the information
reported in the outpatient encounter, such as the diagnosis and
procedure codes as well as the charges, to the inpatient setting. We
are aware that there are separate ICD-9-CM Coding Guidelines for the
inpatient setting and the outpatient setting. Appropriate guidelines
should be followed at the time of coding based on the setting of the
encounter. We note that the bundling rules for the 3-day (1-day)
payment window policy do not affect the Coding Guidelines for

[[Page 51708]]

inpatient and outpatient settings. In response to the commenter's
request for guidance on the type of documentation that would be
required to support adding the code to an inpatient claim, the guidance
would be the same for reporting any diagnosis on a claim. If there is
documentation in the patient's medical record that confirms that the
condition or diagnosis is present, that diagnosis should be reported.
2. Condition Code 51 (Attestation of Unrelated Outpatient Nondiagnostic
Services)
As we stated in the August 16, 2010 interim final rule with comment
period (75 FR 50348), we intend to establish a process for hospitals to
attest to nondiagnostic services as being unrelated to the hospital
claim when a hospital submits an outpatient claim. As part of the
process, hospitals would be required to maintain documentation in the
beneficiary's medical record to support their claim that the outpatient
nondiagnostic services are unrelated to the beneficiary's inpatient
admission.
The National Uniform Billing Committee (NUBC) is a committee
established by the American Hospital Association and includes the
participation of all the major national provider and payer
organizations. The NUBC was formed to develop a single billing form and
standard data set that could be used nationwide by institutional
providers and payers for handling health care claims. The NUBC has
provided a mechanism through the establishment of a condition code for
a hospital to attest directly on the outpatient claim to specific
nondiagnostic services as being clinically unrelated to an inpatient
hospital claim (that is, the preadmission diagnostic services are
clinically distinct or independent from the reason for the
beneficiary's inpatient admission). As of April 1, 2011, a hospital
must add condition code 51 on claims for separately billed outpatient
nondiagnostic services furnished on or after June 25, 2010 (the date of
enactment of Public Law 111-192) if the hospital wishes to attest to
nondiagnostic services as being unrelated to the inpatient hospital
claim. We issued a manual system revision through Change Request
7142, Transmittal 796, on October 29, 2010, instructing CMS
contractors to accept condition code 51 on outpatient claims.
Comment: One commenter supported the use of a condition code but
believed that the use of a condition code alone should be sufficient to
signify that unrelated outpatient services billed on a separate
outpatient claim are distinct from the inpatient services. The
commenter discouraged CMS from requiring hospitals to maintain
documentation in the beneficiary's medical record to support their
claim that the outpatient services are related.
Another commenter disagreed with the proposal to implement an
attestation process. The commenters stated that it would require
additional administrative effort by hospital staff that does not seem
necessary, as claims are required to be filed correctly under the law.
According to the commenter, if an attestation is required, the
attestation process should be easy to follow and clearly defined.
One commenter was concerned about the ease with which hospitals
could apply a condition code and that unwarranted unbundling could
still occur, depending on how the standard is defined for nondiagnostic
related services.
Response: The implementation of condition code 51, effective April
1, 2011, provides a process for hospitals to attest to nondiagnostic
services as being unrelated to the inpatient hospital claim when a
hospital submits an outpatient claim. However, upon review, the
hospital must be able to document that the services are unrelated based
on information in the patient's medical record. As we stated in the
interim final rule with comment period issued in the Federal Register
on August 16, 2010 (75 FR 50348), hospitals have experience with making
similar attestations on the outpatient or inpatient claim.
3. Applicability of the Payment Window Policy to Services Furnished at
Physicians' Practices
We have received several inquiries regarding the applicability of
the payment window to preadmission services furnished at hospital-owned
or hospital-operated physicians' clinics or practices. The statutory
language under section 1886(a)(4) of the Act is clear that the 3-day
(or, where applicable, 1-day) payment window policy applies not only to
diagnostic and related nondiagnostic services furnished to patients at
hospitals, but also to those services furnished at entities that are
wholly owned or operated by the admitting hospital. In a 1998 final
rule on payment for preadmission services (63 FR 6866), we stated, ``A
hospital-owned or hospital-operated physician clinic or practice is
subject to the payment window provision. The technical portion of
preadmission diagnostic services performed by the physician clinic or
practice must be included on the inpatient bill and may not be billed
separately. A physician's professional service is not subject to the
window.'' Thus, we made clear that the term ``entities'' under this
section of the statute includes physicians' clinics or practices.
Although the 1998 rule provides specific guidance regarding billing for
preadmission diagnostic services furnished at hospital-owned or
hospital-operated physician's practices, we had issued no guidelines
regarding billing for preadmission nondiagnostic services provided by a
hospital-owned or hospital-operated physician's practice.
Prior to the June 25, 2010 enactment of section 102(a)(1) of Public
Law 111-192, the payment window policy for preadmission nondiagnostic
services was rarely applicable because the policy required an exact
match between the principal ICD-9 CM diagnosis codes for the outpatient
services and the inpatient admission. Because of the exact match
policy, very few services furnished in a physician's office or clinic
that is wholly owned or operated by the hospital would have been be
subject to the policy. However, the change to the payment window policy
made by Public Law 111-192 broadened the definition of nondiagnostic
services that are subject to the payment window to include any
nondiagnostic service that is clinically related to the inpatient
admission, regardless of whether the inpatient and outpatient diagnoses
are the same. As a result, this statutory change broadens the
applicability of the payment window policy in hospital-owned or
hospital-operated physician offices or clinics (that is, clinics that
are not provider-based but are wholly owned or operated by the
hospital). We note that, under the amended statute, in order to be able
to bill separately for nondiagnostic preadmission services that fall
within the payment window, hospitals and hospital-owned or hospital-
operated entities must now attest that the services are not related to
an admission by using condition code 51 (Attestation of Unrelated
Outpatient Nondiagnostic Services) when billing for the services.
In response to ongoing requests to clarify the applicability of the
payment window policy to preadmission nondiagnostic services provided
in hospital-owned or hospital-operated physicians' offices or clinics,
as we did in the proposed rule, we are clarifying that the 3-day (or,
where applicable, 1-day) payment window policy applies to both
preadmission diagnostic and nondiagnostic services furnished to a
patient at physician's practices that are wholly owned or wholly
operated by the admitting hospital. For purposes of the payment window,
``wholly owned

[[Page 51709]]

or operated'' means that the admitting hospital must be the sole owner
or the sole operator of the entity providing the preadmission services.
A hospital is considered the sole operator of an entity if the hospital
has exclusive responsibility for conducting or overseeing the entity's
routine operations, regardless of whether the hospital also has
policymaking authority over the entity (we refer readers to the
regulations at 42 CFR 412.2(c)(5)(i) and to discussions and examples of
wholly owned or operated scenarios in rules issued in the Federal
Register on January 12, 1994 (59 FR 1656) and February 11, 1998 (63 FR
6865 through 6867)).
In the circumstance in which a clinic or a physician office that is
not provider-based meets the definition of being wholly owned or wholly
operated by the hospital and the 3-day (or, if applicable, 1-day)
payment window applies to related nondiagnostic preadmission services,
the overhead costs associated with those services would be considered
operating costs of inpatient hospital services and, as such, included
in the hospital's bill for the inpatient service. As explained more
fully in the CY 2012 Medicare Physician Fee Schedule proposed rule (76
FR 42915), we have proposed that Medicare's payment to the physician
for the physician fee schedule service would be at the lower facility
rate, which does not include overhead, staff, equipment, and supplies
required to perform the service in the physician's office (rather than
the higher nonfacility rate that does include those overhead costs) in
order to avoid duplicate payment for the services under both the IPPS
and the Medicare Physician Fee Schedule.
Under 42 CFR 414.22(b)(5)(i), Medicare pays physicians using the
nonfacility relative value units when services are provided in a
physician's office and bases physician payment on the facility relative
value units when the physician provides services in a facility,
including hospitals, skilled nursing facilities, community mental
health centers, and ambulatory surgical centers. Because a hospital-
owned or hospital-operated physician practice or clinic that is not
provider-based is a nonfacility setting, we have proposed in the CY
2012 Medicare Physician Fee Schedule proposed rule (76 FR 42915) to
change the regulation to reflect the proposal to pay for a service
provided in a nonfacility setting at the facility rate in order to
comply with section 102(a) of Public Law 111-192. We indicated in the
IPPS proposed rule that we intended to discuss such a proposal in more
detail in a future physician fee schedule proposed rule and address how
this statutory provision will be implemented in physicians' offices
that are wholly owned or wholly operated by the hospital. In all
circumstances, we would expect that, in the case of a physician
practice that is wholly owned or wholly operated by the hospital, the
hospital would inform the physician offices and clinics when an
inpatient admission occurs.
Comment: One commenter stated that it may be difficult to track
activity between hospital-owned practices and the hospital that owns
the practices.
Response: Due to the fact that the hospital owns the facility, it
is our expectation that the hospital will be able to coordinate and
track the patient activity of the facilities it owns. The full adoption
of electronic medical record should help facilitate coordination and
tracking of patients within and among hospital systems.
We received a few public comments regarding the applicability of
the payment window policy to services furnished at physicians'
practices that are wholly owned or wholly operated by the hospital. We
stated in the FY 2012 IPPS/LTCH PPS proposed rule that CMS would
address the payment window policy as it impacts physician billing in
the CY 2012 Medicare Physician Fee Schedule proposed rule. Therefore,
those comments are not within the scope of this IPPS/LTCH final rule.
The CY 2012 Medicare Physician Fee Schedule proposed rule (CMS-1524-P)
appeared in the Federal Register on July 19, 2011. The deadline for
submitting public comments on that proposed rule is August 30, 2011.
Instructions for submitting public comments on that proposed rule are
included in the proposed rule (76 FR 42772).

P. Changes to MS-DRGs Subject to the Postacute Care Transfer Policy

1. Background
Existing regulations at Sec. 412.4(a) define discharges under the
IPPS as situations in which a patient is formally released from an
acute care hospital or dies in the hospital. Section 412.4(b) defines
acute care transfers, and Sec. 412.4(c) defines postacute care
transfers. Our policy, set forth in Sec. 412.4(f), provides that when
a patient is transferred and his or her length of stay is less than the
geometric mean length of stay for the MS-DRG to which the case is
assigned, the transferring hospital is generally paid based on a
graduated per diem rate for each day of stay, not to exceed the full
MS-DRG payment that would have been made if the patient had been
discharged without being transferred.
The per diem rate paid to a transferring hospital is calculated by
dividing the full DRG payment by the geometric mean length of stay for
the MS-DRG. Based on an analysis that showed that the first day of
hospitalization is the most expensive (60 FR 45804), our policy
generally provides for payment that is double the per diem amount for
the first day, with each subsequent day paid at the per diem amount up
to the full MS-DRG payment (Sec. 412.4(f)(1)). Transfer cases are also
eligible for outlier payments. In general, the outlier threshold for
transfer cases, as described in Sec. 412.80(b), is equal to the fixed-
loss outlier threshold for nontransfer cases (adjusted for geographic
variations in costs), divided by the geometric mean length of stay for
the MS-DRG, and multiplied by the length of stay for the case, plus one
day.
We established the criteria set forth in Sec. 412.4 for
determining which DRGs qualify for postacute care transfer payments in
the FY 2006 IPPS final rule (70 FR 47419 through 47420). The
determination of whether a DRG is subject to the postacute care
transfer policy was initially based on the Medicare Version 23.0
GROUPER (FY 2006) and data from the FY 2004 MedPAR file. However, if a
DRG did not exist in Version 23.0 or a DRG included in Version 23.0 is
revised, we use the current version of the Medicare GROUPER and the
most recent complete year of MedPAR data to determine if the DRG is
subject to the postacute care transfer policy. Specifically, if the
DRG's total number of discharges and proportion of short-stay
discharges to postacute care exceed the 55th percentile for all DRGs,
CMS will apply the postacute care transfer policy to that DRG and to
any other MS-DRG that shares the same base DRG. In the preamble to the
FY 2006 final rule (70 FR 47419), we stated that ``we will not revise
the list of DRGs subject to the postacute care transfer policy annually
unless we are making a change to a specific DRG.''
To account for MS-DRGs subject to the postacute care policy that
exhibit exceptionally higher shares of costs very early in the hospital
stay, Sec. 412.4(f) also includes special payment methodology. For
these MS-DRGs, hospitals receive 50 percent of the full MS-DRG payment,
plus the single per diem payment, for the first day of the stay, as
well as a reduced per diem payment for subsequent days (up to the full
MS-DRG payment (Sec. 412.4(f)(6)). For an MS-DRG to qualify for the
special payment methodology, the geometric mean

[[Page 51710]]

length of stay must be greater than 4 days, and the average charges of
1-day discharge cases in the MS-DRG must be at least 50 percent of the
average charges for all cases within the MS-DRG. DRGs that are part of
an MS-DRG group must meet DRG special payment policy if any one of the
MS-DRGs that share that same base MS-DRG qualifies (Sec. 412.4(f)(6)).
2. Changes to the Postacute Care Transfer MS-DRGs
Based on our annual review of MS-DRGs, we have identified a number
of MS-DRGs that should be included on the list of MS-DRGs subject to
the postacute care transfer policy. As we discussed in section III.G.
of the proposed rule, in response to public comments and based on our
analysis of FY 2010 MedPAR claims data, in the FY 2012 IPPS/LTCH PPS
proposed rule, we proposed to make several changes to MS-DRGs to better
capture certain severity of illness levels, to be effective for FY
2012. Specifically, we proposed to modify the assignment of the
autologous bone marrow transplants now assigned to MS-DRG 015
(Autologous Bone Marrow Transplant) to capture the severity levels of
``with CC/MCC'' and ``without CC/MCC.'' We proposed to establish two
new MS-DRGs (proposed MS-DRGs 016 and 017 (Autologous Bone Marrow
Transplant with MCC/CC and without MCC/CC, respectively) to replace MS-
DRG 015. We also proposed to establish three new MS-DRGs to capture
three severity of illness levels for skin debridement--proposed MS-DRG
570 (Skin Debridement with MCC); proposed MS-DRG 571 (Skin Debridement
with CC); and proposed MS-DRG 572 (Skin Debridement without CC/MCC). In
addition, we proposed to move the codes for rechargeable dual array
deep brain stimulation (codes 02.93 and 86.98) to MS-DRGs 023 and 024
(Craniotomy with Major Device Implant/Acute Complex CNS PDX, with MCC
and without MCC, respectively) where similar devices are currently
assigned. We proposed to move two procedure codes that either repair a
thoracic aneurysm or place a stent graft (codes 38.45 and 39.73) out of
MS-DRG 237 and 238 (Major Cardiovascular Procedures with MCC or
Thoracic Aortic Aneurysm Repair, and Major Cardiovascular Procedures
with MCC and without MCC, respectively). We proposed to assign these
two codes to MS-DRGs 219, 220, and 221 (Cardiac Valve & Other Major
Cardiothoracic Procedure without Cardiac Catheterization with MCC, with
CC, and without CC, respectively). We proposed to add a procedure code
for partial gastrectomy (43.89) to MS-DRGs 619, 620, and 621 (O.R.
Procedure for Obesity with MCC, with CC, and without CC/MCC,
respectively). A discussion of these proposed changes and our final
changes can be found in section II.G. of the preamble of the final
rule.
In light of the proposed changes to the MS-DRGs, according to the
regulations under Sec. 412.4(c), we evaluated these proposed FY 2012
MS-DRGs against the general postacute care transfer policy criteria
using the FY 2010 MedPAR data. If an MS-DRG qualified for the postacute
care transfer policy, we also evaluated that MS-DRG under the special
payment methodology criteria according to regulations at Sec.
412.4(f)(6). As a result of our review, we proposed to update the list
of MS-DRGs that are subject to the postacute care transfer policy to
include the proposed new MS-DRGs 570, 571, and 572 for FY 2012. (These
MS-DRGs were reflected in Table 5, which was listed in section VI. of
the Addendum to the proposed rule and available via the Internet, and
were also listed in the tables at the end of this section.)
In addition, based on our evaluation of the proposed FY 2012 MS-
DRGs using the FY 2010 Med PAR data, we identified the following two
existing MS-DRGs that meet the criteria to be subject to the postacute
care transfer policy for FY 2012: MS-DRGs 023 (Craniotomy with Major
Device Implant or Acute Complex CNS PDX with MCC) and MS-DRG 024
(Craniotomy with Major Device Implant or Acute Complex CNS PDX without
MCC). We proposed to add these two MS-DRGs to the list of MS-DRGs that
are subject to the postacute care transfer policy for FY 2012. The
following table lists the respective criteria for each MS-DRG that we
proposed to add to the postacute care transfer policy list.
Further, based on our evaluation of the proposed FY 2012 MS-DRGs
using the FY 2010 Med PAR data, we determined that MS-DRGs 228 (Other
Cardiothoracic Procedures with MCC), 229 (Other Cardiothoracic
Procedures with CC), 230 (Other Cardiothoracic Procedures without CC/
MCC), 640 (Miscellaneous Disorders of Nutrition, Metabolism, Fluids/
Electrolytes with MCC), and 641 (Miscellaneous Disorders of Nutrition,
Metabolism, Fluids/Electrolytes without MCC) no longer meet the
postacute care transfer criteria. Therefore, we proposed that they be
removed from the list of DRGs subjected to the postacute care transfer
policy, effective FY 2012.
Finally, we determined that MS-DRGs 216 (Cardiac Valve & Other
Major Cardiothoracic Procedure with Cardiac Catheterization with MCC),
217 (Cardiac Valve & Other Major Cardiothoracic Procedure with Cardiac
Catheterization with CC), and 218 (Cardiac Valve & Other Major
Cardiothoracic Procedure without CC/MCC) meet the criteria for the
special payment methodology. Therefore, we proposed that they would be
subject to the DRG special payment methodology, effective FY 2012.
Comment: Several commenters supported the proposed changes to the
lists of MS-DRGs subject to the postacute care transfer and special
payment policy. Commenters also requested that CMS expand its analysis
to remove additional MS-DRGs that no longer meet the postacute care
transfer policy criteria and to add MS-DRGs that currently meet special
payment policy criteria.
Response: As stated in the FY 2006 final rule (70 FR 47419), CMS
determined that an annual review of all DRGs ``would likely lead to
great volatility in the payment methodology of certain DRGs''.
Therefore, it is our policy to not conduct an annual review of MS-DRGs
unless we have proposed to make changes to specific MS-DRGs. We note
that, during this rulemaking process, we reviewed additional MS-DRGs
for which we were proposing changes to determine whether they meet the
postacute care transfer or special payment policy criteria (MS-DRGs
(16, 17, 219, 220, 221, 237, 238, 250, 251, 573, 574, 575, 576, 577,
578, 619, 620, and 621). However, in the proposed rule, we only
discussed the MS-DRGs that were proposed to be newly added to, or
removed from, the postacute care transfer or special payment policy, as
listed on Table 5. Following issuance of the proposed rule, we
conducted an additional review of MS-DRGs for purposes of finalizing
the postacute care transfer and special payment status policy
modifications, and that review confirmed that these previously reviewed
MS-DRGs do not require any further changes in postacute care transfer
or special payment status.
During this review, we determined that MS-DRGs 640 (Miscellaneous
Disorders of Nutrition, Metabolism, Fluids/Electrolytes with MCC) and
641 (Miscellaneous Disorders of Nutrition, Metabolism, Fluids/
Electrolytes without MCC) were inadvertently listed as MS-DRGs for
which significant GROUPER logic changes were being proposed. The
changes to these MS-DRGs were determined to be descriptive title
changes only and not material logic changes. Therefore, considering
whether

[[Page 51711]]

to change the postacute care transfer and special payment policy status
for these MS-DRGs was a technical error. Therefore, we are not
finalizing our proposed changes for these two MS-DRGs. The remaining
proposed changes to the postacute care transfer and special payment
policy lists are being finalized as proposed and are summarized in the
following tables. We refer readers to the bolded text in the first
table to see which criteria were not met in our analysis for each MS-
DRG removed from the postacute care transfer policy list. Table 5,
which is listed in section VI. of the Addendum to this final rule and
available through the Internet on the CMS Web site, lists all MS-DRGs
for FY 2012 and specifies whether or not they are subject to the
postacute care transfer policy and the special payment policy. For FY
2012, there are a total of 275 MS-DRGs subject to the postacute care
transfer policy, and 30 MS-DRGs meet the special payment policy
criterion.

List of MS-DRGs Changing Postacute Care Transfer Policy Status in FY 2012
----------------------------------------------------------------------------------------------------------------
Percent of
short-stay
Postacute postacute
care Short-stay care Postacute care
MS-DRG MS-DRG Title Total cases transfers postacute transfers to transfer policy
(55th care all cases status
percentile: transfers (55th
1,596) percentile:
8.0037%)
----------------------------------------------------------------------------------------------------------------
023............... CRANIO W MAJOR 4,631 2,225 373 8.05 YES
DEV IMPL/ACUTE
COMPLEX CNS PDX
W MCC OR CHEMO
IMPLANT.
024............... CRANIO W MAJOR 1,745 *1,000 161 9.23 YES**
DEV IMPL/ACUTE
COMPLEX CNS PDX
W/O MCC.
228............... OTHER 1,936 *1,223 456 23.55 NO
CARDIOTHORACIC
PROCEDURES W MCC.
229............... OTHER 2,395 *1,322 421 17.58 NO
CARDIOTHORACIC
PROCEDURES W CC.
230............... OTHER 640 *228 11 *1.72 NO
CARDIOTHORACIC
PROCEDURES W/O
CC/MCC.
570............... SKIN DEBRIDEMENT 5,189 3,968 1,558 30.03 YES
W MCC.
571............... SKIN DEBRIDEMENT 5,538 3,832 1,087 19.63 YES
W CC.
572............... SKIN DEBRIDEMENT 2,539 *1,378 226 8.90 YES**
W/O CC/MCC.
----------------------------------------------------------------------------------------------------------------
* Indicates a current postacute care transfer policy criterion that the MS-DRG did not meet.
** As described in the policy at 42 CFR 412.4(d)(3)(ii)(D), MS-DRGs that share the same base MS-DRG shall all
meet postacute care transfer policy if any one of the MS-DRGs that share that same base MS-DRG qualifies.

List of MS-DRGs Changing DRG Special Payment Policy Status in FY 2012
----------------------------------------------------------------------------------------------------------------
50% of
Average average
Geometric charges of charges for Special payment policy
MS-DRG MS-DRG Title mean length 1-day all cases status
of stay discharges within MS-
DRG
----------------------------------------------------------------------------------------------------------------
216.................... CARDIAC VALVE & OTH 14.2497327 $164,838 125,398 YES
MAJ CARDIOTHORACIC
PROC W CARD CATH W
MCC.
217.................... CARDIAC VALVE & OTH 9.518336312 126,655 84,669 YES
MAJ CARDIOTHORACIC
PROC W CARD CATH W
CC.
218.................... CARDIAC VALVE & OTH 7.102572558 0 0 YES
MAJ CARDIOTHORACIC
PROC W CARD CATH W/O
CC/MCC.
----------------------------------------------------------------------------------------------------------------

Q. Hospital Services Furnished Under Arrangements

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25964 and 25965),
we stated that, for purposes of Medicare payment, section 1861(b) of
the Act defines ``inpatient hospital services'' in part as ``* * * the
following items and services furnished to an inpatient of a hospital
and (except as provided in paragraph (3)) by the hospital: (1) Bed and
board; (2) such nursing services and other related services, such use
of hospital facilities, and such medical social services as are
ordinarily furnished by the hospital for the care and treatment of
inpatients * * *; and (3) such other diagnostic or therapeutic items or
services, furnished by the hospital or by others under arrangements
with them made by the hospital, as are ordinarily furnished to
inpatients either by such hospital or by others under such
arrangements.''
We noted that the statute specifies that ``routine services,'' for
example, bed, board, nursing and other related services, except those
specified at paragraph (3) of section 1861(b) of the Act are to be
provided by ``the hospital,'' and not just ``a hospital.'' Similarly,
we noted that our implementing regulations at 42 CFR 409.12 indicate
that Medicare pays for ``nursing and related services, use of hospital
* * * facilities, and medical social services as * * * inpatient
hospital services or inpatient CAH services . . . only if those
services are ordinarily furnished by the hospital or CAH.'' We pointed
out that, consistent with the statute, only with regard to other
diagnostic or therapeutic services do the regulations at 42 CFR 409.16
state that Medicare will also pay for these services if furnished ``by
others under arrangements made by the hospital or CAH.''.
Instructions at section 2118 (Cost of Services Furnished under
Arrangement) of the Provider Reimbursement Manual, Part I (PRM-I),
relating to payment for routine services, allow additional

[[Page 51712]]

services to be provided under arrangements. It had come to our
attention that some providers in the hospital community have
interpreted the provision relating to services provided ``under
arrangement'' under section 2118 of the PRM-I to mean that even routine
services described in sections 1861(b)(1) and (b)(2) of the Act, which
are normally provided to hospital inpatients by the hospital, can be
provided outside the hospital by an outside entity under arrangement.
To the extent that our manual provisions could be read to allow
hospitals to furnish such ``routine services'' ``under arrangement,''
we proposed a change to limit the services a hospital may provide under
arrangement to reflect the statutory definition of ``inpatient hospital
services'' and the implementing regulations. Under our proposed policy,
if routine services, that is, services described in sections 1861(b)(1)
and (b)(2) of the Act, are provided in the hospital, they are
considered as being provided ``by the hospital .'' We stated that we
believe that this proposal is consistent with the statute because the
statutory language specifying that the routine services described in
sections 1861(b)(1) and (b)(2) of the Act be provided ``by the
hospital'' suggests that the hospital is required to exercise
professional responsibility over the services, including quality
controls. In situations in which certain routine services are provided
through arrangement ``in the hospital,'' for example, contracted
nursing services, we believe the arrangement generally results in the
hospital exercising the same level of control over those services as
the hospital does in situations in which the services are provided by
the hospital's salaried employees.
Therefore, if routine services are provided in the hospital to its
inpatients, we consider the service as being provided by the hospital.
However, if these services are provided to its patients outside the
hospital, the services are considered as being provided under
arrangement, and not by the hospital. Therefore, consistent with the
statute, only therapeutic and diagnostic services can be provided under
arrangement outside the hospital. We indicated that if we finalized
this policy, we would change the provisions of section 2118 of the PRM-
I accordingly.
We received numerous comments from the hospital provider community
as well as several provider organizations. A few commenters had
singular, limited comments; the majority of commenters presented
arguments, similar in content, against adopting our proposed change to
limit the services a hospital could provide under arrangement.
Comment: Commenters argued that our proposal to limit the services
a hospital may provide under arrangements is not required by the
statute or regulations. Commenters also believed that CMS' proposed
reading of the statutory definition of inpatient hospital services is
only one possible interpretation of the statute. Furthermore,
commenters stated that CMS' ``use of the definition of inpatient
hospital services as the basis for its proposal may not be
appropriate'' and concluded that, under our proposal, ``routine
services, including ICU services, would not be considered to be
inpatient hospital services,'' but that we did not state ``what such
services would be if not inpatient hospital services * * *.''
Response: In the proposed rule, we focused our discussion on
section 1861(b) of the Act because it provides the statutory basis for
our policy to limit the services that may be furnished under
arrangement. As we noted in the proposed rule, the reference to
diagnostic or therapeutic items or services in section 1861(b)(3) of
the Act includes the language, ``[furnished by] * * * or by others
under arrangements.'' Therefore, we believe it is consistent with the
statutory language to limit the services that may be furnished outside
of a hospital under arrangement to only diagnostic and therapeutic
services.
Our policy does not alter the definition of inpatient hospital
services, but instead limits the services a hospital may provide under
arrangements outside the hospital. Under our proposal, if a patient of
Hospital A is in Hospital B receiving routine services, the patient
will still be an ``inpatient,'' but the services will not be considered
``inpatient hospital services'' furnished by the hospital for purposes
of payment for services defined under section 1861(b) of the Act. If
the patient is admitted to Hospital B, then the patient would be an
``inpatient'' of Hospital B and the routine services furnished to that
individual would meet the definition of ``inpatient routine services''
under section 1861(b) of the Act.
Comment: Commenters wrote that there are ``specific statutory
provisions * * * that would allow hospitals to use the type of
arrangements CMS is proposing to prohibit,'' and argued that, ``CMS's
reliance on the tangentially-related hospital inpatient services
definition as the basis for its proposal seems to be an end-run around
them.'' Section 1862(a)(14) of the Act was cited as specific statutory
authority that allows hospitals to furnish all categories of inpatient
hospital services under arrangement. Commenters noted that this
provision does not limit the type of entity that may furnish services
under arrangement nor specify what services may be provided under
arrangement.
Response: We disagree with this position. Section 1862(a)(14) of
the Act states, in part, that payment under Part A or Part B may not be
made for certain services ``furnished to an individual who is a patient
of a hospital or critical access hospital by an entity other than the
hospital or critical access hospital, unless the services are furnished
under arrangements * * * with the entity made by the hospital or CAH.''
Although we agree with the commenters that the language of section
1862(a)(14) of the Act does not place restrictions on what services may
be provided under arrangement, it does not specifically authorize the
furnishing of routine services to be provided under arrangement, nor
does it conflict with the interpretation of section 1861(b) of the Act
set forth in the proposed rule. Instead, when read in conjunction with
section 1861(b) of the Act, as interpreted in our proposal, the
language ``furnished under arrangements'' in section 1862(a)(14) of the
Act is limited to only those services that may be furnished under
arrangement consistent with our proposed policy.
Comment: Commenters discussed a decision of the Provider
Reimbursement Review Board (PRRB) in which pulmonary intensive care
services were furnished under arrangements to patients of one hospital
by another hospital located across the street (University of Missouri
Med. Ctr. v. BCBSA, PRRB Dec. No. 79-D82, Medicare & Medicaid Guide
(CCH) 30, 317 (Nov. 28, 1979)). The PRRB found that ``routine inpatient
services provided under arrangement * * * are allowable costs and are
incorporated in the provider's costs of routine services.'' The PRRB
also found that the services were properly furnished under
arrangements. Commenters noted that the CMS Administrator did not
modify or reverse this decision, and thereby, it was the final decision
of the Secretary.
Response: We recognize that certain routine services have
previously been provided under arrangements, and we are now changing
this policy to preclude a hospital from furnishing routine services
under arrangements with another entity unless the services are provided
in the hospital in which the patient has been admitted as an

[[Page 51713]]

inpatient. We note that the date of this PRRB decision was November 28,
1979. This was 3 years prior to the statutory payment provisions
included in the Tax Equity and Fiscal Responsibility Act (TEFRA) of
1982, which sets Medicare payment based on reasonable costs subject to
a ceiling, and 4 years prior to implementation of the IPPS. We point
out that both hospitals involved in the PRRB case were paid under the
same Medicare payment provisions at that time, that is, routine cost
limits.
As discussed in greater detail below, we have decided to change
this policy because we are concerned that similar arrangements between
entities that are not paid under the same Medicare payment provisions--
for example, arrangements between IPPS hospitals and hospitals excluded
from the IPPS--have resulted in hospitals receiving payments for
services based on payment provisions that do not ordinarily apply to
that facility.
Comment: One commenter cautioned that CMS should recognize that
there are regulations that allow hospitals-within-hospitals (HwHs) to
obtain other services through contract or other agreements. The
commenter specifically cites the requirement that a HwH ``performs the
basic functions of [a hospital] through the use of employees or under
contracts or other agreements with entities other than the hospital
occupying space in the same building or on the same campus * * *'' This
requirement further states that food and dietetic services,
housekeeping, maintenance, among others, could be obtained under
contracts or agreements with the co-located hospital. The commenter
urged CMS to clarify that the proposed change will not impact a HwH's
ability to obtain the necessary services that are allowed under the HwH
requirements at 42 CFR 412.22.
Response: We developed the HwH regulations to ensure, to the extent
possible, that co-located hospitals (two hospitals occupying space in
the same building or in one or more separate buildings located on the
same campus) function as two separate entities, each having its own
governing body, medical staff, chief medical officer, and chief
executive officer. In addition, the HwH has to meet other criteria,
including at least one of the criteria specified in Sec.
412.22(e)(1)(v), regarding performance of basic hospital functions.
Under the changes to our policy governing services furnished under
arrangements that we are finalizing in this final rule, the services
that can be furnished to the HwH under Sec. 412.22(e)(1)(v)(A) (food
and dietetic services, housekeeping and maintenance, and other services
necessary to maintain a clean and safe physical environment) by the
host hospital or an entity that controls both hospitals could still be
furnished at the hospital (the HwH) to that hospital's patients.
Likewise, the provision at Sec. 412.22(e)(1)(v)(A) allowing specified
basic functions to be performed at a HwH through the use of employees
or under contracts or other arrangements with entities other than the
co-located hospital, or through a third entity that controls both
hospitals, would only apply where those routine services are furnished
at the HwH. If, however, the HwH was moving its patients to another
hospital to receive routine services under arrangements with that
hospital, and maintaining that patient in hospital records as its own
inpatient, it would not be allowed under the changes to the ``hospital
services provided under arrangement'' that we are finalizing in this
final rule.
Comment: One commenter was concerned with what it characterized as
CMS' lack of clarity about why it proposed this change. The commenter
recommended that CMS not finalize the proposal until it provides a
sufficient policy rationale for the proposal, or explains the
circumstances that are causing CMS to be concerned.
Response: As noted above, we became aware that some hospitals were
furnishing certain routine services, including ICU services, under
arrangement. For example, under certain arrangements, if an inpatient
of an IPPS-excluded hospital (``hospital A'') required ICU services,
and the IPPS-excluded hospital could not provide these services, the
patient was moved to an IPPS hospital (``hospital B'') that could
furnish the ICU services. In these situations, the patient was not
transferred to hospital B but was moved from an inpatient bed of
hospital A to an inpatient bed of hospital B. However, the IPPS-
excluded hospital treated these services as being provided under
arrangement and included the cost of those services on its cost report.
We find it problematic that the patient was, at all times, considered
an inpatient of hospital A even though the patient occupied an
inpatient bed at hospital B.
Because the two hospitals in the example above are under two
different payment systems, we believe this arrangement can result in
inappropriate and potentially excessive Medicare payments. The IPPS-
excluded hospital, hospital A, is paid on a reasonable cost basis,
subject to a ceiling. In most cases, this payment is greater than if
the hospital were paid under the IPPS for the same patient.
Furthermore, although there is a ceiling on the amount of Medicare
payment for hospital A, there are also provisions that allow hospital A
to receive adjustments to its ceiling in certain circumstances, which
could allow payment to hospital A above those allowed by its ceiling.
Therefore, these current arrangements could allow hospital A to request
an adjustment to its ceiling because its ICU costs have increased
beyond what is allowed. In that case, hospital A would receive
additional payments beyond its ceiling. We believe that by limiting the
furnishing of routine services under arrangements to situations in
which the services are furnished in hospital A, we will reduce the
opportunity for gaming. In these more limited situations, hospital A
will exercise sufficient control over the use of hospital resources
when furnishing these services such that the services are appropriately
included in hospital A's cost report.
Under our proposal, if hospital A did not have the resources to
treat a patient, it would transfer the patient to hospital B for ICU
services, and hospital B would bill Medicare consistent with the IPPS
provisions. Hospital A would be paid for an inpatient discharge.
Comment: Numerous commenters believed that CMS' primary goal in
proposing to limit the kinds of services that can be provided under
arrangement was to ensure that the hospital will exercise professional
responsibility over the ``arranged for'' services. Commenters claimed
that CMS had provided no evidence that the hospital furnishing the
routine or ICU services cannot exercise the same responsibility.
Therefore, the commenters claimed that CMS had not provided a
sufficient policy rationale in support of the proposal.
Response: Section 207 of the Hospital Manual (Pub. No. 10) states
with respect to furnishing services under arrangements, that such
arrangements were ``not intended that [the hospital] merely serve as a
billing mechanism for the other party * * *.The hospital's professional
supervision * * * requires many of the same quality controls as are
applied to the services furnished by salaried employees.'' As discussed
in more detail above, the current policy may also result in
inappropriate and excessive Medicare payments, as well as present an
opportunity for gaming, and we believe it is appropriate to limit the
inclusion of costs on a cost report to those situations in which the
hospital has exercised sufficient control and responsibility over the
use of hospital resources in treating patients.
Comment: One commenter cited two recent Medicare initiatives that
involve ACOs, the Pioneer ACO Program under

[[Page 51714]]

the Innovation Center and the Medicare Shared Savings Program under
section 1899 of the Affordable Care Act, as evidence of the Secretary's
commitment to high-level efficiency, provider collaboration, and
innovative service models which will preserve or enhance quality of
care for beneficiaries while promoting greater efficiencies throughout
the Medicare program. The commenter noted that the present policy that
CMS has proposed to disallow, where a hospital furnishing ICU services
``under arrangements'' to inpatients of another hospital is an existing
example of efficient use of medical resources as well as successful
provider collaboration that also enhances the level of beneficiary care
and therefore, allowing such an arrangement to continue is fully
consistent with CMS' stated objectives.
Response: We understand that inter-facility cooperation and
collaboration can indeed result in savings for the Medicare program,
and we are committed to the specific goals of the CMMI and the Shared
Savings Program. However, we do not agree that such positive objectives
are applicable to the existing arrangements under which inpatients at
one hospital effectively become inpatients at another hospital for as
long a time as necessary, without having been discharged from the first
hospital and admitted to the second.
Comment: Most commenters requested that CMS, if it finalizes the
proposed policy, adopt a grandfathering provision to allow hospitals
that have been furnishing routine services under arrangements outside
of the hospital to continue furnishing these services in this manner.
Commenters stated that this policy would place significant
administrative burdens on these hospitals, would be more expensive to
the Medicare program, would be inconvenient and disruptive to patients,
and would inappropriately inflate readmission rates under the Hospital
Readmissions Reduction Program.
Response: We do not believe it is appropriate to adopt a
grandfathering provision. As noted above, we are concerned that,
without this policy change, Medicare will continue to pay
inappropriately for these services. That is, payment to IPPS hospitals
should be based on the DRG payment amount, and payment to excluded
hospitals should not be based in part on the costs of routine services
that the hospital has not furnished directly to its patients.
We do not believe that our proposal would be disruptive or
inconvenient to patients; it does not prevent hospitals from
transferring patients to another facility to receive necessary services
that the transferring hospital cannot provide.
We recognize that, for a few providers, this policy will require
the hospital to discharge its patients to the other hospital that will
provide the routine/ICU services. However, this is necessary in order
to be consistent with our current reading of section 1861(b) of the
Act.
We do not believe that a hospital's readmission rates under the
Hospital Readmissions Reduction Program would be affected by this
policy because transfers to other providers are not included in the
calculations of excess readmissions. Each of the measures of
readmissions used in the Hospital Readmissions Reduction Program has
exclusions for transfers to other hospitals. We discuss these
exclusions in section IV.C. of this preamble.
After consideration of the public comments and for the reasons set
forth above, we are finalizing our proposal. Therefore, effective for
services provided on or after October 1, 2011, if routine services are
provided in the hospital to its inpatients, these services are
considered as being provided by the hospital. However, if services are
provided outside the hospital, the services are considered as being
provided under arrangement. Only therapeutic and diagnostic items and
services may be furnished under arrangement outside of the hospital.

R. Finalization of Interim Final Rule With Comment Period on Revisions
to the Reduction and Increases to Hospitals FTE Resident Caps for
Graduate Medical Education Payment Purposes

On March 14, 2011, we issued in the Federal Register (76 FR 13515)
an interim final rule with comment period that implemented section 203
of the Medicare and Medicaid Extenders Act of 2010 relating to the
treatment of teaching hospitals that are members of the same Medicare
graduate medical education affiliated groups for the purpose of
determining possible full-time equivalent (FTE) resident cap
reductions. In this final rule, we are restating a majority of the
provisions of the interim final rule with comment period, responding to
the public comments we received, and stating our final policy.
1. Background and Provisions of the Interim Final Rule With Comment
Period
a. Statutory Authority
Section 1886(h) of the Act, as added by section 9202 of the
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L.
99-272) and as currently implemented in the regulations at 42 CFR
413.75 through 413.83, establishes a methodology for determining
payments to hospitals for the direct costs of approved graduate medical
education (GME) programs. Section 1886(h)(2) of the Act sets forth a
methodology for the determination of a hospital-specific base-period
per resident amount (PRA) that is calculated by dividing a hospital's
allowable direct costs of GME in a base period by its number of
residents in the base period. The base period is, for most hospitals,
the hospital's cost reporting period beginning in FY 1984 (that is,
October 1, 1983 through September 30, 1984). The base year PRA is
updated annually for inflation. In general, Medicare direct GME
payments are calculated by multiplying the hospital's updated PRA by
the weighted number of full-time equivalent (FTE) residents working in
all areas of the hospital complex (and at nonprovider sites, when
applicable), and the hospital's Medicare share of total inpatient days.
Section 1886(d)(5)(B) of the Act provides for an additional payment
amount under the hospital inpatient prospective payment system (IPPS)
for hospitals that have residents in an approved GME program in order
to account for the higher indirect patient care costs of teaching
hospitals relative to nonteaching hospitals. The regulations regarding
the calculation of this additional payment, known as the indirect
medical education (IME) adjustment, are located at 42 CFR 412.105. The
hospital's IME adjustment applied to the DRG payments is calculated
based on the ratio of the hospital's number of FTE residents training
in either the inpatient or outpatient departments of the IPPS hospital
to the number of inpatient hospital beds.
The Balanced Budget Act of 1997 (Pub. L. 105-33) established a
limit on the number of allopathic and osteopathic residents that a
hospital may include in its FTE resident count for direct GME and IME
payment purposes. Under section 1886(h)(4)(F) of the Act, for cost
reporting periods beginning on or after October 1, 1997, a hospital's
unweighted FTE count of residents for purposes of direct GME may not
exceed the hospital's unweighted FTE count for 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

[[Page 51715]]

discharges occurring on or after October 1, 1997.
The Affordable Care Act made a number of statutory changes relating
to the determination of a hospital's FTE resident count for direct GME
and IME payment purposes and the manner in which FTE resident limits
are calculated and applied to hospitals under certain circumstances.
Section 5503 of the Affordable Care Act added a new section 1886(h)(8)
to the Act to provide for the reduction in FTE resident caps for direct
GME under Medicare for certain hospitals, and to authorize the
``redistribution'' of the estimated number of FTE resident slots to
other qualified hospitals. In addition, section 5503 amended section
1886(d)(5)(B)(v) of the Act to require the application of section
1886(h)(8) of the Act provisions ``in the same manner'' as the FTE
resident caps for IME. The regulations implementing section 5503 of the
Affordable Care Act were included in the Hospital Outpatient
Prospective Payment System final rule with comment period, published on
November 24, 2010 in the Federal Register (75 FR 72147). Section
IV.R.1.b. of this final rule summarizes the provisions of section 5503
of the Affordable Care Act as implemented in the November 24, 2010
Federal Register.
b. Reductions and Increases to Hospitals' FTE Resident Caps for GME
Payment Purposes Under Section 5503 of the Affordable Care Act
As previously discussed, the calculation of both direct GME and IME
payments is affected by the number of FTE residents that a hospital is
allowed to count; generally, the greater the number of FTE residents a
hospital counts, the greater the amount of Medicare direct GME and IME
payments the hospital will receive. In an attempt to end the implicit
incentive for hospitals to increase the number of FTE residents,
Congress instituted a cap on the number of allopathic and osteopathic
residents a hospital is allowed to count for direct GME and IME
purposes. Dental and podiatric residents are not included in this
statutorily mandated cap. Some hospitals have trained a number of
allopathic and osteopathic residents in excess of their FTE resident
caps, while other hospitals have reduced their FTE resident counts to
some level below their FTE resident caps. Section 5503 of the
Affordable Care Act added a new section 1886(h)(8) to the Act to
provide for reductions in the statutory FTE resident caps for direct
GME under Medicare for certain hospitals, and authorizes a
``redistribution'' to hospitals of the estimated number of FTE resident
slots resulting from the reductions. Section 5503 of the Affordable
Care Act also amended section 1886(d)(5)(B)(v) of the Act to require
application of the provisions of section 1886(h)(8) of the Act ``in the
same manner'' to the FTE resident caps for IME.
Section 1886(h)(8)(A) of the Act provides that, effective for
portions of cost reporting periods occurring on or after July 1, 2011,
a hospital's FTE resident cap will be reduced if its ``reference
resident level'' is less than its ``otherwise applicable resident
limit,'' as these terms are described below. Section 1886(h)(8)(A)(ii)
of the Act and the November 24, 2010 Federal Register (75 FR 72147)
describes which hospitals are exempt from a cap reduction under section
5503 of the Affordable Care Act. Included in that group are rural
hospitals with fewer than 250 acute care inpatient beds. For other
hospitals, any such reduction will be equal to 65 percent of the
difference between the hospital's ``otherwise applicable resident
limit'' and its ``reference resident level.''
Under section 1886(h)(8)(B) of the Act, the Secretary is authorized
to increase the FTE resident caps for certain categories of hospitals
for portions of cost reporting periods occurring on or after July 1,
2011, by an aggregate number that does not exceed the estimated overall
reduction in FTE resident caps for all hospitals under section
1886(h)(8)(A) of the Act. A single hospital may receive an increase in
its FTE resident cap of no more than 75 additional FTEs. That is, a
hospital is allowed to receive up to 75 additional slots for direct GME
and up to 75 additional slots for IME. In determining which hospitals
will receive an increase in their FTE resident caps, sections
1886(h)(8)(C) through 1886(h)(8)(E) of the Act directs us to do all of
the following:
Take into account the demonstrated likelihood of the
hospital filling the additional positions within the first three cost
reporting periods beginning on or after July 1, 2011.
Take into account whether the hospital has an accredited
rural training track program.
Distribute 70 percent of the resident slots to hospitals
located in States with resident-to-population ratios in the lowest
quartile.
Distribute 30 percent of the resident slots to hospitals
located in a State, a territory of the United States, or the District
of Columbia that are among the top 10 States, territories, or the
District in terms of the ratio of the total population living in an
area designated as a health professional shortage area (HSPA), as of
March 23, 2010, to the total population, and/or to hospitals located in
rural areas.
A comprehensive description of the rules implementing the cap slot
redistribution under section 1886(h)(8) of the Act can be found in the
November 24, 2010 Federal Register (75 FR 72168).
c. Treatment of Affiliated Groups Under Section 5503 of the Affordable
Care Act
A previous redistribution of ``unused'' FTE resident slots was
performed in 2005 under section 422 of the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (MMA) (Pub. L. 108-173).
Section 422 of the MMA provided for the redistribution of unused
residency positions effective for portions of cost reporting periods
beginning on or after July 1, 2005. While the redistribution under
section 5503 of the Affordable Care Act as initially enacted is similar
to the previous redistribution under section 422 of MMA, there are
substantive differences between the two provisions. One of those
differences involves the treatment of hospitals that were members of
the same Medicare GME affiliated groups for purposes of determining
whether a hospital should receive a cap reduction. The regulations
governing Medicare GME affiliated groups and Medicare GME affiliation
agreements are at 42 CFR 413.75(b) and 413.79(f), respectively.
Medicare GME affiliation agreements allow teaching hospitals to
temporarily transfer cap slots to other hospitals in order to
facilitate the cross-training of residents. The duration of the
temporary cap slots transfer is a minimum of 1 year beginning on July 1
of a year, per the Medicare GME affiliation agreement.
Under section 422 of MMA, the statute explicitly directed the
Secretary to apply the provisions to hospitals that were members of the
same Medicare GME affiliated group as of July 1, 2003. Specifically,
section 1886(h)(7)(A)(iii) of the Act states ``The provisions of clause
(i) shall be applied to hospitals which are members of the same
Medicare GME affiliated group (as defined by the Secretary under
paragraph (4)(H)(ii)) as of July 1, 2003.'' Therefore, in implementing
section 422 of MMA, we based the FTE resident cap reductions for
hospitals that were participating in a Medicare GME affiliated group on
the aggregate cap and count data from all hospitals participating in
the same Medicare GME affiliated group(s). If a hospital was training a
number of

[[Page 51716]]

residents below its FTE resident cap for the reference cost reporting
period but the hospital was part of a Medicare GME affiliated group for
some or all of that reference cost reporting period, the Medicare
contractor determined if the aggregate affiliated count for all
hospitals in the Medicare GME affiliated group was greater than the
aggregate affiliated cap. If the aggregate affiliated count was greater
than the aggregate cap, then there was no reduction made to the FTE
caps of any hospital in the Medicare GME affiliated group (even for the
hospital that was part of the Medicare GME affiliated group, but was
training below its cap).
However, as we noted in the November 24, 2010 Federal Register (75
FR 72161), in contrast to section 422 of MMA, section 5503 of the
Affordable Care Act as initially enacted did not include language
specific to Medicare GME affiliated groups as was included in section
422 of MMA under section 1886(h)(7)(A)(iii) of the Act. Thus, section
5503 of the Affordable Care Act as initially enacted did not provide
for determinations based on the aggregate experience of a Medicare GME
affiliated group. Therefore, we stated in the November 24, 2010 Federal
Register (75 FR 72161), that the determination of whether a hospital
would receive a cap reduction based on that individual hospital's
experience and not the aggregate experience of the Medicare GME
affiliated group.
d. Section 203 of the Medicare and Medicaid Extenders Act of 2010 (Pub.
L. 111-309)
Section 203 of the Medicare and Medicaid Extenders Act of 2010
(MMEA) further amended section 1886(h)(8) of the Act by adding a new
subparagraph (I) which reads: ``(I) Affiliation.--The provisions of
this paragraph shall be applied to hospitals which are members of the
same affiliated group (as defined by the Secretary under paragraph
(4)(H)(ii)) and the reference resident level for each such hospital
shall be the reference resident level with respect to the cost
reporting period that results in the smallest difference between the
reference resident level and the otherwise applicable resident limit.''
This subparagraph refers to the treatment of hospitals that are members
of the same Medicare GME affiliated groups, as described in section
IV.R.1.c. of this final rule for purposes of determining a hospital's
possible cap reductions under section 1886(h)(8)(A) of the Act. Similar
to section 422 of MMA, this amendment to the language at section
1886(h)(8) of the Act allows us to consider hospitals that are members
of the same Medicare GME affiliated group in the aggregate, rather than
only on an individual basis, for the purposes of determining a GME FTE
cap reduction.
Although this amendment allows us to implement section 5503 of the
Affordable Care Act in a manner similar to section 422 of MMA, a key
difference in implementation remains. One point of note is that section
422 of MMA (section 1886(h)(7)(A)(ii)(I) of the Act) refers to the most
recent cost reporting period ending on or before September 30, 2002, as
the reference cost reporting period. However, as stated in the August
11, 2004 Federal Register (69 FR 49125), if a hospital was a member of
a Medicare GME affiliated group for the academic year beginning July 1,
2003, its reference cost reporting period was the cost reporting period
that included July 1, 2003. This differs from section 5503 of the
Affordable Care Act, which instructs the Secretary to choose the
reference cost reporting period out of the hospital's three most recent
cost reporting periods ending before March 23, 2010, for which a cost
report has been settled or has been submitted to the Medicare
contractor by March 23, 2010, that has the highest FTE resident count
(section 1886(h)(8)(H)(i) of the Act).
For hospitals that were members of the same Medicare GME affiliated
groups, the MMEA now allows us to determine the reference cost
reporting period as the cost reporting period out of the hospitals
three most recent cost reporting periods ending before March 23, 2010,
for which a cost report has been settled or has been submitted to the
Medicare contractor by March 23, 2010, with the smallest difference
between the reference resident level and the otherwise applicable
resident limit (section 1886)(h)(8)(I) of the Act). Therefore, based on
the amendment made to section 1886(h)(8) of the Act by section 203 of
the MMEA of adding subparagraph (I), in the interim final rule with
comment period, we established a methodology to determine whether a
hospital is subject to a cap reduction under section 5503 of the
Affordable Care Act based on that hospital's participation in a
Medicare GME affiliated group(s) or an emergency Medicare GME
affiliated group under 42 CFR 413.79(f). Although the MMEA provision
applies to both regular Medicare GME affiliation agreements and
emergency Medicare GME affiliation agreements, for ease of reference,
we refer in this discussion to both with the phrase ``Medicare GME
affiliation agreements.'' We believe that the purpose of section 203 of
MMEA is to amend section 1886(h)(8) of the Act in order to implement
section 5503 of the Affordable Care Act in a manner that is similar to
section 422 of MMA with regard to treatment of hospitals that are
members of the same Medicare GME affiliated group. Accordingly, we are
implementing section 203 of the MMEA in a manner similar to the way in
which section 422 of MMA was implemented. The methodology used to
determine a cap reduction for hospitals that are members of the same
affiliated group is as follows:
Part 1: Determine the ``Reference Cost Reporting Period''
The Medicare contractor will assess each hospital on an individual
basis. First, the Medicare contractor will determine whether a hospital
was a member of a Medicare GME affiliated group at any point during any
of the hospital's three most recent cost reporting periods ending
before March 23, 2010, for which a cost report has been settled or has
been submitted to the Medicare contractor by March 23, 2010. That is,
the Medicare contractor will determine whether the caps during any of
those three cost reporting periods were revised because the hospital
was a member of a Medicare affiliation agreement. If a hospital was not
a member of a Medicare GME affiliated group during any of those three
cost reporting periods, the Medicare contractor will determine if and
by how much that hospital's FTE resident caps should be reduced in
accordance with the policy established in the November 24, 2010 final
rule (75 FR 72155 through 72168).
If the Medicare contractor determines that a hospital was a member
of a Medicare GME affiliated group at any point during any of the three
most recent cost reporting periods ending before March 23, 2010 for
which a cost report has been settled or has been submitted to the
Medicare contractor by March 23, 2010, subparagraph (I) of section
1886(h)(8) of the Act applies, and the Medicare contractor will
determine a hospital's reference cost reporting period by determining
the cost reporting period from the three most recent cost reporting
periods ending before March 23, 2010, for which a cost report has been
settled or has been submitted to the Medicare contractor by March 23,
2010, that results in the smallest difference between the reference
resident level and the otherwise applicable resident limit. For
example, a hospital with a FYE of December 31 may not be a member of a
Medicare GME affiliated group for the

[[Page 51717]]

academic years beginning July 1, 2006, 2007, or 2008, but it may be a
member of a Medicare GME affiliated group for the academic year
beginning July 1, 2005. In the cost reporting period ending December
31, 2006, the months of January through June 2006 would be affected by
the July 1, 2005 Medicare GME affiliation agreement. Therefore, in this
example, the hospital is indeed a member of a Medicare GME affiliated
group at some point, albeit for only a portion of a cost reporting
period, during its three most recent cost reporting periods ending
before March 23, 2010, for which a cost report has been settled or has
been submitted to the Medicare contractor by March 23, 2010 (in this
case, these cost reporting periods would include FYE December 31, 2008,
FYE December 31, 2007, and FYE December 31, 2006), and as such its
reference cost reporting period would be determined as the cost
reporting period that results in the smallest difference between the
reference resident level and the otherwise applicable resident limit.
As previously discussed, section 422 of the MMA specified a single time
period that would be used for all hospitals that were members of a
Medicare GME affiliated group; that is as of July 1, 2003. However,
section 5503 of the Affordable Care Act does not specify one cost
reporting period, but rather it specifies that the reference cost
reporting period is one out of three possible cost reporting periods.
For a hospital that was a member of a Medicare GME affiliated group at
any point during any of the three applicable cost reporting periods,
after determining the cost report that is a hospital's reference cost
reporting period based on the cost report that results in the smallest
difference between the reference resident level and the otherwise
applicable resident limit, to determine whether there are any excess
slots we believe it is appropriate to consider whether a hospital was a
member of a Medicare GME affiliated group as of July 1 of that
reference cost reporting period. The hospital may or may not have been
a member of a Medicare GME affiliated group during that reference cost
reporting period. We do not believe that section 1886(h)(8)(I) of the
Act, as added by section 203 of the MMEA, requires that a hospital must
be a member of a Medicare GME affiliated group during all 3 cost
reporting periods, nor during the year determined to be the reference
cost reporting period. Rather, being a member of a Medicare GME
affiliated group at some point in only one of the three cost reporting
periods warrants that a hospital's reference cost reporting period be
determined based on which cost report has the smallest difference
between the reference resident level and the otherwise applicable
resident limit. To determine if an FTE resident cap reduction is
appropriate, if the hospital was a member of a Medicare GME affiliated
group as of July 1 in the reference cost reporting period, we will look
at the Medicare GME affiliated group in the aggregate, when we
determine if the subject hospital has excess capacity for purposes of a
reduction under sections 5503 and 203. If the hospital was not a member
of a Medicare GME affiliated group as of July 1 in the reference cost
reporting period, excess FTEs training at other members of the
affiliated group will not be considered for the purposes of a reduction
under sections 5503 and 203 and that hospital's FTE resident caps
should be reduced in accordance with the policy established for
hospitals that are not members of Medicare GME affiliated groups in the
November 24, 2010 final rule (75 FR 72155 through 72168). The nature of
this determination underscores the fact that reductions to the FTE
resident caps of hospitals that are members of Medicare GME affiliated
groups must still be made on an individual hospital basis. The
following is an example of a reference cost reporting period
determination. (For ease of illustration, this example focuses on
reductions to the IME FTE resident caps only, but the methodology is
the same for reductions to the direct GME FTE resident caps):
Hospital A has a FTE resident cap of 10 FTE residents. Hospital A's
three most recent cost reports that have been settled or submitted to
the Medicare contractor by March 23, 2010 include cost reporting
periods with FYE 12/31/2006, 12/31/2007, and 12/31/2008. During these
three cost reporting periods, Hospital A trained 8, 9, and 9 FTE
residents, respectively. For the academic years beginning July 1, 2006
and July 1, 2007, Hospital A was not a member of a Medicare GME
affiliated group. However, for the academic year beginning July 1,
2008, Hospital A is affiliated with Hospital B and Hospital C. As a
result of its Medicare GME affiliation agreement with Hospitals B and
C, Hospital A's adjusted cap or otherwise applicable resident limit is
12 for the academic year beginning July 1, 2008. Thus, when determining
the reference cost reporting period for Hospital A, the Medicare
contractor would compare the resident level for Hospital A with its
otherwise applicable resident limit for each of the cost reporting
period as indicated below:

Cost Reporting Period 1 (01/01/2006-12/31/2006): 10 (FTE
Resident Cap)--8 (FTE Resident Count) = 2
Cost Reporting Period 2 (01/01/2007-12/31/2007): 10 (FTE
Resident Cap)--9 (FTE Resident Count) = 1
Cost Reporting Period 3 (01/01/2008-12/31/2008): 11 (Adjusted
FTE Resident Cap)--9 (FTE Resident Count) = 2

(Note that although Hospital A received an increase of 2 FTEs, from 10
to 12, under the Medicare GME affiliation agreement for the academic
year beginning July 1, 2008, since Hospital A has a 12/31 fiscal year
end, the actual cap adjustment is prorated to half of 2, for an
increase to its FTE resident cap of 1, equaling 11). In this example,
the smallest difference between the reference resident level and the
otherwise applicable resident limit for Hospital A is 1, which occurs
in the cost reporting period with FYE 12/31/2007. Thus, Hospital A's
reference cost reporting period is 01/01/2007-12/31/2007. Note that
Hospital A is not a member of a Medicare GME affiliated group during
FYE 12/31/07. The implications of this are discussed below.
Part 2: Determine the Applicable Reductions
For a hospital that was a member of a Medicare GME affiliated group
at any point during any of its three most recent cost reporting periods
ending before March 23, 2010, for which a cost report has been settled
or has been submitted to the Medicare contractor by March 23, 2010,
once the Medicare contractor determines that hospital's reference cost
reporting period (that is, the cost report with the smallest difference
between the hospital's FTE resident cap and FTE resident count), the
Medicare contractor must then determine if the hospital was a member of
a Medicare GME affiliated group as of the July 1 that occurs during
that reference cost reporting period. If not, and the hospital's FTE
resident count was equal to or exceeded its FTE resident cap in that
reference cost report, no reduction to its FTE resident cap is made and
no further steps are necessary. If that hospital's FTE resident count
was less than its FTE resident cap during that reference cost report,
then the Medicare contractor would reduce the FTE resident cap by 65
percent of the difference between the FTE resident cap and the FTE
resident count.
If the hospital was a member of a Medicare GME affiliated group as
of the July 1 that occurs during that reference

[[Page 51718]]

cost reporting period, the Medicare contractor will look at the members
of the Medicare GME affiliated group for that period in the aggregate,
for the purpose of determining a reduction to the particular hospital's
FTE resident cap. In other words, assuming the Medicare contractor is
assessing Hospital X, once it is determined that Hospital X was
training residents below its adjusted FTE resident cap as part of a
Medicare GME affiliation agreement occurring during Hospital X's
reference cost reporting period, the Medicare contractor will treat the
hospitals in the Medicare GME affiliated group in the aggregate, but
only for the purpose of determining the reduction to Hospital X's FTE
resident cap. The Medicare contractor will not actually reduce the FTE
resident caps of the other hospitals that were affiliated with Hospital
X in that year because each hospital is evaluated separately, and it
may be that the reference cost reporting periods for the other
hospitals may not be the same as Hospital X's reference cost reporting
period. (It may be that the reference cost reporting period for another
hospital is one in which that hospital was not part of a Medicare GME
affiliated group, in which case, treatment as a group is not warranted
when determining that hospital's FTE cap reduction).
For the hospital that was a member of a Medicare GME affiliated
group as of the July 1 that occurs during that reference cost report,
the Medicare contractor will determine for each hospital in the
Medicare GME affiliated group respectively its FTE resident cap and FTE
resident count (IME and direct GME separately). The Medicare contractor
will add each hospital's FTE resident caps (IME and direct GME
separately) to determine the aggregate affiliated FTE resident cap. The
contractor will then add each hospital's FTE resident count (IME and
direct GME separately) to determine the aggregate affiliated FTE
resident count. If the aggregate FTE resident counts are equal to or
exceed the aggregate FTE resident caps, no reductions would be made to
that particular hospital's FTE resident cap under section 5503 of
Affordable Care Act, and no further steps are necessary for that
hospital. We emphasize that at this point, the contractor has only
determined that the particular hospital will not be subject to an FTE
resident cap reduction--as the FTE resident cap reduction determination
is ultimately one that is done on an individual hospital basis, at this
point the contractor has not made any determinations regarding the
status of the other hospitals that are in the same Medicare GME
affiliated group as the particular hospital under review.
However, where the aggregate FTE resident count is below the
aggregate FTE resident cap (IME and direct GME separately), a reduction
to the particular hospital's FTE resident cap would be necessary. In
these cases, for each hospital that is a member of the same Medicare
GME affiliated group, the Medicare contractor will determine the
following FTE information from the cost report that includes July 1 of
the particular hospital's reference cost reporting period:
(1) The ``1996'' FTE resident cap (as adjusted by new programs, if
applicable) for the hospital under review--For IME, from Worksheet E,
Part A of the Medicare cost report, the sum of lines 3.04 and 3.05. If
the hospital's IME FTE resident cap was reduced under section 422 of
the MMA, subtract from this sum the amount reported on Worksheet E-3,
Part VI, line 13. For direct GME from Worksheet E-3, Part IV of the
Medicare cost report, the sum of lines 3.01 and 3.02. If the hospital's
direct GME FTE resident cap was reduced under section 422 of the MMA,
subtract from this sum the amount reported on Worksheet E-3, Part VI,
line 2.
(2) The ``affiliated'' FTE resident cap for the hospital under
review assessed--For IME, line 3.07; and for direct GME, line 3.04.
(3) The total number of allopathic and osteopathic FTE residents
for the hospital under review--For IME, line 3.08; for direct GME, line
3.05.
(4) The difference between the aggregate ``affiliated'' FTE
resident cap and the total FTE resident counts for all of the
affiliated hospitals--For IME, [sum] line 3.08 minus [sum] (lines 3.04
+ 3.05--applicable section 422 reduction amount); and for direct GME,
[sum] line 3.05 minus [sum] (lines 3.01 + 3.02-- applicable section 422
reduction amount).
(5) For IME, for those hospitals whose FTE resident count from line
3.08 is greater than the ``affiliated'' FTE resident cap on line 3.07,
indicate ``zero.'' For direct GME, for those hospitals whose FTE
resident count from line 3.05 is greater than the ``affiliated'' FTE
resident cap on line 3.04, indicate ``zero.'' For IME, for those
hospitals whose FTE resident count from line 3.08 is less than the
``affiliated'' FTE resident cap on line 3.07, determine the difference
between the hospital's ``affiliated'' FTE resident cap and the
hospital's FTE resident count, line 3.08 minus line 3.07. For direct
GME, for those hospitals whose FTE resident count from line 3.05 is
less than the ``affiliated'' FTE resident cap on line 3.04, determine
the difference between the hospital's ``affiliated'' FTE resident cap
and the hospital's FTE resident count, line 3.05 minus line 3.04.
(6) For IME and direct GME separately, to determine the total
amount by which the FTE resident counts are below the ``affiliated''
FTE resident caps, add the amounts determined under step 5 for all
hospitals that trained fewer residents than its ``affiliated'' FTE
resident caps.
(7) For IME and direct GME separately, determine a pro rata cap
reduction for the hospital under review by dividing the hospital's
specific amount in step 5 by the total amount for all of those
hospitals in step 6, and multiply by the amount in step 4 (that is,
(step 5/step 6) x step 4).
(8) For IME and direct GME separately, determine the actual cap
reduction for the hospital under review by multiplying the pro rata cap
reduction from step 7 by 0.65.
(9) For IME and direct GME separately, determine the reduced FTE
resident cap for the hospital under review by subtracting the actual
cap reduction from step 8 from the ``1996'' FTE resident cap from step
1. This is the hospital's FTE resident cap effective July 1, 2011.
The following is an example of how the reductions to the FTE
resident caps will be determined where the FTE resident counts in the
aggregate for hospitals that were affiliated as of July 1 of the
reference cost reporting period for a particular hospital are below the
hospitals' FTE resident caps in the aggregate. For ease of
illustration, this example focuses on reductions to the IME caps only,
but the methodology is the same for reductions to the direct GME caps.
In this example, the Medicare contractor has determined, using the
methodology from Step 1, that the reference cost reporting period (the
period with smallest difference between the reference resident level
and the otherwise applicable resident limit) for Hospital D is January
1, 2007 to December 31, 2007. The academic year that occurs in this
reference cost reporting period begins July 1, 2007. Hospitals D, E,
and F are members of a Medicare GME affiliated group for the academic
year that begins July 1, 2007. Hospital D is also separately affiliated
with Hospitals G and H for the academic year that begins July 1, 2007.
Thus, the affiliated group for GME payment purposes, and for purposes
of determining possible FTE cap reductions for Hospital D under
subparagraph (I) consists of Hospitals D, E, F, G, and H. Hospital E's
cost report

[[Page 51719]]

that includes July 1, 2007 is FYE June 30, 2008. Hospital D's, F's, and
G's cost report that includes July 1, 2007 is their FYE December 31,
2007, and Hospital H's cost report that includes July 1, 2007 is its
FYE September 30, 2007. Using steps 1 through 9 above, the reduction to
the FTE resident caps for Hospital D is determined in the table below.
[GRAPHIC] [TIFF OMITTED] TR18AU11.018

In this example, Hospital D's FTE resident count of 75 was 15 less
than its ``affiliated'' FTE resident cap of 90, and Hospital H's FTE
resident count of 65 was 60 less than its ``affiliated'' FTE resident
cap of 125 (as determined under step 5). Hospital F's ``affiliated''
FTE resident cap equaled its FTE resident count. Under this
methodology, the fact that Hospitals E and G exceeded their respective
``affiliated'' FTE resident caps minimizes the reductions to Hospital
D's ``1996'' FTE resident caps through the calculation of a pro rata
reduction under step 7.
We note that although Hospital H is also under its cap; its cap is
not reduced in this exercise. Under section 5503, the cap reduction
determination is calculated individually for each hospital based on its
individual reference cost reporting period, so each hospital would be
evaluated for a possible reduction separately. Hospital H will be
evaluated separately, and it may be that Hospital H's reference cost
report may not be its FYE September 30, 2007 cost report, and
ultimately, Hospital H may or may not be subject to an FTE resident cap
reduction. Thus, under step 8, the actual cap reduction of 5.2 FTEs for
Hospital D is determined by taking 65 percent of 8 (rather than 65
percent of 15). As a result, under step 9, Hospital D's final FTE
resident cap effective on July 1, 2011 is determined to be 109.8 FTEs.
We also note that the reduction to Hospital D's ``1996'' FTE
resident caps was minimized only because Hospitals E and G exceeded
their ``affiliated'' FTE resident caps. If all hospitals in the
Medicare GME affiliated group had trained residents below their
``affiliated'' FTE resident caps, a pro rata reduction would not
benefit Hospital D. In that case, the ``1996'' FTE resident caps of
Hospital D in the Medicare GME affiliated group would be reduced by 65
percent of the difference between its ``affiliated'' FTE resident cap
and FTE resident count.
We believe this final policy is similar to the method used to
implement section 422 of the MMA with regard to hospitals that were
members of the same Medicare GME affiliated group in that, as under
section 422 of the MMA, we are only treating a hospital as part of a
group if the hospital was a member of a Medicare GME affiliation
agreement during its reference cost reporting period under section
1886(h)(8) of the Act. In implementing section 203 of the MMEA in this
manner, we believe we have addressed the concerns raised by commenters
in response to the August 3, 2010 proposed rule (75 FR 46395) in that
this policy could protect hospitals from a loss of slots if the
aggregate counts equal to or exceed the ``affiliated''' FTE resident
caps, and could limit the loss of slots in the instance where a
hospital is a member of a Medicare GME affiliated group and the
aggregate counts are below the ``affiliated'' FTE resident caps.
2. Summary of the Provisions of the Interim Final Rule With Comment
Period
As stated earlier, in the final rule published in the November 24,
2010 Federal Register (75 FR 71800), we implemented section 5503 of the
Affordable Care Act, which added a new section 1886(h)(8) to the Act.
Section 5503 of the Affordable Care Act provides for reductions in the
statutory FTE resident caps for direct GME under Medicare for certain
hospitals, and authorizes a ``redistribution'' to hospitals of the
estimated number of FTE resident slots resulting from the reductions.
Section 5503 of the Affordable Care Act also amended section
1886(d)(5)(B)(v) of the Act to require application of the provisions of
section 1886(h)(8) of the Act ``in the same manner'' to the FTE
resident caps for IME. Section 1886(h)(8) of the Act requires that any
such reduction to the FTE resident caps will be equal to 65 percent of
the difference between the hospital's ``otherwise applicable resident
limit'' and its ``reference resident level.'' Section 5503 of the
Affordable Care Act as initially enacted did not include language
specific to Medicare GME affiliated groups and did not provide for FTE
resident cap reduction determinations based on the aggregate experience
of a Medicare GME affiliated group. Accordingly, section 203 of the
MMEA further amended section 1886(h)(8) of the Act to specify that the
provisions of section 1886(h)(8) of the Act shall be applied to
hospitals which are members of the same Medicare GME affiliated group,
and the ``reference resident level'' for each such hospital is the FTE
resident count from the cost reporting period that results in the
smallest difference between the FTE resident count and the FTE resident
cap. In the March 14, 2011 interim final rule with comment period, we
implemented section 203 of the MMEA relating to the treatment of
teaching hospitals that are members of the same Medicare graduate
medical education affiliated groups for the purpose of determining
possible full-time equivalent resident cap reductions. We also revised
Sec. 413.79(m)(7) of our regulations to

[[Page 51720]]

reflect the changes made by section 203 of the MMEA.
3. Summary of Public Comments, Departmental Responses, and Statements
of Final Policies
a. Summary of Public Comments and Departmental Responses
Comment: Several commenters supported CMS' interpretation and
implementation of section 203 of the MMEA. One commenter believed that
CMS has ``very reasonably'' addressed a complex issue, considering that
the Affordable Care Act requires that multiple cost reporting periods
be referenced to determine possible cap reductions, and the MMEA's
intent that CMS consider affiliated group participation in deciding the
appropriate level of cap reductions. Commenters stated that they
recognized the challenges and complexities of the implementation of
section 203 of the MMEA, but that CMS' methodology is reasonable. Given
the complexities of implementation, commenters urged CMS to review
public comments received on the interim final rule with comment period
very carefully and make modifications if necessary.
Response: We appreciate the commenters' support and recognition of
our efforts to develop a process that is as fair, reasonable, and
intuitive as possible within the statutory guidelines for determining
if and by how much the FTE resident caps of hospitals that were members
of Medicare GME affiliated groups will be reduced. Likewise, we have
made sure that we applied deliberate, thoughtful, and equitable
treatment in reviewing and responding to public comments we received on
the interim final rule with comment period.
Comment: Commenters suggested that CMS test its methodology for
validity because it is difficult to assess such a national policy on
hospital-specific reductions. Commenters asked CMS to compare the sum
of the cap reductions that result from the methodology in the interim
final rule with comment period to the result that would have occurred
in the absence of the interim final rule with comment period in order
to avoid inappropriate results. Moreover, commenters stated that these
checks should be performed for each affiliated group, and for each
individual hospital, to ensure that all reductions are not
counterintuitive, or that a hospital would not be getting a greater
reduction under application of the MMEA methodology, than in the
absence of being treated as part of an affiliated group.
One commenter stated that it did not believe it was the expectation
of Congress that the inclusion of section 203 within the MMEA would
result in only minor changes in the overall results of the reduction
determinations made under section 5503 of the Affordable Care Act.
Thus, this commenter believed that CMS should implement a ``global
check'' to ensure that the resulting reductions applied to all
affiliated groups sum to significantly less than would have been the
case absent the application of this methodology.
Response: As the commenters have already acknowledged, it was
difficult to devise a methodology for applying a pro rata reduction to
the FTE resident caps of hospitals that were in Medicare GME affiliated
groups during their reference cost reporting period. This is because we
had to examine FTE resident caps and counts over a 3-year period, not
under a single one as under section 422 of the MMA, and account for the
fact that, for hospitals in Medicare GME affiliated groups, FTE
resident caps and counts could vary over those 3-year periods.
Determining if and when to apply section 203 of the MMEA at the
individual hospital level or at the affiliated group level was somewhat
challenging. Nevertheless, given the fluid dynamics of Medicare GME
Affiliated groups that result from sharing FTE resident caps and
resident rotations, we understood that under any mathematical formula
that could be applied, there could be the potential for unexpected
results and unintended consequences. In recognition of this challenge,
we, in conjunction with the Medicare contractors, made sure that in
each instance that the pro rata reduction was applied, the FTE resident
cap reduction to an affiliated hospital was less than the reduction
that it would have received in the absence of the section 203 of the
MMEA and being treated as part of a Medicare GME affiliated group. In
other words, in all cases, we made sure that each affiliated group and
each hospital only benefited from treatment as a group. Furthermore, we
also ensured that if an FTE resident cap reduction was warranted at the
individual hospital level, no other hospital in the affiliated group
was negatively impacted by the pro rata reduction that occurred to an
individual hospital. That is, because, as we explained in the interim
final rule with comment period (76 FR 13518 and 13519), the Medicare
contractor was to assess each hospital and ultimately make an FTE
resident cap reduction on an individual basis, other hospitals in the
Medicare GME affiliated group whose FTE resident counts exceeded their
applicable FTE resident caps during their reference cost reporting
periods would not be receiving FTE cap reductions, and would not be
impacted.
Comment: One commenter asked CMS to clarify the impact on the
redistribution of ``unused'' IME cap slots when a Medicare GME
affiliated group includes a hospital that reports and receives only
direct GME reimbursement (for example, a children's or cancer
hospital). The commenter stated that because the residents would likely
qualify for IME payments at an IPPS hospital, it would seem
inappropriate to reduce the aggregate IME cap of the affiliated group
simply because IME slots were being used by a non-IME hospital. (The
commenter also noted that, with regard to HRSA's Children's GME Payment
Program (CHGME), HRSA advised children's hospitals receiving cap slots
under a Medicare GME Affiliation Agreement with an IPPS hospital to
share only the direct GME cap and not the IME cap.)
Response: Because children's hospitals are excluded from payment
under the IPPS under section 1886(d) of the Act, they do not receive
IME payment and they do not have IME FTE caps for Medicare purposes.
``IME caps'' that have been assigned to children's hospitals under
HRSA's CHGME program have no bearing on Medicare payment. Children's
hospitals with approved medical residency training programs only
receive direct GME payments from Medicare and, therefore, only have
direct GME FTE resident caps. Therefore, when a children's hospital is
part of a Medicare GME affiliation agreement with an IPPS hospital,
while direct GME FTE resident cap slots may be transferred between the
two facilities, the amount entered for the IME FTE resident cap slots
should be ``zero'' or ``not applicable.'' (We note that the same is
true for teaching IRFs or IPFs that affiliate with IPPS hospitals. The
IME teaching adjustment under the IRF PPS and the IPF PPS has no
bearing on the IPPS, and should not be reflected in Medicare GME
affiliation agreements).
We disagree with the commenter who believed that we are reducing
the aggregate IME cap of the affiliated group simply because IME slots
are being used by a hospital that does not receive payment under the
IPPS. Rather, we believe that under section 5503 of the Affordable Care
Act, the FTE resident caps of hospitals, affiliated or not, are being
reduced in the instance where there is excess capacity between the

[[Page 51721]]

hospital's FTE resident cap and FTE resident count. If, under the
Medicare GME affiliation agreement, an IPPS hospital sends FTE slots
and residents to a children's hospital, only direct GME FTE slots are
being transferred. IME slots remain with the IPPS hospital, and if they
are not actually being used by the IPPS hospital, there is excess IME
capacity. Thus, if, in the Medicare GME affiliated group as a whole,
the aggregate IME FTE resident cap exceeds the aggregate IME FTE
resident count (that is, there is excess capacity), whether or not a
children's hospital is one of the hospitals in the affiliated group,
one or more of the hospitals in that affiliated group will ultimately
be subject to a reduction to its FTE resident cap. (Because a
children's hospital has no IME cap, it will obviously not be the
hospital subject to the IME FTE resident cap reduction.)
Comment: One commenter asked CMS to confirm that the ``actual cap
reduction'' cannot exceed the ``1996'' FTE cap for a hospital that was
a member of a Medicare GME affiliated group during their reference cost
reporting period. Specially, the commenter asked for confirmation that
a hospital with a ``1996'' FTE cap of zero would never have an FTE cap
reduction. The commenter stated that they assumed no hospital would be
assigned a negative ``final FTE cap'' effective July 1, 2011.
Response: The commenter is correct that an FTE resident cap
reduction under section 5503 of the Affordable Care Act, consistent
with section 422 of the MMA, cannot exceed the amount in a hospital's
1996 FTE resident cap (including applicable add-ons for new programs
under Sec. 413.79(e) of the regulations). Further, an FTE resident cap
cannot be reduced below zero, nor would an FTE resident cap that is
already zero be further reduced.
Comment: Commenters reiterated that it is Congress' position that
only unused slots be removed from hospitals subject to section 5503 of
the Affordable Care Act and, therefore, asked CMS to consider the most
recent cost reporting data available, specifically from the academic
year 2010, in the implementation of section 5503. These commenters
asserted that section 203 of the MMEA applies to ``hospitals which are
members of the same affiliated group (emphasis added),'' and that it is
effective ``as if included in the enactment of section 5503(a)'' of the
Affordable Care Act. The commenters stressed that the statute did not
state that the provision pertains to ``hospitals that were members of
the same affiliated group.'' The commenters argued that ``without
explanation,'' the interim final rule with comment period applies the
protections of the MMEA only to those hospitals that were affiliated
prior to the 2010 academic year, which is contrary to the plain reading
of the statute. Rather, the commenters believed that a hospital that
was in an affiliated group on the date the ACA was enacted is entitled
to protection under the MMEA.
Response: We disagree with the commenters that the plain reading of
the statute requires that the protections of the MMEA regarding being a
member of a Medicare GME affiliated group be applied to hospitals that
``are'' members of the same affiliated group ``as of the date of
enactment'' (that is, March 23, 2010) because the MMEA is effective
``as if included in the enactment of section 5503(a)'' of the
Affordable Care Act. Rather, we believe that the plain reading of the
language that section 203 of the MMEA is effective ``as if included in
the enactment of section 5503(a)'' of the Affordable Care Act means
that (1) the provisions of section 5503 should be applied to affiliated
hospitals (that is, consideration as a group should be given, not only
at the individual hospital level), and (2) for these affiliated
hospitals, the reference resident level for each such hospital shall be
the reference resident level with respect to the cost reporting period
that results in the smallest difference between the reference resident
level and the otherwise applicable resident limit. Section 203 of the
MMEA did not in any way make any changes to the Affordable Care Act
timeframe of the reference cost reporting periods. Rather, section 203
of the MMEA only stated that, for a hospital that is part of a Medicare
GME affiliated group, that reference period should be the one that
results in the smallest difference between the FTE resident cap and the
FTE resident count. As a result, even for hospitals that are
affiliated, their reference cost reporting period would be chosen from
the very same reference cost reporting periods as nonaffiliated
hospitals; that is, any of the three most recent cost reporting periods
ending before March 23, 2010, for which a cost report has been settled
or has been submitted to the Medicare contractor by March 23, 2010.
Therefore, the fact that a hospital was affiliated as of March 23,
2010, has no bearing on the choice of the reference cost reporting
period. Because the MMEA did not revise the rule regarding the
timeframe for the reference cost reporting periods, the hospital's cost
report for its academic year 2010 cannot be used as the hospital's
reference cost reporting period.
Comment: Commenters made the following suggestions on how CMS
should properly implement section 203 of the MMEA:
(1) Consistent with the method that CMS initially proposed for
implementing the provision for affiliated hospitals under section 422
of the MMA, use the adjusted FTE cap from the Medicare GME affiliation
agreement in effect for academic year 2010, while determining the FTE
count from whichever cost reporting period CMS would otherwise use.
(2) Use the adjusted FTE cap and the FTE count from a cost
reporting period that at least partially overlaps academic year 2010.
For a hospital with a December 31 fiscal year end, this period would be
its fiscal year 2009 cost reporting period. The commenter also stated
that where the adjusted FTE caps for those earlier periods is favorable
to hospitals; it had no objection to CMS' exercise of its discretion to
use those earlier period adjusted FTE caps in its FTE cap reduction
calculation. However, for hospitals that were in an affiliated group
only in academic year 2010, the commenter asserted that the legislation
requires that CMS take the corresponding agreement into account in its
calculations.
(3) Allow the hospital to show that it has slots approved within
the past 3 years that remained unfilled, accounting for at least 5
percent of the hospital's unadjusted 1996 FTE caps;
(4) Consider whether the hospital has evidence of cross-training
activities in years prior to academic year 2010. In the commenter's
case, the commenter alleged that two hospitals had been ``training
partners since 2006,'' but as a result of a ``mere oversight,'' they
had not entered into a Medicare GME affiliation agreement until July 1,
2009. The commenter asserted that ``nothing about the joint training,
however, could be characterized as a `rushed attempt to avoid a cap
reduction.' ''
Response: In response to the commenters' first recommendation, the
portion of section 422 of the MMA that is relevant to hospitals that
were part of a Medicare GME affiliated group is implemented at section
1886(h)(7)(A)(iii) of the Act, which states, ``the provisions of clause
(i) shall be applied to hospitals which are members of the same
affiliated group * * * as of July 1, 2003.'' As we explained in the
August 11, 2004 final rule (69 FR 49126), ``we proposed to interpret
clause (i) to mean that the Secretary is to use a hospital's July 1,
2003 `affiliated' FTE resident cap as the otherwise applicable FTE
resident cap when determining a possible reduction

[[Page 51722]]

to the FTE resident cap. In other words, if a hospital is affiliated as
of July 1, 2003, we proposed to superimpose the `affiliated' FTE
resident cap onto the hospital's reference cost reporting period * * *
If a hospital is part of a Medicare affiliated group for the program
year beginning July 1, 2003, we are proposing to compare the hospital's
July 1, 2003 `affiliated' FTE resident cap to its resident level on the
most recent cost report ending on or before September 30, 2002.''
We did not finalize this approach under the MMA because we received
public comments that opposed this approach and ``expressed great
concern regarding the proposed methodology whereby a hospital's
`affiliated' FTE resident cap for the period July 1, 2003 to June 30,
2004 would be compared to the hospital resident FTE counts
corresponding to a different (in some cases, not even overlapping)
period for purposes of section 422'' (69 FR 49128). Those commenters
stated that CMS should provide the most straightforward option and that
``it would not `make sense' to reduce the FTE resident cap of a
hospital based on a comparison of its cap in an affiliation agreement
that was from a period different than its reference cost reporting
period. Therefore, most commenters generally recommended that each
hospital's specific July 1, 2003 `affiliated' FTE resident cap should
be compared to its FTE resident count for the July 1, 2003 through June
30, 2004 academic year, while one commenter recommended that CMS allow
each hospital to elect whether to have its specific July 1, 2003
`affiliated' FTE resident cap compared to its FTE resident count for
the [cost reporting] period July 1, 2003 to June 30, 2004, for purposes
of determining if and by how much the hospital's FTE resident caps
would be reduced'' (69 FR 49128).
As we acknowledged when we implemented section 422 of the MMA,
hospitals either benefit or are disadvantaged somewhat in each instance
that Congress chooses a base year or years for purposes of determining
future payments (69 FR 49129). Similarly, for section 5503 of the
Affordable Care Act, Congress clearly specified the base years, and the
public has been given notice since November 24, 2010, that they consist
of the three most recent cost reporting periods ending before March 23,
2010, for which a cost report has been settled or submitted to the
Medicare contractor by March 23, 2010. We strove to implement section
422 of the MMA in the fairest and most reasonable manner, and we are
making every effort to implement section 5503 of the Affordable Care
Act consistently with section 422 whenever feasible. We believe it is
certainly reasonable to conclude that just as many commenters opposed
our original proposal under section 422 to superimpose the adjusted
affiliated FTE resident cap from the affiliation agreement ``as of July
1, 2003'' onto an earlier reference cost report, many commenters would
again oppose and reject a final similar policy under section 5503.
Therefore, in the case of section 203 of the MMEA, we believe it would
be inappropriate to adopt the position of a small number of commenters
suggesting that we compare an FTE resident cap that applies to a later
Medicare GME affiliation agreement to an FTE resident count from an
earlier cost reporting period.
While the commenters' suggested method in the instant case would
help a particular hospital, because under the July 1, 2009 affiliation
agreement the commenters mentioned, this hospital happened to have
given away slots, thereby reducing its adjusted FTE resident caps, this
method could adversely affect other hospitals that were receiving slots
under the July 1, 2009 affiliation agreement. Therefore, we are not
adopting the commenters' suggestion regarding use of the adjusted FTE
cap from the Medicare GME affiliation agreement in effect for academic
year 2010, while determining the FTE count from whichever cost
reporting period CMS would otherwise use.
We do not agree with the commenters' second suggestion to use the
adjusted FTE resident cap and the FTE resident count from a cost
reporting period that at least partially overlaps the July 1, 2009-June
30, 2010 academic year because this could result in use of a reference
cost report that does not comport with the statutory requirement to use
one of the three most recent cost reporting periods ending before March
23, 2010, for which a cost report has been settled or has been
submitted to the Medicare contractor by March 23, 2010. As the
commenters even noted, for a hospital with a December 31 fiscal year
end, this period would be its fiscal year 2009 cost reporting period.
However, that cost report would not likely have been submitted to the
Medicare contractor by March 23, 2010. The commenters stated that they
have no objection to the use of an earlier cost reporting period where
the adjusted FTE caps for those earlier periods are favorable to a
hospital. However, we do not believe it is appropriate to institute a
policy where hospitals may pick and choose which cost reporting period
would be most favorable to them to use as the reference cost reporting
period. As we stated in response to a comment in the November 24, 2010
final rule (75 FR 72160), ``* * * we do not believe it would be
appropriate to include in the determination of which cost reports are
used to establish a hospital's reference resident level, those cost
reporting periods that occurred at the time the Affordable Care Act was
in development. Rather the cost reporting period used to determine the
reference resident level should be a cost reporting period that
reflects a number of FTE residents that a hospital is accustomed to
training, not a number of FTE residents that is based on a hospital's
rushed attempt to avoid a cap reduction.''
Regarding the commenters' third recommendation, there is no
skirting the issue that there are still unfilled slots. We do not have
the authority to waive cap reductions for any excess capacity, even for
hospitals that may demonstrate that they have been or are consistently
filling almost all of their FTE slots. Regarding the fourth
recommendation, we do not believe there is any validity to considering
whether a hospital had evidence of cross-training activities in years
prior to the July 1, 2009-June 30, 2010 academic year. Evidence of
cross-training does not equate to an actual, formal Medicare GME
affiliation agreement in which responsible representatives of each
hospital agree to exchange FTE resident cap slots. Rather, in
accordance with the long-standing regulations regarding Medicare GME
affiliation agreements at section 413.79(f)(1), a formal agreement must
be submitted to CMS and the Medicare contractor by July 1 of an
academic year in order to effectuate the transfer of FTE slots. We
cannot deem hospitals to be affiliated simply because cross-training
occurred. Accordingly, we are not adopting the commenters' third and
fourth suggestions either.
Comment: Commenters stated that CMS should not be resistant to
changing its policy as expressed in the interim final rule with comment
period out of a concern that doing so would violate the ``logical
outgrowth'' doctrine. The commenters asserted that their comments
addressed the ``exact same'' subject-matter as that addressed in the
interim final rule with comment period, namely implementing section 203
of the MMEA for hospitals that are members of an affiliated group.
Although CMS did not make any proposals pertaining to the use of
academic year 2010 Medicare GME affiliation agreements in the interim
final rule with comment period, the commenter stated that CMS should
have done so as part of ``proper

[[Page 51723]]

rulemaking.'' Further, the commenters asserted that CMS should have
recognized that members of an affiliated group in academic year 2010
are entitled to the protections of the statute; therefore, CMS cannot
use its flawed, incomplete analysis as a basis for rendering its final
implementation decisions deficient as well. In addition, the commenters
argued that CMS has taken latitude in prior rules and in implementing a
similar provision in the MMA, where CMS made major changes between its
proposed rule and final rule concerning cap reductions for affiliated
providers. Lastly, the commenters understood that CMS is unlikely to
apply changes made at this juncture to its calculation of the pool of
slots to be reallocated and as such, there are no affected parties
meriting protection under the logical outgrowth doctrine. Therefore,
based on these arguments, commenters expect CMS to furnish a legal
memorandum that addresses why it is legally impossible for CMS to
revise its interim final rule with comment period.
Response: Contrary to the commenters' assumption, we are not
concerned about logical outgrowth as we do believe that the commenters'
comments are within the scope of the interim final rule with comment
period on determination of possible FTE cap reductions for hospitals
that are members of a Medicare GME affiliated group. Rather, we
disagree with the commenters' arguments both on statutory and policy
grounds, as explained in response to the same commenters' comments
above. (For example, we disagree with the commenters on what the plain
reading of the language at section 203 of the MMEA is, and we disagree
with the commenters that it would be appropriate to include in the
determination of which cost reports are used to establish a hospital's
reference resident level, those cost reporting periods that occurred at
the time the Affordable Care Act was in development). Therefore, we are
not accepting the commenters' recommendations and are finalizing the
methodology for determining if and by how much the FTE resident caps of
hospitals in Medicare GME affiliated groups are to be reduced, as
expressed in the interim final rule with comment period (76 FR 13515).
Comment: Commenters urged CMS to allow hospitals to provide updated
FTE count data to CMS, given the severity of the consequences of the
reductions. Commenters stated that CMS has given its contractors until
December 31, 2011, to finalize their FTE cap reduction audits so there
is sufficient time to review any data that hospitals may furnish them
regarding their actual FTE counts for the cost reporting periods at
issue.
Response: If, by allowing hospitals to provide ``updated'' FTE
count data, the commenters mean that hospitals should be allowed to
provide FTE count data from cost reporting periods after the three
applicable reference cost reporting periods, as we stated above, we do
not believe it would be appropriate to include in the determination of
which cost reports are used to establish a hospital's reference
resident level, those cost reporting periods that occurred at the time
the Affordable Care Act was in development. In response to the
commenters' assertion that because CMS has given its contractors until
December 31, 2011, to finalize FTE cap reduction audits, there is
sufficient time for the contractors to review data regarding actual FTE
counts, as we explained in the November 24, 2010 final rule (75 FR
72154), this provision regarding audits continuing until December 31,
2011, was intended to be used only under certain limited circumstances.
Specifically, we explained that ``there may be instances where the
audits of the reference resident levels may not be completed by July 1,
2011, and that, within the scope of their normal audit work, the
Medicare contractors will complete as many of these audits as possible,
and some of the audits may not be completed until December 31, 2011''
(emphasis added) (75 FR 72154). Thus, the intent was not to require the
Medicare contractors to perform lengthy and protracted reviews
specifically for the purpose of implementing section 5503, nor to allow
hospitals to present additional FTE resident count data in all
instances. Rather, only if additional FTE resident count data was
required by and presented to the contractor within the scope of the
contractor's normal audit work, and that normal audit work would not be
completed by July 1, 2011, it would be permissible for the audit work
to proceed until December 31, 2011. Therefore, as implemented, the
estimate of slots available for redistribution that CMS determined
prior to July 1, 2011, would be relatively close to the number of
available slots that would be determined based on the final audited
data. If we were to allow all hospitals to revise their cost report
data and delay all decisions until December 31, 2011, the estimated
number of slots available for redistribution would be rendered
completely meaningless.
Comment: Commenters expressed general dissatisfaction with caps on
resident FTEs because they believed the caps are outdated. One
commenter expressed dissatisfaction that urban teaching hospitals in
several states were unjustly excluded from receiving resident slots
under section 5503 of the Affordable Care Act.
Response: We thank the commenters for these comments, but note that
they are not within the scope of the interim final rule with comment
period.
b. Final Policies
After consideration of the public comments we received, we are
finalizing all of the provisions set forth in the March 14, 2011
interim final rule with comment period, including the revision of Sec.
413.79(m)(7) of the regulations, without modification.
4. Collection of Information Requirements
This document does not impose information collection and
recordkeeping requirements. Consequently, it need not be reviewed by
the Office of Management and Budget under the authority of the
Paperwork Reduction Act of 1995.

(44 U.S.C. Chapter 35)
5. Regulatory Impact Statement
a. Statement of Need
We need to issue a document that will finalize the provisions of
the March 14, 2011 interim final rule with comment period, including
the regulatory provisions under 42 CFR 413.79(m)(7).
b. Overall Impact
We have examined the impact of this rule as required by Executive
Order 12866 on Regulatory Planning and Review (September 30, 1993),
Executive Order 13563 on Improving Regulation and Regulatory Review
(February 2, 2011), the Regulatory Flexibility Act (RFA) (September 19,
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act,
section 202 of the Unfunded Mandates Reform Act of 1995 (March 22,
1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4,
1999) and the Congressional Review Act (5 U.S.C. 804(2)).
Executive Order 12866 directs agencies to assess all costs and
benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). A regulatory impact
analysis (RIA) must be prepared for major rules with economically
significant effects ($100 million or more

[[Page 51724]]

in any 1 year). This rule does not reach the economic threshold and
thus is not considered a major rule.
In the November 24, 2010 final rule which implemented section 5503
of the Affordable Care Act (75 FR 72239), we mentioned that we were
unable to project how many FTE resident slots will be available for
redistribution under section 5503 of the Affordable Care Act. Unlike
section 422 of the MMA, which also provided for a redistribution of FTE
resident slots but provided that the redistributed slots will be paid
using the national average per resident amount (PRA) for direct GME
payment purposes, section 5503 of the Affordable Care Act requires that
hospitals be paid for their additional FTE resident slots using the
hospitals' specific PRAs. Because we had not yet determined the number
of FTE resident slots that will be redistributed under section 5503 of
the Affordable Care Act or which hospitals will be receiving additional
FTE resident slots, we could not calculate a direct GME impact for
section 5503 of the Affordable Care Act. Similarly, we cannot calculate
a direct GME dollar impact for section 203 of the MMEA.
Because the general effect of section 203 of the MMEA is to protect
from loss or mitigate the loss of slots of hospitals that are members
of a Medicare GME affiliated group, there are fewer direct GME and IME
slots available for redistribution to other hospitals. However, we are
unable to compute a dollar impact on the redistribution of those slots
to other hospitals. First, although there are currently 307 hospitals
that are members of a Medicare GME affiliated group, these hospitals
were not necessarily members of Medicare GME affiliated groups during
the reference cost reporting periods specified by section 5503 of the
Affordable Care Act. Second, since, as of this date, final
determinations have not been made with regard to the number of slots
that all affected hospitals will be losing or receiving, we cannot
determine a financial impact for purposes of direct GME and IME for
this provision.
In the interim final rule with comment period, we solicited public
comment on our analysis. We did not receive any public comments
specific to this impact.
The RFA requires agencies to analyze options for regulatory relief
of small entities, if a rule has a significant impact on a substantial
number of small entities. For purposes of the RFA, small entities
include small businesses, nonprofit organizations, and small
governmental jurisdictions. Most physician practices, hospitals and
other providers are small entities, either by nonprofit status or by
qualifying as small businesses under the Small Business
Administration's size standards (revenues of less than $7.0 to $34.5
million in any 1 year). States and individuals are not included in the
definition of a small entity. For details, see the Small Business
Administration's Web site at http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=2465b064ba6965cc1fbd2eae60854b11&rgn=div8&view=text&node=13:1.0.1.1.16.1.266.9&idno=13.
Individuals and States are not included in the definition of a
small entity.
The RFA requires an agency to prepare an initial regulatory
flexibility analysis when they issue a general notice of proposed
rulemaking. However, HHS has maintained a longstanding policy of
voluntarily preparing initial regulatory flexibility analyses for all
rulemaking. The Secretary has determined that this final rule will not
have a significant economic impact on a substantial number of small
entities.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area for Medicare payment regulations and has fewer than
100 beds. We are not preparing an analysis for section 1102(b) of the
Act because the Secretary has determined that this final rule will not
have a significant impact on the operations of a substantial number of
small rural hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year of $100
million in 1995 dollars, updated annually for inflation. In 2011, that
threshold is approximately $136 million. This rule will have no
consequential effect on State, local, or tribal governments or on the
private sector.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on State
and local governments, preempts State law, or otherwise has Federalism
implications. Because this rule does not impose any costs on State or
local governments, the requirements of Executive Order 13132 are not
applicable.
c. Anticipated Effects
We believe the general effect of section 203 of the MMEA is that it
could protect from loss or mitigate the loss of slots for hospitals
that are members of a Medicare GME affiliated group, and therefore,
there could be fewer direct GME and IME slots available for
redistribution to other hospitals.
d. Alternatives Considered
Although there may be alternatives, the method we are finalizing in
this final rule is the most consistent with that of a similar provision
for hospitals that are members of Medicare GME affiliated groups
implemented as part of section 422 of the MMA.
e. Conclusion
The analysis above, together with the remainder of this preamble,
provides a regulatory flexibility analysis as well as a regulatory
impact analysis. For the reasons outlined in the RIA, we are not
preparing an analysis for either the RFA or section 1102(b) of the Act
because we have determined that this final rule will not have a direct
significant economic impact on a substantial number of small entities
or a direct significant impact on the operations of a substantial
number of small rural hospitals.
In accordance with the provisions of Executive Order 12866, this
rule was reviewed by the Office of Management and Budget.
6. Comment on Issues Outside of the Scope of the Interim Final Rule
With Comment Period
We received one comment regarding nuyrsing and allied health pass-
through payments. This comment is outside of the scope of the interim
final rule with comment period. Therefore, we are not responding to is
in this final rule.

V. Changes to the IPPS for Capital-Related Costs

A. Overview

Section 1886(g) of the Act requires the Secretary to pay for the
capital-related costs of inpatient acute hospital services ``in
accordance with a prospective payment system established by the
Secretary.'' Under the statute, the Secretary has broad authority in
establishing and implementing the IPPS for acute care hospital
inpatient capital-related costs. We initially implemented the IPPS for
capital-related costs in the Federal fiscal year (FY) 1992 IPPS final
rule (56 FR 43358), in which we

[[Page 51725]]

established a 10-year transition period to change the xpayment
methodology for Medicare hospital inpatient capital-related costs from
a reasonable cost-based methodology to a prospective methodology (based
fully on the Federal rate).
FY 2001 was the last year of the 10-year transition period
established to phase in the IPPS for hospital inpatient capital-related
costs. For cost reporting periods beginning in FY 2002, capital IPPS
payments are based solely on the Federal rate for almost all acute care
hospitals (other than hospitals receiving certain exception payments
and certain new hospitals). (We refer readers to the FY 2002 IPPS final
rule (66 FR 39910 through 39914) for additional information on the
methodology used to determine capital IPPS payments to hospitals both
during and after the transition period.) The basic methodology for
determining capital prospective payments using the Federal rate is set
forth in Sec. 412.312 of the regulations. For the purpose of
calculating capital payments for each discharge, currently the standard
Federal rate is adjusted as follows:

(Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment Factor
(GAF)) x (COLA for hospitals located in Alaska and Hawaii) x (1 +
Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if
applicable).

B. Exception Payments

The regulations at Sec. 412.348(f) provide that a hospital may
request an additional payment if the hospital incurs unanticipated
capital expenditures in excess of $5 million due to extraordinary
circumstances beyond the hospital's control. This policy was originally
established for hospitals during the 10-year transition period, but as
we discussed in the FY 2003 IPPS final rule (67 FR 50102), we revised
the regulations at Sec. 412.312 to specify that payments for
extraordinary circumstances are also made for cost reporting periods
after the transition period (that is, cost reporting periods beginning
on or after October 1, 2001). Additional information on the exception
payment for extraordinary circumstances in Sec. 412.348(f) can be
found in the FY 2005 IPPS final rule (69 FR 49185 and 49186).
During the transition period, under Sec. Sec. 412.348(b) through
(e), eligible hospitals could receive regular exception payments. These
exception payments guaranteed a hospital a minimum payment percentage
of its Medicare allowable capital-related costs depending on the class
of the hospital (Sec. 412.348(c)), but were available only during the
10-year transition period. After the end of the transition period,
eligible hospitals can no longer receive this exception payment.
However, for a certain period after the transition period, eligible
hospitals may receive additional payments under the special exceptions
provisions at Sec. 412.348(g), which guarantees all eligible hospitals
a minimum payment of 70 percent of its Medicare allowable capital-
related costs provided that special exceptions payments do not exceed
10 percent of total capital IPPS payments. Hospitals eligible for
special exceptions payments are required to submit documentation to the
fiscal intermediary or MAC indicating the completion date of their
project. Special exceptions payments may be made only for the 10 years
from the cost reporting year in which the hospital completes its
qualifying project, and the hospital must have completed the project no
later than the hospital's cost reporting period beginning before
October 1, 2001. Thus, an eligible hospital may receive special
exceptions payments for up to 10 years beyond the end of the capital
IPPS transition period. Under this limitation on the period for special
exceptions payments at Sec. 412.348(g)(7) of the regulations, FY 2012
is the final year hospitals can receive special exceptions payments.
(For more detailed information regarding the special exceptions policy
under Sec. 412.348(g), we refer readers to the FY 2002 IPPS final rule
(66 FR 39911 through 39914) and the FY 2003 IPPS final rule (67 FR
50102).)

C. New Hospitals

Under the IPPS for capital-related costs, Sec. 412.300(b) of the
regulations defines a new hospital as a hospital that has operated
(under current or previous ownership) for less than 2 years. For
example, the following hospitals are not considered new hospitals: (1)
A hospital that builds new or replacement facilities at the same or
another location, even if coincidental with a change of ownership, a
change in management, or a lease arrangement; (2) a hospital that
closes and subsequently reopens; (3) a hospital that has been in
operation for more than 2 years but has participated in the Medicare
program for less than 2 years; and (4) a hospital that changes its
status from a hospital that is excluded from the IPPS to a hospital
that is subject to the capital IPPS. For more detailed information, we
refer readers to the FY 1992 IPPS final rule (56 FR 43418). During the
10-year transition period, a new hospital was exempt from the capital
IPPS for its first 2 years of operation and was paid 85 percent of its
reasonable costs during that period. Originally, this provision was
effective only through the transition period and, therefore, ended with
cost reporting periods beginning in FY 2002. Because, as discussed in
the FY 2003 IPPS final rule (67 FR 50101), we believe that special
protection to new hospitals is also appropriate even after the
transition period, we revised the regulations at Sec. 412.304(c)(2) to
provide that, for cost reporting periods beginning on or after October
1, 2002, a new hospital (defined under Sec. 412.300(b)) is paid 85
percent of its Medicare allowable capital-related costs through its
first 2 years of operation, unless the new hospital elects to receive
full prospective payment based on 100 percent of the Federal rate. (We
refer readers to the FY 2003 IPPS final rule (67 FR 50101 through
50102) for a detailed discussion of the special payment provisions for
new hospitals under the capital IPPS after the 10-year transition
period.)

D. Hospitals Located in Puerto Rico

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

[[Page 51726]]

Federal rate effective for discharges occurring on or after October 1,
2004.

E. Changes for FY 2012: MS-DRG Documentation and Coding Adjustment

1. Background
In the FY 2008 IPPS final rule with comment period (72 FR 47175
through 47186), we adopted the MS-DRG patient classification system for
the IPPS, effective October 1, 2007, to better recognize patient
severity of illness in Medicare payment rates. Adoption of the MS-DRGs
resulted in the expansion of the number of DRGs from 538 in FY 2007 to
745 in FY 2008. (Currently, there are 747 MS-DRGs, and for FY 2012, we
are adopting 4 additional MS-DRGs (for a total of 751 MS-DRG). By
increasing the number of DRGs and more fully taking into account
patient severity of illness in Medicare payment rates, the MS-DRGs
encourage hospitals to change their documentation and coding of patient
diagnoses. In that same final rule with comment period (72 FR 47183),
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 changes in documentation and coding. Accordingly, we
established adjustments to both the national operating standardized
amount and the national capital Federal rate to eliminate the estimated
effect of changes in documentation and coding resulting from the
adoption of the MS-DRGs that do not reflect real changes in case-mix.
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. However, to comply with section 7(a) of
Public Law 110-90, enacted on September 29, 2007, in a final rule
published in the Federal Register on November 27, 2007 (72 FR 66886
through 66888), we modified the documentation and coding adjustment for
FY 2008 to -0.6 percent, and consequently revised the FY 2008 IPPS
operating and capital payment rates, factors, and thresholds
accordingly, with these revisions effective 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 2008 IPPS final rule with
comment period (72 FR 48447 and 48733 through 48774), we applied an
additional documentation and coding adjustment of -0.9 percent to the
FY 2009 IPPS national standardized amounts and the national capital
Federal rate. The documentation and coding adjustments established in
the FY 2009 IPPS final rule, as amended by Public Law 110-90, are
cumulative. As a result, the -0.9 percent documentation and coding
adjustment in FY 2009 was in addition to the -0.6 percent adjustment in
FY 2008, yielding a combined effect of -1.5 percent. (For additional
details on the development and implementation of the documentation and
coding adjustments for FY 2008 and FY 2009, we refer readers to section
II.D. of this preamble and the following rules published in the Federal
Register: August 22, 2007 (72 FR 47175 through 47186 and 47431 through
47432); November 27, 2007 (72 FR 66886 through 66888); and August 19,
2008 (73 FR 48447 through 48450 and 48773 through 48775).)
In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24092
through 24101), we presented the results of a retrospective evaluation
of the FY 2008 data for claims paid through December 2008. We sought
public comment on our methodology and analysis and our proposal to
apply a prospective adjustment to address the effect of documentation
and coding changes unrelated to changes in real case-mix in FY 2008. In
addition, we sought public comment on addressing in the FY 2011
rulemaking cycle any effect of documentation and coding changes that do
not reflect real changes in case-mix for discharges occurring during FY
2009. However, after consideration of the public comments received on
the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, consistent with the
application of the documentation and coding adjustment to the operating
IPPS standardized amounts, we determined that it would be appropriate
to postpone the adoption of any additional documentation and coding
adjustments to the capital IPPS rates until a full analysis of FY 2009
case-mix changes could be completed (74 FR 43926 through 43928).
For the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24014), we
performed a thorough retrospective evaluation of the most recent
available claims data, and the results of this evaluation were used by
our actuaries to determine any necessary payment adjustments beyond the
cumulative -1.5 percent adjustment that has already been applied to the
national capital Federal rate to ensure budget neutrality for the
implementation of MS-DRGs. Specifically, we performed a retrospective
evaluation of the FY 2009 claims data updated through December 2009
using the same analysis methodology as we did for FY 2008 claims in the
FY 2010 IPPS/RY 2010 LTCH PPS proposed and final rules. Based on this
evaluation, our actuaries determined that the implementation of the MS-
DRG system resulted in a 5.4 percent change in case-mix due to
documentation and coding that did not reflect real changes in case-mix
for discharges occurring during FY 2009. We also noted our intent to
update our analysis with FY 2009 data on claims paid through March 2009
(sic) for the FY 2011 IPPS/LTCH PPS final rule. (We note that the March
2009 update date for claims paid data in the proposed rule should have
stated March 2010.)
As intended, as discussed in the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50355), we updated our analysis with FY 2009 data on claims paid
through March 2010 in that final rule. For the FY 2011 IPPS/LTCH PPS
final rule, applying the same analysis methodology as we did for the
proposed rule to an FY 2009 claims data updated through March 2010
verified the 5.4 percent change in case-mix due to documentation and
coding that did not reflect real changes in case-mix for discharges
occurring during FY 2009. The 5.4 percent estimate of the cumulative
effect of changes in documentation and coding under the MS-DRG system
that did not reflect real changes in case-mix for FYs 2008 and 2009
exceeded the cumulative -1.5 percent prospective documentation and
coding adjustment that had already been applied to the national capital
Federal rate by 3.9 percentage points (5.4 percent minus 1.5 percent).
Therefore, in FY 2011, an additional cumulative adjustment of -3.9
percent to the national capital Federal rate would be necessary to
eliminate the full effect of the documentation and coding changes due
to the adoption of the MS-DRGs on future payments.
Therefore, in that same final rule, under the Secretary's broad
authority under section 1886(g) of the Act, consistent with section
1886(d)(3)(A)(vi) of the Act and section 7(b) of Public Law 110-90, we
implemented an adjustment to the FY 2011 national capital Federal rate
of -2.9 percent to account for part of the effect of the estimated
changes in documentation and coding changes under the MS-DRG system
that occurred in FYs 2008 and 2009 that did not reflect real changes in
case-mix. We also established that we will leave the -2.9 percent
adjustment in place for subsequent fiscal years to account for the
effect of that documentation and coding change in

[[Page 51727]]

subsequent years. Furthermore, we stated our intention to address the
remaining estimated adjustment to the national capital Federal rate of
-1.0 percent (that is, the estimated effect of documentation and coding
changes under the MS-DRG system of -5.4 percent minus the existing -0.6
percent and -0.9 percent adjustments and the -2.9 percent adjustment
for FY 2011) in future rulemaking cycles.
2. Prospective MS-DRG Documentation and Coding Adjustment to the
National Capital Federal Rate for FY 2012 and Subsequent Years
As we stated in the FY 2012 IPPS/LTCH PPS proposed rule, we
continue to believe that it is appropriate to make adjustments to the
capital IPPS rates to eliminate the effect of any documentation and
coding changes as a result of the implementation of the MS-DRGs. These
adjustments are intended to ensure that future annual aggregate IPPS
payments are the same as payments that otherwise would have been made
had the prospective adjustments for documentation and coding applied in
FY 2008 and FY 2009 accurately reflected the changes due to
documentation and coding that occurred in those years. As noted in
section V.A. of the preamble of the proposed rule and this preamble,
under section 1886(g) of the Act, the Secretary has broad authority in
establishing and implementing the IPPS for acute-care hospital
inpatient capital-related costs (that is, the capital IPPS). We have
consistently stated since the initial implementation of the MS-DRG
system that we do not believe it is appropriate for Medicare
expenditures under the capital IPPS to increase due to MS-DRG related
changes in documentation and coding. Accordingly, we believe that it is
appropriate under the Secretary's broad authority under section 1886(g)
of the Act, in conjunction with section 1886(d)(3)(A)(vi) of the Act
and section 7(b) of Public Law 110-90, to make adjustments to the
national capital Federal rate to eliminate the full effect of the
documentation and coding changes resulting from the adoption of the MS-
DRGs. We believe that this is appropriate because, in absence of such
adjustments, the effect of the documentation and coding changes
resulting from the adoption of the MS-DRGs results in inappropriately
high capital IPPS payments because that portion of the increase in
aggregate payments is not due to an increase in patient severity of
illness (and costs).
As discussed above, based on our retrospective evaluation of the FY
2009 claims, our actuaries determined that implementation of the MS-DRG
system resulted in a 5.4 percent change in case-mix due to
documentation and coding that did not reflect real changes in case-mix
for discharges occurring during FY 2009. To date, we have made
adjustments to the national capital Federal rate to account for 4.4
percent (that is, -0.6 percent in FY 2008, -0.9 percent in FY 2009, and
-2.9 percent in FY 2011) of the estimated 5.4 percent documentation and
coding effect. Thus, our current estimate of the remaining adjustment
to the national capital Federal rate is -1.0 percent to account for the
effect of documentation and coding changes under the MS-DRG system for
FYs 2008 and 2009.
In the proposed rule, under the Secretary's broad authority under
section 1886(g) of the Act, in conjunction with section
1886(d)(3)(A)(vi) of the Act and section 7(b) of Public Law 110-90,
consistent with the intention we stated in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50357), we proposed to reduce the national capital
Federal rate in FY 2012 by -1.0 percent to account for the remainder of
the cumulative effect of the estimated changes in documentation and
coding under the MS-DRG system in FYs 2008 and 2009 that did not
reflect real changes in case-mix. Furthermore, consistent with the
documentation and coding adjustments we have made in the past, we
proposed to leave this proposed -1.0 percent adjustment in place for
subsequent fiscal years to account for the effect in FY 2012 and
subsequent years. As explained above, this proposed -1.0 percent
adjustment accounts for the remainder of our current estimate of the
cumulative effect of documentation and coding changes under the MS-DRG
system for FYs 2008 and 2009 of -5.4 percent minus the existing -0.6
percent, -0.9 percent, and -2.9 percent adjustments.
We did not receive any public comments on our proposal to
permanently reduce the national capital Federal rate in FY 2012 by -1.0
percent to account for the remainder of the cumulative effect of the
estimated changes in documentation and coding under the MS-DRG system
that occurred during FYs 2008 and 2009 that did not reflect real
changes in case-mix. (The public comments we received on our
methodology and the magnitude of our estimate of cumulative effect of
the estimated changes in documentation and coding under the MS-DRG
system that occurred during FYs 2008 and 2009 that did not reflect real
changes in case-mix are discussed in section II.D. of this preamble.)
In this final rule, under the Secretary's broad authority under
section 1886(g) of the Act, in conjunction with section
1886(d)(3)(A)(vi) of the Act and section 7(b) of Pub. L. 110-90,
consistent with the intention we stated in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50357), as we proposed, we are reducing the national
capital Federal rate in FY 2012 by -1.0 percent to account for the
remainder of the cumulative effect of the estimated changes in
documentation and coding under the MS-DRG system that occurred during
FYs 2008 and 2009 that did not reflect real changes in case-mix.
Furthermore, consistent with the documentation and coding adjustments
we have made in the past, and as we proposed, we will leave this -1.0
percent adjustment in place for subsequent fiscal years to account for
the effect in FY 2012 and subsequent years. As explained above, this -
1.0 percent adjustment accounts for the remainder of our current
estimate of the cumulative effect of documentation and coding changes
under the MS-DRG system that occurred during FYs 2008 and 2009 of -5.4
percent minus the existing -0.6 percent, -0.9 percent, and -2.9 percent
adjustments.
3. Documentation and Coding Adjustment to the Puerto Rico-Specific
Capital Rate
Under Sec. 412.74, Puerto Rico hospitals are currently paid based
on 75 percent of the national capital Federal rate and 25 percent of
the Puerto Rico-specific capital rate. In the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50358 through 50359), we discussed the retrospective
evaluation of the FY 2009 claims data from the March 2010 update of the
MedPAR file of hospitals located in Puerto Rico using the same
methodology used to estimate documentation and coding changes under
IPPS for non-Puerto Rico hospitals. This analysis shows that the change
in case-mix due to documentation and coding that did not reflect real
changes in case-mix for discharges occurring during FYs 2008 and 2009
from hospitals located in Puerto Rico was approximately 2.6 percent.
(As discussed in that same final rule, the Puerto Rico-specific capital
rate was not adjusted for the cumulative effects of documentation and
coding changes in FY 2008 or FY 2009.) We also explained that we
continue to believe that such an adjustment is appropriate because all
hospitals have the same financial incentives for documentation and
coding improvements, and the same ability to benefit from the resulting
increase in

[[Page 51728]]

aggregate payments that do not reflect real changes in case-mix.
Given this case-mix increase due to changes in documentation and
coding under the MS-DRGs, consistent with the adjustment we made to the
FY 2011 national capital Federal rate (discussed above) and consistent
with our adjustment to the FY 2011 Puerto Rico-specific standardized
amount, under the Secretary's broad authority under section 1886(g) of
the Act, we established an adjustment to the Puerto Rico-specific
capital rate of -2.6 percent in FY 2011 for the cumulative increase in
case-mix due to changes in documentation and coding under the MS-DRGs
for FYs 2008 and 2009. In addition, consistent with our implementation
of other prospective MS-DRG documentation and coding adjustments to the
capital Federal rate and operating IPPS standardized amounts, we
established that we will leave that -2.6 percent 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 not reflective of an
increase in real case-mix in subsequent years. The -2.6 percent
adjustment to the capital Puerto Rico-specific rate that we made in FY
2011 reflects the entire amount of our current estimate of the effects
of documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FYs 2008 and 2009 from hospitals
located in Puerto Rico. Consequently, in the FY 2012 IPPS/LTCH PPS
proposed rule, we did not propose to make any additional adjustments to
the capital Puerto Rico-specific rate for FY 2012 for the effect of
documentation and coding that did not reflect real changes in case-mix.
We did not receive any public comments on our proposal not to make
any additional adjustments to the capital Puerto Rico-specific rate for
FY 2012 for the effect of documentation and coding changes that did not
reflect real changes in case-mix and, therefore, are adopting our
proposal as final in this final rule.

F. Other Changes for FY 2012

The annual update to the capital IPPS national Federal and Puerto
Rico-specific rates, as provided for at Sec. 412.308(c), for FY 2012
is discussed in section III. of the Addendum to this final rule.

VI. Changes for Hospitals Excluded From the IPPS

A. Excluded Hospitals

Historically, hospitals and hospital units excluded from the
prospective payment system received payment for inpatient hospital
services they furnished on the basis of reasonable costs, subject to a
rate-of-increase ceiling. A per discharge limit (the target amount as
defined in Sec. 413.40(a)) was set for each hospital or hospital unit
based on the hospital's own cost experience in its base year, and
updated annually by a rate-of-increase percentage. The updated target
amount was multiplied by total Medicare discharges during that period
and applied as an aggregate upper limit (the ceiling as defined in
Sec. 413.40(a)) on total inpatient operating costs for a hospital's
cost reporting period. Prior to October 1, 1997, these payment
provisions applied consistently to all categories of excluded
providers, which included rehabilitation hospitals and units (now
referred to as IRFs), psychiatric hospitals and units (now referred to
as IPFs), LTCHs, children's hospitals, and IPPS-excluded cancer
hospitals.
Payment to children's hospitals and cancer hospitals that are
excluded from the IPPS continues to be subject to the rate-of-increase
ceiling based on the hospital's own historical cost experience. (We
note that, in accordance with Sec. 403.752(a) of the regulations,
RNHCIs are also subject to the rate-of-increase limits established
under Sec. 413.40 of the regulations.)
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25968), we
proposed that the FY 2012 rate-of-increase percentage to be applied to
the target amount for cancer and children's hospitals and RNHCIs would
be the estimated FY 2012 percentage increase in the IPPS operating
market basket, estimated to be 2.8 percent. Beginning with FY 2006, we
have used the percentage increase in the IPPS operating market basket
to update the target amounts for children's and cancer hospitals. As
explained in the FY 2006 IPPS final rule (70 FR 47396 through 47398),
with IRFs, IPFs, and LTCHs being paid under their own PPS, the
remaining number of providers being paid based on reasonable cost
subject to a ceiling (that is, children's hospitals, 11 cancer
hospitals, and RNHCIs) is too small and the cost report data are too
limited to be able to create a market basket solely for these
hospitals. For FY 2012, we proposed to continue to use the IPPS
operating market basket to update the target amounts for children's and
cancer hospitals and RNHCIs for the reasons discussed in the FY 2006
IPPS final rule.
In the FY 2012 IPPS/LTCH PPS proposed rule, we proposed to use the
revised and rebased FY 2006-based IPPS operating market basket to
update the target amounts for children's and cancer hospitals and
RNHCIs for FY 2012. Therefore, based on IHS Global Insight, Inc.'s 2011
first quarter forecast, with historical data through the 2010 fourth
quarter, we estimated that the FY 2012 update to the IPPS operating
market basket would be 2.8 percent (that is, the estimate of the market
basket rate-of-increase). However, we proposed that if more recent data
become available for the final rule, we would use them to calculate the
IPPS operating market basket update for FY 2012. Therefore, based on
IHS Global Insight, Inc.'s 2011 second quarter forecast, with
historical data through the 2011 first quarter, we estimate that the
final FY 2012 update to the IPPS operating market basket is 3.0
percent. Moreover, consistent with our proposal that the percentage
increase in the rate-of-increase limits for cancer and children's
hospitals and RNHCIs would be the percentage increase in the FY 2012
IPPS operating market basket, the FY 2012 rate-of-increase percentage
that is applied to the FY 2011 target amounts in order to calculate the
final FY 2012 target amounts for cancer and children's hospital and
RNHCIs is 3.0 percent, in accordance with the applicable regulations in
42 CFR 413.40.
We note that IRFs, IPFs, and LTCHs, which were paid previously
under the reasonable cost methodology, now receive payment under their
own prospective payment systems, in accordance with changes made to the
statute. In general, the prospective payment systems for IRFs, IPFs,
and LTCHs provided transition periods of varying lengths during which
time a portion of the prospective payment was based on cost-based
reimbursement rules under Part 413. (However, certain providers do not
receive a transition period or may elect to bypass the transition
period as applicable under 42 CFR Part 412, Subparts N, O, and P.) We
note that the various transition periods provided for under the IRF
PPS, the IPF PPS, and the LTCH PPS have ended.
The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. We
refer readers to section IV. of the Addendum to this final rule for the
specific final update changes to the Federal payment rates for LTCHs
under the LTCH PPS for FY 2012. The annual updates for the IRF PPS and
the IPF PPS are issued by the agency in separate Federal Register
documents.

[[Page 51729]]

B. Critical Access Hospital (CAH) Payment for Ambulance Services

1. Background
Section 1820 of the Act provides for the establishment of Medicare
Rural Hospital Flexibility Programs (MRHFPs) under which individual
States may designate certain facilities as critical access hospitals
(CAHs). Facilities that are so designated and that meet the CAH
conditions of participation under 42 CFR Part 485, Subpart F, will be
certified as CAHs by CMS. Regulations governing payments to CAHs for
services to Medicare beneficiaries are located in 42 CFR Part 413.
Section 1834(l) of the Act sets forth the payment rules for ambulance
services. Generally, payment to ambulance providers and suppliers for
ambulance services are made under the ambulance fee schedule. Section
205 of Public Law 106-554 (BIPA) amended section 1834(l) of the Act by
adding a paragraph (8) to that section, which provides that the
Secretary shall pay the reasonable costs incurred in furnishing
ambulance services if such services are furnished by a CAH (as defined
in section 1861(mm)(1) of the Act), or by an entity that is owned and
operated by a CAH, but only if the CAH or entity is the only provider
or supplier of ambulance services that is located within a 35-mile
drive of the CAH. The term ``provider of ambulance services'' includes
all Medicare-participating providers that submit claims under Medicare
for ambulance services (for example, hospitals, CAHs, skilled nursing
facilities (SNFs), and home health agencies (HHAs)). The term
``supplier of ambulance services'' is defined as an entity that
provides ambulance services and that is independent of any Medicare-
participating or non-Medicare-participating provider. Section 205 was
effective for services furnished on or after December 21, 2000.
Regulations implementing section 1834(l)(8) of the Act are set forth at
42 CFR 413.70(b)(5).
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50361), we
implemented section 3128(a) of the Affordable Care Act, which amended
section 1834(l)(8) of the Act by inserting ``101 percent of'' before
``the reasonable costs.'' As such, section 3128(a) increased payment
for ambulance services furnished by a qualifying CAH or entity owned
and operated by a CAH to 101 percent of reasonable costs, effective for
cost reporting periods beginning on or after January 1, 2004. We
amended the regulations at Sec. 413.70(b)(5)(i) to conform to this
statutory change by stating that, effective for cost reporting periods
beginning on or after January 1, 2004, payment for ambulance services
furnished by a CAH or an entity that is owned and operated by a CAH is
101 percent of the reasonable costs of the CAH or the entity in
furnishing those services, but only if the CAH or the entity furnishing
those services is the only provider or supplier of ambulance services
located within a 35-mile drive of the CAH or the entity.
2. Requirement for CAH Ambulance Within a 35-Mile Location of a CAH or
Entity
Section 413.70(b)(5) of the existing regulations states that
payment for ambulance services furnished by a CAH or an entity that is
owned and operated by a CAH is 101 percent of reasonable costs of the
CAH or the entity in furnishing those services, but only if the CAH or
the entity is ``the only provider or supplier of ambulance services
located within a 35-mile drive of the CAH or the entity''. However, the
statutory language at section 1834(l)(8) of the Act states that a CAH
is eligible to be paid based on 101 percent of reasonable costs for
ambulance services furnished by the CAH or by an entity that is owned
and operated by a CAH, but only if the CAH or the entity is the only
provider or supplier of ambulance services that is located within a 35-
mile drive of such CAH. Because the statute only requires that there be
no other provider or supplier of ambulance services within a 35-mile
drive of the CAH and does not address whether there is another provider
or supplier of ambulance services within a 35-mile drive of the CAH-
owned and operated entity, we believe that the existing regulation is
not consistent with the plain reading of the statutory language at
section 1834(l)(8) of the Act. In addition, we believe the plain
reading of the statutory language at section 1834(l)(8) of the Act does
not address the situation where there is no provider or supplier of
ambulance services within a 35-mile drive of the CAH, but there is a
CAH-owned and operated entity furnishing ambulance services that is
more than a 35-mile drive from the CAH, thus creating a ``gap'' in the
statutory language. That is, the statutory language does not address
the situation where the entity that is owned and operated by the CAH is
located more than a 35-mile drive from the CAH.
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25969 through
25971), in order to ensure that the regulations are consistent with the
plain language of section 1834(l)(8) of the Act, we proposed to revise
Sec. 413.70(b)(5)(i) by adding a new paragraph (C) to state that,
effective for cost reporting periods beginning on or after October 1,
2011, payment for ambulance services furnished by a CAH or by a CAH-
owned and operated entity is 101 percent of reasonable costs of the CAH
or the entity in furnishing those services, but only if the CAH or the
entity is the only provider or supplier of ambulance services located
within a 35-mile drive of the CAH (Figure 1). Under this proposed
change, the CAH-owned and operated entity would be paid 101 percent of
reasonable costs for its ambulance services only if there is no other
provider or supplier of ambulance services within a 35-mile drive of
the CAH. However, if there is a provider or supplier of ambulance
services located within a 35-mile drive of the CAH (Figure 2), the CAH-
owned and operated entity would not be paid at 101 percent of
reasonable costs, but instead would be paid under the ambulance fee
schedule.
Figure 1:
The CAH-owned and operated entity would be paid at 101 percent of
reasonable costs for its ambulance services because there is no other
provider or supplier of ambulance services within a 35-mile drive of
the CAH.

[[Page 51730]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.019

Figure 2:
The CAH-owned and operated entity would be paid under the ambulance
fee schedule for its ambulance services because the CAH-owned and
operated entity is not the only provider or supplier of ambulance
services located within a 35-mile drive of the CAH.
[GRAPHIC] [TIFF OMITTED] TR18AU11.020

In addition, in the FY 2012 IPPS/LTCH PPS proposed rule, we
proposed to establish a policy that would address the ``gap'' in the
statutory language, that is, where the CAH-owned and operated entity
furnishing ambulance services is more than a 35-mile drive from the
CAH, but there is no other provider or supplier of ambulance services
located within a 35-mile drive of the CAH. We proposed to include in
the proposed new paragraph (C) of Sec. 413.70(b)(5)(i) a provision
which states that, effective for cost reporting periods beginning on or
after October 1, 2011, if there is no provider or supplier of ambulance
services within a 35-mile drive of the CAH and there is a CAH-owned and
operated entity that is more than a 35-mile drive from the CAH, the
CAH-owned and operated entity would be paid at 101 percent of
reasonable costs for its ambulance services as long as that entity is
the closest provider or supplier of ambulance services to the CAH
(Figure 3). Allowing the CAH-owned and operated entity to be paid at
101 percent of reasonable costs if there is no other provider or
supplier of ambulance services that is closer to the CAH is consistent
with the original purpose of section 1834(l)(8) of the Act, which was
intended to help ensure an adequate level of ambulance services in
areas served by CAHs. The statute allows for reasonable cost-based
payment only if there is no other provider or supplier of ambulance
services within a 35-mile drive of the CAH. If there is another
provider or supplier of ambulance services located within a 35-mile
drive of the CAH, the statute does not allow for payment to the CAH or
a CAH-owned and operated entity at 101 percent of reasonable costs
because there is an adequate level of ambulance services available.
Accordingly, where a CAH-owned and operated entity is located more than
a 35-mile drive from the CAH, we proposed to allow payment at 101
percent of reasonable costs only if there is no other provider or
supplier of ambulance services located closer to the CAH. If there is a
closer provider or supplier of ambulance services, that closer provider
or supplier would also be assuring an adequate level of ambulance
services in the area served by the CAH, and there would be no need to
pay the CAH-owned and operated entity at 101 percent of reasonable
costs in order to ensure access to ambulance services. Therefore, if
the CAH-owned and operated entity (located more than a 35-mile drive
from the CAH) is not the closest provider or supplier of ambulance
services to the CAH (Figure 4), the CAH-owned and operated entity would
be reimbursed under the ambulance fee schedule.

[[Page 51731]]

Figure 3:
The CAH-owned and operated entity would be paid at 101 percent of
reasonable costs for its ambulance services because even though the
CAH-owned and operated entity is more than a 35-mile drive from the
CAH, it is the closest provider or supplier of ambulance services to
the CAH.
[GRAPHIC] [TIFF OMITTED] TR18AU11.021

Figure 4:
The CAH-owned and operated entity would receive payment under the
ambulance fee schedule for its ambulance services because there is
another provider or supplier of ambulance services that is closer to
the CAH than the CAH-owned and operated entity.
[GRAPHIC] [TIFF OMITTED] TR18AU11.022

Comment: One commenter requested that CMS apply a similar policy as
that proposed for CAH ambulance services to any provider-based
department of a CAH.
Response: We believe that the commenter's request to address
policies concerning other CAH provider-based departments is outside of
the scope of the proposed rule. Our proposal only addressed the
requirements that a CAH and CAH-owned and operated entity would need to
meet in order to be paid 101 percent of reasonable costs for ambulance
services. Therefore, we are not responding to this comment in this
final rule, but may consider the commenter's suggestion in future
rulemaking.
Comment: One commenter stated that, while the examples discussed in
the proposed rule clearly specified how CAHs and CAH-owned and operated
entities in certain situations would be paid, the commenter was aware
of other situations that were not addressed in the proposed rule. The
commenter stated that many facilities operate ambulance services in
several locations and requested that CMS address the following scenario
(referred to as ``scenario one'' in the remainder of this section):
``A CAH has a CAH-based ambulance on its campus. There is no other
ambulance service within a 35-mile drive of the CAH. The CAH owns and
operates a satellite of its ambulance service at a 45-mile drive from
the CAH. Under this scenario, the CAH-based ambulance site would be
paid at 101 percent of reasonable cost, but would the CAH-owned
satellite be paid at 101 percent of costs or on the fee schedule? Note
that the two sites represent different locations of the same ambulance
entity.''
The commenter also requested that CMS address the following
scenario (referred to as ``scenario two'' in the remainder of this
section):
``In another scenario, assume that both the CAH and the CAH-owned
entity's ambulance services would be paid at 101 percent of reasonable
costs in the above situation. How would the CAH's ambulance services be
reimbursed if there was a non-CAH owned or operated ambulance service

[[Page 51732]]

that was located between the CAH and its ambulance satellite site? For
example, if the CAH-owned entity was located 45 miles from the CAH
(which had its own ambulance onsite), but the independent ambulance was
located 40 miles from the CAH? Would the CAH-owned entity 45 miles from
the CAH be paid on a fee basis or at 101 percent of reasonable costs?''
Response: Regarding scenario one, the type of payment that the CAH
and the CAH-owned and operated entity would receive for their ambulance
services would depend on whether the CAH and the CAH-owned and operated
entity operate as one legal entity or are two separate legal entities.
If the CAH and the CAH-owned and operated entity are two separate legal
entities, the fact that the CAH has an ambulance on its main campus
would preclude the CAH-owned and operated entity from receiving payment
at 101 percent of reasonable costs for its ambulance services because
the CAH-owned and operated entity is not the only provider of ambulance
services that is located within a 35-mile drive from the CAH. The CAH-
owned and operated entity would not receive payment based on reasonable
cost but, instead, would be paid using the ambulance fee schedule
because there is a provider or supplier of ambulance services located
within a 35-mile drive of the CAH, which is the ambulance stationed at
the main CAH. However, if the CAH and the CAH-owned and operated entity
are one legal entity, both the CAH and the CAH-owned and operated
entity would be paid based on 101 percent of reasonable costs for their
ambulance services as long as there is no other provider or supplier of
ambulance services closer to the main CAH than the CAH-owned and
operated entity.
For purposes of discussing scenario two, we assume that the CAH and
the CAH-owned and operated entity are one legal entity. As described
above, in scenario two, the CAH has an ambulance service on its main
campus, a CAH-owned and operated entity is located a 45-mile drive from
the CAH, and there is also a non-CAH ambulance that is located a 40-
mile drive from the CAH. In this scenario, because the non-CAH
ambulance is closer to the CAH than the CAH-owned and operated entity,
the CAH-owned and operated entity would not receive payment at 101
percent of reasonable costs but rather would be paid using the
ambulance fee schedule. However, because there is no other provider or
supplier of ambulance services within a 35-mile drive of the main CAH,
the main CAH would be paid based on 101 percent of reasonable costs for
its ambulance services.
After consideration of the public comments we received, we are
adopting our proposals without modification. Specifically, we are
adopting, as final, the proposed revision of Sec. 413.70(b)(5)(i) of
the regulations by adding a new paragraph (C) to specify that, for cost
reporting periods beginning on or after October 1, 2011, payment for
ambulance services furnished by a CAH or by a CAH-owned and operated
entity is 101 percent of reasonable costs of the CAH or the entity in
furnishing those services, but only if the CAH or the entity is the
only provider or supplier of ambulance services located within a 35-
mile drive of the CAH.
In addition, we are adopting, as final, our proposal to include in
new Sec. 413.70(b)(5)(i) (C), a provision to address the ``gap'' in
the statutory language, where there is no other provider or supplier of
ambulance services located within a 35-mile drive of the CAH, but there
is a CAH-owned and operated entity furnishing ambulance services more
than a 35-mile drive from the CAH. Specifically, for cost reporting
periods beginning on or after October 1, 2011, if there is no provider
or supplier of ambulance services located within a 35-mile drive of the
CAH and there is a CAH-owned and operated entity that is more than a
35-mile drive from the CAH, the CAH-owned and operated entity will be
paid at 101 percent of reasonable costs for its ambulance services as
long as that entity is the closest provider or supplier of ambulance
services to the CAH. However, if there is a provider or supplier of
ambulance services that is closer to the CAH than the CAH-owned and
operated entity, the CAH-owned and operated entity will be paid based
on the ambulance fee schedule.
We also are finalizing a conforming change to Sec.
413.70(b)(5)(i)(B) to make the effective date of that paragraph
consistent with the effective date of the new paragraph (C).

C. Report of Adjustment (Exceptions) Payments

Section 4419(b) of Public Law 105-33 requires the Secretary to
publish annually in the Federal Register a report describing the total
amount of adjustment payments made to excluded hospitals and hospital
units by reason of section 1886(b)(4) of the Act during the previous
fiscal year.
The process of requesting, adjusting, and awarding an adjustment
payment is likely to occur over a 2-year period or longer. First,
generally, an excluded hospital or an excluded unit of a hospital must
file its cost report for a fiscal year in accordance with Sec.
413.24(f)(2). The fiscal intermediary or MAC reviews the cost report
and issues a notice of provider reimbursement (NPR). Once the hospital
or hospital unit receives the NPR, if its operating costs are in excess
of the ceiling, the hospital or hospital unit may file a request for an
adjustment payment. After the fiscal intermediary or MAC receives the
hospital's or hospital unit's request in accordance with applicable
regulations, the fiscal intermediary or MAC or CMS, depending on the
type of adjustment requested, reviews the request and determines if an
adjustment payment is warranted. This determination is sometimes not
made until more than 6 months after the date the request is filed
because there are times when the applications are incomplete and
additional information must be requested in order to have a completed
application. However, in an attempt to provide interested parties with
data on the most recent adjustments for which we do have data, we are
publishing data on adjustment payments that were processed by the
fiscal intermediary or MAC or CMS during FY 2010.
The table below includes the most recent data available from the
fiscal intermediaries or MACs and CMS on adjustment payments that were
adjudicated during FY 2010. As indicated above, the adjustments made
during FY 2010 only pertain to cost reporting periods ending in years
prior to FY 2009. Total adjustment payments given to excluded hospitals
and hospital units during FY 2010 are $11,364,155. The table depicts
for each class of hospitals, in the aggregate, the number of adjustment
requests adjudicated, the excess operating costs over the ceiling, and
the amount of the adjustment payments.

----------------------------------------------------------------------------------------------------------------
Excess cost Adjustment
Class of hospital Number over ceiling payments
----------------------------------------------------------------------------------------------------------------
Psychiatric..................................................... 1 $951,810 $884,441
Children's...................................................... 1 377,648 305,160

[[Page 51733]]

Cancer.......................................................... 2 18,108,765 10,174,554
Religious Nonmedical Health Care Institution (RNHCI)............ 0 0 0
---------------
Total....................................................... .............. .............. 11,364,155
----------------------------------------------------------------------------------------------------------------

VII. Changes to the Long-Term Care Hospital Prospective Payment System
(LTCH PPS) for FY 2012

A. Background of the LTCH PPS

1. Legislative and Regulatory Authority
Section 123 of the Medicare, Medicaid, and SCHIP (State Children's
Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA)
(Pub. L. 106-113) as amended by section 307(b) of the Medicare,
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000
(BIPA) (Pub. L. 106-554) provides for payment for both the operating
and capital-related costs of hospital inpatient stays in long-term care
hospitals (LTCHs) under Medicare Part A based on prospectively set
rates. The Medicare prospective payment system (PPS) for LTCHs applies
to hospitals that are described in section 1886(d)(1)(B)(iv) of the
Social Security Act (the Act), effective for cost reporting periods
beginning on or after October 1, 2002.
Section 1886(d)(1)(B)(iv)(I) of the Act defines an LTCH as ``a
hospital which has an average inpatient length of stay (as determined
by the Secretary) of greater than 25 days.'' Section
1886(d)(1)(B)(iv)(II) of the Act also provides an alternative
definition of LTCHs: specifically, a hospital that first received
payment under section 1886(d) of the Act in 1986 and has an average
inpatient length of stay (LOS) (as determined by the Secretary of
Health and Human Services (the Secretary)) of greater than 20 days and
has 80 percent or more of its annual Medicare inpatient discharges with
a principal diagnosis that reflects a finding of neoplastic disease in
the 12-month cost reporting period ending in FY 1997.
Section 123 of the BBRA requires the PPS for LTCHs to be a ``per
discharge'' system with a diagnosis-related group (DRG) based patient
classification system that reflects the differences in patient
resources and costs in LTCHs.
Section 307(b)(1) of the BIPA, among other things, mandates that
the Secretary shall examine, and may provide for, adjustments to
payments under the LTCH PPS, including adjustments to DRG weights, area
wage adjustments, geographic reclassification, outliers, updates, and a
disproportionate share adjustment.
In the August 30, 2002 Federal Register, we issued a final rule
that implemented the LTCH PPS authorized under the BBRA and BIPA (67 FR
55954). For the initial implementation of the LTCH PPS (FYs 2003
through FY 2007), the system used information from LTCH patient records
to classify patients into distinct long-term care diagnosis-related
groups (LTC-DRGs) based on clinical characteristics and expected
resource needs. Beginning in FY 2008, we adopted the Medicare severity
long-term care diagnosis-related groups (MS-LTC-DRGs) as the patient
classification system used under the LTCH PPS. Payments are calculated
for each MS-LTC-DRG and provisions are made for appropriate payment
adjustments. Payment rates under the LTCH PPS are updated annually and
published in the Federal Register.
The LTCH PPS replaced the reasonable cost-based payment system
under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)
(Pub. L. 97-248) for payments for inpatient services provided by a LTCH
with a cost reporting period beginning on or after October 1, 2002.
(The regulations implementing the TEFRA reasonable cost-based payment
provisions are located at 42 CFR Part 413.) With the implementation of
the PPS for acute care hospitals authorized by the Social Security
Amendments of 1983 (Pub. L. 98-21), which added section 1886(d) to the
Act, certain hospitals, including LTCHs, were excluded from the PPS for
acute care hospitals and were paid their reasonable costs for inpatient
services subject to a per discharge limitation or target amount under
the TEFRA system. For each cost reporting period, a hospital-specific
ceiling on payments was determined by multiplying the hospital's
updated target amount by the number of total current year Medicare
discharges. (Generally, in section VIII. of this preamble, when we
refer to discharges, the intent is to describe Medicare discharges.)
The August 30, 2002 final rule further details the payment policy under
the TEFRA system (67 FR 55954).
In the August 30, 2002 final rule, we provided for a 5-year
transition period. During this 5-year transition period, a LTCH's total
payment under the PPS was based on an increasing percentage of the
Federal rate with a corresponding decrease in the percentage of the
LTCH PPS payment that is based on reasonable cost concepts. However,
effective for cost reporting periods beginning on or after October 1,
2006, total LTCH PPS payments are based on 100 percent of the Federal
rate.
In addition, in the August 30, 2002 final rule, we presented an in-
depth discussion of the LTCH PPS, including the patient classification
system, relative weights, payment rates, additional payments, and the
budget neutrality requirements mandated by section 123 of the BBRA. The
same final rule that established regulations for the LTCH PPS under 42
CFR Part 412, Subpart O also contained LTCH provisions related to
covered inpatient services, limitation on charges to beneficiaries,
medical review requirements, furnishing of inpatient hospital services
directly or under arrangement, and reporting and recordkeeping
requirements. We refer readers to the August 30, 2002 final rule for a
comprehensive discussion of the research and data that supported the
establishment of the LTCH PPS (67 FR 55954).
In the June 6, 2003 Federal Register, we published a final rule
that set forth the FY 2004 annual update of the payment rates for the
Medicare PPS for inpatient hospital services furnished by LTCHs (68 FR
34122). It also changed the annual period for which the payment rates
were to be effective, such that the annual updated rates were effective
from July 1 through June 30 instead of from October 1 through September
30. We referred to the July through June time period as a ``long-term
care hospital rate year'' (LTCH PPS rate year). In addition, we changed
the publication schedule for the annual update to allow for an
effective date of July 1. The payment amounts and factors used to
determine the annual update of the LTCH PPS Federal rate are based on a
LTCH PPS rate year. In the past, while the LTCH payment rate updates
were effective July 1, the annual update of the DRG classifications and
relative weights for LTCHs continued to be linked to the annual
adjustments of

[[Page 51734]]

the acute care hospital inpatient DRGs and were effective each October
1.
As discussed in detail in the RY 2009 LTCH PPS final rule (73 FR
26797 through 26798), we again changed the schedule for the annual
updates of the LTCH PPS Federal payment rates beginning with RY 2010.
We consolidated the rulemaking cycle for the annual update of the LTCH
PPS Federal payment rates and description of the methodology and data
used to calculate these payment rates with the annual update of the MS-
LTC-DRG classifications and associated weighting factors for LTCHs so
that the updates to the rates and the relative weights now occur on the
same schedule and appear in the same publication. As a result, the
updates to the rates and the relative weights are now effective on
October 1 (on a Federal fiscal year schedule), and the annual updates
to the LTCH PPS Federal rates are no longer published with a July 1
effective date.
Public Law 110-173 (MMSEA) enacted on December 29, 2007, included
provisions that have various effects on the LTCH PPS. In addition to
amending section 1861 of the Act to add a subsection (ccc) which
provided an additional definition of LTCHs, Public Law 110-173 also
required the Secretary to submit, no later than 18 months after the
date of enactment of the law, a report to Congress on a study of
national long-term care hospital facility and patient criteria that
included ``recommendations for such legislation and administrative
actions, including timelines for the implementation of LTCH patient
criteria or other actions, as the Secretary determines appropriate.''
The payment policy provisions under sections 114(c)(1) and (c)(2) of
Public Law 110-173 focused on providing 3 years of relief for certain
LTCHs from the percentage threshold payment adjustment policy at 42 CFR
412.534 and 412.536. However, because of the original implementation
schedule of those sections of the regulations, the payment provisions
had varying timeframes of applicability (73 FR 29701 through 29704). In
addition, section 114(c)(3) of Public Law 110-173 provided that the
Secretary shall not apply, for the 3-year period beginning on the date
of enactment of the Act the revision to the short-stay outlier (SSO)
policy that was finalized in the RY 2008 LTCH PPS final rule (72 FR
26904 and 26992). In addition, section 114(c)(4) of Public Law 110-173
provided that the Secretary shall not, for the 3-year period beginning
on the date of enactment of the Act, make the one-time adjustment to
the payment rates provided for in Sec. 412.523(d)(3) or any similar
provision (73 FR 26800 through 26804). The statute also provided that
the base rate for RY 2008 be the same as the base rate for RY 2007 (the
revised base rate, however, does not apply to discharges occurring on
or after July 1, 2007, and before April 1, 2008) (73 FR 24875 through
24877). Section 114(d) of Public Law 110-173 established a 3-year
moratorium (with specified exceptions) on the establishment and
classification of new LTCHs, LTCH satellites, and on the increase in
the number of LTCH beds in existing LTCHs or satellite facilities.
Finally, section 114(f) of Public Law 110-173 provided for an expanded
review of medical necessity for admission and continued stay at LTCHs.
In the RY 2009 LTCH PPS final rule (73 FR 26804 through 26812), we
established the applicable Federal rates for RY 2009, consistent with
section 1886(m)(2) of the Act as amended by Public Law 110-173. We also
revised the regulations at Sec. 412.523(d)(3) to change the
methodology for the one-time budget neutrality adjustment and to comply
with section 114(c)(4) of Public Law 110-173. Other policy revisions
that were necessary as a result of the statutory changes of Public Law
110-173 were addressed in separate interim final rules with comment
period (73 FR 24871 and 73 FR 29699). In the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43976 through 43990), we addressed all of the
public comments received and finalized these two interim final rules
with comment period.
Section 4302 of the ARRA, Public Law 111-5, enacted on February 17,
2009, included several amendments to the provisions set forth in
section 114 of Public Law 110-173. Specifically, section 4302(a)
modified the effective dates of the provisions of section 114(c) of
Public Law 110-173, described above, and added an additional category
of LTCHs or satellite facilities that would not be subject to the
percentage threshold payment adjustment at Sec. 412.536 for a 3-year
period. In addition, section 4302(a)(2)(A) of Public Law 111-5 added
``grandfathered'' satellites (specified in Sec. 412.22(h)(3)(i) of the
regulations) to those ``applicable'' LTCHs (specified in Sec.
412.534(g) of the regulations) originally granted relief under section
114(c) of Public Law 110-173. We issued instructions to the fiscal
intermediaries and MACs interpreting the provisions of section 4302 of
Public Law 111-5 (Change Request 6444). In addition, in the FY 2010
IPPS/RY 2010 LTCH PPS final rule (74 FR 43990 through 43992), we
implemented the provisions of section 4302 of Public Law 111-5 through
an interim final rule with comment period. We received one timely
comment regarding the provisions of section 4302 of Public Law 111-5
that were implemented through the interim final rule with comment
period that was included in the FY 2010 IPPS/RY 2010 LTCH PPS final
rule. We addressed this public comment and finalized the interim final
rule with comment period in section VII.E. of the preamble of the FY
2011 IPPS/LTCH PPS final rule (75 FR 50399).
As discussed in the FY 2011 IPPS/LTCH PPS final rule, a number of
the provisions of the Affordable Care Act affected the policies,
payment rates and factors under the LTCH PPS. Specifically, section
1886(m)(3)(A)(ii) of the Act, as added by section 3401(c) of the
Affordable Care Act, specifies that, for each of rate years 2010
through 2019, any annual update to the standard Federal rate shall be
reduced by the other adjustment specified in new section 1886(m)(4) of
the Act. Furthermore, section 1886(m)(3)(A)(i) of the Act specifies
that, for rate year 2012 and subsequent rate years, any annual update
to the standard Federal rate shall be reduced by the productivity
adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act.
Section 1886(m)(3)(A)(ii) and sections 1886(m)(4)(A) and (B) of the Act
require a 0.25 percentage point reduction for rate year 2010 and a 0.50
percentage point reduction for rate year 2011. Section 1886(m)(3)(B) of
the Act provides that the application of paragraph (3) of section
1886(m) of the Act may result in the annual update being less than zero
for a rate year, and may result in payment rates for a rate year being
less than such payment rates for the preceding rate year. Furthermore,
section 3401(p) of the Affordable Care Act specifies that the
amendments made by section 3401(c) of such Act shall not apply to
discharges occurring before April 1, 2010 (75 FR 50387 through 50390).
Sections 3106 and 10312 of the Affordable Care Act together provide for
a 2-year extension to the payment policies applicable to LTCHs and LTCH
satellite facilities set forth in sections 114(c) and (d)(1) of the
MMSEA, as amended by the ARRA. Specifically, sections 3106 and 10312 of
the Affordable Care Act together result in the phrase ``3-year period''
being replaced with the phrase ``5-year period'' each place it appears
in sections 114(c) and (d)(1) of MMSEA, as amended by the ARRA. As
discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50399 through
50400), sections 3106 and 10312 of the Affordable Care Act, which
amended sections 114(c) and

[[Page 51735]]

(d)(1) of the MMSEA, as amended by the ARRA, result in the following:
An additional 2-year delay in the application of the SSO
payment adjustment, which would have applied the additional payment
option of an ``IPPS comparable'' payment to LTCHs for certain SSO cases
where the covered length of stay is less than or equal to the ``IPPS
comparable threshold.'' Therefore, the Secretary will not apply this
SSO payment adjustment for the 5-year period beginning on the date of
enactment of MMSEA (December 29, 2007).
An additional 2-year delay in the one-time prospective
budget neutrality adjustment to the standard Federal rate (Sec.
412.523(d)(3)). Thus, the Secretary is precluded from making the one-
time adjustment to standard Federal rate until December 29, 2012.
An increase from 3 years to 5 years to the timeframes set
forth in section 114(c) of the MMSEA as amended by the ARRA, thereby
extending for an additional 2 years the delay in the application of the
25-percent payment threshold policy for certain LTCHs and LTCH
satellite facilities (Sec. Sec. 412.534 and 412.536), and extending
for an additional 2 years, the increased percentage thresholds outlined
at section 114(c)(2) of the MMSEA as amended by the ARRA.
Additional 2-year extensions of the moratorium on the
establishment of new LTCHs and LTCH satellite facilities and the
moratorium on the increase of LTCH beds in existing LTCHs or satellite
facilities as provided by section 114(d) of the MMSEA as amended by the
ARRA. In general, section 114(d) of the MMSEA as amended by the ARRA
precluded the establishment and classification of new LTCHs or LTCH
satellite facilities or additional beds from being added to existing
LTCHs or LTCH satellite facilities unless one of the specified
exceptions to the particular moratorium was met.
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
Under the existing regulations at Sec. 412.23(e)(1) and (e)(2)(i),
which implement section 1886(d)(1)(B)(iv)(I) of the Act, to qualify to
be paid under the LTCH PPS, a hospital must have a provider agreement
with Medicare and must have an average Medicare inpatient length of
stay (LOS) of greater than 25 days. Alternatively, Sec.
412.23(e)(2)(ii) states that for cost reporting periods beginning on or
after August 5, 1997, a hospital that was first excluded from the PPS
in 1986 and can demonstrate that at least 80 percent of its annual
Medicare inpatient discharges in the 12-month cost reporting period
ending in FY 1997 have a principal diagnosis that reflects a finding of
neoplastic disease must have an average inpatient length of stay for
all patients, including both Medicare and non-Medicare inpatients, of
greater than 20 days.
b. Hospitals Excluded From the LTCH PPS
The following hospitals are paid under special payment provisions,
as described in Sec. 412.22(c), and therefore, are not subject to the
LTCH PPS rules:
Veterans Administration hospitals.
Hospitals that are reimbursed under State cost control
systems approved under 42 CFR Part 403.
Hospitals that are reimbursed in accordance with
demonstration projects authorized under section 402(a) of the Social
Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1) or
section 222(a) of the Social Security Amendments of 1972 (Pub. L. 92-
603) (42 U.S.C. 1395b-1 (note)) (Statewide all-payer systems, subject
to the rate-of-increase test at section 1814(b) of the Act).
Nonparticipating hospitals furnishing emergency services
to Medicare beneficiaries.
3. Limitation on Charges to Beneficiaries
In the August 30, 2002 final rule, we presented an in-depth
discussion of beneficiary liability under the LTCH PPS (67 FR 55974
through 55975). In the RY 2005 LTCH PPS final rule (69 FR 25676), we
clarified that the discussion of beneficiary liability in the August
30, 2002 final rule was not meant to establish rates or payments for,
or define Medicare-eligible expenses. Under Sec. 412.507, if the
Medicare payment to the LTCH is the full LTC-DRG payment amount, as
consistent with other established hospital prospective payment systems,
a LTCH may not bill a Medicare beneficiary for more than the deductible
and coinsurance amounts as specified under Sec. Sec. 409.82, 409.83,
and 409.87 and for items and services as specified under Sec.
489.30(a). However, under the LTCH PPS, Medicare will only pay for days
for which the beneficiary has coverage until the SSO threshold is
exceeded. Therefore, if the Medicare payment was for a SSO case (Sec.
412.529) that was less than the full LTC-DRG payment amount because the
beneficiary had insufficient remaining Medicare days, the LTCH could
also charge the beneficiary for services delivered on those uncovered
days (Sec. 412.507).
4. Administrative Simplification Compliance Act (ASCA) and Health
Insurance Portability and Accountability Act (HIPAA) Compliance
Claims submitted to Medicare must comply with both the
Administrative Simplification Compliance Act (ASCA) (Pub. L. 107-105),
and the Health Insurance Portability and Accountability Act of 1996
(HIPAA) (Pub. L. 104-191). Section 3 of the ASCA requires that the
Medicare Program deny payment under Part A or Part B for any expenses
incurred for items or services ``for which a claim is submitted other
than in an electronic form specified by the Secretary.'' Section
1862(h) of the Act (as added by section 3(a) of the ASCA) provides that
the Secretary shall waive such denial in two specific types of cases
and may also waive such denial ``in such unusual cases as the Secretary
finds appropriate'' (68 FR 48805). Section 3 of the ASCA operates in
the context of the HIPAA regulations, which include, among other
provisions, the transactions and code sets standards requirements
codified as 45 CFR Parts 160 and 162, Subparts A and I through R
(generally known as the Transactions Rule). The Transactions Rule
requires covered entities, including covered health care providers, to
conduct certain electronic healthcare transactions according to the
applicable transactions and code sets standards.

B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-
DRG) Classifications and Relative Weights for FY 2012

1. Background
Section 123 of the BBRA requires that the Secretary implement a PPS
for LTCHs (that is, a per discharge system with a diagnosis-related
group (DRG)-based patient classification system reflecting the
differences in patient resources and costs). Section 307(b)(1) of the
BIPA modified the requirements of section 123 of the BBRA by requiring
that the Secretary examine ``the feasibility and the impact of basing
payment under such a system [the long-term care hospital (LTCH) PPS] on
the use of existing (or refined) hospital DRGs that have been modified
to account for different resource use of LTCH patients, as well as the
use of the most recently available hospital discharge data.''
When the LTCH PPS was implemented for cost reporting periods
beginning on or after October 1, 2002, we adopted the same DRG patient
classification system (that is, the CMS DRGs) that was utilized at that
time

[[Page 51736]]

under the IPPS. As a component of the LTCH PPS, we refer to this
patient classification system as the ``long-term care diagnosis-related
groups (LTC-DRGs).'' Although the patient classification system used
under both the LTCH PPS and the IPPS are the same, the relative weights
are different. The established relative weight methodology and data
used under the LTCH PPS result in relative weights under the LTCH PPS
that reflect ``the differences in patient resource use * * *'' of LTCH
patients (section 123(a)(1) of the BBRA (Pub. L. 106-113)).
As part of our efforts to better recognize severity of illness
among patients, in the FY 2008 IPPS final rule with comment period (72
FR 47130), the MS-DRGs and the Medicare severity long-term care
diagnosis-related groups (MS-LTC-DRGs) were adopted under the IPPS and
the LTCH PPS, respectively, effective beginning October 1, 2007 (FY
2008). For a full description of the development and implementation and
rationale for the use of the MS-DRGs and MS-LTC-DRGs, we refer readers
to the FY 2008 IPPS final rule with comment period (72 FR 47141 through
47175 and 47277 through 47299). (We note that, in that same final rule,
we revised the regulations at Sec. 412.503 to specify that for LTCH
discharges occurring on or after October 1, 2007, when applying the
provisions of 42 CFR Part 412, Subpart O applicable to LTCHs for policy
descriptions and payment calculations, all references to LTC-DRGs would
be considered a reference to MS-LTC-DRGs. For the remainder of this
section, we present the discussion in terms of the current MS-LTC-DRG
patient classification system unless specifically referring to the
previous LTC-DRG patient classification system that was in effect
before October 1, 2007.) We believe the MS-DRGs (and by extension, the
MS-LTC-DRGs) represent a substantial improvement over the previous CMS
DRGs in their ability to differentiate cases based on severity of
illness and resource consumption.
The MS-DRGs adopted in FY 2008 represent an increase in the number
of DRGs by 207 (that is, from 538 to 745) (72 FR 47171). The MS-DRG
classifications are updated annually. As described in section II.G. of
this preamble, for FY 2012, we are deleting one MS-DRG and creating two
new MS-DRGs for a net gain of one MS-DRG. With these adopted changes,
we have a total of 751 MS-DRG groupings for FY 2012. Consistent with
section 123 of the BBRA, as amended by section 307(b)(1) of the BIPA,
and Sec. 412.515 of the regulations, we use information derived from
LTCH PPS patient records to classify LTCH discharges into distinct MS-
LTC-DRGs based on clinical characteristics and estimated resource
needs. We then assign an appropriate weight to the MS-LTC-DRGs to
account for the difference in resource use by patients exhibiting the
case complexity and multiple medical problems characteristic of LTCHs.
In a departure from the IPPS, and as discussed in greater detail
below in section VII.B.3.f. of this preamble, we use low-volume MS-LTC-
DRGs (that is, MS-LTC-DRGs with less than 25 LTCH cases) in determining
the MS-LTC-DRG relative weights because LTCHs do not typically treat
the full range of diagnoses as do acute care hospitals. For purposes of
determining the relative weights for the large number of low-volume MS-
LTC-DRGs, we group all of the low-volume MS-LTC-DRGs into five
quintiles based on average charge per discharge. (A detailed discussion
of the initial development and application of the quintile methodology
appears in the August 30, 2002 LTCH PPS final rule (67 FR 55978).) We
also account for adjustments to payments for short-stay outlier (SSO)
cases (that is, cases where the covered length of stay at the LTCH is
less than or equal to five-sixths of the geometric average length of
stay for the MS-LTC-DRG). Furthermore, we made adjustments to account
for nonmonotonically increasing weights, when necessary. That is,
theoretically, cases under the MS-LTC-DRG system that are more severe
require greater expenditure of medical care resources and will result
in higher average charges such that, in the severity levels within a
base MS-LTC-DRG, the weights should increase monotonically with
severity from the lowest to highest severity level. (We discuss
nonmonotonicity in greater detail and our methodology to adjust the MS-
LTC-DRG relative weights to account for nonmonotonically increasing
relative weights in section VII.B.3.g. (Step 6) of this preamble.)
2. Patient Classifications Into MS-LTC-DRGs
a. Background
The MS-DRGs (used under the IPPS) and the MS-LTC-DRGs (used under
the LTCH PPS) are based on the CMS DRG structure. As noted above in
this section, we refer to the DRGs under the LTCH PPS as MS-LTC-DRGs
although they are structurally identical to the MS-DRGs used under the
IPPS.
The MS-DRGs are organized into 25 major diagnostic categories
(MDCs), most of which are based on a particular organ system of the
body; the remainder involve multiple organ systems (such as MDC 22,
Burns). Within most MDCs, cases are then divided into surgical DRGs and
medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy
that orders operating room (O.R.) procedures or groups of O.R.
procedures by resource intensity. The GROUPER software program does not
recognize all ICD-9-CM procedure codes as procedures affecting DRG
assignment. That is, procedures that are not surgical (for example,
EKG), or minor surgical procedures (for example, biopsy of skin and
subcutaneous tissue (procedure code 86.11)) do not affect the MS-LTC-
DRG assignment based on their presence on the claim.
Generally, under the LTCH PPS, a Medicare payment is made at a
predetermined specific rate for each discharge and that payment varies
by the MS-LTC-DRG to which a beneficiary's stay is assigned. Cases are
classified into MS-LTC-DRGs for payment based on the following six data
elements:
Principal diagnosis;
Additional or secondary diagnoses;
Surgical procedures;
Age;
Sex; and
Discharge status of the patient.
Through FY 2010, the number of secondary or additional diagnoses
and the number of surgical procedures considered for MS-DRG assignment
was limited to eight and six, respectively. In the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50127), we established that, for claims submitted
on the 5010 format beginning January 1, 2011, we would increase the
capacity to process diagnosis and procedure codes up to 25 diagnoses
and 25 procedures. This includes one principal diagnosis and up to 24
secondary diagnoses for severity of illness determinations. We refer
readers to section II.G.11.c. of the preamble of the FY 2011 IPPS/LTCH
PPS final rule for a complete discussion of this change (75 FR 50127).
Upon the discharge of the patient from a LTCH, the LTCH must assign
appropriate diagnosis and procedure codes from the most current version
of the International Classification of Diseases, Ninth Revision,
Clinical Modification (ICD-9-CM). HIPAA Transactions and Code Sets
Standards regulations at 45 CFR Parts 160 and 162 require that no later
than October 16, 2003, all covered entities must comply with the
applicable requirements of Subparts A and I through R of Part 162.

[[Page 51737]]

Among other requirements, those provisions direct covered entities to
use the ASC X12N 837 Health Care Claim: Institutional, Volumes 1 and 2,
Version 4010, and the applicable standard medical data code sets for
the institutional health care claim or equivalent encounter information
transaction (45 CFR 162.1002 and 45 CFR 162.1102). For additional
information on the ICD-9-CM Coding System, we refer readers to the FY
2008 IPPS final rule with comment period (72 FR 47241 through 47243 and
47277 through 47281). We also refer readers to the detailed discussion
on correct coding practices in the August 30, 2002 LTCH PPS final rule
(67 FR 55981 through 55983). Additional coding instructions and
examples are published in the Coding Clinic for ICD-9-CM, a product of
the American Hospital Association. (We refer readers to section
II.G.13. of this preamble for additional information on the annual
revisions to the ICD-9-CM codes.)
With respect to the ICD-9-CM coding system, we have been discussing
the conversion to the ICD-10-CM and the ICD-10-PCS coding systems for
many years. As is discussed in detail in section II.G.11. of the FY
2011 IPPS/LTCH PPS final rule (75 FR 50122 through 50127) and in
section III.G.13 of this final rule, the ICD-10 coding systems
applicable to hospital inpatient services will be implemented on
October 1, 2013. In order for the industry to make the necessary
conversions from ICD-9-CM to ICD-10-CM and ICD-10-PCS, we proposed,
through the ICD-9-CM Coordination and Maintenance Committee, to
consider a moratorium on updates to the ICD-9-CM and ICD-10 coding
sets. We refer readers to section II.G.13. of this preamble for
additional information on the adoption of the ICD-10-CM and ICD-10-PCS
systems.
To create the MS-DRGs (and by extension, the MS-LTC-DRGs),
individual DRGs were subdivided according to the presence of specific
secondary diagnoses designated as complications or comorbidities (CCs)
into three, two, or one level, depending on the impact of the CCs on
resources used for those cases. Specifically, there are sets of MS-DRGs
that are split into 2 or 3 subgroups based on the presence or absence
of a CC or a major complication and comorbidity (MCC). We refer readers
to section II.D. of the FY 2008 IPPS final rule with comment period for
a detailed discussion about the creation of MS-DRGs based on severity
of illness levels (72 FR 47141 through 47175).
Medicare contractors (that is, fiscal intermediaries and MACs)
enter the clinical and demographic information submitted by LTCHs into
their claims processing systems and subject this information to a
series of automated screening processes called the Medicare Code Editor
(MCE). These screens are designed to identify cases that require
further review before assignment into a MS-LTC-DRG can be made. During
this process, certain cases are selected for further development (74 FR
43949).
After screening through the MCE, each claim is classified into the
appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software on the
basis of diagnosis and procedure codes and other demographic
information (age, sex, and discharge status). The GROUPER software used
under the LTCH PPS is the same GROUPER software program used under the
IPPS. Following the MS-LTC-DRG assignment, the Medicare contractor
determines the prospective payment amount by using the Medicare PRICER
program, which accounts for hospital-specific adjustments. Under the
LTCH PPS, we provide an opportunity for LTCHs to review the MS-LTC-DRG
assignments made by the Medicare contractor and to submit additional
information within a specified timeframe as provided in Sec.
412.513(c).
The GROUPER software is used both to classify past cases to measure
relative hospital resource consumption to establish the MS-LTC-DRG
weights and to classify current cases for purposes of determining
payment. The records for all Medicare hospital inpatient discharges are
maintained in the MedPAR file. The data in this file are used to
evaluate possible MS-DRG and MS-LTC-DRG classification changes and to
recalibrate the MS-DRG and MS-LTC-DRG relative weights during our
annual update under both the IPPS (Sec. 412.60(e)) and the LTCH PPS
(Sec. 412.517), respectively.
b. Changes to the MS-LTC-DRGs for FY 2012
As specified by our regulations at Sec. 412.517(a), which requires
that the MS-LTC-DRG classifications and relative weights be updated
annually and consistent with our historical practice of using the same
patient classification system under the LTCH PPS as is used under the
IPPS, as we proposed, we are updating the MS-LTC-DRG classifications
effective October 1, 2011, through September 30, 2012 (FY 2012)
consistent with the changes to specific MS-DRG classifications
presented in section II.G. of this final rule (that is, GROUPER Version
29.0). Therefore, the MS-LTC-DRGs for FY 2012 presented in this final
rule are the same as the MS-DRGs that are being used under the IPPS for
FY 2012. In addition, because the MS-LTC-DRGs for FY 2012 are the same
as the MS-DRGs for FY 2012, the other changes that affect MS-DRG (and
by extension MS-LTC-DRG) assignments under Version 29.0 of the GROUPER
discussed in section II.G. of the preamble of this final rule,
including the changes to the MCE software and changes to the ICD-9-CM
coding system, also are applicable under the LTCH PPS for FY 2012.
3. Development of the FY 2012 MS-LTC-DRG Relative Weights
a. General Overview of the Development of the MS-LTC-DRG Relative
Weights
As we stated in the August 30, 2002 LTCH PPS final rule (67 FR
55984), one of the primary goals for the implementation of the LTCH PPS
is to pay each LTCH an appropriate amount for the efficient delivery of
medical care to Medicare patients. The system must be able to account
adequately for each LTCH's case-mix in order to ensure both fair
distribution of Medicare payments and access to adequate care for those
Medicare patients whose care is more costly. To accomplish these goals,
we have annually adjusted the LTCH PPS standard Federal prospective
payment system rate by the applicable relative weight in determining
payment to LTCHs for each case.
Although the adoption of the MS-LTC-DRGs resulted in some
modifications of existing procedures for assigning weights in cases of
zero volume and/or nonmonotonicity (as discussed in the FY 2008 IPPS
final rule with comment period (72 FR 47289 through 47295) and the FY
2009 IPPS final rule (73 FR 48542 through 48550)), as we proposed, the
basic methodology for developing the FY 2012 MS-LTC-DRG relative
weights in this final rule continues to be determined in accordance
with the general methodology established in the August 30, 2002 LTCH
PPS final rule (67 FR 55989 through 55991). Under the LTCH PPS,
relative weights for each MS-LTC-DRG are a primary element used to
account for the variations in cost per discharge and resource
utilization among the payment groups (Sec. 412.515). To ensure that
Medicare patients classified to each MS-LTC-DRG have access to an
appropriate level of services and to encourage efficiency, we
calculated a relative weight for each MS-LTC-DRG that represents the
resources needed by an average

[[Page 51738]]

inpatient LTCH case in that MS-LTC-DRG. For example, cases in a MS-LTC-
DRG with a relative weight of 2 will, on average, cost twice as much to
treat as cases in a MS-LTC-DRG with a relative weight of 1.
b. Development of the MS-LTC-DRG Relative Weights for FY 2012
Beginning with the FY 2008 update, we established a budget
neutrality requirement for the annual update to the MS-LTC-DRG
classifications and relative weights at Sec. 412.517(b) (in
conjunction with Sec. 412.503), such that estimated aggregate LTCH PPS
payments would be unaffected, that is, would be neither greater than
nor less than the estimated aggregate LTCH PPS payments that would have
been made without the classification and relative weight changes (RY
2008 LTCH PPS final rule (72 FR 26882 through 26884)). Consistent with
Sec. 412.517(b) and as we proposed, we applied a two-step budget
neutrality methodology, which is based on the current year MS-LTC-DRG
classifications and relative weights. (For additional information on
the established two-step budget neutrality methodology, we refer
readers to the FY 2008 IPPS final rule (72 FR 47295 through 47296).)
Thus, for this final rule, the annual update to the MS-LTC-DRG
classifications and relative weights for FY 2012 are based on the FY
2011 MS-LTC-DRG classifications and relative weights established in the
FY 2011 IPPS/LTCH PPS final rule (75 FR 50613 through 50627).
c. Data
In this final rule, to calculate the MS-LTC-DRG relative weights
for FY 2012, we obtained total charges from FY 2010 Medicare LTCH bill
data from the March 2011 update of the FY 2010 MedPAR file, which are
the best available data at this time, and used the Version 29.0 of the
GROUPER to classify LTCH cases. For the proposed rule, we obtained
total charges from FY 2010 Medicare LTCH bill data from the December
2010 update of the FY 2010 MedPAR file, which were the best available
data at that time, and used the proposed Version 29.0 of the GROUPER to
classify LTCH cases. Consistent with our historical policy, we also
proposed to use more recent data if available and the final version of
the GROUPER to develop the FY 2012 MS-LTC-DRG relative weights for the
final rule. (76 FR 25976)
Consistent with our historical methodology and as we proposed, we
excluded the data from LTCHs that are all-inclusive rate providers and
LTCHs that are reimbursed in accordance with demonstration projects
authorized under section 402(a) of Public Law 90-248 or section 222(a)
of Public Law 92-603. In addition, as is the case with the IPPS,
Medicare Advantage (Part C) claims are now included in the MedPAR files
(74 FR 43808). Consistent with IPPS policy and as we proposed, we
continued to exclude such claims in the calculations for the relative
weights under the LTCH PPS that are used to determine payments for fee-
for-service Medicare claims. Specifically, we removed any claims from
the MedPAR files that have a GHO Paid indicator value of ``1,'' which
effectively removes Medicare Advantage claims from the relative weight
calculations (73 FR 48532). Therefore, in the development of the FY
2012 MS-LTC-DRG relative weights in this final rule, we excluded the
data of 14 all-inclusive rate providers and the 2 LTCHs that are paid
in accordance with demonstration projects that had claims in the March
2011 update of the FY 2010 MedPAR file, as well as any Medicare
Advantage claims.
d. Hospital-Specific Relative Value (HSRV) Methodology
By nature, LTCHs often specialize in certain areas, such as
ventilator-dependent patients and rehabilitation and wound care. Some
case types (DRGs) may be treated, to a large extent, in hospitals that
have, from a perspective of charges, relatively high (or low) charges.
This nonrandom distribution of cases with relatively high (or low)
charges in specific MS-LTC-DRGs has the potential to inappropriately
distort the measure of average charges. As we proposed, to account for
the fact that cases may not be randomly distributed across LTCHs,
consistent with the methodology we have used since the implementation
of the LTCH PPS, we used a hospital-specific relative value (HSRV)
methodology to calculate the MS-LTC-DRG relative weights for FY 2012.
We believe this method removes this hospital-specific source of bias in
measuring LTCH average charges (67 FR 55985). Specifically, we reduced
the impact of the variation in charges across providers on any
particular proposed MS-LTC-DRG relative weight by converting each
LTCH's charge for a case to a relative value based on that LTCH's
average charge.
Under the HSRV methodology, we standardize charges for each LTCH by
converting its charges for each case to hospital-specific relative
charge values and then adjust those values for the LTCH's case-mix. The
adjustment for case-mix is needed to rescale the hospital-specific
relative charge values (which, by definition, average 1.0 for each
LTCH). The average relative weight for a LTCH is its case-mix, so it is
reasonable to scale each LTCH's average relative charge value by its
case-mix. In this way, each LTCH's relative charge value is adjusted by
its case-mix to an average that reflects the complexity of the cases it
treats relative to the complexity of the cases treated by all other
LTCHs (the average case-mix of all LTCHs).
In accordance with our established methodology, as we proposed, we
standardized charges for each case by first dividing the adjusted
charge for the case (adjusted for SSOs under Sec. 412.529 as described
below in section VII.B.3.g. (step 3) of the preamble of this final
rule) by the average adjusted charge for all cases at the LTCH in which
the case was treated. SSO cases are cases with a length of stay that is
less than or equal to five-sixths the average length of stay of the MS-
LTC-DRG (Sec. 412.529 and Sec. 412.503). The average adjusted charge
reflects the average intensity of the health care services delivered by
a particular LTCH and the average cost level of that LTCH. The
resulting ratio is multiplied by that LTCH's case-mix index to
determine the standardized charge for the case (67 FR 55989).
Multiplying the resulting ratio by the LTCH's case-mix index
accounts for the fact that the same relative charges are given greater
weight at a LTCH with higher average costs than they would at a LTCH
with low average costs, which is needed to adjust each LTCH's relative
charge value to reflect its case-mix relative to the average case-mix
for all LTCHs. Because we standardize charges in this manner, we count
charges for a Medicare patient at a LTCH with high average charges as
less resource intensive than they would be at a LTCH with low average
charges. For example, a $10,000 charge for a case at a LTCH with an
average adjusted charge of $17,500 reflects a higher level of relative
resource use than a $10,000 charge for a case at a LTCH with the same
case-mix, but an average adjusted charge of $35,000. We believe that
the adjusted charge of an individual case more accurately reflects
actual resource use for an individual LTCH because the variation in
charges due to systematic differences in the markup of charges among
LTCHs is taken into account.
e. Treatment of Severity Levels in Developing the MS-LTC-DRG Relative
Weights
For purposes of determining the MS-LTC-DRG relative weights, under
our historical methodology, there are three

[[Page 51739]]

different categories of DRGs based on volume of cases within specific
MS-LTC-DRGs. MS-LTC-DRGs with at least 25 cases are each assigned a
unique relative weight; low-volume MS-LTC-DRGs (that is, MS-LTC-DRGs
that contain between 1 and 24 cases based on a given year's claims
data) are grouped into quintiles (as described below) and assigned the
relative weight of the quintile. No-volume MS-LTC-DRGs (that is, no
cases in the given year's claims data were assigned to those MS-LTC-
DRGs) are cross-walked to other MS-LTC-DRGs based on the clinical
similarities and assigned the relative weight of the cross-walked MS-
LTC-DRG (as described in greater detail below). In this final rule, as
we proposed, we utilized these same three categories of MS-LTC-DRGs for
purposes of determining the MS-LTC-DRG relative weights for FY 2012.
(We provide in-depth discussions of our policy regarding weight-setting
for low-volume MS-LTC-DRGs in section VII.B.3.f. of the preamble of
this final rule and for no-volume MS-LTC-DRGs, under Step 5 in section
VII.B.3.g. of the preamble of this final rule.)
As also noted above, while the LTCH PPS and the IPPS use the same
patient classification system, the methodology that is used to set the
DRG relative weights for use in each payment system differs because the
overall volume of cases in the LTCH PPS is much less than in the IPPS.
In general, consistent with our existing methodology and as we
proposed, we used the following steps to determine the FY 2012 MS-LTC-
DRG relative weights: (1) If an MS-LTC-DRG had at least 25 cases, it
was assigned its own relative weight; (2) if an MS-LTC-DRG had between
1 and 24 cases, it was assigned to a quintile for which we computed a
relative weight for all of the MS-LTC-DRGs assigned to that quintile;
and (3) if an MS-LTC-DRG had no cases, it was cross-walked to another
MS-LTC-DRG based upon clinical similarities to assign an appropriate
relative weight (as described below in detail in Step 5 of section
VII.B.3.g. of this preamble). Furthermore, in determining the FY 2012
MS-LTC-DRG relative weights, when necessary, we make adjustments to
account for nonmonotonicity, as discussed in greater detail below in
Step 6 of section VII.B.3.g. of this preamble. We refer readers to the
discussion in the FY 2010 IPPS/RY LTCH PPS final rule for our rationale
for including an adjustment for nonmonotonicity (74 FR 43953 through
43954).
f. Low-Volume MS-LTC-DRGs
In order to account for MS-LTC-DRGs with low volume (that is, with
fewer than 25 LTCH cases), consistent with our existing methodology and
as we proposed, for purposes of determining the FY 2012 MS-LTC-DRG
relative weights, we employ the quintile methodology for low-volume MS-
LTC-DRGs, such that we group those ``low-volume MS-LTC-DRGs'' (that is,
MS-LTC-DRGs that contained between 1 and 24 cases annually) into one of
five categories (quintiles) based on average charges (67 FR 55984
through 55995 and 72 FR 47283 through 47288). In determining the FY
2012 MS-LTC-DRG relative weights in this final rule, in cases where the
initial assignment of a low-volume MS-LTC-DRG to quintiles resulted in
nonmonotonicity within a base-DRG, in order to ensure appropriate
Medicare payments, consistent with our historical methodology and as we
proposed, we made adjustments to the treatment of low-volume MS-LTC-
DRGs to preserve monotonicity, as discussed in detail below in section
VII.B.3.g. (Step 6) in this preamble.
In this final rule, using LTCH cases from the March 2011 update of
the FY 2010 MedPAR file, we identified 277 MS-LTC-DRGs that contained
between 1 and 24 cases. This list of MS-LTC-DRGs was then divided into
one of the 5 low-volume quintiles, each containing a minimum of 55 MS-
LTC-DRGs (277/5 = 55 with 2 MS-LTC-DRG as the remainder). We assigned a
low-volume MS-LTC-DRG to a specific low-volume quintile by sorting the
low-volume MS-LTC-DRGs in ascending order by average charge in
accordance with our established methodology. Furthermore, because the
number of MS-LTC-DRGs with less than 25 cases is not evenly divisible
by 5, the average charge of the low-volume quintile was used to
determine which of the low-volume quintiles would contain the 2
additional low-volume MS-LTC-DRGs. Specifically, after organizing the
MS-LTC-DRGs by ascending order by average charge, we assigned the first
fifth (1st through 55th) of low-volume MS-LTC-DRGs (with the lowest
average charge) into Quintile 1. The MS-LTC-DRGs with the highest
average charge cases would be assigned into Quintile 5. Because the
average charge of the 166th low-volume MS-LTC-DRG in the sorted list is
closer to the average charge of the 165th low-volume MS-LTC-DRG
(assigned to Quintile 3) than to the average charge of the 167th low-
volume MS-LTC-DRG (assigned to Quintile 4), we assign it to Quintile 3
(such that Quintile 3 contains 56 low-volume MS-LTC-DRGs before any
adjustments for nonmonotonicity, as discussed below). This process was
repeated through the remaining low-volume MS-LTC-DRGs so that 3 of the
5 low-volume quintiles contain 55 MS-LTC-DRGs (Quintiles 1, 2, and 4)
and the other 2 low-volume quintiles contain 56 MS-LTC-DRGs (Quintiles
3 and 5). Table 13A, which is listed in section VI. of the Addendum to
this final rule and is available via the Internet, lists the
composition of the low-volume quintiles for MS-LTC-DRGs for FY 2012.
Accordingly, in order to determine the FY 2012 relative weights for
the MS-LTC-DRGs with low volume, as we proposed, we used the 5 low-
volume quintiles described above. The composition of each of the 5 low-
volume quintiles shown in Table 13A (listed in section VI. of the
Addendum to this final rule and available via the Internet) was used in
determining the FY 2012 MS-LTC-DRG relative weights (as shown in Table
11 listed in section VI. of the Addendum to this final rule and
available via the Internet). We determined a relative weight and
(geometric) average length of stay for each of the 5 low-volume
quintiles using the methodology that we applied to the MS-LTC-DRGs (25
or more cases), as described in section VII.B.3.g. of the preamble of
this final rule. We assigned the same relative weight and average
length of stay to each of the low-volume MS-LTC-DRGs that made up an
individual low-volume quintile. We note that, as this system is
dynamic, it is possible that the number and specific type of MS-LTC-
DRGs with a low volume of LTCH cases will vary in the future. We use
the most recent available claims data in the MedPAR file to identify
low-volume MS-LTC-DRGs and to calculate the relative weights based on
our methodology.
We note that we will continue to monitor the volume (that is, the
number of LTCH cases) in the low-volume quintiles to ensure that our
quintile assignments used in determining the MS-LTC-DRG relative
weights result in appropriate payment for such cases and do not result
in an unintended financial incentive for LTCHs to inappropriately admit
these types of cases.
g. Steps for Determining the FY 2012 MS-LTC-DRG Relative Weights
In the proposed rule, we proposed, in general, to determine the FY
2012 MS-LTC-DRG relative weights based on our existing methodology.
(For additional information on the original development of this
methodology, and modifications to it since the adoption of

[[Page 51740]]

the MS-LTC-DRGs, we refer readers to the August 30, 2002 LTCH PPS final
rule (67 FR 55989 through 55995) and the FY 2010 IPPS/RY 2010 LTCH PPS
final rule (74 FR 43951 through 43966).)
Comment: One commenter expressed concern that the inclusion of the
``low-volume'' MS-LTC-DRGs (MS-LTC-DRGs with between 1 and 24 cases in
the data used to determine the relative weights) and the ``no volume''
MS-LTC-DRGs (MS-LTC-DRGs that have no LTCH cases in the data used to
determine the relative weights) may inappropriately skew the relative
weights. Based on the data from the proposed rule, there were 280
``low-volume'' MS-LTC-DRGs and 237 ``no volume'' MS-LTC-DRGs, which
represents approximately 68 percent of the 751 MS-LTC-DRGs proposed for
FY 2012. The commenter stated that even though approximately 69 percent
of the proposed MS-LTC-DRGs have few or no cases, they are still
included in the relative weight calculations, and therefore may not
accurately reflect the utilization of LTCH services.
Response: The commenter may find it helpful to review our detailed
explanation of the application of the MS-DRG patient classification
system used by the IPPS to the LTCH PPS, which required the
establishment of the categories of ``no-volume'' and ``low volume'' MS-
LTC-DRGs because LTCHs do not treat the full range of patients treated
in IPPS hospitals (67 FR 55983 through 55995). We believe that the
commenter may not fully understand how ``low-volume'' MS-LTC-DRGs and
``no volume'' MS-LTC-DRGs are treated in our relative weight
methodology. The MS-LTC-DRG relative weights are determined based on
the ratio of the estimated cost of the cases assigned to each MS-LTC-
DRG (as proxied by total charges from the claims in the MedPAR data) to
the cost of the all of the LTCH cases (for all MS-LTC-DRGs) in the
database. Although the ``low-volume'' MS-LTC-DRGs represent
approximately 37 percent of the 751 MS-LTC-DRGs proposed for FY 2012,
the cases assigned to those the ``low-volume'' MS-LTC-DRGs only
represented approximately 1.5 percent of the LTCH cases used to
calculate the proposed relative weights. Similarly, while the ``no-
volume'' MS-LTC-DRGs represent approximately 32 percent of the 751 MS-
LTC-DRGs proposed for FY 2012, there were no cases assigned to the
``no-volume'' MS-LTC-DRGs, and therefore, no data from any claims for
those MS-LTC-DRGs was used to determine the proposed relative weights.
As described in greater detail below in section VII.B.3.g. (step 5) of
this preamble, the relative weights for the ``no-volume'' MS-LTC-DRGs
are assigned based on clinical similarity and relative costliness, and
therefore, have no effect on the calculation of the relative weights.
For the reasons discussed above, we do not believe that inclusion
of the ``low-volume'' MS-LTC-DRGs and the ``no volume'' MS-LTC-DRGs
inappropriately skew the calculation of the relative weights such that
the data do not accurately reflect the utilization of LTCH services. We
continue to believe that our methodology for determining the relative
weights for each MS-LTC-DRG appropriately account for the variations in
cost per discharge and resource utilization among the payment groups in
accordance with Sec. 412.515. Therefore, in this final rule, we are
adopting our proposed methodology as final without modification. In
summary, for FY 2012, to determine the FY 2012 MS-LTC-DRG relative
weights, we grouped LTCH cases to the appropriate MS-LTC-DRG, while
taking into account the low-volume quintile (as described above). After
grouping the cases to the appropriate MS-LTC-DRG (or low-volume
quintile), we calculated the FY 2012 relative weights by first removing
statistical outliers and cases with a length of stay of 7 days or less
(as discussed in greater detail below). Next, we adjusted the number of
cases in each MS-LTC-DRG (or low-volume quintile) for the effect of SSO
cases (step 3 below). After removing statistical outliers (step 1
below) and cases with a length of stay of 7 days or less (step 2
below), the SSO adjusted discharges and corresponding charges were then
used to calculate ``relative adjusted weights'' for each MS-LTC-DRG (or
low-volume quintile) using the HSRV method.
Below we discuss in detail the steps for calculating the FY 2012
MS-LTC-DRG relative weights. We note that, as we stated in section
VII.B.3.c. of this preamble, we excluded the data of all-inclusive rate
LTCHs, LTCHs that are paid in accordance with demonstration projects,
and any Medicare Advantage claims in the March 2011 update of the FY
2010 MedPAR file.
Step 1--Remove statistical outliers.
The first step in the calculation of the FY 2012 MS-LTC-DRG
relative weights is to remove statistical outlier cases. Consistent
with our historical relative weight methodology, we define statistical
outliers as cases that are outside of 3.0 standard deviations from the
mean of the log distribution of both charges per case and the charges
per day for each MS-LTC-DRG. These statistical outliers were removed
prior to calculating the relative weights because we believe that they
may represent aberrations in the data that distort the measure of
average resource use. Including those LTCH cases in the calculation of
the proposed relative weights could result in an inaccurate relative
weight that does not truly reflect relative resource use among the MS-
LTC-DRGs. (For additional information on this step of the relative
weight methodology, we refer readers to 67 FR 55989 and 74 FR 43959.)
Step 2--Remove cases with a length of stay of 7 days or less.
The MS-LTC-DRG relative weights reflect the average of resources
used on representative cases of a specific type. Generally, cases with
a length of stay of 7 days or less do not belong in a LTCH because
these stays do not fully receive or benefit from treatment that is
typical in a LTCH stay, and full resources are often not used in the
earlier stages of admission to a LTCH. If we were to include stays of 7
days or less in the computation of the FY 2012 MS-LTC-DRG relative
weights, the value of many relative weights would decrease and,
therefore, payments would decrease to a level that may no longer be
appropriate. We do not believe that it would be appropriate to
compromise the integrity of the payment determination for those LTCH
cases that actually benefit from and receive a full course of treatment
at a LTCH by including data from these very short-stays. Therefore,
consistent with our historical relative weight methodology, in
determining the FY 2012 MS-LTC-DRG relative weights, we removed LTCH
cases with a length of stay of 7 days or less. (For additional
information on this step of the relative weight methodology, we refer
readers to 67 FR 55989 and 74 FR 43959.)
Step 3--Adjust charges for the effects of SSOs.
After removing cases with a length of stay of 7 days or less, we
were left with cases that have a length of stay of greater than or
equal to 8 days. As the next step in the calculation of the FY 2012 MS-
LTC-DRG relative weights, consistent with our historical relative
weight methodology, we adjusted each LTCH's charges per discharge for
those remaining cases for the effects of SSOs (as defined in Sec.
412.529(a) in conjunction with Sec. 412.503).
We made this adjustment by counting an SSO case as a fraction of a
discharge based on the ratio of the length of stay of the case to the
average length of stay for the MS-LTC-DRG for non-SSO cases. This has
the effect of proportionately reducing the impact of the lower charges
for the SSO cases in calculating the average charge for the

[[Page 51741]]

MS-LTC-DRG. This process produces the same result as if the actual
charges per discharge of an SSO case were adjusted to what they would
have been had the patient's length of stay been equal to the average
length of stay of the MS-LTC-DRG.
Counting SSO cases as full discharges with no adjustment in
determining the FY 2012 MS-LTC-DRG relative weights would lower the FY
2012 MS-LTC-DRG relative weight for affected MS-LTC-DRGs because the
relatively lower charges of the SSO cases would bring down the average
charge for all cases within an MS-LTC-DRG. This would result in an
``underpayment'' for non-SSO cases and an ``overpayment'' for SSO
cases. Therefore, we adjusted for SSO cases under Sec. 412.529 in this
manner because it results in more appropriate payments for all LTCH
cases. (For additional information on this step of the relative weight
methodology, we refer readers to 67 FR 55989 and 74 FR 43959.)
Step 4--Calculate the FY 2012 MS-LTC-DRG relative weights on an
iterative basis.
Consistent with our historical relative weight methodology, we
calculated the FY 2012 MS-LTC-DRG relative weights using the HSRV
methodology, which is an iterative process. First, for each LTCH case,
we calculated a hospital-specific relative charge value by dividing the
SSO adjusted charge per discharge (see Step 3) of the LTCH case (after
removing the statistical outliers (see Step 1)) and LTCH cases with a
length of stay of 7 days or less (see Step 2) by the average charge per
discharge for the LTCH in which the case occurred. The resulting ratio
was then multiplied by the LTCH's case-mix index to produce an adjusted
hospital-specific relative charge value for the case. An initial case-
mix index value of 1.0 was used for each LTCH.
For each MS-LTC-DRG, we calculated the FY 2012 relative weight by
dividing the average of the adjusted hospital-specific relative charge
values (from above) for the MS-LTC-DRG by the overall average hospital-
specific relative charge value across all cases for all LTCHs. Using
these recalculated MS-LTC-DRG relative weights, each LTCH's average
relative weight for all of its cases (that is, its case-mix) was
calculated by dividing the sum of all the LTCH's MS-LTC-DRG relative
weights by its total number of cases. The LTCHs' hospital-specific
relative charge values above were multiplied by these hospital-specific
case-mix indexes. These hospital-specific case-mix adjusted relative
charge values were then used to calculate a new set of MS-LTC-DRG
relative weights across all LTCHs. This iterative process was continued
until there was convergence between the weights produced at adjacent
steps, for example, when the maximum difference was less than 0.0001.
Step 5--Determine a FY 2012 relative weight for MS-LTC-DRGs with no
LTCH cases.
As we stated above, we determined the FY 2012 relative weight for
each MS-LTC-DRG using total Medicare allowable total charges reported
in the best available LTCH claims data (that is, the March 2011 update
of the FY 2010 MedPAR file for this final rule). Using these data, we
identified a number of MS-LTC-DRGs for which there were no LTCH cases
in the database, such that no patients who would have been classified
to those MS-LTC-DRGs were treated in LTCHs during FY 2010 and,
therefore, no charge data were available for these MS-LTC-DRGs. Thus,
in the process of determining the MS-LTC-DRG relative weights, we were
unable to calculate relative weights for the MS-LTC-DRGs with no LTCH
cases using the methodology described in Steps 1 through 4 above.
However, because patients with a number of the diagnoses under these
MS-LTC-DRGs may be treated at LTCHs, consistent with our historical
methodology, we assigned a relative weight to each of the no-volume MS-
LTC-DRGs based on clinical similarity and relative costliness (with the
exception of ``transplant'' MS-LTC-DRGs and ``error'' MS-LTC-DRGs, as
discussed below). (For additional information on this step of the
relative weight methodology, we refer readers to 67 FR 55991 and 74 FR
43959 through 43960.)
In general, we determined FY 2012 relative weights for the MS-LTC-
DRGs with no LTCH cases in the March 2011 update of the FY 2010 MedPAR
file used in this final rule (that is, ``no-volume'' MS-LTC-DRGs) by
cross-walking each no-volume MS-LTC-DRG to another MS-LTC-DRG with a
calculated relative weight (determined in accordance with the
methodology described above). Then, the ``no-volume'' MS-LTC-DRG was
assigned the same relative weight (and average length of stay) of the
MS-LTC-DRG to which it was cross-walked (as described in greater detail
below).
Of the 751 MS-LTC-DRGs for FY 2012, we identified 236 MS-LTC-DRGs
for which there were no LTCH cases in the database (including the 8
``transplant'' MS-LTC-DRGs and 2 ``error'' MS-LTC-DRGs). As stated
above, we assigned relative weights for each of the 236 no-volume MS-
LTC-DRGs (with the exception of the 8 ``transplant'' MS-LTC-DRGs and
the 2 ``error'' MS-LTC-DRGs, which are discussed below) based on
clinical similarity and relative costliness to one of the remaining 515
(751 - 236 = 515) MS-LTC-DRGs for which we were able to determine
relative weights based on FY 2010 LTCH claims data using the steps
described above. (For the remainder of this discussion, we refer to the
``cross-walked'' MS-LTC-DRGs as the MS-LTC-DRGs to which we crosswalked
one of the 236 ``no volume'' MS-LTC-DRGs for purposes of determining a
relative weight.) Then, we assigned the no-volume MS-LTC-DRG the
relative weight of the cross-walked MS-LTC-DRG. (As explained below in
Step 6, when necessary, we made adjustments to account for
nonmonotonicity.)
For this final rule, as we proposed, we crosswalked the no-volume
MS-LTC-DRG to an MS-LTC-DRG for which there were LTCH cases in the
March 2011 update of the FY 2010 MedPAR file, and to which it was
similar clinically in intensity of use of resources and relative
costliness as determined by criteria such as care provided during the
period of time surrounding surgery, surgical approach (if applicable),
length of time of surgical procedure, postoperative care, and length of
stay. We evaluated the relative costliness in determining the
applicable MS-LTC-DRG to which a no-volume MS-LTC-DRG was cross-walked
in order to assign an appropriate relative weight for the no-volume MS-
LTC-DRGs in FY 2012. (For more detail on our process for evaluating
relative costliness, we refer readers to the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (73 FR 48543).) We believe in the rare event that there
would be a few LTCH cases grouped to one of the no-volume MS-LTC-DRGs
in FY 2012, the relative weights assigned based on the cross-walked MS-
LTC-DRGs would result in an appropriate LTCH PPS payment because the
crosswalks, which are based on similar clinical similarity and relative
costliness, generally require equivalent relative resource use.
We then assigned the relative weight of the cross-walked MS-LTC-DRG
as the relative weight for the no-volume MS-LTC-DRG such that both of
these MS-LTC-DRGs (that is, the no-volume MS-LTC-DRG and the cross-
walked MS-LTC-DRG) have the same relative weight for FY 2012. We note
that if the cross-walked MS-LTC-DRG had 25 cases or more, its relative
weight, which was calculated using the methodology described in Steps 1
through 4 above, was assigned to the no-volume MS-

[[Page 51742]]

LTC-DRG as well. Similarly, if the MS-LTC-DRG to which the no-volume
MS-LTC-DRG was cross-walked had 24 or less cases and, therefore, was
designated to one of the low-volume quintiles for purposes of
determining the relative weights, we assigned the relative weight of
the applicable low-volume quintile to the no-volume MS-LTC-DRG such
that both of these MS-LTC-DRGs (that is, the no-volume MS-LTC-DRG and
the cross-walked MS-LTC-DRG) have the same relative weight for FY 2012.
(As we noted above, in the infrequent case where nonmonotonicity
involving a no-volume MS-LTC-DRG results, additional adjustments as
described in Step 6 were required in order to maintain monotonically
increasing relative weights.)
For this final rule, a list of the no-volume MS-LTC-DRGs and the
MS-LTC-DRG to which it was cross-walked (that is, the cross-walked MS-
LTC-DRG) for FY 2012 is shown in Table 13B, which is listed in section
VI. of the Addendum to this final rule and is available via the
Internet.
To illustrate this methodology for determining the relative weights
for the FY 2012 MS-LTC-DRGs with no LTCH cases, we are providing the
following example, which refers to the no-volume MS-LTC-DRGs crosswalk
information for FY 2012 provided in Table 13B.
Example: There were no cases in the FY 2010 MedPAR file used for
this rule for MS-LTC-DRG 61 (Acute Ischemic Stroke with Use of
Thrombolytic Agent with MCC). We determined that MS-LTC-DRG 70
(Nonspecific Cebrovascular Disorders with MCC) was similar clinically
and based on resource use to MS-LTC-DRG 61. Therefore, we assigned the
same relative weight of MS-LTC-DRG 70 of 0.8072 for FY 2012 to MS-LTC-
DRG 61 (Table 11, which is listed in section VI. of the Addendum to
this final rule and is available via the Internet).
Again, we note that, as this system is dynamic, it is entirely
possible that the number of MS-LTC-DRGs with no volume of LTCH cases
based on the system will vary in the future. We used the most recent
available claims data in the MedPAR file to identify no-volume MS-LTC-
DRGs and to determine the relative weights in this final rule.
Furthermore, for FY 2012, consistent with our historical relative
weight methodology, we established MS-LTC-DRG relative weights of
0.0000 for the following transplant MS-LTC-DRGs: Heart Transplant or
Implant of Heart Assist System with MCC (MS-LTC-DRG 1); Heart
Transplant or Implant of Heart Assist System without MCC (MS-LTC-DRG
2); Liver Transplant with MCC or Intestinal Transplant (MS-LTC-DRG 5);
Liver Transplant without MCC (MS-LTC-DRG 6); Lung Transplant (MS-LTC-
DRG 7); Simultaneous Pancreas/Kidney Transplant (MS-LTC-DRG 8);
Pancreas Transplant (MS-LTC-DRG 10); and Kidney Transplant (MS-LTC-DRG
652). This is because Medicare will only cover these procedures if they
are performed at a hospital that has been certified for the specific
procedures by Medicare and presently no LTCH has been so certified. At
the present time, we include these eight transplant MS-LTC-DRGs in the
GROUPER program for administrative purposes only. Because we use the
same GROUPER program for LTCHs as is used under the IPPS, removing
these MS-LTC-DRGs would be administratively burdensome. (For additional
information regarding our treatment of transplant MS-LTC-DRGs, we refer
readers to the RY 2010 LTCH PPS final rule (74 FR 43964).)
Step 6--Adjust the FY 2012 MS-LTC-DRG relative weights to account
for nonmonotonically increasing relative weights.
As discussed earlier in this section, the MS-DRGs contain base DRGs
that have been subdivided into one, two, or three severity of illness
levels. Where there are three severity levels, the most severe level
has at least one code that is referred to as an MCC (that is, major
complication or comorbidity). The next lower severity level contains
cases with at least one code that is a CC (that is, complication or
comorbidity). Those cases without an MCC or a CC are referred to as
``without CC/MCC.'' When data do not support the creation of three
severity levels, the base DRG is subdivided into either two levels or
the base DRG is not subdivided. The two-level subdivisions could
consist of the DRG with CC/MCC and the DRG without CC/MCC.
Alternatively, the other type of two-level subdivision may consist of
the DRG with MCC and the DRG without MCC.
In those base MS-LTC-DRGs that are split into either two or three
severity levels, cases classified into the ``without CC/MCC'' MS-LTC-
DRG are expected to have a lower resource use (and lower costs) than
the ``with CC/MCC'' MS-LTC-DRG (in the case of a two-level split) or
both the ``with CC'' and the ``with MCC'' MS-LTC-DRGs (in the case of a
three-level split). That is, theoretically, cases that are more severe
typically require greater expenditure of medical care resources and
will result in higher average charges. Therefore, in the three severity
levels, relative weights should increase by severity, from lowest to
highest. If the relative weights decrease as severity increases (that
is, if within a base MS-LTC-DRG, an MS-LTC-DRG with CC has a higher
relative weight than one with MCC, or the MS-LTC-DRG without CC/MCC has
a higher relative weight than either of the others), they are
nonmonotonic. We continue to believe that utilizing nonmonotonic
relative weights to adjust Medicare payments would result in
inappropriate payments because the payment for the cases in the higher
severity level in a base MS-LTC-DRG (which are generally expected to
have higher resource use and costs) would be lower than the payment for
cases in a lower severity level within the same base MS-LTC-DRG (which
are generally expected to have lower resource use and costs).
Consequently, in determining the FY 2012 MS-LTC-DRG relative weights in
this final rule, consistent with our historical methodology we combined
MS-LTC-DRG severity levels within a base MS-LTC-DRG for the purpose of
computing a relative weight when necessary to ensure that monotonicity
is maintained. For a comprehensive description of our existing
methodology to adjust for nonmonotonicity, we refer readers to the FY
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43964 through 43966). Any
adjustments for nonmonotonicity that were made in determining the FY
2012 MS-LTC-DRG relative weights in this final rule by applying this
methodology are denoted in Table 11, which is listed in section VI. of
the Addendum to this final rule and is available via the Internet.
Step 7--Calculate the FY 2012 budget neutrality factor.
As we established in the RY 2008 LTCH PPS final rule (72 FR 26882),
under the broad authority conferred upon the Secretary to develop the
LTCH PPS under section 123 of Public Law 106-113, as amended by section
307(b) of Public Law 106-554, beginning with the MS-LTC-DRG update for
FY 2008, the annual update to the MS-LTC-DRG classifications and
relative weights is done in a budget neutral manner such that estimated
aggregate LTCH PPS payments would be unaffected, that is, would be
neither greater than nor less than the estimated aggregate LTCH PPS
payments that would have been made without the MS-LTC-DRG
classification and relative weight changes (Sec. 412.517(b) in
conjunction with Sec. 412.503). (For a detailed discussion on the
establishment of the budget neutrality requirement for the annual
update of the MS-LTC-DRG classifications and relative weights, we refer
readers to the RY 2008 LTCH PPS final rule (72 FR 26881).)
The MS-LTC-DRG classifications and relative weights are updated
annually

[[Page 51743]]

based on the most recent available LTCH claims data to reflect changes
in relative LTCH resource use (Sec. 412.517(a) in accordance with
Sec. 412.503). Under the budget neutrality requirement at Sec.
412.517(b), for each annual update, the MS-LTC-DRG relative weights are
uniformly adjusted to ensure that estimated aggregate payments under
the LTCH PPS would not be affected (that is, decreased or increased).
Consistent with that provision, we updated the MS-LTC-DRG
classifications and relative weights for FY 2012 based on the most
recent available LTCH data, and to apply a budget neutrality adjustment
in determining the FY 2012 MS-LTC-DRG relative weights.
To ensure budget neutrality in the update to the MS-LTC-DRG
classifications and relative weights under Sec. 412.517(b), we used
our established two-step budget neutrality methodology. In this final
rule, in the first step of our MS-LTC-DRG budget neutrality
methodology, for FY 2012, we calculated and applied a normalization
factor to the recalibrated relative weights (the result of Steps 1
through 6 above) to ensure that estimated payments were not influenced
by changes in the composition of case types or the changes to the
classification system. That is, the normalization adjustment is
intended to ensure that the recalibration of the MS-LTC-DRG relative
weights (that is, the process itself) neither increases nor decreases
the average CMI.
To calculate the normalization factor for FY 2012 (the first step
of our budget neutrality methodology), in this final rule, as we
proposed, we used the following three steps: (1.a.) we used the most
recent available LTCH claims data (FY 2010) and grouped them using the
FY 2012 GROUPER (Version 29.0) and the recalibrated FY 2012 MS-LTC-DRG
relative weights (determined in steps 1 through 6 of the Steps for
Determining the FY 2012 MS-LTC-DRG Relative Weights above) to calculate
the average CMI; (1.b.) we grouped the same LTCH claims data (FY 2010)
using the FY 2011 GROUPER (Version 28.0) and FY 2011 MS-LTC-DRG
relative weights and calculated the average CMI; and (1.c.) we computed
the ratio of these average CMIs by dividing the average CMI for FY 2011
(determined in Step 1.b.) by the average CMI for FY 2012 (determined in
step 1.a.). In determining the MS-LTC-DRG relative weights for FY 2012,
each recalibrated MS-LTC-DRG relative weight was multiplied by 1.11520
in the first step of the budget neutrality methodology, which produced
``normalized relative weights.''
In the second step of our MS-LTC-DRG budget neutrality methodology,
we determined a budget neutrality factor to ensure that estimated
aggregate LTCH PPS payments (based on the most recent available LTCH
claims data) after reclassification and recalibration (that is, the FY
2012 MS-LTC-DRG classifications and relative weights) are equal to
estimated aggregate LTCH PPS payments before reclassification and
recalibration (that is, the FY 2011 MS-LTC-DRG classifications and
relative weights). Accordingly, consistent with our existing
methodology, we used FY 2010 discharge data to simulate payments and
compare estimated aggregate LTCH PPS payments using the FY 2011 MS-LTC-
DRGs and relative weights to estimate aggregate LTCH PPS payments using
the FY 2012 MS-LTC-DRGs and relative weights. Furthermore, consistent
with our historical policy of using the best available data, we also
used updated data to determine the budget neutrality adjustment factor
for FY 2012 in the final rule.
For this final rule, as we proposed, we determined the FY 2012
budget neutrality adjustment factor using the following three steps:
(2.a.) we simulated estimated total LTCH PPS payments using the
normalized relative weights for FY 2012 and GROUPER Version 29.0 (as
described above); (2.b.) we simulated estimated total LTCH PPS payments
using the FY 2011 GROUPER (Version 28.0) and the FY 2011 MS-LTC-DRG
relative weights shown in Table 11 of the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50613 through 50626); and (2.c.) we calculated the ratio of
these estimated total LTCH PPS payments by dividing the estimated total
LTCH PPS payments using the FY 2011 GROUPER (Version 28.0) and the FY
2011 MS-LTC-DRG relative weights (determined in step 2.b.) by the
estimated total LTCH PPS payments using the FY 2012 GROUPER (Version
29.0) and the normalized MS-LTC-DRG relative weights for FY 2012
(determined in Step 2.a.). In determining the FY 2012 MS-LTC-DRG
relative weights, each normalized relative weight was multiplied by a
budget neutrality factor of 0.994649 in the second step of the budget
neutrality methodology to determine the budget neutral FY 2012 relative
weight for each MS-LTC-DRG.
Accordingly, in determining the FY 2012 MS-LTC-DRG relative weights
in this final rule, consistent with our existing methodology, we
applied a normalization factor of 1.11520 and a budget neutrality
factor of 0.994649 (computed as described above). Table 11, which is
listed in section VI. of the Addendum to this final rule and is
available via the Internet, lists the MS-LTC-DRGs and their respective
relative weights, geometric mean length of stay, and five-sixths of the
geometric mean length of stay (used in determining SSO payments under
Sec. 412.529) for FY 2012. The FY 2012 MS-LTC-DRG relative weights in
Table 11, which is listed in section VI. of the Addendum to this final
rule and available via the Internet, reflect both the normalization
factor of 1.11520 and the budget neutrality factor of 0.994649.

C. Quality Reporting Program for LTCHs

1. Background and Statutory Authority
CMS seeks to promote higher quality and more efficient health care
for Medicare beneficiaries, and our efforts are furthered by quality
reporting programs coupled with public reporting of that information.
Such quality reporting programs already exist for various settings such
as hospital inpatient services via the Hospital Inpatient Quality
Reporting (IQR) Program (formerly called the Reporting Hospital Quality
Data for Annual Payment Update (RHQDAPU) Program), hospital outpatient
services via the Hospital Outpatient Quality Reporting (OQR) Program
(formerly called the Hospital Outpatient Quality Data Reporting Program
(HOP QDRP)) and physicians' and other eligible professionals' services
via the Physician Quality Reporting System (formerly called the
Physician Quality Reporting Initiative, or PQRI). We have 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 incentive program
(ESRD QIP) that links payment to performance.
Section 3004(a) of the Affordable Care Act authorizes an additional
quality reporting program for LTCHs, by adding a new paragraph (5) to
section 1886(m) of the Act. Section 1886(m)(5)(A)(i) of the Act
requires that, for rate year 2014 and each subsequent rate year, the
Secretary shall reduce any annual update to the standard Federal rate
for discharges occurring during such rate year, by 2 percentage points
for any LTCH that does not comply with quality data submission
requirements with respect to an applicable rate year. We note that
section 1886(m)(5) of the Act uses the term ``rate year.'' Beginning
with the annual update to the LTCH PPS that took effect on October 1,
2009, we consolidated the rulemaking cycle for the annual update of the
LTCH PPS

[[Page 51744]]

Federal payment rates with the annual update of the MS-LTC-DRG
classifications and relative weights so that the annual updates to the
rates and factors have an October 1 effective date and occur on the
same schedule. To reflect this change to the annual payment rate update
cycle, we revised the regulations at Sec. 412.503 to specify that,
beginning on or after October 1, 2009, the ``LTCH PPS rate year'' is
defined as October 1 through September 30 (73 FR 26797 through 26798
and 26838). Beginning October 1, 2010, we changed from using the term
``rate year'' to ``fiscal year'' under the LTCH PPS in order to conform
to the standard definition of the Federal fiscal year (October 1
through September 30). For LTCH PPS purposes, the term ``rate year''
and the term ``fiscal year'' both refer to the time period beginning
October 1 and ending September 30. For more information regarding this
terminology change, we refer readers to the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50396 and 50397). For purposes of the discussion below, in
order to eliminate any possible confusion that may be caused by using
the term ``rate year'' with respect to the LTCH quality reporting
program, we will use the term ``fiscal year'' rather than ``rate
year.''
As provided at section 1886(m)(5)(A)(ii) of the Act, depending on
the amount of the annual update for a particular year, a reduction of
2.0 percentage points may result in the annual update being less than
0.0 percent for a fiscal year and may result in payment rates under the
LTCH PPS being less than payment rates for the preceding fiscal year.
In addition, as set forth at section 1886(m)(5)(B) of the Act, any
reduction based on failure to comply with the reporting requirements,
as required by section 1886(m)(5)(A) of the Act, shall apply only with
respect to the particular fiscal year involved, and any such reduction
shall not be taken into account in computing the payment rate for
subsequent fiscal years.
Section 1886(m)(5)(C) of the Act requires that, for fiscal year
2014 and each subsequent fiscal year, each LTCH shall submit to the
Secretary data on quality measures as specified by the Secretary. Such
data must be submitted in a form and manner, and at a time, specified
by the Secretary. Generally, any measures selected by the Secretary
must have been endorsed by the entity with a contract under section
1890(a) of the Act. This contract is currently held by the NQF. 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 in our reporting programs.
However, section 1886(m)(5)(D)(ii) of the Act provides that, in the
case of a specified area or medical topic determined appropriate by the
Secretary for which a feasible and practical measure has not been
endorsed by the entity with a contract under section 1890(a) of the Act
(currently NQF), the Secretary may specify a measure(s) that is (are)
not so endorsed, as long as due consideration is given to measures that
have been endorsed or adopted by a consensus organization identified by
the Secretary. Under section 1886(m)(5)(D)(iii) of the Act, the
Secretary shall publish, by no later than October 1, 2012, measures
which shall be applicable with respect to the FY 2014 payment
determination.
Section 1886(m)(5)(E) of the Act requires the Secretary to
establish procedures for making data submitted under the LTCH quality
reporting program available to the public. The Secretary must ensure
that each LTCH has the opportunity to review the data that are to be
made public with respect to that facility prior to such data being made
public. The Secretary must also report quality measures that relate to
services furnished in LTCHs on the CMS Web site.
2. Quality Measures for the LTCH Quality Reporting Program for FY 2014
a. Considerations in the Selection of the Quality Measures
In implementing the LTCH quality reporting program, we believe that
the development of a quality reporting program that is successful in
promoting the delivery of high quality health care services in LTCHs is
of paramount importance. As the statute provides in section
1886(m)(5)(D) of the Act, in establishing the LTCH quality reporting
program, we must publish quality measures to be reported with respect
to the FY 2014 payment determination no later than October 1, 2012. In
order to meet that mandate, we sought to develop a quality reporting
program that incorporates overarching health care aims and goals
intended to facilitate quality care in a manner that is effective and
meaningful, while remaining mindful of reporting burden and feasibility
of data collection by LTCHs, in order to reduce and avoid duplicative
reporting efforts when possible. We seek to efficiently collect
information on valid, reliable, and relevant measures of quality and to
share this information with the public, as provided under section
1886(m)(5)(E) of the Act.
Several provisions of the Affordable Care Act, taken together,
direct the Secretary to establish a national strategy to provide a
comprehensive plan and priorities to improve the delivery of health
care services, patient health outcomes, and population health through a
transparent, collaborative process. This strategy, the National Quality
Strategy, was released by the Secretary (available on the Web site at:
http://www.healthcare.gov/center/reports/quality03212011a.html#es). We
have used the priorities of the National Quality Strategy to guide
identification of the proposed quality measures for LTCHs under section
1886(m)(5) of the Act.
We also applied the following additional considerations and
criteria in selecting the quality measures for LTCHs: whether a measure
is included in, or facilitates alignment with, other Medicare and
Medicaid programs; whether a measure addresses HHS priorities, such as
prevention, care of chronic illness, high prevalence conditions,
patient safety, patient and caregiver engagement, and care
coordination; and whether a measure is evidence-based and may drive
quality improvement as well as has a low probability of causing
unintended adverse consequences, such as reduced LTCH admissions of
higher risk patients.
Furthermore, at the Listening Session held on November 15, 2010,
for the Affordable Care Act section 3004 quality reporting programs, we
sought input, and invited comments and suggestions regarding quality
reporting, quality measurement recommendations, prioritization, and
feasibility. We sought additional input at a Special Open Door Forum
held on December 16, 2010, for the Affordable Care Act section 3004
quality reporting programs. Transcripts for both the Listening Session
and the Open Door Forum can be found on the CMS Web site at: http://www.cms.gov/LTCH-IRF-Hospice-Quality-Reporting.
In addition, we invited suggestions and input regarding the section
3004 quality reporting programs to be sent to us using the CMS Web site
mail box [email protected] found
at http://www.cms.gov/LTCH-IRF-Hospice-Quality-Reporting. We also
received suggestions and input from a LTCH technical expert panel
(TEP), convened by the CMS measure development contractor on January
31, 2011, that reviewed and prioritized the quality

[[Page 51745]]

measures identified by a LTCH environmental scan led by a CMS measure
development contractor, Research Triangle Institute (RTI
International), specifically for the LTCH quality reporting program.
Specifically, this TEP reviewed measures found in the environmental
scan and rated them for importance, scientific soundness, usability,
and feasibility.
In summary, in selecting the quality measures discussed below, with
applicability for FY 2014 and subsequent years, our goal is to achieve
several objectives. First, the measures should relate to the general
aims of better care for the individual, better population health, and
lower cost through better quality. Second, the measures should promote
improved quality specifically with regard to the priorities that are of
most relevance to LTCHs. These include: patient safety, such as
avoiding healthcare-associated infections (HAIs) and adverse events;
better coordination of care; and person-centered and family-centered
care. Third, the measures should address improved quality for the
primary role of LTCHs, which is to furnish extended medical care to
individuals with clinically complex problems, such as multiple acute or
chronic conditions, that need hospital-level care for relatively
extended periods of greater than 25 days.
b. LTCH Quality Measures for the FY 2014 Payment Determination
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25983), we
proposed that, for the FY 2014 payment determination, LTCHs submit data
on three quality measures: (1) Urinary Catheter-Associated Urinary
Tract Infections (CAUTI); (2) Central Line Catheter-Associated
Bloodstream Infection (CLABSI); and (3) Pressure Ulcers that are New or
Have Worsened.
HAIs are a topic area widely acknowledged by HHS in the HHS Action
Plan to Prevent HAIs (http://www.hhs.gov/ash/initiatives/hai/actionplan/), the Institute of Medicine, the National Priorities
Partnership, and others as a high impact priority requiring measurement
and improvement. Better care is one of the aims found in the National
Quality Strategy, and patient safety is one of the priorities.
Mitigating HAIs is essential in the improvement of patient safety, and,
therefore, patient care. HAIs are among the leading causes of death in
the United States and, therefore, are serious reportable events. CDC
estimates that as many as 2 million infections are acquired each year
in hospitals and result in approximately 90,000 deaths per year.\58\
HAIs not only put the patient at risk, but also increase the days of
hospitalization required for patients and add considerable health care
costs. Therefore, two of the three proposed quality measures, CAUTI and
CLABSI, are HAI measures.
---------------------------------------------------------------------------

\58\ McKibben L; Horan T: Guidance on public reporting of
healthcare-associated infections: Recommendations of the Healthcare
Infection Control Practices Advisory Committee. AJIC 2005;33:217
through 226.
---------------------------------------------------------------------------

Other HAIs included in the HHS Action Plan to Prevent HAIs were
under consideration for the LTCH quality reporting program beginning
October 1, 2012. However, the TEP convened by the measure development
contractor recommended the two infection events, urinary catheter-
associated urinary tract infection and central line catheter-associated
bloodstream infection (each an episode of an infection, such as CAUTI
or CLABSI) as highly pertinent, and important for data collection as
well as most ready and currently feasible for implementation in the
LTCH setting. HAI quality measures are important for quality reporting,
and we intend to propose additional HAI measures included in the HHS
HAI Action Plan to Prevent HAIs through future rulemaking. These
potential HAI quality measures are listed in our discussion of possible
measures under consideration for future years. In the FY 2012 IPPS/LTCH
PPS proposed rule (76 FR 25983 through 25985), we proposed the
selection of the CAUTI and CAUTI events as the two initial HAI quality
measures for the LTCH quality measure reporting program.
(1) FY 2014 LTCH Measure 1: Urinary Catheter-Associated
Urinary Tract Infections (CAUTI)
The first measure we proposed for LTCHs for purposes of the FY 2014
payment determination is an application of the NQF-endorsed measure
developed by CDC for hospital intensive care units (ICU) entitled (NQF
0138) ``Urinary Catheter-Associated Urinary Tract Infection
[CAUTI] rate per 1,000 urinary catheter days, for Intensive Care Unit
Patients'' to all LTCH care units. This measure was developed by the
CDC to measure the percentage of patients with CAUTIs in the ICU
context. At the time we developed the proposed rule, the measure we
proposed to apply, NQF 0138, was undergoing measure
maintenance review by NQF. We indicated that this review may result in
a change in how the CDC calculates the aggregated data from using a
rate for CAUTI, to the use of a standardized infection ratio (SIR) of
healthcare associated catheter-associated urinary tract infections. We
proposed to adopt the current measure in this rulemaking cycle.
However, we also indicated that we intend to propose the adoption of
any modifications to this measure that may result from the NQF review
process in future rulemaking.
While it is fast becoming a medical best practice to avoid urinary
catheter use whenever possible, this may not always be possible with
the LTCH patient population, due to the severity of their primary
illnesses as well as comorbidities. Patients who are exposed to
indwelling urinary catheters have a significantly higher risk of
developing urinary tract infections (UTIs).
UTIs are a common cause of morbidity and mortality. The HHS Action
Plan to Prevent HAIs identified catheter associated urinary tract
infections as the leading type of HAI that is largely preventable, and
the occurrence of which can be drastically reduced in order to reduce
adverse health care related events and avoid excess costs.
The urinary tract is the most common site of HAI, accounting for
more than 30 percent of infections reported by acute care
hospitals.\59\ Healthcare-associated UTIs are commonly attributed to
catheterization of the urinary tract.
---------------------------------------------------------------------------

\59\ Klevens RM, Edward JR, et al. Estimating health care-
associated infections and deaths in U.S. hospitals, 2002. Public
Health Reports 2007;122:160-166.
---------------------------------------------------------------------------

CAUTI can lead to such complications as cystitis, pyelonephritis,
gram-negative bacteremia, prostatitis, epididymitis, and orchitis in
males and, less commonly, endocarditis, vertebral osteomyelitis, septic
arthritis, endophthalmitis, and meningitis in all patients.
Complications associated with CAUTI also include discomfort to the
patient, prolonged hospital stay, and increased cost and mortality.
Each year, more than 13,000 deaths are associated with UTIs.\2\
Prevention of CAUTIs is discussed in the CDC/HICPAC document, Guideline
for Prevention of Catheter-associated Urinary Tract Infections.\60\
---------------------------------------------------------------------------

\60\ Wong ES. Guideline for prevention of catheter-associated
urinary tract infections. Infect Control 1981;2:126-30.
---------------------------------------------------------------------------

The NQF-endorsed CAUTI measure we proposed is currently collected
by the CDC via the National Healthcare Safety Network (NHSN) as part of
State-mandated reporting and surveillance requirements for hospitals.
CDC's NHSN is a secure Internet-based surveillance system that
currently has data collection forms and data submission and reporting
mechanism in place for

[[Page 51746]]

LTCHs. NHSN is currently used, in part, as one means by which certain
State-mandated reporting and surveillance data are collected.
We recognize that the NQF has endorsed this measure for the short
term, acute care ICU setting, but believe that this measure is highly
relevant to LTCHs, in that urinary catheters are commonly used in the
LTCH care setting. As previously noted, NQF 0138 is undergoing
measure maintenance review by NQF. This review may result in a change
in how CDC calculates the aggregated data from using a rate for CAUTI
to the use of a SIR. We proposed to adopt the current measure in this
rulemaking cycle. However, we indicated that we intend to propose the
adoption of any modifications to this measure that may result from the
NQF review process in future rulemaking. The TEP convened by the our
measure development contractor on January 31, 2011, identified CAUTI as
a high priority quality issue for LTCHs, and there was agreement by
this TEP that this particular infection rate is worthy of surveillance
within LTCHs. This measure is applicable for surveillance in long-term
care units (CDC/NHSN Manual, Device-Associated Module, CAUTI Event,
which is available on the CDC Web site at: http://www.cdc.gov/nhsn/pdfs/pscManual/7pscCAUTIcurrent.pdf.
Section 1886(m)(5)(D)(ii) of the Act provides that ``[i]n the case
of a specified area or medical topic determined appropriate by the
Secretary for which a feasible and practical measure has not been
endorsed by the entity with a contract under section 1890(a) [of the
Act], the Secretary may specify a measure that is not so endorsed as
long as due consideration is given to measures that have been endorsed
or adopted by a consensus organization identified by the Secretary.''
We reviewed the NQF's consensus-endorsed measures and were unable to
identify any NQF-endorsed measures for urinary catheter-associated
urinary tract infections for the LTCH setting. We are unaware of any
other measures for catheter-associated urinary tract infections that
have been approved by voluntary consensus standards bodies and endorsed
by NQF. We proposed to adopt an application of this NQF-endorsed (in
the short-term acute care ICU setting) measure under the Secretary's
authority to select non-NQF-endorsed measures.
As previously noted, NQF 0138 is undergoing measure
maintenance review by NQF. This review may result in changes to this
measure's specifications in how CDC calculates the aggregated data from
using a rate for CAUTI to the use of a SIR. We proposed to adopt the
current measure in this rulemaking cycle. However, we indicated that we
intend to propose the adoption of any modifications to this measure
that may result from the NQF review process in future rulemaking. We
note that we intend to ask NQF to formally extend its endorsement of
the CAUTI measure to the LTCH setting.
We solicited public comment on the proposed quality measure
``Urinary Catheter-Associated Urinary Tract Infections'' (CAUTI) in the
FY 2012 IPPS/LTCH PPS.
Comment: The majority of commenters acknowledged that catheter-
associated urinary tract infections are an important issue and
supported this measure for use in quality measurement and reporting
given the clinical severity of some LTCH patients. A few commenters
expressed concern related to the clinical relevance, lack of
uniformity, and relative usefulness compared to other catheter
associated urinary tract infection measures for LTCHs. One commenter
believed that no data were provided to support the selection of this
HAI for LTCH settings.
Response: We appreciate the commenters' support in the use of this
measure. We agree with the importance of catheter associated urinary
tract infections. As an HAI, the CDC estimates that there are 449,334
CAUTIs and 13,000 deaths per year with an estimated associated cost of
$340,000,000.\61\ The catheter-associated urinary tract infection is
the most common type of HAI, comprising some 30 percent of all HAIs.
Furthermore and importantly, as indicated in the HHS National Action
Plan to Prevent HAIs (http://www.hhs.gov/ash/initiatives/hai/actionplan/index.html), catheter-associated urinary tract infection is
also a leading type of HAI that is largely preventable.\62\
---------------------------------------------------------------------------

\61\ Scott, RD. The Direct Medical Costs of Healthcare-
Associated Infections in U.S. Hospitals and the Benefits of
Prevention. March 2009. Available at: http://www.cdc.gov/ncidod/dhqp/pdf/Scott_CostPaper.pdf.
\62\ Klevens RM, Edwards JR, Richards CL, Horan TC, Gaynes RP,
Pollock DA, Cardo DM. Estimating healthcare-associated infection and
deaths in U.S. hospitals, 2002. Public Health Reports 2007: 122:160-
166. Available at http://www.cdc.gov/ncidod/dhqp/pdf/hicpac/infections_deaths.pdf.
---------------------------------------------------------------------------

With respect to the other urinary tract infection measures
referenced, we believe that the commenters are referring to other NQF
endorsed measures that are based on urinary tract infections (not
catheter-associated) or measured usage of a urinary catheters, not
measures of Catheter Associated Urinary Tract Infection. As we have
previously stated we are unaware of any other endorsed measure for
Urinary Catheter Associated Urinary Tract Infection.
As for data in support of the selection of CAUTI for the LTCH
setting, each year, more than 13,000 deaths are associated with
UTIs.\63\ Furthermore, CAUTI is included in the HHS National Action
Plan to Prevent HAIs. LTCH patients often have medical complexities
that necessitate the use of urinary catheters as an integral aspect of
a patient's care, and the use of urinary catheters is common.
Additionally, the TEP convened by the CMS measure developer contractor
for LTCH measure development identified CAUTI as a high priority issue
for LTCHs. Because the use of urinary catheters leads to risk of CAUTI,
we believe that the CAUTI measure is appropriate for LTCHs and aligns
with HHS priorities to reduce such infections.
---------------------------------------------------------------------------

\63\ See note 2.
---------------------------------------------------------------------------

Comment: Commenters commended the NQF endorsement process and
suggested that the LTCH CAUTI measure undergo the same evaluation
before being published in the final rule. Many commenters expressed
concern that the CAUTI measure is not endorsed by the NQF for the LTCH
setting. Some commenters suggested that CMS work with the CDC to test
this measure and ``refine the measure'' prior to finalizing its use.
Response: We agree with the value of the NQF endorsement process.
We are using the NQF endorsed CAUTI measure for Hospital ICU's and
applying it to the LTCH setting. With regard to the comment that we
``refine the measure'' prior to the use of this measure, we interpret
this to mean to further specify or specify the measure differently for
LTCHs. Although the currently NQF endorsed CAUTI measure is not
specifically NQF-endorsed for the LTCH setting, CAUTI events, from
which the measure is calculated, are already being collected by some
LTCHs through the use of the NHSN. We intend to use the same measure
specifications as endorsed by NQF for Hospital ICUs as for LTCHs and
collected through the NHSN.
Comment: Several commenters highlighted the need to risk-adjust the
CAUTI measure. These commenters stated that some LTCH patients are at
much higher risk of developing CAUTI than other lower risk patients.
Several commenters expressed concern that lack of risk adjustment could
possibly lead to unintended consequences such as reduced access for
higher risk patients.

[[Page 51747]]

Response: The CAUTI measure as endorsed by NQF does include risk
adjustment although not based on individual patient characteristics or
comorbidities as suggested by commenters. Rather as endorsed by NQF,
the CDC NHSN process uses facility type and location type information
for risk adjustment by stratifying the results by facility and location
type. The results are then reported as observed over expected based on
the expected rate for the facility or location. In this case, measures
would be calculated based on the expected rate for LTCHs, according to
the data reported to the CDC. This is reported as a Standardized
Infection Ratio (SIR). More information about the SIR can be found at
the CDC Web site: http://www.cdc.gov/nhsn/PDFs/pscManual/
7pscCAUTIcurrent.pdf.
Comment: Some commenters expressed concern with potential erroneous
attribution of infections that may have resulted from catheter use in a
previous setting. One commenter asked whether quality data related to
CAUTI would be collected for all LTCH patients regardless of payer.
Response: With respect to erroneous attribution, the CDC's
guidelines for HAI NHSN event reporting include a Transfer Rule. Under
the Transfer Rule, CAUTIs that develop within 48 hours of transfer from
a patient's previous patient transferring location to the receiving or
admitting location, are not attributable to the admitting patient
location, such as the LTCH setting. Therefore such CAUTIs are not
included in the admitting LTCH's HAI event reporting, and are not
included in the LTCH's CAUTI measure. In the HAI NHSN event reporting,
admitting and transferring locations are defined using a unit
identifier on the CDC's NSHN. We believe this appropriately addresses
the potential risk of erroneous attribution for transferred patients.
Additional information related to the ``Transfer Rule'' can be found on
the CDC Web site at: http://www.cdc.gov/nhsn/PDFs/slides/CAUTI.pdf.
As stated in the proposed rule, the reporting of HAI events and
meaningful HAI event surveillance by LTCHs using the CDC/NHSN requires
the submission of HAI events, regardless of payer.
Comment: One commenter expressed concern that patients who were
``colonized'' with bacteria but without symptoms would be included as
CAUTI and therefore opposed use of this measure.
Response: We interpret the commenter's use of the term
``colonized'' to mean a condition in which significant numbers of
bacteria have colonized the urinary tract but there are no signs or
symptoms of urinary tract infection. Patients with this condition do
not meet CDC's current criteria for CAUTI. To meet CDC's criteria,
asymptomatic patients must have a bacteremia involving at least one
microorganism that is a uropathogen. Please refer to the CDC website
for further information http://www.cdc.gov/nhsn/PDFs/pscManual/
7pscCAUTIcurrent.pdf
After consideration of the public comments we received, we are
finalizing the Urinary Catheter-Associated Urinary Tract Infection
measure, as proposed, for the FY 2014 payment determination.
(2) FY 2014 Measure 2: Central Line Catheter-Associated
Bloodstream Infection (CLABSI)
The second measure we proposed for LTCHs for the FY 2014 payment
determination is an application of a CDC-developed NQF-endorsed measure
for hospital ICU and high-risk nursery patients; (NQF 0139)
``Central Line Catheter-Associated Bloodstream Infection (CLABSI) Rate
for ICU and High-Risk Nursery (HRN) Patients.'' This is a measure of
the percentage of ICU and high-risk nursery patients who, over a
certain amount of days, acquired central line catheter-associated
bloodstream infections over a specified number of line days.
A central line is a catheter that health care providers often place
in a large vein in the neck, chest, or groin to give medication or
fluids or to collect blood for medical tests. Many LTCH patients have
been discharged from short-term acute care hospital ICUs or ICU step-
down units with these central lines already in place. In other
situations, a central line IV may be inserted during the patient's stay
at the LTCH. Bloodstream infections are usually serious infections
typically causing a prolongation of hospital stay and increased cost
and risk of mortality.\64\ An estimated 248,000 bloodstream infections
occur in U.S. hospitals each year.\65\ Furthermore, CLABSIs result in
thousands of deaths each year and billions of dollars in added costs to
the U.S. healthcare system, yet these infections are preventable. The
CDC is providing guidelines and tools to the health care community to
help reduce central line catheter-associated bloodstream infections.
Techniques to prevent CLABSI through proper central line management are
addressed in CDC's Healthcare Infection Control Practices Advisory
Committee Guidelines for the Prevention of Intravascular Catheter
Related Infections.\66\
---------------------------------------------------------------------------

\64\ CDC/NHSN Manual. Device-Associated Module, CLABSI Event.
Available at http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf, accessed on January 20, 2011.
\65\ Klevens RM, Edward JR, et al. Estimating health care-
associated infections and deaths in U.S. hospitals, 2002. Public
Health Reports 2007;122:160-166.
\66\ O'Grady NP, Alexander M, Dellinger EP, Gerberding JL, Heard
SO, Maki DG, et al. Guidelines for the prevention of intravascular
catheter-related infections. MMWR 2002;51(No. RR-10:1-26.
---------------------------------------------------------------------------

We recognize that NQF endorsement of this measure is limited to ICU
and HRN patients in hospital settings, but believe that this measure is
also highly relevant in the LTCH setting because intravascular, central
venous catheters (also known as a ``central line'') are used frequently
due to the fact that these types of hospitals care for patients with
complex medical problems which require LTCH stays and intensive
treatment.
The CMS measure development contractor convened a TEP on January
31, 2011, which identified CLASBIs as a high priority quality issue for
LTCHs; there was agreement by the TEP that this particular infection
rate is worthy of surveillance within LTCHs. This measure is applicable
for surveillance in long-term hospital care units (CDC/NHSN Manual,
Device-Associated Module, CLABSI Event, which is available at the CDC
Web site at: http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf).
Section 1886(m)(5)(D)(ii) of the Act provides that ``[i]n the case
of a specified area or medical topic determined appropriate by the
Secretary for which a feasible and practical measure has not been
endorsed by the entity with a contract under section 1890(a) [of the
Act], the Secretary may specify a measure that is not so endorsed as
long as due consideration is given to measures that have been endorsed
or adopted by a consensus organization identified by the Secretary.''
We reviewed the NQF's consensus-endorsed measures, and were unable to
identify any NQF endorsed measures for central line catheter-associated
bloodstream infections for the LTCH setting. We are unaware of any
other measures for CLABSI that have been approved by voluntary
consensus standards bodies and endorsed by NQF. Therefore, we proposed
to adopt an application of this NQF-endorsed (for ICU and HRN) measure
under the Secretary's authority provided in section 1886(m)(5)(D)(ii)
of the Act.

[[Page 51748]]

We proposed to apply the measure specifications as endorsed by NQF.
We also intend to ask NQF to formally extend its endorsement of the
CLABSI measure to all care settings within the LTCH (that is, beyond
the LTCH ICU).
We solicited public comment on the proposed quality measure
``Central Line Catheter-Associated Bloodstream Infection'' (CLABSI) in
the FY 2012 IPPS/LTCH PPS proposed rule for the quality reporting
program for LTCHs.
Comment: The majority of commenters supported the selection of
CLABSI for use in quality measurement and reporting. One commenter
believed that, of the three proposed measures, CLABSI is probably the
best understood measure, and encouraged its adoption. Other commenters
remarked positively on its clinical relevance given the clinical
severity of some LTCH patients. However, one commenter questioned the
clinical relevance of a CLABSI-based quality measure for LTCHs, and
expressed concern that the majority of LTCH patients do not have
central lines in LTCHs.
Response: We appreciate the commenters' support for the use the
CLABSI measure. We agree with the importance of CLABSIs. Specifically,
we believe collecting data on this quality measure is clinically
relevant because CLABSIs are preventable, and can lead to poor outcomes
such as sepsis and death. Further, as indicated in the HHS National
Action Plan to Prevent HAIs (http://www.hhs.gov/ash/initiatives/hai/actionplan/index.html), CLABSI is a leading type of HAI.
We also agree with commenter who stated that CLABSIs are clinically
relevant to LTCHs. LTCH patients are often medically complex and
central line catheters are used in the LTCH setting as part of patient
care management. Therefore, as with other patients, LTCH patients are
at risk for developing a CLABSI. For calendar year 2009, there were
4,522 LTCH claims in CMS data with ICD-9 codes for this infection,
supporting both the relevance of this measure and the presence of
central line catheter usage.
Comment: Some commenters commended the NQF endorsement process and
some commenters expressed concern that the CLABSI measure is not NQF-
endorsed for the LTCH setting and suggested that the LTCH CLABSI
measure undergo the same evaluation before being published in the final
rule. One commenter suggested that CMS work with the CDC to test this
measure and ``refine the measure'' and that CMS seek NQF endorsement
for use in LTCHs prior to finalizing its use.
Response: We agree with the value of the NQF endorsement process.
We are using an NQF endorsed CLABSI measure for Hospital ICU's and
applying it to the LTCH setting. With regard to the comment that we
``refine the measure'' prior to the use of this measure, we interpret
this to mean to further specify or specify the measure differently for
LTCHs. Although the currently NQF endorsed CAUTI measure is not
specifically NQF-endorsed for the LTCH setting, CLABSI events, from
which the measure is calculated, are already being submitted by some
LTCHs through the use of the NHSN. We intend to use the same measure
specifications as endorsed by NQF for Hospital ICUs as for LTCHs and
collected through the NHSN.
Comment: Many commenters urged CMS to risk-adjust the CLABSI
measure. These commenters stated that some LTCH patients were at much
higher risk of developing CLABSI than other, lower risk, patients. Some
commenters suggested that data for this measure be based upon the type
of LTCH unit and that the measure consider those units associated with
the highest risk of infection such as long-term care ventilator units
that may utilize central line catheters more extensively. Some
commenters noted that there are medical situations where an infection
may be anticipated or occur despite best care efforts. Several
commenters expressed concern that the perceived lack of risk adjustment
could possibly lead to unintended consequences such as reduced access
for higher risk patients. Some commenters appeared to express concern
that the data provided were not at the individual level.
Response: The CLABSI measure as endorsed by NQF does include risk
adjustment although not based on individual patient characteristics or
comorbidities as suggested by commenters. Rather, as suggested by
others and endorsed by NQF for ICUs, the CDC NHSN process uses facility
type and location type information for risk adjustment by stratifying
the results by facility and location type. The results are then
reported as observed over expected based on the expected rate for the
facility or location. In this case, measures would be calculated based
on the expected rate for LTCHs or locations within the facility, based
on the data reported to the CDC. This is reported as a Standardized
Infection Ratio (SIR), described in detail at http://www.cdc.gov/nhsn/
PDFs/pscManual/7pscCAUTIcurrent.pdf. The SIR is a summary statistic
that risk adjusts by taking into account risk differences across
patient population by stratifying by hospital location. This is the
only type of summary statistic method that is used at this time, or
that has historically been used by the CDC for the CLABSI and CAUTI
measures. After extensive consultation with the CDC in this matter, we
have determined that it is best to defer experts at CDC, who have
recommended that SIR is the most appropriate method of summary
statistic for taking risk differences in patient population into
account. In addition, during a Technical Expert Panel (TEP) that was
convened on July 7, 2011, many of the LTCH subject-matter experts
opined that SIR is an appropriate and adequate method of taking risk
differences in patient population into account for the CAUTI and CLABSI
measures.
After consideration of the public comments we received, we are
finalizing the Central Line Catheter-Associated Bloodstream Infection
measure, as proposed, for the FY 2014 payment determination.
(3) FY 2014 Measure 3: Pressure Ulcers
The third measure we proposed for LTCHs for purposes of the FY 2014
payment determination is an application of a CMS-developed NQF-endorsed
measure for short-stay nursing home patients: (NQF 0678,
formerly assigned as NQF NH-012-10) ``Percent of Residents
with Pressure Ulcers that Are New or Have Worsened.'' This measure
includes the percentage of patients who have one or more stage 2-4
pressure ulcers that are new or worsened from a previous assessment.
Consistent in our support of the National Quality Strategy principles,
mitigating the occurrence or worsening of pressure ulcers is essential
in the improvement of patient safety and, therefore, patient care.
We recognize NQF endorsement of this measure is limited to short-
stay nursing home patients, but believe that this measure is highly
relevant and a high priority quality issue for the care of LTCH
patients. Pressure ulcers are high-volume and high-cost adverse events
across the spectrum of health care settings from acute hospitals to
home health. Patients in the LTCH setting are medically complex, have
functional limitations that often are severe, and, therefore, are at
high risk for the development, or worsening, of pressure ulcers.
Pressure ulcers are serious medical conditions and an important measure
of quality. Pressure ulcers can lead to serious, life-threatening
infections, which substantially increase the total cost of care.
Furthermore, as we noted in the FY 2008 IPPS final rule with comment

[[Page 51749]]

period (72 FR 42705), in 2006 there were 322,946 reported cases of
Medicare patients with a pressure ulcer as a secondary diagnosis--each
case had an average charge of $40,381 for a hospital stay, for an
annual total cost of 13 billion dollars. The prevalence of pressure
ulcers in health care facilities is increasing, with some 2.5 million
patients being treated annually for pressure ulcers in acute care
facilities.^{67 68} In 2006, there were 503,300 acute hospital
stays during which pressure ulcers were noted. This is a 78.9 percent
increase from 1993 when there were approximately 281,300 hospital stays
related to pressure ulcers.\69\
---------------------------------------------------------------------------

\67\ Russo CA, Steiner C, Spector W.: Hospitalizations related
to pressure ulcers among adults 18 years and older, 2006 (Healthcare
Cost and Utilization Project Statistical Brief No. 64). December
2008. Available at: http://www.hcup-us.ahrq.gov/reports/statbriefs/sb64.pdf.
\68\ Institute for Healthcare Improvement: Relieve the pressure
and reduce harm. May 21, 2007. Available at: http://www.ihi.org/IHI/Topics/PatientSafety/SafetyGeneral/ImprovementStories/FSRelievethePressureandReduceHarm.htm.
\69\ MacLean DS.: Preventing & managing pressure sores. Caring
for the Ages. March 2003;4(3):34-7. Available at: http://www.amda.com/publications/caring/march2003/policies.cfm.
---------------------------------------------------------------------------

The CMS measure development contractor convened a TEP on January
31, 2011, which identified this topic as highly relevant and a high
priority quality issue for the care of LTCH patients, and the
application of this measure (NQF 0678) as appropriate for
LTCHs.
Section 1886(m)(5)(D)(ii) of the Act provides that ``[i]n the case
of a specified area or medical topic determined appropriate by the
Secretary for which a feasible and practical measure has not been
endorsed by the entity with a contract under section 1890(a) [of the
Act], the Secretary may specify a measure that is not so endorsed as
long as due consideration is given to measures that have been endorsed
or adopted by a consensus organization identified by the Secretary.''
We reviewed the NQF-endorsed measures, and we were unable to identify
any NQF-endorsed measures for the monitoring of pressure ulcers that
are new or worsened, for the LTCH setting. We are unaware of any other
measure for the LTCH setting of new or worsened pressure ulcers that
are approved by voluntary consensus standards bodies and endorsed by
NQF. Therefore, we proposed to adopt an application of this NQF-
endorsed (for short-stay nursing home patients) measure for the LTCH
quality reporting program under the Secretary's authority set forth at
section 1886(m)(5)(D)(ii) of the Act.
We solicited public comment on the proposed quality measure Percent
of Residents with Pressure Ulcers that Are New or Have Worsened in the
FY 2012 IPPS/LTCH PPS proposed rule for the quality reporting program
for LTCHs.
Comment: Most commenters supported the selection of pressure ulcers
for use in quality measurement and reporting. However, one commenter
questioned the clinical relevance of this measure, and believed that
there was a lack of supporting data in the proposed rule. Another
commenter suggested that few studies have conclusively shown that
``standard interventions implemented today have been proven beyond a
reasonable doubt to do anything at all to prevent pressure ulcers.''
Response: We appreciate the commenters' support of this measure.
We believe, as the data provided in the proposed rule suggests,
that the development of new or worsened pressure ulcers is a very
relevant clinical quality issue in all clinical settings, including
LTCHs. Our measure development contractor convened a TEP on January 31,
2011, which identified this topic as highly relevant and a high
priority quality issue for the care of LTCH patients, and the
application of this measure (NQF 0678) as appropriate for LTCHs.
Specifically, in LTCHs alone, claims submitted to CMS in 2009 included
nearly 700 claims for stage one pressure ulcers; just over 2,600 claims
for stage 2 pressure ulcers; just over 7,000 for stage 3 pressure
ulcers; nearly 10,000 claims for stage 4 pressure ulcers and just over
1,100 claims for both stage 3 and stage 4 pressure ulcers; as well as
nearly 800 claims for unstageable pressure ulcers. LTCH patients are
often at an increased risk of pressure ulcer formation given their
medical complexities, and often lack of mobility.
We disagree with the commenter who believed that few studies have
conclusively shown that ``standard interventions implemented today have
been proven beyond a reasonable doubt to do anything at all to prevent
pressure ulcers.'' We believe that the evidence-based pressure ulcer
prevention guidelines published by clinical experts, such as the
National Pressure Ulcer Advisory Panel in conjunction with the European
Pressure Ulcer Advisory Panel (NPUAP and EPUAP) (http://www.npuap.org/resources.htm) as well as the Institute for Clinical Systems
Improvement, and others, suggest that pressure ulcer development and
worsening can be reduced and mitigated through the application of such
best practices.
Comment: Many commenters agreed that pressure ulcers are an
important issue, and are important for quality measurement in the LTCH
setting. However, one commenter expressed concern that the proposed
pressure ulcer measure was developed for short-stay nursing home
patients and suggested that patients in LTCHs require hospital-level,
physician-led, post acute care, while patients in nursing homes have
far lower medical acuity and resource use. Some commenters recommended
harmonizing the LTCH pressure ulcer measure with Hospital IQR Program
pressure ulcer measure which includes only Stages III and IV,
suggesting that this would facilitate cross-site data comparisons that
would be helpful for policy work to reduce patient harm, improve
transitions of care, reduce preventable readmissions and related
delivery system reforms. Commenters suggested the involvement of
albumin levels in wound improvement. Commenters also suggested that CMS
work to test this measure, ``refine the measure,'' and seek NQF
endorsement for use in LTCHs prior to finalizing its use.
Response: We appreciate the many supportive comments as to the
importance of the issues of pressure ulcers in the LTCH setting.
Although we agree LTCHs are different than nursing homes in terms of
patient types, we do not agree that the issue of pressure ulcers is
substantially different in terms of preventability and treatment. With
respect to harmonizing measures with the Hospital IQR Program, we
believe that an assessment of patients as done for the nursing home
measure is preferable for a pressure ulcer measure as opposed to a
claims based measure relying on diagnosis codes. We believe the
assessment provides more information particularly for worsening and
improving pressure ulcers. As for the suggestion albumin levels are
involved in wound improvement, this is not a risk factor as included in
the NQF-endorsed measure we are adopting for application to the LTCH
setting. Finally, as to the future refinement, we are applying the
measure as endorsed by NQF for nursing homes.
Comment: Many commenters believed that the term ``worsening''
pressure ulcers was ambiguous. These commenters noted that inter-rater
reliability of wound staging may vary significantly, and suggested that
the term ``worsening'' be defined. Commenters also suggested that
``worsening'' be removed from the description and that CMS base the

[[Page 51750]]

quality measure solely on the appearance of ``new'' pressure ulcers.
Many commenters also suggested that this measure include an indicator
for when a pressure ulcer is ``present on admission'' (POA), as is done
with the Hospital IQR Program measure, Pressure Ulcers Stages III and
IV. Some commenters indicated that it is difficult to accurately
differentiate between worsening pressure ulcers and pressure ulcers
that appear to worsen as part of the healing process before they get
better, such as pressure ulcers that undergo debridement, or in
instances when the patient has an episode of sepsis or hemodynamic
instability. These commenters suggested that debridement often improves
the overall condition of the wound but it is expected that it initially
will increase the measurement of the wound. In addition, some
commenters recommended adding a measure to identify healing pressure
ulcers. One commenter suggested that the pressure ulcer measure should
be defined as the number of patients per 1000 days who suffered a
pressure ulcer.
Response: This proposed measure is an application of a measure that
NQF-endorsed in the SNF setting. We do not agree that the measure is
ambiguous or that it should be based solely on the appearance of new
pressure ulcers. As specified for the LTCH setting, the measure, new or
worsening pressure ulcers, is based on changes in skin integrity that
occurs within the LTCH. With regard to the Hospital IQR Program, and
the use of a present on admission (POA) indicator, it is important to
note that the pressure ulcer measure in the Hospital IQR Program relies
on claims codes to identify pressure ulcers. A POA indicator is
necessary to avoid attributing to the hospital the development of a
pressure ulcer when the pressure ulcer was present on admission. By
contrast, the measure that we proposed for LTCHs is based on the direct
assessment of patients, the first assessment of which is upon
admission. The measure considers pressure ulcers that were present on
admission based on the initial assessment in order to assess for any
worsening of these pressure ulcers during the patients' stays.
Unstageable wounds include deep tissue injuries and pressure ulcers
covered by nonremovable dressings, slough or eschar. These are not
currently included in this measure since unstageable wounds cannot be
measured, and therefore the presence of worsening cannot be determined.
For example, a pressure ulcer that presents with slough or eschar
cannot be staged, and is not considered worsened. Only after, and if,
debridement occurs, and the dead tissue is removed, can such a wound be
properly staged. If after wound debridement, the wound is staged and
subsequently evaluated to have increased in the stage, the wound is
considered worsened. However, such a wound may not be considered
worsened if the stage remains unchanged after debridement and staging.
For additional information related to this measure, including
definitions related to worsening, unstageable and the staging of the
pressure ulcers, as well as topics such as the inability to stage
pressure ulcers with eschar or slough, we refer readers to the Minimum
Data Set 3.0 (MDS 3.0) Resident Assessment Instrument Manual, page 24
of Section M, Skin Conditions, which describes the NPUAP approach. This
information can be found on the CMS Web site for the MDS 3.0: http://www.cms.gov/NursingHomeQualityInits/45_NHQIMDS30TrainingMaterials.asp#TopOfPage.
Finally, with respect to the suggestion of a measure of healing
pressure ulcers and measurement on the basis of 1000 patients, we will
consider these suggestions for the future. However, as we have
proposed, we are finalizing the application of the existing NQF
endorsed specifications for pressure ulcers for the nursing home
setting to LTCHs.
After consideration of the public comments we received, we are
finalizing the Percent of Residents with Pressure Ulcers that Are New
or Have Worsened measure, as proposed, for the FY 2014 payment
determination.
3. Possible LTCH Quality Measures under Consideration for Future Years
As discussed below, we seek to achieve a comprehensive set of
quality measures to be available for widespread use for informed
decision-making and quality improvement. Therefore, as stated
previously and as indicated in the proposed rule, we intend to propose,
through future rulemaking, measures included in the HHS Action Plan to
Prevent HAIs. As we also stated in the proposed rule, we intend to
propose through future rulemaking measures related to ventilator care
such as the NQF-endorsed Institute for Healthcare Improvement process
measure, NQF 0302, Ventilator Bundle, which is a comprehensive
ventilator care-bundle process measure that is designed to facilitate
protocols such as weaning, and mitigate ventilator-related infections,
such as ventilator-associated pneumonia, and other complications. We
also intend to propose additional outcome measures such as those
related to acute care rehospitalization. We are aware of the limits
related to feasibility in data submission at the present time. For
example, there is no feasible means to submit the ventilator bundle
process measure at this at this time, and are therefore we are
currently identifying the data elements necessary for this measure
using a data subset from the Continuity Assessment Record and
Evaluation (CARE) data set as well as a submission mechanism. We also
intend to propose, through future rulemaking, additional measures, such
as those related to symptom management, physical restraints, medication
use, falls, infections, and function, using the data subsets of the
CARE data set necessary for measure calculations.
In the proposed rule, we invited public comment and suggestions on
the implementation of a standardized assessment instrument for LTCHs
that would similarly support the calculation of quality measures. We
also invited public comment on the measures and measures topics under
consideration for future years set out below. In addition, we invited
other suggestions and rationale to support the adoption of measures and
topics not listed below.

Possible Measures and Measure Topics for the LTCH Quality Reporting
Program Under Consideration for Future Years
------------------------------------------------------------------------

-------------------------------------------------------------------------
Overarching Goal: Safety and Healthcare Acquired Conditions--HAIs
------------------------------------------------------------------------
HAI reporting for:
Ventilator-associated Pneumonia.***
Surgical site infection rate.***
Multi-drug resistant organism infection.
------------------------------------------------------------------------

[[Page 51751]]

Overarching Goal: Safety and Healthcare Acquired Conditions: Avoidable
Adverse Events and Serious Reportable Events
------------------------------------------------------------------------
Unplanned acute care hospitalizations.
Mortality.***
Blood Incompatibility.**
Foreign object retained after surgery.**
Manifestation of poor glycemic control.**
Air Embolism.**
Falls and trauma.**
Venous Thromboembolism.*
Injuries secondary to Poly-pharmacy.
Injuries related restraint use.
Medication errors.*
Stage III and IV Pressure Ulcer.**
------------------------------------------------------------------------
Overarching Goal: Safety and Improvement Practices for Adverse Event
Reduction
------------------------------------------------------------------------
Central line bundle.***
Ventilator bundle.***
Patient Immunization for Influenza.***
Patient Immunization for Pneumonia.***
Staff immunization.***
------------------------------------------------------------------------
Overarching Goal: Safety--NQF Endorsed Nursing Sensitive Care Measures
------------------------------------------------------------------------
Patient Fall Rate.***
Falls with Injury.***
Pressure Ulcer Prevalence.***
Restraint Prevalence (vest and limb only).***
Skill mix (Registered Nurse [RN], Licensed Vocational/
Practical Nurse [LVN/LPN], unlicensed assistive personnel [UAP],
and contract)*** Nursing care hours per patient day (RN, LPN,
UAP).***
Voluntary turnover for RN, APN, LPN, UAP.***
Practice Environment Scale-Nursing Work Index.***
------------------------------------------------------------------------
* Harmonizes with NQF Serious Reportable Events.
** Harmonizes with Hospital-Acquired Conditions-Present on Admission
Program for IPPS hospitals.
*** Harmonizes with NQF-endorsed measures.

We solicited public comment on possible LTCH quality measures under
consideration for future years.
Comment: Some commenters generally supported the future measures
under consideration, and specifically supported several of the
potential measures for LTCH quality reporting in future years,
including: Staff immunization for influenza; measures for ventilator
care and ventilator-associated pneumonia; surgical site infections;
multi-drug resistant organism infections; readmissions; process
measures related to reducing catheter-associated urinary tract
infections and Stage III and IV pressure ulcers; glycemic control in
diabetic patients; and MRSA bacteremia for multidrug-resistant
organisms. Commenters also suggested adding to the list chronic
obstructive pulmonary disease, C. Difficile SIR, process measures for
management of cardiovascular conditions, including heart failure and
atrial fibrillation, condition-specific readmissions, and a process
measure for management of patient serum albumin levels as a replacement
measure for pressure ulcers. In addition, commenters suggested that CMS
use measures considered as ``best in class.'' Several commenters
cautioned against the use of ventilator bundle process measure because
of the burden related to this measure.
Response: We appreciate the commenters' support of the listed
measures and measure topics, as well as the cautions expressed, and we
will take their comments into consideration in determining whether to
adopt the measures for the LTCH quality reporting program in the
future. We also thank the commenters for their suggested additional
measures for potential use in future reporting program years.
Comment: Commenters supported the use of the NHSN as a reporting
system for future measure submission. Some commenters supported the use
of the CARE data item set in collecting data in the future. Other
commenters strongly recommended delaying implementation of the CARE
data item set for future use until the PAC-PRD has been reported to
Congress and undergone Congressional and public comments review. One
commenter opposed the use of the data set used in the PAC-PRD.
Response: We thank the commenters for their feedback and support in
the future use of the CARE data item set. CMS concluded its PAC-PRD and
data collection using CARE in December, 2010. We plan to submit our
report to Congress with findings by the close of 2011.
4. Data Submission Methods and Timelines
a. Method of Data Submission for HAIs
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25988 through
25890), we proposed to adopt two HAI quality measures, Central Line
Catheter-Associated Bloodstream Infection (CLABSI) Event: CLABSI rate
per 1000 central line days, and Urinary Catheter-Associated Urinary
Tract Infection (CAUTI) Event: CAUTI rate per 1000 urinary catheter
days. We proposed to use CDC/NHSN for data collection and reporting for
these two HAI measures (http://www.cdc.gov/nhsn/).
As we noted above, the NHSN is a secure, Internet-based
surveillance system. It is maintained by CDC, and can be utilized by
all types of healthcare facilities in the United States, including

[[Page 51752]]

LTCHs, acute care hospitals that collect and report HAIs through the
NHSN as part of our Hospital IQR Program, as well as psychiatric
hospitals, rehabilitation hospitals, outpatient dialysis centers, and
ambulatory surgery centers. The NHSN enables health care facilities to
submit their HAI event data, and access their data for the purposes of
internal infection-surveillance.
Facilities can also use the NHSN to obtain information on clinical
practices known to prevent HAIs, information on the incidence or
prevalence of multidrug-resistant organisms within their organizations,
and information on other adverse events. Some States use the NHSN as a
means of collecting State law-mandated HAI reporting. NHSN collects
data via a Web-based tool hosted by the CDC and available at: http://www.cdc.nhsn. This reporting service is provided free of charge to
healthcare facilities. In addition, CDC may have the ability to receive
NHSN measures data from electronic health records (EHRs) in the near
future. Currently, the data reporting of these two HAI events is
completed through the NHSN. More than 20 States require hospitals to
report HAIs using NHSN, and CDC supports more than 4,000 hospitals that
are using the NHSN. Over 200 LTCHs currently submit HAI data via the
NHSN.
HAI event reporting and meaningful HAI event surveillance by the
LTCH, using the CDC/NHSN requires the submission of all HAI events,
regardless of payer. We believe delivery of high quality care in the
LTCH setting is imperative. Collecting such quality data on all
patients in the LTCH setting supports CMS' mission to ensure high
quality care for Medicare beneficiaries. This will provide us with the
most robust and accurate reflection of quality in the LTCH setting.
Therefore, in order to facilitate and ensure that high quality care is
delivered to Medicare beneficiaries in the LTCH setting, we proposed
that quality data related to HAIs be collected on all LTCH patients,
regardless of payer.
Currently the NHSN has data collection forms, data submission, and
reporting mechanisms in place that are in use by LTCHs for both CLABSI
and CAUTI measures. Details related to the procedures using the NHSN
for data submission can be found at: http://www.cdc.gov/nhsn.
Specifically, details related to the procedures of using the NHSN for
data submission and information on definitions, numerator data,
denominator data and data analyses for CLABSI Event: CLABSI rate per
1000 central line days calculated by dividing the number of CLABSI by
the number of central line days and multiplying the result by 1000 can
be found at http://www.cdc.gov/nhsn/PatientSafety.html. Details related
to the CLABSI SIR can be found at http://www.cdc.gov/hai/pdfs/stateplans/SIR_05_25_2010.pdf. Details related to the procedures of
using the NHSN for data submission and information on definitions,
numerator data, denominator data and data analyses for CAUTI Event:
CAUTI rate per 1000 urinary catheter days calculated by dividing the
number of CAUTIs by the number of catheter days and multiplying the
result by 1000 can also be found at http://www.cdc.gov/nhsn/PatientSafety.html.
The reporting procedures for these HAI events would not be affected
by the use of the SIR instead of the current rate calculation. CDC
performs those calculations. Further information related to the use of
the SIRs can be found on the Web sites at: http://www.hhs.gov/ash/initiatives/hai/appendices.html and http://www.cdc.gov/HAI/surveillance/QA_stateSummary.html.
We solicited public comment on the proposed methods of data
submission for the CLABSI and CAUTI measures in the FY 2012 IPPS/LTCH
PPS proposed rule for the quality reporting program for LTCHs.
Comment: Several commenters supported the use of the NHSN for data
reporting. However, some commenters questioned the readiness of the
CDC's NHSN infrastructure to accept a greater volume of data by adding
LTCH reporters. Several commenters expressed concerns with provider
burden and resources required to enroll, train, and implement data
reporting through the CDC's NHSN.
Response: CDC has indicated that the NHSN has undergone a major
architectural redesign over the last year in response to the need to
scale up to more users and to improve its functionality. Based on the
current number of facilities reporting, the small number of additional
LTCHs that we proposed to add equates to only a 5 percent increase in
usage, which is not an appreciable burden on the system. CDC is
confident that the changes it is making will meet the challenges of the
proposed increase in NHSN usage.
Comment: One commenter suggested that the NHSN would create an
additional burden as a new reporting system for the LTCHs that are not
currently using NHSN for reporting.
Response: At this time, nearly half of all certified LTCHs report
HAI events using the NHSN. As we discuss in more detail in section
IX.J.3.b. of Appendix A to this final rule, we believe that the burdens
associated with submitting data to the CDC via NHSN will be modest
because many LTCHs are NHSN-registered and trained and have experience
using this system. For LTCHs that have not used this system, the
registration and training are free and require only a small amount of
time. Finally, we estimate that the costs for data submission for the
LTCHs that are not currently using the NHSN for both measures will be
modest.
Comment: Several commenters supported the use of NHSN data for
collection of data pertaining to CLABSI and CAUTI quality measures as
well as additional future measures. One commenter suggested that CMS
mandate the use of NHSN by making its use part of the Conditions of
Participation (CoPs) for LTCHs. Several commenters recommended the use
of existing data reporting mechanisms for data submission, including
EHRs, in order to minimize burden, avoid duplication of efforts,
improve accuracy, and align these quality-related data collection
efforts with other quality assessment reporting efforts (for example,
The Joint Commission). These commenters noted that introduction of a
new data collection system could prove difficult for LTCHs not yet
reporting information through this system, especially small or rural
LTCHs, and some commenters suggested that CMS allow providers choice in
submission systems.
Response: We thank the commenters for their support of the use of
the NHSN for the data collection of the CAUTI and CLABSI measure. We
also thank the commenter for the suggestion that we integrate the use
of the NHSN as a part of the LTCH CoPs. However, we do not believe it
is necessary to add such a requirement to the LTCH CoPs in order to
require submission of the applicable data through the NHSN for the LTCH
quality reporting program.
We wish to minimize any burdens associated with the LTCH quality
reporting program. We intend to minimize burden where measures are
already submitted through measure simplification, while still working
to implement a quality reporting program that concentrates on providing
safe, sound care for all patients receiving services in LTCHs. We chose
the NHSN reporting system because implementation of this system has
already been shown to be both feasible and useful in LTCH settings. The
reporting of HAIs using the NHSN is provided free of charge by the CDC
for acute and post acute settings. NHSN reporting for HAIs is already
mandated or soon will be mandated in 11 States

[[Page 51753]]

and the District of Columbia. The CLABSI measure is already in place in
11 States and the District of Columbia. At the time of this final rule,
CDC indicated that over 200 LTCHs, out of 439 certified LTCHs, report
HAI events using the CDC via NHSN. During the 12-month period from
April 2010 to March 2011, 58 LTCHs reported CLABSI for at least one
month, and the same number reported CAUTI for at least one month. Over
4,000 hospitals currently submit safety reports to NHSN; and over 20
States require acute-care hospitals to participate. The CDC/NHSN HAI
event reporting, therefore, provides an opportunity for alignment
across healthcare settings and alignment with definitions between
various healthcare settings as well as among all LTCHs.
Comment: Several commenters noted that data collected for NHSN does
not include collection of individual patient level information,
limiting the potential for more robust risk adjustment based on
severity of illness and other patient-level risk factors. The
commenters believed that the only real variables collected by NHSN for
use in risk-adjustment for CAUTI and CLABSI are device days and device
utilization.
Response: As previously discussed in response to another comment on
risk adjustment for the two proposed NHSN measures, the risk adjustment
methodology of the CDC, as endorsed by NQF uses risk stratification by
facility type and location calculating observed over expected for a
particular facility or location and reported as a Standardized
Infection Ratio. We believe that this risk adjustment is sufficient as
endorsed by NQF, and avoids adding to the complexity and reporting
burden of the measures that would arise should we require detailed
information on patient co-morbidities and characteristics.
After consideration of the public comments received, we are
adopting as final our proposed method of data submission for HAIs using
the CDC/NHSN, with the first reporting period to begin October 1, 2012,
for the FY 2014 payment determination.
b. Timeline for Data Reporting Related to HAIs
CDC recommends that HAI reporting occur closest in time to the
event, and further recommends that reporting occur no later than 30
days following the event. To facilitate HAI surveillance and reporting
for these proposed measures for payment determination, we proposed an
additional timeframe for reporting following the initial reporting
period. We proposed a data submission timeframe for NHSN event
reporting for these proposed LTCH quality reporting program HAI
measures of October 1, 2012 through December 31, 2012 for the
determination of FY 2014 annual payment update, and that LTCHs submit
their data no later than May 15, 2013.
In order to better align with the current Hospital IQR Program HAI
reporting processes (75 FR 20223), we also proposed that all subsequent
LTCH quality reporting cycles will be based on a calendar year cycle
(for example, beginning January 1, 2013 through December 31, 2013) for
determination of the update to the standard Federal rate for each LTCH
in FY 2015 and subsequent years. We proposed that, beginning in CY
2013, and for all subsequent years, LTCHs would submit HAI event data
via the NHSN, for four consecutive quarters of the calendar year. For
example, for the FY 2015 annual payment update to the standard Federal
rate, LTCHs would submit HAI data collected in the first quarter of CY
2013, the second quarter of CY 2013, the third quarter of CY 2013, and
the fourth quarter of CY 2013.
The timelines for submission of quality data on the CLABSI and
CAUTI measures for the FY 2015 annual payment update that we proposed
are set out below.

Timelines for Submission of Data on the Central Line Catheter-Associated
Bloodstream Infections and Urinary Catheter-Associated Urinary Tract
Infections (CAUTI & CLABSI) Measures for the FY 2015 Annual Payment
Update
------------------------------------------------------------------------
Proposed
submission
CDC-NHSN deadlines for the
CY 2013 Infection event(s) Collection and LTCH quality
quarterly report reporting program
generation time FY 2015 payment
determination
------------------------------------------------------------------------
Q1 (January-March 2013)......... January 31-August August 15, 2013.
15.
Q2 (April-June 2013)............ April 30-November November 15, 2013.
15.
Q3 (July-September 2013)........ July 31-February February 15, 2014.
15.
Q4 (October-December 2013)...... October 31-May 15. May 15, 2014.
------------------------------------------------------------------------

LTCHs would have until the final submission deadline for the LTCH
quality reporting program to submit their quarterly data to the NHSN.
After the final submission deadline has occurred for each CY 2013
quarter, CMS will receive a file from the CDC with the aggregated
measurement rates of the specific calculations that have been generated
by the NHSN for the LTCH quality reporting program and we will use
those results for purposes of determining whether the LTCH met the
requirements for the LTCH quality reporting program.
We invited public comments on the reporting cycle for LTCHs.
Comment: Many commenters recommended a 1-year delay in the
publication of the CLABSI and CAUTI quality measures. These commenters
suggested that the delay would allow time for administrative processes
and procedures, training, NQF endorsement, validation of data, and the
strengthening of the NHSN system, and/or addition of a POA indicator,
while still allowing for data to be submitted in time to meet the
requirements of section 1886 (m)(5)(A)(iii) of the Act for measure
publication by October 1, 2012. Several commenters suggested the
initial roll out of one quality measure at a time, for use in testing
and evaluation of benefit. One commenter recommended that the CLABSI
quality measure be implemented only after site-based testing.
Response: There is already current and successful use of the NHSN
reporting infrastructure for HAI measures for over 200 of the 439
certified LTCHs. We are announcing these measures at this time to
provide ample notice for facilities for the purposes of administrative
procedures such as enrollment and training. We intend to announce
specifications related to the HAI measures' data collection,
submission, and reporting procedures on or before January 31, 2012.
Specifically, we note that data collection does not begin until October
1, 2012. Therefore, there already exists a one year delay incorporated
from the publication of these measures and when data collection begins
for purposes of the FY 2014 payment determination. We also are working
with the CDC for full implementation support.

[[Page 51754]]

After consideration of the public comments we received, we are
adopting as final the proposed reporting cycle for data submission for
HAIs for FY 2014 payment determination.
In alignment with the Hospital IQR Program, (75 FR 50223), we also
proposed that once quarterly each LTCH will utilize an automated report
function that will be made available to submitters in the NHSN, to
generate a quarterly report containing individual LTCH-level numerator,
denominator, and exclusion counts for these two HAI measures
specifically. CDC will create an automated LTCH quality program report
function and add it to NHSN's reporting functionalities. While LTCHs
may be reporting other data elements to CDC for other reporting
programs (that is, State-mandated surveillance programs), the quarterly
LTCH quality program report that would be generated within NHSN would
only contain those data elements needed to calculate the two measures
currently being proposed for the LTCH quality reporting program. We
would only receive this aggregated data from CDC.
We also proposed that any further details regarding, data
submission and reporting requirements for HAI measures to be reported
via NHSN would be posted on the CMS Web site at: http://www.cms.gov/LTCH-IRF-Hospice-Quality-Reporting/ by no later than January 31, 2012.
Requirements for NHSN participation, measure specifications, and
data collection can be found on the CDC Web site at: http://www.cdc.gov/nhsn/. LTCHs are encouraged to visit this Web site in order
to view the NHSN enrollment and reporting requirements. Training
resources are available there. In order to allow adequate time for
enrollment in the NHSN, and for training to take place, should these
measures be finalized, additional details related to this reporting
program's requirements, such as when enrollment is due to occur, will
be announced by no later than January 31, 2012, on the CMS Web site at:
http://www.cms.gov/LTCH-IRF-Hospice-Quality-Reporting/. In the
announcement, we would propose to provide guidance on the
specifications, definitions and reporting requirements.
We sought comment on the alignment with the Hospital IQR Program
reporting cycle.
Comment: Commenters expressed appreciation for the alignment of
LTCH quality reporting program's data submission timelines with those
in the Hospital IQR Program. Commenters also expressed appreciation
that the LTCH quality reporting program follows the basic structure of
the Hospital IQR Program. Several commenters requested that, like the
Hospital IQR Program, there also be procedures and methodology for data
validation, an appeals process, and that LTCHs be permitted to review
their data 30 days before it is made available to the public.
Response: We appreciate the commenters' support. We will consider
suggestions with regard to the procedures and processes that are to be
put into place for the LTCH quality reporting program, and data
validation methodology as well as an appeals processes in future
rulemaking.
After consideration of the public comments we received, we are
adopting as final the proposed timeline for data submission for HAIs
for FY 2014 payment determination.
c. Method of Data Collection and Submission for the Pressure Ulcer
Measure Data
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25989 through
25990), we proposed that the pressure ulcer data elements necessary to
calculate the pressure ulcer measure would be identical to those data
elements collected through the Minimum Data Set 3.0 (MDS 3.0), which is
a reporting instrument used in nursing homes. The current MDS 3.0
pressure ulcer items evolved as an outgrowth of CMS' work to develop a
standardized patient assessment instrument, referred to as CARE. The
current MDS 3.0 pressure ulcer items are also currently used in the
calculation of the NQF-endorsed nursing home pressure ulcer measure,
Percent of Residents with Pressure Ulcers That Are New or Worsened
[Short Stay] (NQF 0678, formerly NQF NH-012-10). We
note that the MDS data elements were supported by the National Pressure
Ulcer Advisory Panel (NPUAP).
We believe that to support the standardized collection and
calculation of the LTCH pressure ulcer quality measure will require the
use of a subset of the standardized CARE instrument, and thus we
proposed the use of a subset of the CARE instrument's assessment items
for data collection. We will be using specifically the pressure ulcer
data elements necessary to calculate the pressure ulcer measure, and
those data items are identical to those data elements collected through
the Minimum Data Set 3.0 (MDS 3.0). The current MDS 3.0 pressure ulcer
data items can be found at the CMS Web site at: https://www.cms.gov/NursingHomeQualityInits/45_NHQIMDS30TrainingMaterials.asp.\70\ This
data assessment subset will allow identical data elements to be
collected in LTCHs and in nursing homes.
---------------------------------------------------------------------------

\70\ https://www.cms.gov/NursingHomeQualityInits/45_NHQIMDS30TrainingMaterials.asp (Look for Downloads. Select MDS 3.0
Item Subsets v1.002. Click on MDS 3.0 ALL Items. Scroll down to
Section M, Skin Conditions, items M0100-M0900.)
---------------------------------------------------------------------------

The CARE assessment instrument, was developed and tested in the
post-acute care payment reform demonstration (which included LTCHs) as
required by section 5008 of the Deficit Reduction Act (DRA), Public Law
109-171. It is a standardized assessment instrument that can be used
across all post acute care sites to measure functional status and other
factors during treatment and at discharge from each provider. (For more
information, we refer readers to the following Web site: http://www.pacdemo.rti.org.) CARE was tested over the last 2 years in 199
providers, of which 28 were LTCHs. Participant feedback suggested most
of these items are already collected by LTCHs during their intake
process and in monitoring the patients' health status during the stay.
Importantly, the CARE items meet Federal interoperable data standards
and should be transferable by most data systems. A data reporting
mechanism for transferring the data to CMS is currently under
development. We anticipate that it will be similar to the current
systems used to report assessment data for payment and quality
monitoring in the other post acute care sites.
We believe that, for the collection of data necessary to calculate
this pressure ulcer measure, using a CARE subset of standardized data
elements to collect, report, and calculate the pressure ulcer quality
measure will drive uniformity across settings which will lead to better
quality of care in LTCHs and, ultimately, across the continuum of care
settings. We also believe that the use of a standardized method of
communication will lead to better informed decision making.
We stated in the proposed rule that if this proposal is finalized,
additional details regarding the data elements needed to calculate this
measure, submission requirements and specifications used for these data
elements to calculate the pressure ulcer quality measure using a subset
of CARE instrument will be published on the CMS Web site at http://www.cms.gov/LTCH-IRF-Hospice-Quality-Reporting/ by no later than
January 31, 2012.
We solicited public comment on the proposed methods of data
submission for the pressure ulcer data in the FY

[[Page 51755]]

2012 IPPS/LTCH PPS proposed rule for the LTCH quality reporting
program.
Comment: Commenters suggested that CMS consider existing mechanisms
for LTCHs to collect and report data on quality measures with the input
of the LTCH provider community, and avoid any unnecessary duplication
of reporting for other purposes.
Response: We are working with other reporting agencies toward
measure simplification and reductions in potentially duplicative
reporting.
After consideration of the public comments we received, we are
adopting as final our mechanism for data submission to be similar to
the current systems used to report assessment data for payment and
quality monitoring in the other post acute care sites for the data
submission mechanism for the pressure ulcer measure data elements as
used in the NQF 0678, Percent of Residents with Pressure
Ulcers that Are New or Worsened. As stated in the proposed rule,
additional details regarding the data elements needed to calculate this
measure, submission requirements and specifications used for these data
elements to calculate the pressure ulcer quality measure will be
published on the CMS Web site at http://www.cms.gov/LTCH-IRF-Hospice-Quality-Reporting/ by no later than January 31, 2012.
We proposed to use standardized assessment data elements for data
collection that would support the calculation of quality measures in
the LTCHs. Specifically, we proposed to use a subset of data items from
the CARE data set instrument for the collection of the data elements
necessary to calculate the proposed quality measure, the Percent of New
or Worsened Pressure Ulcers. This data subset is identical to the MDS
3.0 data elements for pressure ulcers, which constitute the
specification for the NQF-endorsed pressure ulcer measure 0678
that we finalized earlier to apply to the LTCH setting.
We invited public comment on the use of a subset of CARE data items
for the purposes data collection for this measure: Percent of Residents
with Pressure Ulcers that Are New or Worsened. We also invited public
comment on this proposal for the calculation of the quality measure for
pressure ulcers.
Comment: Many commenters expressed concern about the use of CARE
data elements for collecting data elements on new or worsening pressure
ulcers in the LTCHs, asserting the data element set was not tested in
the LTCH environment or approved by NQF.
Response: The proposed pressure ulcer measure is an NQF-endorsed
measure when used in the nursing home setting. The data elements are
identical to MDS 3.0 which constitutes the specifications of the
proposed pressure ulcer measure for the LTCH setting. The measure uses
data elements that have been tested in LTCHs during the PAC-PRD. The
CARE data item set was also tested for reliability and validity in the
LTCH environment during the PAC-PRD. The CARE data item set was used to
collect over 8,500 assessments on patients in 28 LTCHs in different
parts of the country. The items used to populate this measure have been
tested for reliability in the LTCH setting, and have shown to have very
high agreement. Furthermore, the data elements used to populate the
pressure ulcer assessment are based on input from the National Pressure
Ulcer Advisory Panel and the Wound Ostomy and Continence Nurses
Society, two professional groups that set the standards used in all
settings to measure pressure ulcer severity. As a result, we believe
that the items are familiar to LTCH staff that assess patients for
pressure ulcers.
Comment: One commenter expressed disappointment that these
specifications of the CARE tool were not made public prior to the
comment period.
Response: We proposed the use of data elements that are included in
the CARE data item set and are included in the MDS 3.0. The MDS
specifications are free and are available to the public through the CMS
Web site: http://www.cms.gov/NursingHomeQualityInits/30_NHQIMDS30TechnicalInformation.asp#TopOfPage. As specified, additional
details regarding the submission requirements for the data elements
needed to calculate this measure will be published on the CMS Web site
at http://www.cms.gov/LTCH-IRF-HOSPICE-Quality-Reporting/ no later than
January 31, 2012. We are developing draft technical specifications and
anticipate publication in the fall of 2011 with final technical
specifications on or before January 31, 2012.
Comment: One commenter asked when and how often would the quality
measure regarding new or worsening pressure ulcers be applied.
Response: We interpret the commenter's question regarding how often
would the quality measure be applied to be referencing the number of
assessments necessary to calculate the measure. There will be two
assessments needed to calculate the measure. The data collected for
this measure includes an initial assessment, obtained at the time of
the admission, and a subsequent assessment. We expect to provide
further details related to measure specifications and submission
requirements on or before January 31, 2012.
After consideration of the public comments we received, we are
adopting as final our method of data submission for the pressure ulcer
measure, the use of the quality data elements as used in the NQF-
endorsed pressure ulcer measure 0678, Percent of Residents
with Pressure Ulcers that Are New or Worsened as required to calculate
this measure.
d. Timeline for Data Reporting Related to Pressure Ulcers
The delivery of high quality care in the LTCH setting is
imperative. We believe that collecting quality data on all patients in
the LTCH setting supports CMS' mission to ensure quality care for
Medicare beneficiaries. Collecting data on all patients provides the
most robust and accurate reflection of quality in the LTCH setting.
Accurate representation of quality provided in LTCHs is best conveyed
using data related to pressure ulcers on all LTCH patients, regardless
of payer. Thus, in order to facilitate and ensure this effort, in the
FY 2012 IPPS/LTCH PPS proposed rule, we proposed that quality data
related to pressure ulcers shall be collected on all LTCH patients,
regardless of payer, using a subset of the CARE data collection
instrument in accordance with the timetable and schedule set forth in
section VII.C.4.b. of the preamble to the proposed rule. We stated in
the proposed rule that we will provide further details about the data
collection instrument on the CMS Web site http://www.cms.gov/LTCH-IRF-Hospice-Quality-Reporting/ as these details become available.
We invited public comments on the proposed reporting cycle for
LTCHs.
Comment: The majority of commenters, including those who supported
use of pressure ulcers as a quality measure, strongly recommended
delaying the implementation of the CARE data item set as part of
regulatory mechanism for pressure ulcer until: results from CARE data
item set demonstration have been reported to Congress and undergone
Congressional and public comment review; the data items are validated
in collaboration with experts in the field, and the tool has been NQF-
endorsed. Many commenters suggested a 1-year delay. Other commenters
suggested postponing the measure ``indefinitely'' or did not specify a
desired timeframe.
Response: We concluded our PAC-PRD and data collection using CARE
in

[[Page 51756]]

December 2010. We plan to submit its report to Congress with findings
by the end of 2011. We did not propose the implementation of the entire
data instrument, but rather a subset of tested, and reliable data
elements. Further, the pressure ulcer measure data elements that
populate this measure belong to an already NQF-endorsed measure for
which testing was necessary for endorsement. These data elements are
currently successfully submitted to CMS by over 16,000 nursing
facilities. We are developing draft technical submission requirements
and we expect to publish them in August 2011. We anticipate that we
will announce final technical specifications related to the pressure
ulcer measure data elements on or before January 31, 2012.
After consideration of the public comments we received, we are
adopting as final the proposed timeline for data submission for the New
or Worsened Pressure Ulcers measure and in accordance with the
timetable and schedule set forth in section VII.C.4.b. of this
preamble, with data collection to begin October 1, 2012 for the FY 2014
payment determination.
5. Public Reporting and Availability of Data Submitted
Under section 1886(m)(5)(E) of the Act, the Secretary is required
to establish procedures for making any quality data submitted by LTCHs
available to the public. Such procedures will ensure that a LTCH has
the opportunity to review the data that is to be made public with
respect to the LTCH prior to such data being made public. The Secretary
will report quality measures that relate to services furnished in LTCHs
on the CMS Web site. Currently, the agency is developing plans
regarding the implementation of this provision. Procedures for public
reporting will be proposed through future rule making. At this time, we
have not established procedures or timelines for public reporting of
data.
Comment: Several commenters requested the addition and
specification of a standardized appeals process for all providers to
ensure that any issues that arise in data aggregation and validation
can be addressed. With respect to all three measures, commenters
suggested that LTCHs should be permitted a 30-day window to review
their data before the data are released to the public. Several
commenters stated that there should be a data validation methodology
procedure applied. Another commenter believed that measures required
for public reporting should be endorsed by the NQF, and ideally by the
Measures Application Partnership as well. For CAUTI and CLABSI, one
commenter encouraged NQF, CMS, and the CDC to determine how best to
educate the public with regard to SIRs, in order to make sure that
consumers understand the meaning of SIRs prior to the start of public
reporting. With respect to reporting of the pressure ulcer measure, one
commenter wanted assurance that the CARE-based pressure ulcer measure
was validated and viewed as appropriate by LTCHs before the information
is shared with the public.
Response: We intend to adopt procedures that will ensure that an
LTCH has the opportunity to review the data to be made public prior to
the data being made public, and will such announce details related to
such procedures in the future. Additionally, as required under section
1886(m)(5)(E) of the Act, we will report quality measures that relate
to services furnished in LTCHs on a CMS Web site. Specifically, with
regard to the comment suggesting that, prior to public reporting of the
pressure ulcer measure, the agency ensure the measure was appropriately
validated, we note that ongoing review to ensure appropriateness,
validity and risk adjustment are integral aspects of quality measure
maintenance, and we intend to ensure appropriate measure maintenance of
all quality measures.
Comment: One commenter expressed appreciation that NHSN will be
providing a separate reporting function that will automatically
generate LTCH quality program reports.
Response: We appreciate the commenter's support.

D. Rebasing and Revising of the Market Basket Used Under the LTCH PPS

1. Background
The input price index (that is, the market basket) that was used to
develop the LTCH PPS for FY 2003 was the ``excluded hospital with
capital'' market basket. That market basket was based on 1997 Medicare
cost report data and included data for Medicare-participating IRFs,
IPFs, LTCHs, cancer hospitals, and children's hospitals. Although the
term ``market basket'' technically describes the mix of goods and
services used in providing hospital care, this term is also commonly
used to denote the input price index (that is, cost category weights
and price proxies combined) derived from that market basket.
Accordingly, the term ``market basket,'' as used in this section,
refers to an input price index.
Beginning with RY 2007, LTCH PPS payments were updated using a FY
2002-based market basket reflecting the operating and capital cost
structures for IRFs, IPFs, and LTCHs (hereafter referred to as the
rehabilitation, psychiatric, and long-term care (RPL) market basket).
We excluded cancer and children's hospitals from the RPL market basket
because their payments are based entirely on reasonable costs subject
to rate-of-increase limits established under the authority of section
1886(b) of the Act, which are implemented in regulations at Sec.
413.40. They are not paid under a PPS. Also, the FY 2002 cost
structures for cancer and children's hospitals are noticeably different
than the cost structures of the freestanding IRFs, freestanding IPFs,
and LTCHs. A complete discussion of the FY 2002-based RPL market basket
appears in the RY 2007 LTCH PPS final rule (71 FR 27810 through 27817).
In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 21062),
we expressed our interest in exploring the possibility of creating a
stand-alone LTCH market basket that reflects the cost structures of
only LTCH providers. However, as we discussed in the FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR 43967 through 43968), we are conducting
further research to assist us in understanding the reasons for the
variations in costs and cost structure between freestanding IRFs and
hospital-based IRFs. We also are researching the reasons for similar
variations in costs and cost structure between freestanding IPFs and
hospital-based IPFs. We remain unable to sufficiently understand the
observed differences in costs and cost structures between hospital-
based IRFs and freestanding IRFs and between hospital-based IPFs and
freestanding IPFs. Therefore, we do not believe it is appropriate at
this time to establish stand-alone market baskets for IRFs, IPFs, and
LTCHs.
We are currently exploring the viability of creating two separate
market baskets from the current RPL market basket: One market basket
would include freestanding IRFs and freestanding IPFs and would be used
to update payments under both the IPF and IRF payment systems. The
other market basket would be a stand-alone LTCH market basket.
Depending on the outcome of our research, we may propose a stand-alone
LTCH market basket in the next LTCH PPS update cycle.
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25990), we
invited public comment on the possibility of using this type of market
basket to update LTCH payments in the future.
Comment: Several commenters stated that CMS' ongoing work to
develop a

[[Page 51757]]

market basket that is distinct to the LTCH PPS, and that recognizes the
differences among LTCHs, IRFs, and IPFs, is worthwhile, given the
unique role LTCHs play in treating high complexity, long-stay patients.
Further, one commenter stated that there are a sufficient number of
LTCHs to support a separate market basket, and CMS should have
confidence that an LTCH-specific market basket would be a reflection of
real inflationary changes to the costs of LTCH goods and services.
Several commenters encouraged CMS to create a separate LTCH market
basket for the FY 2013 LTCH PPS.
Response: We appreciate the commenters' support as we continue to
investigate the feasibility of developing a LTCH-specific market
basket.
Under the LTCH PPS for FY 2012, we proposed to rebase and revise
the FY 2002-based RPL market basket by creating a FY 2008-based RPL
market basket as described below. In the following discussion, we
provide an overview of the market basket and describe the methodologies
we proposed (and are adopting in this final rule) to use for purposes
of determining the operating and capital portions of the FY 2008-based
RPL market basket.
2. Overview of the FY 2008-Based RPL Market Basket
The FY 2008-based RPL market basket is a fixed-weight, Laspeyres-
type price index. A Laspeyres price index measures the change in price,
over time, of the same mix of goods and services purchased in the base
period. Any changes in the quantity or mix 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 the proposed rule, we proposed to use FY 2008 as
the base period) and total base period expenditures are estimated for a
set of mutually exclusive and exhaustive spending categories, with the
proportion of total costs that each category represents being
calculated. These proportions are called cost 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 derived from publicly available statistical
series that are published on a consistent schedule (preferably at least
on a quarterly basis). Finally, the expenditure weight for each cost
category is multiplied by the level of its respective price proxy. The
sum of these products (that is, the expenditure weights multiplied by
their price levels) for all cost categories yields the composite index
level of the market basket in a given period. Repeating this step for
other periods produces a series of market basket levels over time.
Dividing an index level for a given period by an index level for an
earlier period produces a rate of growth in the input price index over
that timeframe.
As noted above, the market basket is described as a fixed-weight
index because it represents the change in price over time of a constant
mix (quantity and intensity) of goods and services needed to furnish
hospital services. The effects on total expenditures resulting from
changes in the mix of goods and services purchased subsequent to the
base period are not measured. For example, a hospital hiring more
nurses to accommodate the needs of patients would increase the volume
of goods and services purchased by the hospital, but would not be
factored into the price change measured by a fixed-weight hospital
market basket. Only when the index is rebased would changes in the
quantity and intensity of the provider's inputs be captured, with those
changes being reflected 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.
3. Rebasing and Revising of the RPL Market Basket
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25991), we
invited public comments on our proposed methodological changes to the
RPL 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 the proposed rule, we proposed to
shift the base year cost structure for the RPL market basket from FY
2002 to FY 2008). ``Revising'' means changing data sources, price
proxies, or methods, used to derive the input price index. For FY 2012,
we proposed to rebase and revise the market basket used to update the
LTCH PPS. A summary of the public comments we received and any changes
we have made as a result of these public comments are included in the
applicable areas of this section.
a. Development of Cost Categories
(1) Medicare Cost Reports
As we proposed and are adopting in this final rule, the FY 2008-
based RPL market basket consists of several major cost categories
derived from the FY 2008 Medicare cost reports for freestanding IRFs,
freestanding IPFs, and LTCHs, including wages and salaries,
pharmaceuticals, professional liability insurance, capital, and a
residual. These FY 2008 Medicare cost reports include providers whose
cost report begin date is on or between October 1, 2007, and September
30, 2008. We used FY 2008 as the base year because we believe that the
Medicare cost reports for this year represent the most recent, complete
set of Medicare cost report data available for IRFs, IPFs, and LTCHs.
However, there is an issue with obtaining data specifically for
benefits and contract labor from this set of FY 2008 Medicare cost
reports because IRFs, IPFs, and LTCHs were not required to complete the
Medicare cost report worksheet from which these data were collected
(Worksheet S-3, Part II). As a result, only a small number of providers
(less than 30 percent) reported data for these categories, and we do
not expect these FY 2008 data to improve over time. However, because
IRFs, IPFs, and LTCHs were not required to submit data for Worksheet S-
3, Part II in previous cost reporting years, we have always had this
issue of incomplete Medicare cost report data for benefits and contract
labor (including when we finalized the FY 2002-based RPL market
basket). Due to the incomplete benefits and contract labor data for
IRFs, IPFs, and LTCHs, we developed these cost weights using FY 2008
Medicare cost report data for IPPS hospitals (similar to the method
that was used for the FY 2002-based RPL market basket). We provide
additional detail on this approach later in this section.
Because our goal is to measure cost shares that are reflective of
case-mix and practice patterns associated with providing services to
Medicare beneficiaries, we limited our selection of Medicare cost
reports to those from hospitals that have a Medicare average length of
stay that is within a comparable range of their total facility average
length of stay. We believe this provides a more accurate reflection of
the structure of costs for Medicare covered days. We used the cost
reports of LTCHs and IRFs with Medicare average lengths of stay within
15 percent (that is, 15 percent higher or lower) of the total facility
average length of stay for the hospital. This is the same edit we
applied to derive the FY 2002-based RPL market basket and generally
includes those LTCHs and IRFs with Medicare average length of stay
within approximately 5 days of the facility average length of stay of
the hospital.

[[Page 51758]]

As we proposed, we used a less stringent measure of Medicare
average length of stay for IPFs. For this provider type, and in order
to produce a robust sample size, we used those facilities' Medicare
cost reports whose average length of stay is within 30 or 50 percent
(depending on the total facility average length of stay) of the total
facility average length of stay. This is the same edit we applied to
derive the FY 2002-based RPL market basket.
We applied these length-of-stay edits to first obtain a set of cost
reports for facilities that have a Medicare length of stay within a
comparable range of their total facility length of stay. Using this set
of Medicare cost reports, we then calculated cost weights for four cost
categories and a residual as represented by all other costs directly
from the FY 2008 Medicare cost reports for freestanding IRFs,
freestanding IPFs, and LTCHs (found in Table VII.D-1 below). These
Medicare cost report cost weights were then supplemented with
information obtained from other data sources (explained in more detail
below) to derive the FY 2008-based RPL market basket cost weights.

Table VII.D-1--Major Cost Categories and Their Respective Cost Weights
as Calculated Directly From FY 2008 Medicare Cost Reports
------------------------------------------------------------------------
FY 2008-Based RPL
market basket
Major cost categories cost weights
(percent)
------------------------------------------------------------------------
Wages and Salaries................................... 47.371
Professional Liability Insurance (Malpractice)....... 0.764
Pharmaceuticals...................................... 6.514
Capital.............................................. 8.392
All other............................................ 36.959
------------------------------------------------------------------------

Comment: One commenter expressed concern with CMS' proposal
regarding length-of-stay edits associated with LTCHs and IRFs, which is
to use only the cost reports of those facilities whose Medicare average
lengths of stays are within 15 percent (that is, 15 percent higher or
lower) of the total facility length of stay, and asked if CMS could
identify the number of facilities that would fall out of these
categories. The commenter based this request on the fact that there are
only 440 LTCHs, and this exclusion could adversely impact the industry.
Response: As stated above, we proposed to limit our selection of
Medicare cost reports to those cost reports from hospitals that have a
Medicare average length of stay that is within a comparable range of
their total facility average length of stay in order to measure the
cost shares that are reflective of case-mix and practice patterns
associated with providing services to Medicare beneficiaries.
The length-of-stay edits utilized were developed specifically for
each provider type (that is, IRFs, LTCHs, and IPFs). For LTCHs and
IRFs, we used the cost reports with Medicare average lengths of stay
within 15 percent (that is, 15 percent higher or lower) of the total
facility average length of stay for the hospital. Applying this edit
resulted in excluding about 12 percent of IRFs and LTCHs that, in the
aggregate, had a facility length of stay that was 80 percent higher
than their Medicare length of stay. The resulting sample of LTCHs and
IRFs after the length-of-stay edit, in the aggregate, had a facility
length of stay that was 2 percent higher than their Medicare length of
stay. We believe applying this edit allows us to achieve our goal of
creating a market basket that is reflective of case-mix and practice
patterns associated with providing services to Medicare beneficiaries.
Comment: One commenter suggested that, because only a small number
of providers (less than 30 percent) reported data for benefits and
contract labor on their cost reports, CMS consider requiring all LTCHs
to submit this information.
Response: Effective for cost reports beginning on or after May 1,
2010, CMS finalized a revised Hospital and Hospital Health Care Complex
Cost Report, Form CMS 2552-10, which is available for download from the
CMS Web page at http://www.cms.gov/Transmittals/2010Trans/list.asp?intNumPerPage=10 by clicking on the link to CMS Transmittal
R1P240. Form CMS 2552-10 includes a new worksheet (Worksheet
S-3, part V) which identifies the contract labor costs and benefit
costs for the hospital complex and is applicable to subproviders and
units. CMS anticipates that all providers will report these data so we
are able to include the data in future market basket rebasings.
(2) Other Data Sources
In addition to the IRF, IPF and LTCH Medicare cost reports for
freestanding IRFs, freestanding IPFs, and LTCHs, the other data sources
we used to develop the FY 2008-based RPL market basket cost weights
were the FY 2008 IPPS Medicare cost reports and the 2002 Benchmark
Input-Output (I-O) Tables created by the Bureau of Economic Analysis
(BEA), U.S. Department of Commerce. The FY 2008 Medicare cost reports
include providers whose cost report begin date is on or between October
1, 2007, and September 30, 2008.
As noted above, the FY 2008-based RPL cost weights for benefits and
contract labor were derived using FY 2008-based IPPS Medicare cost
reports. We used these Medicare cost reports to calculate cost weights
for ``Wages and Salaries,'' ``Employee Benefits,'' and ``Contract
Labor'' for IPPS hospitals for FY 2008. For the Employee Benefits cost
weight for the FY 2008-based RPL market basket, the ratio of the FY
2008 IPPS benefits cost weight to the FY 2008 IPPS Wages and Salaries
cost weight was applied to the RPL Wages and Salaries cost weight.
Similarly, the ratio of the FY 2008 IPPS Contract Labor cost weight to
the FY 2008 IPPS Wages and Salaries cost weight was applied to the RPL
Wages and Salaries cost weight to derive a Contract Labor cost weight
for the FY 2008-based RPL market basket.
The ``All Other'' cost category is divided into other hospital
expenditure category shares using the 2002 BEA Benchmark I-O data
following the removal of the portions of the ``All Other'' cost
category provided in Table VII.D-1 that are attributable to the
benefits and contract labor cost categories. The BEA Benchmark I-O data
are generally 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. For the FY 2002-based RPL market basket, we used the
1997 Benchmark I-O data. As we proposed, we used the 2002 Benchmark I-O
data for the FY 2008-based RPL market basket. Instead of using the less
detailed Annual I-O data, we aged the 2002 Benchmark I-O data forward
to 2008. 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 expenditure shares are determined
as being equal to each category's proportion to total ``all other''
expenditures based on the aged 2002 Benchmark I-O data. For instance,
if the cost for telephone services represented 10 percent of the sum of
the ``all other'' Benchmark I-O hospital expenditures, then telephone
services would represent 10 percent of the ``all other'' cost category
of the RPL market basket.
Comment: One commenter supported our continued use of general acute
hospital cost reports along with the

[[Page 51759]]

LTCH cost reports to develop the FY 2008-based RPL market basket.
Response: As stated above, we are finalizing our proposed methods
for rebasing and revising the RPL market basket in this final rule,
including the incorporation of cost report data from LTCHs and general
acute care hospitals.
b. Final Cost Category Computation
As stated previously, for the FY 2012 rebasing proposal, we used
the Medicare cost reports for IRFs, IPFs, and LTCHs to derive four
major cost categories. The FY 2008-based RPL market basket includes two
additional cost categories that were not broken out separately in the
FY 2002-based RPL market basket: ``Administrative and Business Support
Services'' and ``Financial Services.'' The inclusion of these two
additional cost categories, which are derived using the Benchmark I-O
data, is consistent with the addition of these two cost categories to
the FY 2006-based IPPS market basket (74 FR 43845). We break out both
categories so we can better match their respective expenses with more
appropriate price proxies. A thorough discussion of our rationale for
each of these cost categories is provided below in section VII.D.3.f.
of this final rule. Also, the FY 2008-based RPL market basket excludes
one cost category: ``Photographic 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 RPL market basket. Therefore, we include
the photographic supplies costs in the ``Chemicals'' cost category
weight with other similar chemical products.
We did not propose to change our definition of the labor-related
share. However, we did propose to rename our aggregate cost categories
from ``Labor-intensive'' and ``Nonlabor-intensive'' services to
``Labor-related'' and ``Nonlabor-related'' services. This is consistent
with the FY 2006-based IPPS market basket (74 FR 43845). As discussed
in more detail below and similar to the FY 2002-based RPL market
basket, we are classifying 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
did not propose to change 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.
We did not receive any public comments that addressed our proposal
to rename our aggregate cost categories from ``Labor-intensive'' and
``Nonlabor-intensive'' to ``Labor-related'' and ``Nonlabor-related''
services. Therefore, in this final rule, we are adopting our proposal
to rename our aggregate cost categories without modification.
c. Selection of Price Proxies
After computing the FY 2008 cost weights for the rebased RPL market
basket, it was necessary to select appropriate wage and price proxies
to reflect the rate of price change for each expenditure category. With
the exception of the proxy for Professional Liability Insurance, all of
the proxies for the operating portion of the FY 2008-based RPL market
basket 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 encountered by hospitals. For example, we are using a PPI for
prescription drugs, rather than the Consumer Price Index (CPI) for
prescription drugs, because hospitals generally purchase drugs directly
from a wholesaler. The PPIs that we 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 encountered 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 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 PPIs, CPIs, and ECIs selected meet these criteria.
Table VII.D-2 below sets forth the FY 2008-based RPL market basket,
including cost categories and their respective weights and price
proxies. For comparison purposes, the corresponding FY 2002-based RPL
market basket cost weights also are listed. For example, ``Wages and
Salaries'' are 49.447 percent of total costs in the FY 2008-based RPL
market basket compared to 52.895 percent for the FY 2002-based RPL
market basket. ``Employee Benefits'' are 12.831 percent in the FY 2008-
based RPL market basket compared to 12.982 percent for the FY 2002-
based RPL market basket. As a result, compensation costs (wages and
salaries plus employee benefits) for the FY 2008-based RPL market
basket are 62.278 percent of total costs compared to 65.877 percent for
the FY 2002-based RPL market basket.
Following Table VII.D-2 is a summary outlining the choice of the
proxies we proposed (and are adopting in this final rule) to use for
the operating portion of the FY 2008-based RPL market basket. The price
proxies for the capital portion are described in more detail in the
capital methodology section below in section VII.D.3.d. of this final
rule.
We note that the proxies for the operating portion of the FY 2008-
based RPL market basket are the same as those used for the FY 2006-
based IPPS operating market basket. Because these proxies meet our
criteria of reliability, timeliness, availability, and relevance, we
believe they are the best measures of price changes for the cost
categories. For further discussion on the FY 2006-based IPPS market
basket, we refer readers to the discussion in the FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 43843).

[[Page 51760]]

Table VII.D-2--FY 2008-Based RPL Market Basket Cost Categories, Weights, and Price Proxies With FY 2002-Based
RPL Market Basket Cost Weights Included for Comparison
----------------------------------------------------------------------------------------------------------------
FY 2002-Based FY 2008-Based
RPL market RPL market FY 2008-Based RPL market basket
Cost categories basket cost basket cost price proxies
weights weights
----------------------------------------------------------------------------------------------------------------
1. Compensation............................... 65.877 62.278 --
A. Wages and Salaries\1\...................... 52.895 49.447 ECI for Wages and Salaries,
Civilian Hospital Workers.
B. Employee Benefits\1\....................... 12.982 12.831 ECI for Benefits, Civilian
Hospital Workers.
2. Utilities.................................. 0.656 1.578 --
A. Electricity................................ 0.351 1.125 PPI for Commercial Electric
Power.
B. Fuel, Oil, and Gasoline.................... 0.108 0.371 PPI for Petroleum Refineries.
C. Water and Sewage........................... 0.197 0.082 CPI-U for Water and Sewerage
Maintenance.
3. Professional Liability Insurance........... 1.161 0.764 CMS Hospital Professional
Liability Insurance Premium
Index.
4. All Other Products and Services............ 22.158 26.988 --
A. All Other Products......................... 13.325 15.574 --
(1.) Pharmaceuticals.......................... 5.103 6.514 PPI for Pharmaceutical
Preparations for Human Use
(Prescriptions).
(2.) Food: Direct Purchases................... 0.873 2.959 PPI for Processed Foods and
Feeds.
(3.) Food: Contract Services.................. 0.620 0.392 CPI-U for Food Away From Home.
(4.) Chemicals\2\............................. 1.100 1.100 Blend of Chemical PPIs.
(5.) Medical Instruments...................... 1.014 1.795 PPI for Medical, Surgical, and
Personal Aid Devices.
(6.) Photographic Supplies \2\................ 0.096 .............. --
(7.) Rubber and Plastics...................... 1.052 1.131 PPI for Rubber and Plastic
Products.
(8.) Paper and Printing Products.............. 1.000 1.021 PPI for Converted Paper and
Paperboard Products.
(9.) Apparel.................................. 0.207 0.210 PPI for Apparel.
(10.) Machinery and Equipment................. 0.297 0.106 PPI for Machinery and Equipment.
(11.) Miscellaneous Products.................. 1.963 0.346 PPI for Finished Goods less Food
and Energy.
B. All Other Services......................... 8.833 11.414 --
(1.) Labor-related Services................... 5.111 4.681 --
(a.) Professional Fees: Labor-related \3\..... 2.892 2.114 ECI for Compensation for
Professional and Related
Occupations.
(b.) Administrative and Business Support n/a 0.422 ECI for Compensation for Office
Services \4\. and Administrative Services.
(c.) All Other: Labor-Related Services \4\.... 2.219 2.145 ECI for Compensation for Private
Service Occupations.
(2.) Nonlabor-Related Services................ 3.722 6.733 --
(a.) Professional Fees: Nonlabor-Related \3\.. n/a 4.211 ECI for Compensation for
Professional and Related
Occupations.
(b.) Financial Services \5\................... n/a 0.853 ECI for Compensation for
Financial Activities.
(c.) Telephone Services....................... 0.240 0.416 CPI-U for Telephone Services.
(d.) Postage.................................. 0.682 0.630 CPI-U for Postage.
(e.) All Other: Nonlabor-Related Services\5\.. 2.800 0.623 CPI-U for All Items less Food
and Energy.
5. Capital-Related Costs...................... 10.149 8.392 --
A. Depreciation............................... 6.187 5.519 --
(1.) Fixed Assets............................. 4.250 3.286 BEA chained price index for
nonresidential construction for
hospitals and special care
facilities--vintage-weighted
(26 years).
(2.) Movable Equipment........................ 1.937 2.233 PPI for Machinery and Equipment--
vintage-weighted (11 years).
B. Interest Costs............................. 2.775 1.954 --
(1.) Government/Nonprofit..................... 2.081 0.653 Average yield on domestic
municipal bonds (Bond Buyer 20
bonds)--vintage-weighted (26
years).
(2.) For Profit............................... 0.694 1.301 Average yield on Moody's Aaa
bonds--vintage-weighted (26
years).
C. Other Capital-Related Costs................ 1.187 0.919 CPI-U for Residential Rent.
-----------------------------------------------------------------
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 are using 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, we
refer readers to section VII.D.3.c.(10) of the preamble of this final rule. In addition, we now include
expenses related to Photographic Supplies in the Chemicals cost category due to the small cost weight
associated with these expenses. We note that, although we are eliminating the specific cost category, these
costs are still accounted for within the RPL market basket.
\3\ 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 RPL market basket. For more
detail about how these new categories were derived, we refer readers to section VII.D.3.f. of the preamble of
this final rule on the labor-related share.
\4\ The Administrative and Business Support Services cost category was contained within the ``All Other: Labor-
intensive Services'' cost category in the FY 2002-based RPL market basket. The ``All Other: Labor-intensive
Services'' cost category is renamed the ``All Other: Labor-related Services'' cost category for the FY 2008-
based RPL market basket.

[[Page 51761]]

\5\ The ``Financial Services'' cost category was contained within the ``All Other: Non-labor Intensive
Services'' cost category in the FY 2002-based RPL market basket. The ``All Other: Non-labor Intensive
Services'' cost category is renamed the ``All Other: Nonlabor-related Services'' cost category for the FY 2008-
based RPL market basket.

(1) Wages and Salaries
We are using the ECI for Wages and Salaries for Hospital Workers
(All Civilian) (BLS series code CIU1026220000000I) to measure the price
growth of this cost category. This same proxy was used in the FY 2002-
based RPL market basket.
(2) Employee Benefits
We are using 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 RPL market basket.
(3) Electricity
We are using the PPI for Commercial Electric Power (BLS series code
WPU0542). This same proxy was used in the FY 2002-based RPL market
basket.
(4) Fuel, Oil, and Gasoline
For the FY 2002-based RPL market basket, this category only
included expenses classified under North American Industry
Classification System (NAICS) 21 (Mining). We used the PPI for
Commercial Natural Gas (BLS series code WPU0552) as a proxy for this
cost category. For the FY 2008-based market basket, we added 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 are using the PPI for Petroleum Refineries (BLS
series code PCU324110324110) as the proxy for this cost category.
(5) Water and Sewage
We are using the CPI for Water and Sewerage Maintenance (All Urban
Consumers) (BLS series code CUUR0000SEHG01) to measure the price growth
of this cost category. This same proxy was used in the FY 2002-based
RPL market basket.
(6) 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 is also used to proxy PLI price changes in
the Medicare Economic Index (75 FR 73268). This same proxy was used in
the FY 2002-based RPL market basket.
(7) Pharmaceuticals
We are using the PPI for Pharmaceuticals for Human Use,
Prescription (BLS series code WPUSI07003) to measure the price growth
of this cost category. We note that we did not make a change to the PPI
that is used to proxy this cost category. Although there was a recent
change to the BLS naming convention for this series, this is the same
proxy that was used in the FY 2002-based RPL market basket.
(8) Food: Direct Purchases
We are using the PPI for Processed Foods and Feeds (BLS series code
WPU02) to measure the price growth of this cost category. This same
proxy was used in the FY 2002-based RPL market basket.
(9) Food: Contract Services
We are using the CPI for Food Away From Home (All Urban Consumers)
(BLS series code CUUR0000SEFV) to measure the price growth of this cost
category. This same proxy was used in the FY 2002-based RPL market
basket.
(10) Chemicals
We are using a blended PPI composed of the PPI for Industrial Gas
Manufacturing (NAICS 325120) (BLS series code PCU325120325120P), the
PPI for Other Basic Inorganic Chemical Manufacturing (NAICS 325180)
(BLS series code PCU32518-32518-), the PPI for Other Basic Organic
Chemical Manufacturing (NAICS 325190) (BLS series code PCU32519-32519-
), and the PPI for Soap and Cleaning Compound Manufacturing (NAICS
325610) (BLS series code PCU32561-32561-). 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 are using 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 (BLS series
code WPU061), the proxy used in the FY 2002-based RPL market basket.
Table VII.D-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.

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

(11) Medical Instruments
We are using the PPI for Medical, Surgical, and Personal Aid
Devices (BLS 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. Therefore, we used the PPI for Surgical and Medical
Instruments and Equipment (BLS series code WPU1562) to proxy this
category in the FY 2002-based RPL market basket. The 2002 Benchmark I-O
data show that surgical and medical instruments now represent only 33
percent of these expenses and that the largest expense category is

[[Page 51762]]

surgical appliance and supplies manufacturing (corresponding to BLS
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.
(12) Photographic Supplies
We are eliminating the cost category specific to photographic
supplies for the FY 2008-based RPL market basket. These costs are now
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 are still accounted
for within the RPL market basket.
(13) Rubber and Plastics
We are using the PPI for Rubber and Plastic Products (BLS series
code WPU07) to measure price growth of this cost category. This same
proxy was used in the FY 2002-based RPL market basket.
(14) Paper and Printing Products
We are using the PPI for Converted Paper and Paperboard Products
(BLS series code WPU0915) to measure the price growth of this cost
category. This same proxy was used in the FY 2002-based RPL market
basket.
(15) Apparel
We are using the PPI for Apparel (BLS series code WPU0381) to
measure the price growth of this cost category. This same proxy was
used in the FY 2002-based RPL market basket.
(16) Machinery and Equipment
We are using the PPI for Machinery and Equipment (BLS series code
WPU11) to measure the price growth of this cost category. This same
proxy was used in the FY 2002-based RPL market basket.
(17) Miscellaneous Products
We are using the PPI for Finished Goods Less Food and Energy (BLS
series code WPUSOP3500) to measure the price growth of this cost
category. Using this index avoids the double-counting of food and
energy prices, which is already captured elsewhere in the market
basket. This same proxy was used in the FY 2002-based RPL market
basket.
(18) Professional Fees: Labor-Related
We are using the ECI for Compensation for Professional and Related
Occupations (Private Industry) (BLS 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 RPL market basket.
(19) Administrative and Business Support Services
We are using the ECI for Compensation for Office and Administrative
Support Services (Private Industry) (BLS series code CIU2010000220000I)
to measure the price growth of this category. Previously these costs
were included in the All Other: Labor-intensive category (now renamed
the All Other: Labor-related Services 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.
(20) All Other: Labor-Related Services
We are using the ECI for Compensation for Service Occupations
(Private Industry) (BLS series code CIU2010000300000I) to measure the
price growth of this cost category. This same proxy was used in the FY
2002-based RPL market basket.
(21) Professional Fees: Nonlabor-Related
We are using the ECI for Compensation for Professional and Related
Occupations (Private Industry) (BLS series code CIS2020000120000I) to
measure the price growth of this category. This is the same price proxy
that we are using for the Professional Fees: Labor-related cost
category.
(22) Financial Services
We are using the ECI for Compensation for Financial Activities
(Private Industry) (BLS series code CIU201520A000000I) to measure the
price growth of this cost category. Previously these costs were
included in the All Other: Nonlabor-intensive category (now renamed the
All Other: Nonlabor-related Services 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.
(23) Telephone Services
We are using the CPI for Telephone Services (BLS series code
CUUR0000SEED) to measure the price growth of this cost category. This
same proxy was used in the FY 2002-based RPL market basket.
(24) Postage
We are using the CPI for Postage (BLS series code CUUR0000SEEC01)
to measure the price growth of this cost category. This same proxy was
used in the FY 2002-based RPL market basket.
(25) All Other: Nonlabor-Related Services
We are using the CPI for All Items Less Food and Energy (BLS 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 RPL market basket. We believe that using the CPI for All
Items Less Food and Energy avoids the double counting of changes in
food and energy prices, as they 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.
We did not receive any public comments that addressed our proposed
selection of price proxies to reflect the rate of price change for each
expenditure category. Therefore, we are adopting our proposal as final
without modification.
d. Methodology for Capital Portion of the RPL Market Basket
In the FY 2002-based RPL market basket, we did not have
freestanding IRF, freestanding IPF, and LTCH 2002 Medicare cost report
data for the capital-related cost weights, due to a change in the 2002
reporting requirements. Therefore, we used these hospitals' 2001
expenditure data for the capital cost categories of Depreciation,
Interest, and Other Capital Expenses, and aged the data to a 2002 base
year using relevant price proxies.
For the FY 2008-based RPL market basket, as we proposed, we
calculated weights for the RPL market basket capital costs using the
same set of FY 2008 Medicare cost reports used to develop the operating
share for IRFs, IPFs, and LTCHs. To calculate the total capital cost
weight, we first applied the same length-of-stay edits as applied when
calculating the operating cost weights as described above in section
VII.D.3.a. of this preamble. The resulting Capital-Related weight for
the FY 2008 base year is 8.392 percent.
Lease expenses are unique in that they are not broken out as a
separate cost category in the RPL market basket, but rather are
proportionally distributed amongst the cost categories of

[[Page 51763]]

Depreciation, Interest, and Other Capital-related Costs, reflecting the
assumption that the underlying cost structure of leases is similar to
that of capital costs in general. As was done in the FY 2002-based RPL
market basket, we first assumed 10 percent of lease expenses represents
overhead and assigned those costs to the Other Capital-Related Costs
category accordingly. The remaining lease expenses were distributed
across the three cost categories based on the respective weights of
Depreciation, Interest, and Other Capital-related Costs not including
lease expenses.
Depreciation contains two subcategories: (1) Building and Fixed
Equipment (or Fixed Assets); and (2) Movable Equipment. The
apportionment between building and fixed equipment and movable
equipment was determined using the FY 2008 Medicare cost reports for
freestanding IRFs, freestanding IPFs, and LTCHs. This methodology was
also used to compute the apportionment used in the FY 2002-based RPL
market basket (71 FR 27815).
The total Interest cost category is split between government/
nonprofit interest and for-profit interest. The FY 2002-based RPL
market basket 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 47912). This
was based on the FY 2002-based IPPS capital input price index (70 FR
23406) due to insufficient Medicare cost report data for freestanding
IRFs, freestanding IPFs, and LTCHs. For the FY 2008-based RPL market
basket, as we proposed, we derived the split using the FY 2008 Medicare
cost report data on interest expenses for government/nonprofit and for-
profit freestanding IRFs, freestanding IPFs, and LTCHs. Based on these
data, we calculated a 33/67 split between government/nonprofit and for-
profit interest. We believe it is important that this split reflects
the latest relative cost structure of interest expenses for RPL
providers. As stated above, we first applied the average length of stay
edits (as described in section VII.D.3.a. of this preamble) prior to
calculating this split. Therefore, we used cost reports that are
reflective of case mix and practice patterns associated with providing
services to Medicare beneficiaries. Using data specific to government/
nonprofit and for-profit freestanding IRFs, freestanding IPFs, and
LTCHs as well as the application of these length of stay edits are the
primary reasons for the difference in this split relative to the FY
2002-based RPL market basket.
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
capital portion of the FY 2008-based RPL market basket is intended to
capture the long-term consumption of capital, using vintage weights for
depreciation (physical capital) and interest (financial capital). These
vintage weights reflect the proportion of capital purchases
attributable to each year of the expected life of building and fixed
equipment, movable equipment, and interest. We used the vintage weights
to compute vintage-weighted price changes associated with depreciation
and interest expense.
Vintage weights are an integral part of the FY 2008-based RPL
market basket. 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 capital portion of the FY 2008-based RPL market
basket would reflect the annual price changes associated with capital
costs, and would be a useful simplification of the actual capital
investment process. By accounting for the vintage nature of capital, we
are able to provide an accurate and stable annual measure of price
changes. Annual nonvintage price changes for capital are unstable due
to the volatility of interest rate changes and, therefore, do not
reflect the actual annual price changes for Medicare capital-related
costs. The capital component of the FY 2008-based RPL market basket
would reflect 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 an appropriate 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 2008.
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. For the FY 2002-based RPL market basket, due to
insufficient Medicare cost report data for freestanding IRFs,
freestanding IPFs, and LTCHs, we used 2001 Medicare cost reports for
IPPS hospitals to determine the expected life of building and fixed
equipment and movable equipment (71 FR 27816). The FY 2002-based RPL
market basket was based on an expected average life of building and
fixed equipment of 23 years. It used 11 years as the average expected
life for moveable equipment. We believed that this data source
reflected the latest relative cost structure of depreciation expenses
for hospitals at the time and was analogous to freestanding IRFs,
freestanding IPFs, and LTCHs.
The expected life of any asset can be determined by dividing the
value of the asset (excluding fully depreciated assets) by its current
year depreciation amount. This calculation yields the estimated useful
life of an asset if depreciation were to continue at current year
levels, assuming straight-line depreciation. Following a similar method
to what was applied for the FY 2002-based RPL market basket, we used
the average expected life of building and fixed equipment to be equal
to 26 years, and the average expected life of movable equipment to be
11 years. These expected lives are calculated using FY 2008 Medicare
cost reports for IPPS hospitals since we are currently unable to obtain
robust measures of the expected lives for building and fixed equipment
and movable equipment using the Medicare cost reports from freestanding
IRFs, freestanding IPFs, and LTCHs.
As we proposed, we also used the building and fixed equipment and
movable equipment weights derived from FY 2008 Medicare cost reports
for freestanding IRFs, freestanding IPFs, and LTCHs to separate the
depreciation expenses into annual amounts of building and fixed
equipment depreciation and movable equipment depreciation. Year-end
asset costs for building and fixed equipment and

[[Page 51764]]

movable equipment were determined by multiplying the annual
depreciation amounts by the expected life calculations. 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 the 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 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 26 years, the vintage weights for building and
fixed equipment are deemed to represent the average purchase pattern of
building and fixed equipment over 26-year periods. With real building
and fixed equipment purchase estimates available from 2008 back to
1963, we averaged twenty 26-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 26-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 26-
year period. This calculation is done for each year in the 26-year
period, and for each of the twenty 26-year periods. We used the average
of each year across the twenty 26-year periods to determine the average
building and fixed equipment vintage weights for the FY 2008-based RPL
market basket.
For the 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. This is the same
proxy used for the FY 2002-based RPL market basket. Based on our
determination that movable equipment has an expected life of 11 years,
the vintage weights for movable equipment represent the average
expenditure for movable equipment over an 11-year period. With real
movable equipment purchase estimates available from 2008 back to 1963,
thirty-five 11-year periods were averaged to determine the average
vintage weights for movable equipment that are representative of
average movable equipment purchase patterns over time. Vintage weights
for each 11-year period are calculated by dividing the real movable
capital purchase amount for any given year by the total amount of
purchases in the 11-year period. This calculation was done for each
year in the 11-year period and for each of the thirty-five 11-year
periods. We used the average of each year across the thirty-five 11-
year periods to determine the average movable equipment vintage weights
for the FY 2008-based RPL market basket.
For the 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 26
years, the vintage weights for interest are deemed to represent the
average purchase pattern of total equipment over 26-year periods. With
nominal total equipment purchase estimates available from 2008 back to
1963, twenty 26-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 26-year period
are calculated by dividing the nominal total capital purchase amount
for any given year by the total amount of purchases in the 26-year
period. This calculation is done for each year in the 26-year period
and for each of the twenty 26-year periods. We used the average of each
year across the twenty 26-year periods to determine the average
interest vintage weights for the FY 2008-based RPL market basket. The
vintage weights for the capital portion of the FY 2002-based RPL market
basket and the FY 2008-based RPL market basket are presented in Table
VII.D-4 below.

Table VII.D-4--FY 2002 and FY 2008 Vintage Weights for Capital-Related Price Proxies
--------------------------------------------------------------------------------------------------------------------------------------------------------
Building and fixed equipment Movable equipment Interest
-----------------------------------------------------------------------------------------------
Year FY 2002 23 FY 2008 26 FY 2002 11 FY 2008 11 FY 2002 23 FY 2008 26
years years years years years years
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....................................................... 0.021 0.021 0.065 0.071 0.010 0.010
2....................................................... 0.022 0.023 0.071 0.075 0.012 0.012
3....................................................... 0.025 0.025 0.077 0.080 0.014 0.014
4....................................................... 0.027 0.027 0.082 0.083 0.016 0.016
5....................................................... 0.029 0.028 0.086 0.085 0.019 0.018
6....................................................... 0.031 0.030 0.091 0.089 0.023 0.020
7....................................................... 0.033 0.031 0.095 0.092 0.026 0.021
8....................................................... 0.035 0.033 0.100 0.098 0.029 0.024
9....................................................... 0.038 0.035 0.106 0.103 0.033 0.026
10...................................................... 0.040 0.037 0.112 0.109 0.036 0.029
11...................................................... 0.042 0.039 0.117 0.116 0.039 0.033
12...................................................... 0.045 0.041 .............. .............. 0.043 0.035
13...................................................... 0.047 0.042 .............. .............. 0.048 0.038
14...................................................... 0.049 0.043 .............. .............. 0.053 0.041
15...................................................... 0.051 0.044 .............. .............. 0.056 0.043
16...................................................... 0.053 0.045 .............. .............. 0.059 0.046
17...................................................... 0.056 0.046 .............. .............. 0.062 0.049
18...................................................... 0.057 0.047 .............. .............. 0.064 0.052
19...................................................... 0.058 0.047 .............. .............. 0.066 0.053
20...................................................... 0.060 0.045 .............. .............. 0.070 0.053
21...................................................... 0.060 0.045 .............. .............. 0.071 0.055

[[Page 51765]]

22...................................................... 0.061 0.045 .............. .............. 0.074 0.056
23...................................................... 0.061 0.046 .............. .............. 0.076 0.060
24...................................................... .............. 0.046 .............. .............. .............. 0.063
25...................................................... .............. 0.045 .............. .............. .............. 0.064
26...................................................... .............. 0.046 .............. .............. .............. 0.068
Total............................................... 1.000 1.000 1.000 1.000 1.000 1.000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Numbers may not add to total due to rounding.

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. We use the same price proxies
for the capital portion of the FY 2008-based RPL market basket that
were used in the FY 2002-based RPL market basket with the exception of
the Boeckh Construction Index. 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 price proxies (prior to any vintage weighting) for each of the
capital cost categories are the same as those used for the FY 2006-
based Capital Input Price Index (CIPI) as described in the FY 2010
IPPS/RY 2010 LTCH PPS final rule (74 FR 43857).
e. FY 2012 Market Basket Update for LTCHs
For FY 2012 (that is, October 1, 2011 through September 30, 2012),
as we proposed, we are using an estimate of the FY 2008-based RPL
market basket update based on the best available data. Consistent with
historical practice, we estimate the RPL market basket update for the
LTCH PPS based on IHS Global Insight, Inc.'s (IGI's) forecast using the
most recent available data. IGI is a nationally recognized economic and
financial forecasting firm that contracts with CMS to forecast the
components of the market baskets.
Based on IGI's first quarter 2011 forecast with history through the
fourth quarter of 2010, the projected market basket update for FY 2012
was 2.8 percent. Therefore, consistent with our historical practice of
estimating market basket increases based on the best available data, we
proposed a market basket update of 2.8 percent for FY 2012. We also
proposed that if more recent data became subsequently available (for
example, a more recent estimate of the market basket), we would use
such data, if appropriate, to determine the FY 2012 annual update in
the final rule. For this final rule, we are incorporating a more recent
estimate of the market basket update and MFP adjustment. Based on IGI's
second quarter 2011 forecast with history through the first quarter of
2011, the projected market basket update for FY 2012 is 2.9 percent.
Therefore, consistent with our historical practice of estimating market
basket increases based on the best available data, we are finalizing a
market basket update of 2.9 percent for FY 2012. (As discussed in
greater detail in section V.A.2. of the Addendum to this final rule, we
are providing for an annual update of 1.8 percent to the LTCH PPS
standard Federal rate for FY 2012 under Sec. 412.523(c)(3)(viii) of
the regulations.)
Using the FY 2002-based RPL market basket and IGI's second quarter
2011 forecast for the market basket components, the FY 2012 market
basket update would be 3.0 percent (before taking into account any
statutory adjustment). Table VII.D-5 below compares the FY 2008-based
RPL market basket and the FY 2002-based RPL market basket percent
changes.

Table VII.D-5--FY 2002-Based and FY 2008-Based RPL Market Basket Percent Changes; FY 2006 Through FY 2014
----------------------------------------------------------------------------------------------------------------
FY 2002-Based RPL market FY 2008-Based RPL market
Fiscal year (FY) basket index percent basket index percent
change change
----------------------------------------------------------------------------------------------------------------
Historical data:
FY 2006................................................. 3.9 3.7
FY 2007................................................. 3.4 3.4
FY 2008................................................. 3.8 3.7
FY 2009................................................. 2.5 2.7
FY 2010................................................. 2.3 2.2
Average 2006-2010....................................... 3.2 3.1
Forecast:
FY 2011................................................. 2.7 2.7
FY 2012................................................. 3.0 2.9
FY 2013................................................. 3.0 2.9
FY 2014................................................. 3.0 3.0
Average 2011-2014....................................... 2.9 2.9
----------------------------------------------------------------------------------------------------------------
Note that these market basket percent changes do not include any further adjustments as may be statutorily
required.
Source: IHS Global Insight, Inc. second quarter 2011 forecast.

[[Page 51766]]

For FY 2012, the FY 2008-based RPL market basket update (2.9
percent) is slightly lower than the market basket update based on the
FY 2002-based RPL market basket. The lower total compensation weight in
the FY 2008-based RPL market basket (62.278 percent) relative to the FY
2002-based RPL market basket (65.877 percent), absent other factors,
would have resulted in a slightly lower market basket update using the
FY 2008-based RPL market basket. However, this impact is partially
offset by 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 RPL market basket is 2.892
percent compared to 6.325 percent in the FY 2008-based RPL market
basket. The net effect is that the market basket update is slightly
lower for FY 2012 based on the FY 2008-based RPL market basket relative
to the FY 2002-based RPL market basket.
f. Labor-Related Share
As discussed in section V.B. of the Addendum to this final rule,
under the authority of section 123 of the BBRA as amended by section
307(b) of the BIPA, we established an adjustment to the LTCH PPS
payments to account for differences in LTCH area wage levels (Sec.
412.525(c)). The labor-related portion of the LTCH PPS standard Federal
rate, hereafter referred to as the labor-related share, is adjusted to
account for geographic differences in area wage levels by applying the
applicable LTCH PPS wage index.
The labor-related share is determined by identifying the national
average proportion of total costs that are related to, influenced by,
or vary with the local labor market. We continue to classify a cost
category as labor-related if the costs are labor-intensive and vary
with the local labor market. Given this, based on our definition of the
labor-related share, we include in the labor-related share the sum of
the relative importance of Wages and Salaries, Employee Benefits,
Professional Fees: Labor-related, Administrative and Business Support
Services, All Other: Labor-related Services (previously referred to in
the FY 2002-based RPL market basket as labor-intensive), and a portion
of the Capital-Related cost weight.
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.
As stated in the RY 2007 LTCH PPS final rule (71 FR 27829), the
labor-related share was defined as the sum of the relative importance
of the labor-related share of operating costs (Wages and Salaries,
Employee Benefits, Professional Fees, and All Other: Labor-intensive
Services), and a portion of Capital costs of the RPL market basket
based on FY 2002 data. Therefore, to determine the labor-related share
for the LTCH PPS for FY 2011, we used the FY 2002-based RPL market
basket cost weights relative importance to determine the labor-related
share for the LTCH PPS.
For the FY 2008-based RPL 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 established 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 RPL 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 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.
With approval from the Office of Management and Budget (OMB), we
contacted a sample of IPPS hospitals and received responses to our
survey from 108 hospitals. We believe that these data serve as an
appropriate proxy for the purchasing patterns of professional services
for LTCHs as they are also institutional providers of health care
services. Using data on full-time equivalents (FTEs) to allocate
responding hospitals across strata (region of the country and urban/
rural status), we calculated post-stratification 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.
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 to
determine the Professional Fees: Nonlabor-related costs. The
Professional Fees: Labor-related costs were determined to be the
difference between the total costs for each Benchmark I-O category and
the Professional Fees: Nonlabor-related costs. This is the methodology
that we used to separate the FY 2008-based RPL 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

[[Page 51767]]

costs should be appropriately included in the labor-related share.
Using data primarily from the Medicare cost reports and a CMS
database of Home Office Medicare Records (HOMER) (a database that
provides city and state information (addresses) for home offices), we
were able to determine that 19 percent of the total number of
freestanding IRFs, freestanding IPFs, and LTCHs that had home offices
had those home offices located in their respective local labor
markets--defined as being in the same Metropolitan Statistical Area
(MSA).
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 provider with the location of the hospital's home
office. We then placed providers into one of the following three
groups:
Group 1--Provider and home office are located in different
States.
Group 2--Provider and home office are located in the same
State and same city.
Group 3--Provider and home office are located in the same
State and different city.
We found that 63 percent of the providers with home offices were
classified into Group 1 (that is, different State) and, thus, these
providers were determined to not be located in the same local labor
market as their home office. Although there were a very limited number
of exceptions (that is, providers located in different States but the
same MSA as their home office), the 63 percent estimate was unchanged.
We found that 9 percent of all providers with home offices were
classified into Group 2 (that is, same State and same city and,
therefore, the same MSA). Consequently, these providers were determined
to be located in the same local labor market as their home offices.
We found that 27 percent of all providers 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
provider and its home office, we found that 10 percent of all providers
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
19 percent of providers with home offices had home offices located
within their local labor market (that is, 9 percent of providers with
home offices had their home offices in the same State and city (and,
thus, the same MSA), and 10 percent of providers with home offices had
their home offices in the same State, a different city, but the same
MSA). We apportion the NAICS 55 expense data by this percentage. Thus,
we classified 19 percent of these costs into the Professional Fees:
Labor-related cost category and the remaining 81 percent into the
Professional Fees: Nonlabor-related Services cost category.
Using this method and the IGI's forecast for the first quarter 2011
of the FY 2008-based RPL market basket, the proposed LTCH labor-related
share for FY 2012 was the sum of the FY 2012 relative importance of
each labor-related cost category. Consistent with our policy for
updating the labor-related share with the most recent available data,
the labor-related share for this final rule reflects IGI's second
quarter 2011 forecast of the FY 2008-based RPL market basket. Table
VII.D-6 below shows the FY 2012 relative importance labor-related share
using the FY 2008-based RPL market basket and the FY 2011 relative
importance labor-related share using the FY 2002-based RPL market
basket.

Table VII.D-6--Comparison of the FY 2011 Relative Importance Labor-
Related Share Based on the FY 2002-Based RPL Market Basket and the FY
2012 Relative Importance Labor-Related Share Based on the FY 2008-Based
RPL Market Basket
------------------------------------------------------------------------
FY 2011 Relative FY 2012 Relative
importance labor- importance labor-
related share \1\ related share \2\
------------------------------------------------------------------------
Wages and Salaries.............. 52.449 48.984
Employee Benefits............... 13.971 12.998
Professional Fees: Labor-Related 2.855 2.072
Administrative and Business .................. 0.416
Support Services...............
All Other: Labor-Related 2.109 2.094
Services.......................
---------------------------------------
Subtotal.................... 71.384 66.564
Labor-Related Portion of Capital 3.887 3.635
Costs (46%)....................
---------------------------------------
Total Labor-Related Share... 75.271 70.199
------------------------------------------------------------------------
\1\ Published in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50391) and
based on the second quarter 2010 IGI forecast.
\2\ Based on the second quarter 2011 IGI forecast.

The labor-related share for FY 2012 is the sum of the FY 2012
relative importance of each labor-related cost category, and would
reflect the different rates of price change for these cost categories
between the base year (FY 2008) and FY 2012. The sum of the relative
importance for FY 2012 for operating costs (Wages and Salaries,
Employee Benefits, Professional Fees: Labor-Related, Administrative and
Business Support Services, and All Other: Labor-related Services) is
66.564 percent, as shown in Table VII.D-6 above. We are providing that
the portion of Capital that is influenced by the local labor market is
estimated to be 46 percent, which is the same percentage applied to the
FY 2002-based RPL market basket. Because the relative importance for
Capital-Related Costs is 7.903 percent of the FY 2008-based RPL market
basket in FY 2012, we multiplied 46 percent by 7.903 percent to
determine the labor-related share of Capital for FY 2012. The result is
3.635 percent, which we added to 66.564 percent for the operating cost
amount to determine the total labor-related share for FY 2012. Thus,
the labor-related share that we are using for the LTCH PPS in FY 2012
is 70.199 percent. This labor-related share is determined using the
same methodology as employed in calculating all previous LTCH labor-
related shares.
Comment: Several commenters questioned the 5-percentage point
reduction in the labor-related share

[[Page 51768]]

(from approximately 75 to approximately 70 percent) for the LTCH PPS,
after the labor-related share has been relatively constant over the
last several years. One commenter stated that this 5-percentage point
reduction in the labor-related share, at one time, will have a
substantial adverse impact. The commenters requested that CMS not use
limited size data that result in the revision of the FY 2012 labor-
related share by nearly 5 percentage points. One commenter remarked
that the reduction reflects a dramatic change in the labor-related
share from one year to the next.
Response: The reduction in the labor-related share from FY 2011 to
FY 2012 is primarily the result of rebasing the RPL market basket from
a FY 2002 base year to a FY 2008 base year, and reflects use of a more
recent cost structure of freestanding IRFs, freestanding IPFs, and
LTCHs. As displayed in Table VII.D-2, the rebasing of the RPL market
basket from a FY 2002 base year to a FY 2008 base year resulted in a
decrease in the compensation cost weight of approximately 3.6
percentage points from 65.877 percent to 62.278 percent. We found
during our most recent rebasing process that the compensation cost
weight had begun to gradually decrease over the time period from 2003
to 2008.
The decrease in the base year compensation cost weight is
accounting for over three-quarters of the total decrease from the FY
2011 labor-related share and the FY 2012 labor-related share (of
approximately 5 percentage points). The remaining decrease in the
labor-related share is primarily the result of the treatment of
professional fees as labor-related or nonlabor-related.
The FY 2012 labor-related share reflects the most recently
available and complete set of Medicare cost reports, and thus reflects
the updated and appropriate proportion of costs that are related to,
influenced by, or vary with the local labor market for IRFs, IPFs, and
LTCHs.
Comment: One commenter specifically called into question the
methodology used for estimating the allocation of professional fees;
specifically stating concerns that the sample size used was too small
(108 hospitals), the survey results may be old and no longer valid,
that there is no indication that CMS conducted a statistically valid
sample for estimating the allocation of professional fees, and that it
would have been more appropriate for CMS to survey LTCH's for this
information.
Response: We disagree with the commenter's rationale in regard to
the calculation of the labor-related share for FY 2012. A method that
distributes professional fees based on empirical research and data
represents a technical improvement to the construction of the market
basket, where previously 100 percent of professional fees were assumed
to vary with the local labor market. The actual survey results are for
the year 2008, and are the most recent data available at the time of
this final rule. In response to the concerns about the sample size of
108 hospitals and the validity of the survey results, we provide more
detail on the survey conducted below. We note that these same survey
results were used in the IPPS market basket rebasing for the FY 2010
IPPS final rule (74 FR 43853) and the RPL market basket rebasing for
the FY 2012 IPF final rule (76 FR 26445 through 26447).
The survey's methods unfolded in the following manner: Through an
independent contractor, a small sample of 12 hospitals were 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:

------------------------------------------------------------------------
All hospitals Responding
percent hospitals percent
distribution and distribution and
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 that 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

[[Page 51769]]

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.
Given the information provided above, we believe that the estimates
based on this survey are valid.
Comment: One commenter recommended that CMS phase in this change in
the labor-related share over a 2- to 3-year period to allow LTCHs a
longer period of time to absorb the impact of this reduction to the
labor-related share.
Response: We do not agree with this recommendation. In this final
rule we are finalizing our methodology for calculating the labor-
related share for FY 2012 using the FY 2008-based RPL market basket and
the most recent forecast data available (which is IHS Global Insight
Inc.'s second quarter 2011 forecast). This is also the same forecast we
are using to derive the FY 2012 market basket update for this final
rule. As the updated labor-related share reflects the current
proportion of costs that are related to, vary with, or influenced by
the local labor market, we believe it is appropriate to incorporate the
results in full into the FY 2012 payment update.

E. Changes to the LTCH Payment Rates and Other Changes to the FY 2012
LTCH PPS

1. Overview of Development of the LTCH Payment Rates
The LTCH PPS was effective beginning with a LTCH's first cost
reporting period beginning on or after October 1, 2002. Therefore,
beginning with their FY 2003 cost reporting period, LTCHs were paid,
during a 5-year transition period, a total LTCH prospective payment
that was comprised of an increasing proportion of the LTCH PPS Federal
rate and a decreasing proportion based on reasonable cost-based
principles, unless the hospital made a one-time election to receive
payment based on 100 percent of the Federal rate, as specified in Sec.
412.533. New LTCHs (as defined at Sec. 412.23(e)(4)) were paid based
on 100 percent of the Federal rate, with no phase-in transition
payments.
The basic methodology for determining LTCH PPS Federal prospective
payment rates is set forth at Sec. 412.515 through Sec. 412.536. In
this section, we discuss the factors that we use to update the LTCH PPS
standard Federal rate for FY 2012, that is, effective for LTCH
discharges occurring on or after October 1, 2011 through September 30,
2012.
For further details on the development of the FY 2003 standard
Federal rate, we refer readers to the August 30, 2002 LTCH PPS final
rule (67 FR 56027 through 56037). For subsequent updates to the LTCH
PPS Federal rate, we refer readers to the following final rules: RY
2004 LTCH PPS final rule (68 FR 34134 through 34140); RY 2005 LTCH PPS
final rule (68 FR 25682 through 25684); RY 2006 LTCH PPS final rule (70
FR 24179 through 24180); RY 2007 LTCH PPS final rule (71 FR 27819
through 27827); RY 2008 LTCH PPS final rule (72 FR 26870 through
27029); RY 2009 LTCH PPS final rule (73 FR 26800 through 26804); RY
2010 LTCH PPS final rule (74 FR 44021 through 44030); and FY 2011 IPPS/
LTCH PPS final rule (75 FR 50443 through 50444).
The update to the LTCH PPS standard Federal rate for FY 2012 is
presented in section V.A. of the Addendum to this final rule. The
components of the annual market basket update to the LTCH PPS standard
Federal rate for FY 2012 are discussed below. In addition, as discussed
below in section VII.E.3. of this preamble, beginning in FY 2012, in
addition to the update factor, we make an adjustment to the standard
Federal rate to account for the estimated effect of any changes to the
area wage level adjustment on estimated aggregate LTCH PPS payments.
2. FY 2012 LTCH PPS Annual Market Basket Update
a. Overview
Historically, the Medicare program has used a market basket to
account for price increases in the services furnished by providers. The
market basket used for the LTCH PPS includes both operating and
capital-related costs of LTCHs because the LTCH PPS uses a single
payment rate for both operating and capital-related costs. With the
initial implementation of the LTCH PPS for FY 2003, we established the
use of the excluded hospital with capital market basket as the LTCH PPS
market basket (67 FR 56016 through 56017). (For further details on the
development of the excluded hospital with capital market basket, we
refer readers to the RY 2004 LTCH PPS final rule (68 FR 34134 through
34137).) The development of the initial LTCH PPS standard Federal rate
for FY 2003, using the excluded hospital with capital market basket, is
discussed in further detail in the August 30, 2002 LTCH PPS final rule
(67 FR 56027 through 56033).
Beginning in RY 2007, we adopted the rehabilitation, psychiatric,
long-term care (RPL) hospital market basket based on FY 2002 data as
the appropriate market basket of goods and services under the LTCH PPS
for discharges occurring on or after July 1, 2006. As discussed in the
RY 2007 LTCH PPS final rule (71 FR 27810), based on our research, we
did not develop a market basket specific to LTCH services. We were
unable to create a separate market basket specifically for LTCHs at
that time due to the small number of facilities and the limited amount
of data that was reported. (For further details on the development of
the FY 2002-based RPL market basket, we refer readers to the RY 2007
LTCH PPS final rule (71 FR 27810 through 27817).)
As discussed in greater detail in section VII.D. of this preamble,
we are revising and rebasing the market basket used under the LTCH PPS
for FY 2012. Specifically, we are adopting a newly created FY 2008-
based RPL market basket (described in section VII.D. of this preamble).
Also, in section VII.D. of this preamble, we discuss our continued
interest in exploring the possibility of creating a stand-alone LTCH
market basket that reflects the cost structures of only LTCH providers.

[[Page 51770]]

b. Revision of Certain Market Basket Updates as Required by the
Affordable Care Act
Several provisions of the Affordable Care Act affect the policies
and payment rates under the LTCH PPS. Section 1886(m)(3)(A) of the Act,
as added by section 3401(c) of the Affordable Care Act, specifies that,
for rate year 2010 and each subsequent rate year through 2019, any
annual update to the standard Federal rate shall be reduced:
For rate year 2010 through 2019, by the other adjustment
specified in sections 1886(m)(3)(A)(ii) and (m)(4) of the Act; and
For rate year 2012 and each subsequent year, by the
productivity adjustment (which we refer to as ``the multifactor
productivity (MFP) adjustment'' as discussed in section VII.E.2.d. of
this preamble) described in section 1886(b)(3)(B)(xi)(II) of the Act.
Section 1886(m)(3)(B) of the Act provides that the application of
paragraph (3) of section 1886(m) of the Act may result in the annual
update being less than zero for a rate year, and may result in payment
rates for a rate year being less than such payment rates for the
preceding rate year. We note that because the annual update to the LTCH
PPS policies, rates, and factors now occurs on October 1, we have
adopted the term ``fiscal year'' (FY) rather than ``rate year'' (RY)
under the LTCH PPS beginning October 1, 2010, to conform with the
standard definition of the Federal fiscal year (October 1 through
September 30) used by other PPSs, such as the IPPS (75 FR 50396 through
50397). Although the language of sections 3401(c), 10319, and 1105(b)
of the Affordable Care Act refers to years 2010 and thereafter under
the LTCH PPS as ``rate year,'' consistent with our change in the
terminology used under the LTCH PPS from ``rate year'' to ``fiscal
year,'' for purposes of clarity, when discussing the annual update for
the LTCH PPS, including the provisions of the Affordable Care Act, we
employ ``fiscal year'' rather than ``rate year'' for 2011 and
subsequent years.
c. Market Basket Under the LTCH PPS for FY 2012
As noted above and as discussed in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50389), when we initially created the FY 2002-based RPL
market basket, we were unable to create a separate market basket
specifically for LTCHs due, in part, to the small number of facilities
and the limited data that were provided in the Medicare cost reports.
Over the last several years, however, the number of LTCHs submitting
valid Medicare cost report data has increased. Based on this
development, as well as our desire to move from one RPL market basket
to three stand-alone and provider-specific market baskets (for IRFs,
IPFs, and LTCHs, respectively), we have begun to explore the viability
of creating these market baskets for future use. However, as we
discussed in the RY 2010 LTCH PPS final rule (74 FR 43967 through
43968), we are conducting further research to assist us in
understanding the reasons for the variations in costs and cost
structure between freestanding IRFs and hospital-based IRFs. We also
are researching the reasons for similar variations in costs and cost
structure between freestanding IPFs and hospital-based IPFs. Therefore,
we do not believe it is appropriate at this time to propose stand-alone
market baskets for IRFs, IPFs, and LTCHs, and we believe that it is
appropriate to continue to use the RPL market basket for LTCHs, IRFs,
and IPFs under their respective PPSs.
We continue to believe that the RPL market basket appropriately
reflects the cost structure of LTCHs, for the reasons discussed when we
adopted the RPL market basket for use under the LTCH PPS in the RY 2007
LTCH PPS final rule (71 FR 27810 through 27817). For the reasons
explained above, as we proposed, we are continuing to use the RPL
market basket under the LTCH PPS for FY 2012. However, as discussed in
greater detail in section VII.D. of this preamble, we are finalizing
our proposal to rebase and revise the FY 2002-based RPL market basket
by creating a FY 2008-based RPL market basket. As we discussed in the
FY 2012 IPPS/LTCH PPS proposed rule (76 FR 26006), currently, we are
exploring the viability of creating two separate market baskets from
the current RPL market basket: One market basket would include
freestanding IRFs and freestanding IPFs and would be used to update
payments under both the IPF and IRF payment systems. The other market
basket would be a stand-alone LTCH market basket. Depending on the
outcome of our research, we may propose a stand-alone LTCH market
basket in the next LTCH PPS update cycle.
In that same proposed rule, we invited public comment on the
possibility of using this type of market basket to update LTCH payments
in the future. Under the authority of section 123 of the BBRA as
amended by section 307(b) of the BIPA, we proposed to use the FY 2008-
based RPL market basket (described in section VII.D. of this preamble)
under the LTCH PPS for FY 2012, which we continue to believe
appropriately reflects the cost structure of LTCHs.
Comment: One commenter supported CMS' work to rebase and revise the
market basket used for LTCHs, and asked if it would be possible to
identify separate LTCH market baskets for hospitals-within-hospitals
and freestanding facilities, further stating that CMS mentions there
are cost differences between free standing IPFs and hospital-based IPF
facilities, and also for IRF facilities, but CMS does not make the same
statement for LTCHs. The commenter asked if this is an ongoing item of
study, or if it is CMS' belief that there are no cost differences
between freestanding LTCHs and hospital-within-hospital LTCHs. The
commenter encouraged CMS to consider having a differentiation for
freestanding LTCHs and hospital-within-hospital LTCHs.
Response: The FY 2008-based RPL market basket reflects all LTCH
facilities, including both freestanding LTCHs and hospitals-within-
hospitals. We are continuing to analyze all aspects of a possible
stand-alone LTCH market basket, including the contributions of
hospital-within-hospital LTCHs on such a market basket. Any future
changes to the market basket used to update LTCHs, including the
possible introduction of a LTCH-specific market basket, would be
proposed and subject to notice and comment rulemaking.
Comment: Several commenters supported CMS' work to rebase and
revise the FY 2002-based RPL market basket to a FY 2008-based RPL
market basket. These commenters also stated their support for CMS'
inclusion of LTCH cost reports to develop the FY 2008-based RPL market
basket.
Response: We appreciate the support for this policy. As we
proposed, in this final rule, we are finalizing our proposed methods
for rebasing and revising the RPL market basket to a FY 2008-based RPL
market basket.
d. Productivity Adjustment
Section 1886(m)(3)(A)(i) of the Act specifies that, for FY 2012 and
subsequent years, any annual update to the standard Federal rate shall
be reduced by the productivity adjustment described in section
1886(b)(3)(B)(xi)(II) of the Act. Section 1886(b)(3)(B)(xi)(II) of the
Act, as added by section 3401(a) of the Affordable Care Act, defines
the productivity adjustment as equal to the 10-year moving average of
changes in annual economy-wide, private nonfarm business multifactor
productivity (MFP) (as projected by the Secretary for the 10-year
period ending with the applicable fiscal year, calendar year, cost
reporting

[[Page 51771]]

period, or other annual period) (the ``MFP adjustment''). The Bureau of
Labor Statistics (BLS) is the agency that publishes the official
measure of private non-farm business MFP. We refer readers to the BLS
Web site at http://www.bls.gov/mfp to obtain the BLS historical
published MFP data.
The MFP adjustment that is applied in determining any annual update
to the LTCH PPS standard Federal rate is the same adjustment that is
required to be applied in determining the applicable percentage
increase under the IPPS under section 1886(b)(3)(B)(i) of the Act. As
described in section IV.K.3. of this preamble, we derived the FY 2012
MFP adjustment applied to the operating IPPS applicable percentage
increase using a projection of MFP that is currently produced by IHS
Global Insight, Inc. (IGI). For a detailed description of the model
currently used by IGI to project MFP, as well as a description of how
the MFP adjustment was calculated for FY 2012, we refer readers to
section IV.K.3 of this preamble. We proposed that if more recent data
became subsequently available (for example, a more recent estimate of
the market basket and MFP adjustment), we would use such data, if
appropriate, to determine the FY 2012 market basket update and MFP
adjustment in the final rule. The current estimate of the MFP
adjustment for FY 2012 based on IGI's second quarter 2011 forecast is
1.0 percent. Consistent with the statute, we reduce the FY 2012 market
basket update of the LTCH PPS standard Federal rate using this same FY
2012 MFP adjustment.
To determine the market basket update for LTCHs for FY 2012, as
reduced by the MFP adjustment, consistent with the approach under the
IPPS for FY 2012 (discussed in section IV.K.3. of this preamble), we
subtracted the FY 2012 MFP percentage adjustment from the FY 2012
market basket update. Following application of the productivity
adjustment, the adjusted market basket update (that is, the full market
basket increase less the MFP adjustment) is then reduced by the ``other
adjustment'' as required by sections 1886(m)(3)(A)(ii) and 1886(m)(4)
of the Act. The market basket update for FY 2012, which reflects both
the MFP adjustment and the ``other adjustment'' as required by sections
1886(m)(3)(A)(ii) and 1886(m)(4) of the Act, is described in section
VII.E.2.e. of this preamble.
e. Annual Market Basket Update for LTCHs for FY 2012
Consistent with our historical practice, we estimate the market
basket update based on IGI's forecast using the most recent available
data.For the proposed rule, based on IGI's first quarter 2011 forecast,
the FY 2012 market basket estimate for the LTCH PPS using the FY 2008-
based RPL market basket was 2.8 percent. For this final rule, based on
IGI's second quarter 2011 forecast, the FY 2012 estimate of the FY
2008-based RPL market basket update is 2.9 percent.
Section 1886(m)(3)(A)(i) of the Act specifies that, for FY 2012
(and subsequent years), any annual update to the standard Federal rate
shall be reduced by the productivity adjustment (referred to as ``the
MFP adjustment'') described in section 1886(b)(3)(B)(xi)(II) of the
Act. Furthermore, section 1886(m)(3)(A)(ii) of the Act specifies that,
for each of RYs 2010 through 2019, any annual update to the standard
Federal rate shall be reduced by the other adjustment specified in
section 1886(m)(4) of the Act. Specifically, section 1886(m)(4)(C) of
the Act requires a 0.1 percentage point reduction to the annual update
to the LTCH PPS standard Federal rate for FY 2012.
In accordance with section 1886(m)(3)(A)(i) of the Act, in the FY
2012 IPPS/LTCH PPS proposed rule (76 FR 26006), we proposed to reduce
the FY 2012 full market basket estimate of 2.8 percent (based on the
first quarter 2011 forecast of the FY 2008-based RPL market basket) by
the proposed FY 2012 MFP adjustment (that is, the 10-year moving
average of MFP for the period ending FY 2012, as described in section
VII.E.2.d of the preamble of the proposed rule) of 1.2 percent (based
on IGI's first quarter 2011 forecast). Following application of the
proposed productivity adjustment, the proposed adjusted market basket
update of 1.6 percent (2.8 percent minus 1.2 percentage points) was
then reduced by 0.1 percentage point, as required by sections
1886(m)(3)(A)(ii) and 1886(m)(4)(C) of the Act. Accordingly, in the FY
2012 IPPS/LTCH PPS proposed rule (76 FR 26007), we proposed an annual
market basket update under the LTCH PPS for FY 2012 of 1.5 percent
(that is, the most recent estimate of the proposed LTCH PPS market
basket update of 2.8 percent less the proposed MFP adjustment of 1.2
percentage points less the 0.1 percentage point required under section
1886(m)(4)(C) of the Act. In that same proposed rule, we proposed to
revise Sec. 412.523(c)(3) of the regulations by adding a new paragraph
(viii), which would specify that the standard Federal rate for FY 2012
is the standard Federal rate for the previous long-term care hospital
prospective payment system fiscal year updated by 1.5 percent.
Again, consistent with our historical practice of using the most
recent available data, we proposed that if more recent data became
available when we developed the final rule, we would use such data, if
appropriate, in determining the final market basket update under the
LTCH PPS for FY 2012. Therefore, in this final rule, consistent with
our proposal, we are establishing an annual market basket update under
the LTCH PPS for FY 2012 of 1.8 percent (that is, the most recent
estimate of the LTCH PPS market basket update of 2.9 percent less the
MFP adjustment of 1.0 percentage point less the 0.1 percentage point
required under section 1886(m)(4)(C) of the Act). This is based on
IGI's second quarter 2011 forecast. Consistent with our proposal, we
are revising Sec. 412.523(c)(3) by adding a new paragraph (viii),
which specifies that the standard Federal rate for FY 2012 is the
standard Federal rate for the previous long-term care hospital
prospective payment system fiscal year updated by 1.8 percent.
3. Budget Neutrality Adjustment for the Changes to the Area Wage Level
Adjustment
As described in section V.B. of the Addendum to this final rule,
when the LTCH PPS was implemented, under the authority of section 123
of the BBRA as amended by section 307(b) of the BIPA, we established an
adjustment to the LTCH PPS standard Federal rate to account for
differences in LTCH area wage levels at Sec. 412.525(c). The labor-
related share of the LTCH PPS standard Federal rate is adjusted to
account for geographic differences in area wage levels by applying the
applicable LTCH PPS wage index. The applicable LTCH PPS wage index is
computed using wage data from inpatient acute care hospitals without
regard to reclassification under section 1886(d)(8) or section
1886(d)(10) of the Act. Historically, in general, the LTCH PPS wage
index and labor-related share are updated annually based on the latest
available data. However, there are currently no statutory or regulatory
requirements that state that any updates or adjustments to the LTCH PPS
area wage level adjustment (that is, the wage index or the labor-
related share) be budget neutral, such that estimated aggregate LTCH
PPS payments would be neither greater than nor less than estimated
aggregate LTCH PPS payments without such changes to the area wage level
adjustment.
As we discussed in the August 30, 2002 LTCH PPS final rule (67 FR
56015), when we implemented the

[[Page 51772]]

LTCH PPS, we established a 5-year transition to the full area wage
level adjustment. The area wage level adjustment was completely phased-
in for cost reporting periods beginning in FY 2007. Therefore, for cost
reporting periods beginning on or after October 1, 2006, the applicable
full LTCH PPS wage index values are used to make payments under the
LTCH PPS. As discussed in section VII.D. of this preamble, we are
finalizing our proposal to revise and rebase the market basket used
under the LTCH PPS for FY 2012. We also are finalizing our proposal to
update the labor-related share for FY 2012 based on this market basket.
Concurrent with those proposals, in the FY 2012 IPPS/LTCH PPS proposed
rule (76 FR 26007), we took the opportunity to revisit our approach for
the annual update of the area wage level adjustment. We discussed that,
in order to mitigate estimated yearly fluctuations in estimated
aggregate LTCH PPS payments, as have been suggested in the past, we
have given further consideration to the issue of establishing a budget
neutrality requirement for any changes to the area wage level
adjustment. Therefore, under the broad authority conferred upon the
Secretary under section 123 of the BBRA, as amended by section 307(b)
of the BIPA, to develop the LTCH PPS, we proposed under Sec.
412.525(c) that, beginning with the adjustment for area wage levels for
FY 2012, any changes to the wage index values or labor-related share
would be made in a budget neutral manner such that estimated aggregate
LTCH PPS payments would be unaffected, that is, would be neither
greater than nor less than the estimated aggregate LTCH PPS payments
that would have been made without such changes to the area wage level
adjustment.
Under this proposal, we proposed to determine an area wage level
adjustment budget neutrality factor that would be applied to the
standard Federal rate to ensure that any changes to the area wage level
adjustment would be budget neutral such that any changes to the wage
index values or labor-related share would not result in any change
(increase or decrease) in estimated aggregate LTCH PPS payments. We
also proposed the steps (described below) we would follow to determine
an area wage level adjustment budget neutrality factor that would be
applied to the standard Federal rate that would ensure that the any
update to the wage index values and to the labor-related share would be
adopted in a budget neutral manner. Under this proposal, we proposed to
revise the existing regulations at Sec. 412.523(d) to add a new
paragraph (4) to specify that, beginning in FY 2012, we adjust the
standard Federal rate by a factor that accounts for the estimated
effect of any adjustments or updates to the area wage level adjustment
under Sec. 412.525(c)(1) on estimated aggregate LTCH PPS payments. We
also proposed to revise existing Sec. 412.525(c) to reflect our
current policy of updating the labor-related share annually. (76 FR
26007)
Comment: A few commenters opposed the proposed budget neutrality
requirement for changes to the LTCH PPS area wage adjustment for FY
2012. The commenters believed that CMS had not provided adequate
justification for why such an adjustment is needed now when CMS has not
contemplated one in past years, and requested that CMS provide data to
justify this change in policy.
Response: We do not agree with the commenters that we did not
provide adequate justification for why we are revisiting our approach
for the annual update of the area wage level adjustment at this time.
As we stated in the FY 2102 IPPS/LTCH PPS proposed rule (76 FR 26007),
we believe establishing a budget neutrality requirement for any changes
to the area wage level adjustment would mitigate estimated yearly
fluctuations in estimated aggregate LTCH PPS payments. Each labor
market area's wage index value is calculated as the ratio of that labor
market area's average hourly wage to the national average hourly wage.
The annual update to the wage index is only intended to reflect changes
in hospital labor costs in each geographic labor market area relative
to the change in the national average hospital labor costs for all
areas. Because the area wage adjustment is a measure of relative
hospital labor costs, it is not intended to result in changes
(increases or decreases) in aggregate payments. LTCH payments rates are
updated annually to account for changes in hospital labor costs by the
price growth reflected in the labor-related categories of the
applicable LTCH PPS market basket update. For example, if nationally
each hospital's labor costs increased by 5 percent, although labor
costs have increased, the area wage index (which is the ratio of the
area's average hourly wage to the national average hourly wage) would
not change because the relative measure of the area's labor costs as
compared to the national average labor costs has not changed. In fact,
aggregate payments will increase based on changes to the labor portion
of the market basket. Moreover, a budget neutrality requirement for any
changes to the area wage level adjustment is consistent with our policy
under other hospital PPSs, such as the IPPS, IRF PPS, and IPF PPS. We
note that none of the commenters provided policy or technical
justifications for not budget neutralizing for changes to the LTCH PPS
area wage adjustment.
Therefore, for the reasons stated above, in this final rule, we are
adopting our proposal to establish a budget neutrality requirement for
any changes to the area wage adjustment without modification, beginning
in FY 2012.
We did not receive any public comments on our proposed methodology
(steps) for determining an area wage level adjustment budget neutrality
factor that would be applied to the standard Federal rate. We also did
not receive any public comments on our proposed changes to the
regulations at Sec. 412.523(d) and Sec. 412.525(c) under our area
wage level adjustment budget neutrality proposal. Therefore, as
discussed below, we are adopting these proposals in this final rule.
In this final rule, under the broad authority conferred upon the
Secretary under section 123 of the BBRA, as amended by section 307(b)
of the BIPA, to develop the LTCH PPS, as we proposed, under Sec.
412.525(c)(2), we are establishing a budget neutrality requirement for
any changes to the adjustment for area wage levels, beginning in FY
2012. Under this policy, any changes to the wage index values or labor-
related share will be made in a budget neutral manner such that
estimated aggregate LTCH PPS payments are unaffected, that is, will be
neither greater than nor less than the estimated aggregate LTCH PPS
payments that would have been made without such changes to the area
wage level adjustment. We also are determining under this budget
neutrality requirement, as we proposed, an area wage level adjustment
budget neutrality factor that will be applied to the standard Federal
rate to ensure that any changes to the area wage level adjustment are
budget neutral, such that any changes to the wage index values or
labor-related share will not result in any change (increase or
decrease) in estimated aggregate LTCH PPS payments. As we proposed, we
are revising the existing regulations at Sec. 412.523(d) to add a new
paragraph (4), which specifies that, beginning in FY 2012, we adjust
the standard Federal rate by a factor that accounts for the estimated
effect of any adjustments or updates to the area wage level adjustment
under Sec. 412.525(c)(1) on estimated aggregate LTCH PPS

[[Page 51773]]

payments. In addition, as we proposed, we are revising existing Sec.
412.525(c) to reflect our current policy of updating the labor-related
share annually.
For this final rule, consistent with our proposal, we used the
following methodology to determine an area wage level adjustment budget
neutrality factor that is applied to the standard Federal rate under at
Sec. 412.523(d)(4) for FY 2012 to account for the estimated effect of
any adjustments or updates to the area wage level adjustment under
Sec. 412.525(c)(1) on estimated aggregate LTCH PPS payments:
Step 1--We simulate estimated aggregate LTCH PPS payments
using the FY 2011 wage index values as established in Tables 12A and
12B of the Addendum to the FY 2011 IPPS/LTCH PPS final rule (75 FR
50627 through 50646) and the FY 2011 labor-related share of 75.271
percent as established in the FY 2011 IPPS/LTCH PPS final rule (75 FR
50391 and 50445).
Step 2--We simulate estimated aggregate LTCH PPS payments
using the FY 2012 wage index values as shown in Tables 12A and 12B of
the Addendum to this final rule and the FY 2012 labor-related share of
70.199 percent (based on the latest available data as discussed in
section VII.D.3.f. of this preamble).
Step 3--We calculate the ratio of these estimated total
LTCH PPS payments by dividing the estimated total LTCH PPS payments
using the FY 2011 area wage level adjustments (calculated in Step 1) by
the estimated total LTCH PPS payments using the proposed FY 2012 area
wage level adjustments (calculated in Step 2) to determine the area
wage level adjustment budget neutrality factor.
Step 4--We then apply the FY 2012 area wage level
adjustment budget neutrality factor from Step 3 to determine the FY
2012 LTCH PPS standard Federal rate after the application of the FY
2012 annual update (discussed in section V.A.2. of the Addendum to this
final rule). As explained above, this factor is applied to the FY 2012
standard Federal rate to ensure that the FY 2012 update to the wage
index values and to the labor-related share (discussed in section V.B.
of the Addendum to this final rule) are adopted in a budget neutral
manner.
For this final rule, using the steps in the methodology described
above, we determined a FY 2012 area wage level adjustment budget
neutrality factor of 0.99775. Accordingly, in section V.A.2. of the
Addendum to this final rule, to determine the FY 2012 LTCH PPS standard
Federal rate, we applied an area wage level adjustment budget
neutrality factor of 0.99775, in accordance with Sec. 412.523(d)(4).
Accordingly, the FY 2012 LTCH PPS standard Federal rate shown in Table
1E of the Addendum to this final rule reflects this adjustment.
4. Greater Than 25-Day Average Length of Stay Requirement for LTCHs
Section 1886(d)(1)(B) of the Act lists hospitals that are excluded
from the IPPS. Section 1886(d)(1)(B)(iv) of the Act specifies the
exclusion from the IPPS for ``a hospital which has an average inpatient
length of stay (as determined by the Secretary) of greater than 25
days.'' The average length of stay requirement was established as the
sole prerequisite for a hospital seeking to be excluded from the IPPS
under this provider category. Section 114(a) of the MMSEA of 2007
amended section 1861 of the Act by adding a new subsection (ccc), which
further defined LTCHs. Thus, a hospital's classification as an LTCH has
depended, in large part, upon whether an acute care hospital met the
greater than 25 days average length of stay requirement. Once the
hospital was classified as such under this criterion, the ability for
the hospital to continue its exclusion from the IPPS and be paid as an
LTCH depended, in part, upon its continuing to meet that criterion.
The regulations at 42 CFR 412.23(e)(1) and (e)(2) set forth the
requirements a hospital must meet in order to be excluded from the IPPS
and be paid as an LTCH. Specifically, Sec. 412.23(e)(1) requires that
a hospital must have a provider agreement under 42 CFR Part 489 to
participate as a Medicare hospital, and Sec. 412.23(e)(2) provides
that a hospital must meet the LTCH average length of stay of greater
than 25 days policy. The methodology for calculating the average length
of stay is specified at Sec. 412.23(e)(3). A detailed explanation of
the procedural features of the average length of stay policy was
included in the FY 2003 LTCH PPS final rule, which implemented the LTCH
PPS (67 FR 55970 through 55974)).
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 26008), we
proposed to clarify two existing CMS policies related to the greater
than 25 days average length of stay requirement policy: (1) The
determination of the average length of stay for a hospital seeking
exclusion under the IPPS to be paid as an LTCH or an existing LTCH
undergoes a change of ownership; and (2) the inclusion of Medicare
Advantage days in calculating the average length of stay.
a. Determination of the Average Length of Stay When There Is a Change
of Ownership
Under Sec. 412.23(e)(3)(iv) of the regulations, we implemented a
policy regarding the application of the average length of stay
methodology, where a hospital (that is either seeking LTCH status, or
is an existing LTCH) has undergone a change of ownership. Specifically,
in the event of a change of ownership, the regulation provides:
``If a hospital has undergone a change of ownership (as described
in Sec. 489.18 of this chapter) at the start of a cost reporting
period or at any time within the period of at least 5 months of the
preceding 6-month period, the hospital may be excluded from the
prospective payment system as a long-term care hospital for a cost
reporting period if, for the period of at least 5 months of the 6
months immediately preceding the start of the period (including time
before the change of ownership), the hospital has the required average
length of stay, continuously operated as a hospital, and continuously
participated as a hospital in Medicare.''
Section 412.23(e)(3)(iv) institutes a procedure by which the
average length of stay of a hospital seeking LTCH status or an existing
LTCH is evaluated by its fiscal intermediary or MAC to determine
whether or not the facility that is being sold meets the requirements
for LTCH status. Because the sale of the facility, in effect, ends the
seller's cost reporting period (Sec. 413.24(f)(1)), and triggers the
beginning of the purchaser's first cost reporting period, the period of
time that is evaluated is the ``at least 5 months of the 6 months
immediately preceding the period (including time before the change of
ownership'' to determine the average length of stay that will result in
the hospital that meets the requirements for LTCH status. If the
average length of stay data indicates that, for this period of time,
the hospital met the required average length of stay of greater than 25
days, then the new owner's hospital will achieve IPPS exclusion and
LTCH status. On the other hand, if the data indicate that the hospital
does not meet the required average length of stay, the hospital will
instead be paid under the IPPS under its new ownership. We understand
that there has been some confusion in the provider community regarding
the specific applicability of this regulation to a change of ownership
of an existing LTCH. Accordingly, in the proposed rule, we proposed to
clarify this policy in regulation text by revising Sec.
412.23(e)(3)(iv) to specifically address the circumstance of a hospital
that has not as yet been classified as an LTCH

[[Page 51774]]

and wishes to be classified as an LTCH based on data from the
hospital's discharges occurring both before and after the change of
ownership. Moreover, in an effort to provide greater clarity, we also
proposed to establish a separate provision in the regulations (proposed
paragraph (e)(3)(v) under Sec. 412.23) to directly address LTCH status
where there is a change of ownership of an existing LTCH. The sale of
an existing LTCH, which triggers the beginning of a new cost reporting
period under the new owner (413.24(f)(1)), is a situation where we
believe it is appropriate to review whether the hospital that is being
sold has been functioning as an LTCH, that is, has been treating
patients for on average length of stay of greater than 25 days, before
allowing the new owner to continue to be paid for services provided at
the hospital under the LTCH PPS. Therefore, we proposed that where
there has been a change of ownership of an existing LTCH, the hospital
will continue to be excluded from the inpatient prospective payment
system as a long-term care hospital for the cost reporting period
beginning with the change of ownership only if for the period of at
least 5 months of the 6 months immediately preceding the change of
ownership, the hospital meets the required average length of stay. We
note that, conversely, under this proposed policy, if the hospital
fails to meet the required average length of stay criterion, after this
evaluation, and if it is an acute-care hospital, it will be paid
instead under the IPPS effective with the day of the change of
ownership, that is, the start of the new owner's cost reporting period.
Accordingly, we proposed to clarify our existing policy as
described above by (1) revising existing Sec. 412.23(e)(3)(iv), to
specifically address LTCH status in instances where a hospital is
seeking IPPS exclusion and payment under the LTCH PPS but a change of
ownership has occurred, and (2) proposed to establish a new Sec.
412.23(e)(3)(v) to specifically address the issue of LTCH status for
existing LTCHs undergoing a change of ownership.
Comment: One commenter did not understand the clarification that
CMS proposed, noting that the only distinction between Sec.
412.23(e)(3)(iv) and Sec. 412.23(e)(3)(v) appeared to be a ``new [30
day] notice requirement * * * applicable only to existing LTCHs, but
not to newly qualifying LTCHs.'' This commenter also requested that CMS
resolve an ``inconsistency'' between the preamble language and the
regulation text language regarding the definition of the 5 months of
the 6 months that is to be evaluated. The commenter indicated that the
preamble states that the period in question is ``* * * at least 5
months of the 6 months immediately preceding the change of ownership *
* * '' but the regulation text at Sec. 412.23(e)(3)(v) states ``* * *
at least 5 months of the 6 months immediately preceding the start of
the hospital's next cost reporting period before the change of
ownership * * *.'' Another commenter expressed concern about CMS
recognizing the distinction between the sale of an LTCH that would
trigger the average length of stay review specified in proposed Sec.
412.23(e)(3)(v) and the transfer of an LTCH to a related party that
could take place during a corporate reorganization of an integrated
hospital system.
Response: In response to the commenter's lack of clarity about the
similarities between existing Sec. 412.23(e)(iv) and proposed
Sec. Sec. 412.23(e)(3)(iv) and (e)(3)(v), we emphasize that we have
proposed to clarify existing policy, not to change it. The two ``new''
regulations that we proposed are limited to LTCH changes of ownership
under either of two specific situations: A hospital that is sold prior
to achieving LTCH status (Sec. 412.23(e)(3)(iv)); and the sale of an
existing LTCH (Sec. 412.23(e)(3)(v)). Our goal in proposing this
clarification of our existing LTCH change of ownership policy at Sec.
412.23(e)(iv) was to divide the regulation that was causing confusion
among the provider community because it formerly covered change of
ownership in both situations--LTCHs under development and existing
LTCHs--into two separate regulations. The new regulation at Sec.
412.23(e)(3)(v) cited the already existing requirement for a 30-day
notice to CMS for a hospital undergoing a ``change of ownership or
control, including changes in authorized official(s) or delegated
official(s) * * *'' at Sec. 424.516(e). We included the 30-day notice
because we have been informed by our regional offices that, in the
past, compliance with this 30-day notice requirement by existing LTCHs
that are being sold has been somewhat inconsistent and may not have
been understood to apply to LTCHs. Because of ongoing communication
between the hospital wishing to qualify as a LTCH and CMS when a
hospital is applying to CMS for LTCH status, CMS regional office staff
do not report this to be a problem during the LTCH qualifying period.
However, the notice requirement at Sec. 424.516(e) applies to all
providers and suppliers enrolled in the Medicare program.
We appreciate the commenter bringing to our attention the lack of
conformity between the preamble language and the regulation text at
Sec. 412.23(e)(3)(v) regarding the 5 months of the 6 months period in
question for the evaluation of the average length of stay calculation.
Because, as we note in the preamble, a change of ownership triggers the
start of a new cost reporting period, in order to clarify this
regulation text, in this final rule, we are revising the regulation
text to state ``* * * at least 5 months of the 6 months immediately
preceding the change of ownership.
In response to the commenter who requested that we specify that a
corporate reorganization of an integrated hospital system that includes
an LTCH would not trigger an evaluation of the LTCH's average length of
stay, we note that if a business transaction relating to an LTCH meets
the definition of a change of ownership under Sec. 489.18, it would be
governed by the applicable regulation at Sec. 412.23(e)(3).
After consideration of the public comments we received, we are
finalizing our clarification of our change of ownership policy for
LTCHs at Sec. Sec. 412.23(e)(3)(iv) and (e)(3)(v).
b. Inclusion of Medicare Advantage (MA) Days in the Average Length of
Stay Calculation
With the passage of the Balanced Budget Act of 1997, Medicare
beneficiaries were given the option to receive their Medicare benefits
through private health insurance plans instead of through the original
Medicare plan (Parts A and B). These programs were known as
Medicare+Choice or Part C plans (Section 1851 through 1859 of the Act,
implemented in 42 CFR Part 422). Pursuant to the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003, the compensation and
business practices changed for insurers that offer these plans, and
``Medicare+Choice'' plans became known as Medicare Advantage (MA)
plans.)
When CMS implemented the LTCH PPS beginning in FY 2003, we revised
the then-existing policy for calculating the average length of stay for
LTCHs described at then Sec. 412.23(e)(2)(i). Under the TEFRA payment
system, the average length of stay was determined by ``* * * dividing
the number of total inpatient days * * * by the total discharges for
the hospital's most recent complete cost reporting period * * *''
However, beginning with FY 2003, under the newly implemented LTCH PPS,
the calculation was based on ``dividing the total number of covered

[[Page 51775]]

and noncovered days of stay of Medicare inpatients * * * by the total
Medicare discharges for the hospital's most recent complete cost
reporting period'' (Sec. 412.23(e)(3)(i)). The rationale for this
change, as noted in the preamble to the FY 2003 LTCH PPS final rule, is
that ``LTCHs exist as a provider type in order to treat Medicare
patients requiring complex long-term hospital-level care. We believe
that a hospital's right to qualify for payments under the prospective
payment system for LTCHs should result from the actual provision of
clinically appropriate care to Medicare LTCH patients * * *'' (67 FR
55971).
Although the policy since the start of the LTCH PPS has been for
all LTCH patients being paid for by Medicare to be included in the
average length of stay calculation, until recently, we were unable to
include data for Medicare Advantage (MA) patients in our calculations
because our database did not capture discharge data on claims paid by
an MA plan. (In contrast, patients who still had private insurance as
their primary health coverage and for whom Medicare was a secondary
payer, were included in the calculations because the portion of their
claims covered by Medicare was paid by Part A and was therefore
included in our database.)
On July 20, 2007, we issued Change Request 5647 that required the
submission by hospitals (IPPS, IRFs, and LTCHs) of ``information only''
(not for payment) bills for their MA patients to their fiscal
intermediaries or MACs beginning with FY 2007. The stated goal of
capturing these MA data was that the data were needed for
disproportionate share payments (DSH) under the IPPS, low-income
patient (LIP) payments under the IRF PPS, and for short-stay outlier
(SSO) payments under the LTCH PPS. An additional one-time notification,
Change Request 6821, issued on June 7, 2010, reiterated the
requirements of Change Request 5647 for the reporting of MA days for
DHS and LIP data and also noted ``[i]n addition, this data is used for
other purposes such as determining LTCH short stay outlier payments and
evaluating the greater than 25 days length of stay requirement of
Medicare patients for LTCHs.''
Although the inclusion of MA days in the average length of stay
calculation has been CMS' policy under the LTCH PPS because, at the
outset of the LTCH PPS, we specified that the average length of stay
calculation was based on ``all covered'' and on ``all covered days of
stay of Medicare patients'' (Sec. 412.23(e)(2)), we acknowledge that,
in practice, MA days were not included due to limitations in our
ability to capture the data. We have been informed by some members of
the provider community that it was not their understanding that MA data
should be included in determining a LTCH's average length of stay, and
that, in some cases, the inclusion of these data could substantially
lower their average length of stay, thus threatening their status as
LTCHs. Therefore, in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR
26008 and 26009), we proposed to clarify our existing policy at 42 CFR
412.23(e)(3) on the calculation of the average length of stay to
specify that all data on all Medicare inpatient days, including MA
days, shall be included in the average length of stay calculation.
Comment: A number of commenters urged CMS to establish a specific
effective date for this policy, and one of these commenters requested
that we confirm that the existing ``* * * at least 5 months of the
preceding 6 month'' cure period would still be in effect for an LTCH
failing to meet the average length of stay requirement as a result of
the inclusion of MA days in the average length of stay calculation.
Several commenters challenged CMS' assertion that the inclusion of MA
days was ``clarification of existing policy'' and argued that the
inclusion of MA days in the average length of stay calculation was a
new policy. Therefore, the commenters urged CMS to study the impact on
LTCHs of instituting this ``new policy,'' while instructing Medicare
contractors not to include MA days in the average length of stay
calculation until this evaluation was completed and then, to subject
the policy to notice and comment rulemaking. Several commenters
expressed concern because contracts currently in place between some
LTCHs and managed care organizations limit the LTCH lengths of stay of
beneficiaries who are enrolled in those plans. The inclusion of those
MA days, the commenters feared, would result in a decrease in some
LTCHs' average length of stay, and thereby threatens their LTCH status.
One commenter opposed the inclusion of MA days in the average
length of stay calculation for LTCHs, arguing that the managed care
payment model is radically different than the fee-for-service model
and, therefore, is incompatible with the ``average of greater than 25
day'' length of stay requirement for LTCHs. Because the inclusion of
such days in the average length of stay calculation could negatively
impact LTCH status, the commenter warned that inclusion of MA days
could lead to some LTCHs denying care to beneficiaries who have elected
to enroll in MA plans.
Response: While we understand the commenters' concern about the
impact of counting MA days in an LTCHs' average length of stay
calculation, we reassert that the inclusion of such days has been
contemplated since the establishment of the LTCH PPS (67 FR 55970
through 55975) and delayed only by previous technical limitations on
CMS' ability to obtain the MA data. Our regulations at Sec.
412.23(e)(2)(i) specify that the average length of stay calculation is
based on ``* * * all covered and noncovered days of stay of Medicare
patients * * *. '' ``All covered and noncovered days of stay of
Medicare patients'' includes the days of stay of Medicare managed care
patients. Additionally, as noted in this preamble, on July 20, 2007, in
Change Request 5647, we required the submission of data on MA patients
by hospitals (IPPS hospitals, IRFs, and LTCHs), and on June 7, 2010, in
Change Request 6821, we reiterated this requirement while also
specifying that the data would be used for ``* * * evaluating the
greater than 25 days length of stay requirement of Medicare patients
for LTCHs.'' The inclusion of MA days in the LTCH average length of
stay requirement is not a new policy, but rather the implementation of
a long-stated step that is now technically feasible for the Medicare
program. We had determined that it was appropriate to discuss this
issue as a ``clarification'' in the FY 2012 IPPS/LTCH PPS proposed
rule, and solicited public comments because it was brought to our
attention that the above noted change requests had resulted in some
confusion in the provider community. We also understand the concern
that several of the commenters have about the impact that the shorter
lengths of stay negotiated by managed care organizations could have on
retaining LTCH status. Therefore, we are finalizing the clarification
of our policy with an effective date for the inclusion of MA days in
the average length of stay calculation for LTCH cost reporting periods
beginning on or after January 1, 2012. We also are instructing our
contractors not to remove LTCH designation from any LTCH based on the
fact that it fails to meet the average length of stay requirement
solely due to the inclusion of MA days in its average length of stay
calculation until cost reporting periods beginning on or after January
1, 2012. In response to the commenter's concern, we also are confirming
our longstanding policy

[[Page 51776]]

regarding the evaluation of data from ``* * * at least 5 months of the
preceding 6 month'' ``cure'' period for an LTCH that fails to meet the
average length of stay requirement. Therefore, even after January 1,
2012, a hospital will be able to maintain its LTCH status if it has a
greater than 25-day average length of stay (including MA days) for at
least 5 months of the 6 months prior to the beginning of the cost
reporting period when it would lose its LTCH status if it did not meet
the average length of stay requirement.
In response to the commenter who objected to the inclusion of data
from beneficiaries who elected to enroll in managed care plans rather
than traditional Medicare in the average length of stay calculation,
arguing that the MA model is not compatible with the average length of
stay policy, which is based on a fee-for-service payment model, we note
that Medicare Advantage (as Medicare + Choice) is a statutory creation
(section 1851 through 1859 of the Act) for payment for services
provided to Medicare patients. The exclusion of LTCHs from the IPPS as
acute care hospitals for patients with ``* * *an average inpatient
length of stay (as determined by the Secretary) of greater than 25 days
(section 1886(d)(1)(B)(iv) of the Act) is a description of a hospital
treating long length of stay patients. By regulation, we have
prescribed that the test is based on Medicare patients rather than all
of the hospital's patients. Congressional action could mandate a
determination that MA patients should not be included. However, thus
far, although Congress has addressed the LTCH PPS, it has not addressed
the exclusion of MA days from the greater than 25-day average length of
stay determination. Finally, our experience in meeting with LTCH trade
associations, the medical and administrative leadership of LTCHs, and
our site visits to numerous LTCHs, as well as our recent data on LTCH
inpatient censuses, do not confirm the commenter's warnings about
reduced MA patient access to LTCHs that will result should MA patient
days be included in the average length of stay calculation.
After consideration of the public comments we received, we are
finalizing our proposed clarification but with an effective date for
inclusion of MA days in the average length of stay calculation for LTCH
cost reporting periods beginning on or after January 1, 2012.

F. Application of LTCH Moratorium on the Increase in Beds at Section
114(d)(1)(B) of Public Law 110-173 (MMSEA) to LTCHs and LTCH Satellite
Facilities Established or Classified as Such Under Section 114(d)(2) of
Public Law 110-173

Under section 114(d) of the Medicare, Medicaid, and SCHIP Extension
Act of 2007 (MMSEA) (Pub. L. 110-173), Congress established one
moratorium on the establishment or classification of new LTCHs and LTCH
satellite facilities and a second moratorium on the increase in the
number of LTCH beds in ``existing hospitals and satellite facilities.''
This section 114(d) provision was amended by section 4302(b) of the
American Recovery and Reinvestment Act of 2009 (ARRA) (Pub. L. 111-5)
and implemented in interim final rules issued in the Federal Register
on May 22, 2008, and August 27, 2009 (73 FR 29704 through 29707 and 74
FR 43990 through 43992, respectively), and finalized in the FY 2010 and
FY 2011 IPPS/LTCH PPS final rules (74 FR 43985 through 43990 and 75 FR
50397 through 50399, respectively). With the passage of the Affordable
Care Act on March 23, 2010, these moratoria were extended under
sections 3016 and 10312 for an additional 2 years, through December 29,
2012. The extension was implemented in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50400).
Specific exceptions to each moratorium are included in the statute
and permit both the continued establishment or classification of an
LTCH or LTCH satellite facility and an increase in LTCH beds at a
statutorily defined ``existing'' hospital or satellite facility,
respectively. Under section 114(d)(2) of the MMSEA, as of December 29,
2007, the preclusion on the establishment or classification of a new
LTCH or LTCH satellite facility as of December 29, 2007, would not
apply if the hospital met one of the following three exceptions:
The LTCH began its qualifying period for payment as a LTCH
under 42 CFR 412.23(e) on or before the date of enactment of the MMSEA
(section 114(d)(2)(A));
The LTCH has a binding written agreement with an outside,
unrelated party for the actual construction, renovation, lease, or
demolition for a LTCH and had expended before December 29, 2007, at
least 10 percent of the estimated cost of the project or, if less, $2.5
million (section 114(d)(2)(B)); or
The LTCH has obtained an approved certificate of need
(CON) in a State where one is required on or before December 29, 2007
(section 114(d)(2)(C)).
Section 114(d)(3) of the MMSEA, as originally enacted, provided an
exception to the moratorium on an increase in beds at an existing LTCH
or LTCH satellite facility, if an existing LTCH or satellite facility
is located in a State where there is only one other LTCH; and the LTCH
or satellite facility requests an increase in beds following the
closure or decrease in the number of beds of another LTCH in the State.
Section 4302(b) of the ARRA amended this MMSEA provision to specify an
additional exception to the moratorium on the increase in bed number if
the hospital or facility obtained a certificate of need for an increase
in beds that is in a State for which such certificate of need is
required and that the CON was issued on or after April 1, 2005, and
before December 29, 2007.
In implementing these two moratorium provisions, we required that
each hospital or entity submit details of its individual circumstance
for evaluation by CMS regional offices and contractors in order to
determine whether a specific statutory exception was applicable to the
particular situation (74 FR 43985 through 43990). We note that, based
upon these exceptions (73 FR 29707), CMS records indicate that, as of
January 1, 2011, 50 new LTCHs and 8 new LTCH satellites have been
established or classified after December 29, 2007, the date MMSEA was
enacted. (Data on additional beds developed in existing LTCHs and LTCH
satellite facilities under the CON exception provided by section
4302(b) of the ARRA are maintained by States.)
Sections 3106 and 10312 of the Affordable Care Act provided a 2-
year extension of both moratoria initially established by section
114(d)(1) of the MMSEA (which provided for an original 3-year
application), indicating that Congress continues to believe that it is
appropriate to continue to stem the increase in the number of LTCHs and
LTCH satellite facilities and LTCH beds.
As noted above, section 114(d)(1)(B) of the MMSEA established a
moratorium on the increase of LTCH beds in existing LTCHs or satellite
facilities. Section 114(d)(4) of the MMSEA defines ``an existing
hospital or satellite facility'' as a hospital or satellite facility
that received payment under the LTCH PPS as of December 29, 2007, the
date of enactment of the MMSEA. By definition, LTCHs or satellite
facilities that were established or classified as such under an
exception at section 114(d)(2) to the moratorium under section
114(d)(1)(A) first received payments under the LTCH PPS after

[[Page 51777]]

December 29, 2007, and therefore, would not fall under the definition
of ``an existing hospital or satellite facility'' to whom the
moratorium on the increase in bed numbers at section 114(d)(1)(B)
applies. However, we do not believe that it was Congress' intent to
allow this subset of hospitals and satellite facilities established or
classified after the enactment of MMSEA unlimited bed growth and
expansion. In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 26010), we
noted that continued Congressional concern regarding the increase in
the number of LTCHs and satellite facilities and LTCH beds is indicated
in the 2-year extension of the moratorium provided by sections 3106 and
10312 of the Affordable Care Act.
Section 123 of the Medicare, Medicaid, and SCHIP [State Children's
Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA
of 1999) (Pub. L. 106-113), as amended by section 307 (b) of the
Medicare, Medicaid, and SCHIP [State Children's Health Insurance
Program] Benefits Improvement and Protection Act of 2000 (BIPA) (Pub.
L. 106-554), confers upon the Secretary discretion in creating the LTCH
PPS as the payment system for LTCHs beginning in FY 2003. Furthermore,
the Secretary has authority, under the general rulemaking authority of
sections 1102(a) and 1871(a) of the Act, to establish rules and
regulations as necessary to administer the Medicare program and for the
efficient administration of the Medicare program. Consistent with these
authorities, therefore, in the FY 2012 IPPS/LTCH PPS proposed rule (76
FR 26010), we proposed that, effective October 1, 2011, the moratorium
established under section 114(d)(1)(B) of the MMSEA, and implemented at
42 CFR 412.23(e)(7) be applied to those LTCHs and LTCH satellite
facilities established or classified as such pursuant to the exceptions
at section 114(d)(2) to the moratorium specified under section
114(d)(1)(B) of the MMSEA, as implemented at 42 CFR 412.23(e)(6).
Specifically, we proposed to limit the number of beds in these
facilities to the number of beds that were certified by Medicare at the
LTCH or satellite facility when it was first paid under the LTCH PPS.
We proposed to amend Sec. 412.23 by adding a new paragraph (e)(8) to
specify this policy. We believe that this policy captures the essence
of the original statutory moratoria and the subsequent extension of the
moratoria for an additional 2 years--which was to limit growth in the
number of LTCHs and LTCH satellite facilities and LTCH beds payable
under Medicare--while recognizing the inherent fairness in allowing
those projects already underway that represented substantial
investment, planning, and State commitment to be completed.
Comment: One commenter supported CMS' position on extending the
moratorium on increasing the number of beds in ``existing'' LTCHs to
those LTCHs and satellites established pursuant to exceptions provided
in the statute.
Response: We appreciate the commenter's support for the proposed
policy.
Comment: Three commenters urged CMS not to implement the extension
of the moratorium to ``new'' LTCHs and LTCH satellites. These
commenters noted that had Congress wished to extend the original
moratorium on an increase in the number of beds in existing LTCHs and
LTCH satellites that was first promulgated in MMSEA to LTCHs and LTCH
satellites that had been established under one of the exceptions to the
moratorium on the establishment of new LTCHs and LTCH satellites,
Congress could have utilized either the ARRA or the Affordable Care Act
for such a purpose. One of the commenters cited a longstanding Supreme
Court decision (Chevron U.S.A. v. NRDC, 467 U.S. 837, 842-843 (1984))
which established the standard for determining the validity of
regulatory provisions. The commenter stated that under Chevron's two-
pronged test: (1) if it is determined that Congress has directly spoken
to ``* * * the precise question at issue'' then ``* * * we must give
effect to the unambiguously expressed intent of Congress;'' but (2) if
the statute is ``silent or ambiguous with respect to the specific
issue'' it need only be asked whether the regulation is ``based on a
permissible construction of the statute.'' This commenter argued that
because the MMSEA specified that the moratorium on bed increases
applied to ``existing LTCHs and satellites,'' the extension of the
moratorium by CMS to LTCHs and LTCH satellites that did not exist at
the time of the legislation but were established under an exception,
would be a violation of the Chevron Court decision.
Response: We do not agree that the failure to include a specific
extension of the moratorium on bed increases to those LTCHs and LTCH
satellite facilities originally excepted from the moratoria established
under the MMSEA (new LTCHs and LTCH satellite facilities) in either the
ARRA or the Affordable Care Act indicates that Congress intended to
allow such LTCHs and LTCH satellite facilities unlimited authority to
expand their bed numbers while restricting the growth of ``existing''
LTCHs. We also disagree with the commenters' arguments that the statute
precisely answers the question at issue. We believe the discussion
above describing our understanding of Congress' intent as well as the
law governing the authorities for creating the LTCH PPS and the
authorities to establish rules and regulations as necessary to
administer the Medicare program and for the efficient administration of
the Medicare program provide an appropriate and sufficient basis for
the agency to finalize this policy as proposed. Moreover, we emphasize
that, in finalizing this policy as proposed, we do not believe that it
was Congress' intent to allow the one subgroup of LTCHs and LTCH
satellite facilities established after the enactment of the MMSEA
unlimited bed growth and expansion, particularly while extending both
of the moratoria applicable to ``existing'' LTCHs and LTCH satellite
facilities an additional 2 years in sections 3106 and 10312 of the
Affordable Care Act.
Comment: One commenter requested that, if CMS finalizes the
proposed policy, ``a specific exclusion'' be applied to any ``new''
LTCH that had increased its bed capacity beyond the number of beds that
were certified by Medicare when it was first paid under the LTCH PPS.
Response: We agree with the commenter that it is possible that some
``new'' LTCHs have already increased their bed numbers beyond those
that existed when they were first certified by Medicare and paid under
the LTCH PPS. In consideration of this possibility, we are revising the
proposed regulation text at Sec. 412.23(e)(8) that we are adopting as
final to indicate that the moratorium on increases in bed numbers for
LTCHs and LTCH satellites that were established under one of the
exceptions to the moratorium applies to the number of beds at the LTCH
as of October 1, 2011.
After consideration of the public comments we received, in this
final rule, we are adopting our proposed addition of new Sec.
412.23(e)(8) with the modification noted above. That is, we are
specifying that effective October 1, 2011 and ending December 28, 2012,
the moratorium established under section 114(d)(1)(B) of the MMSEA, and
implemented at 42 CFR 412.23(e)(7) will be applied to those LTCHs and
LTCH satellite facilities established or classified as such pursuant to
the exceptions at section 114(d)(2) to the

[[Page 51778]]

moratorium specified under section 114(d)(1)(B) of the MMSEA, as
implemented at Sec. 412.23(e)(6). Specifically, we are modifying the
language to limit the number of beds in these facilities to the number
of beds to those ``that were certified by Medicare at the LTCH or
satellite facility as of October 1, 2011'' to replace the proposed
language of the ``initial number of Medicare certified beds established
under paragraph (e)(6)(ii). * * *''.

VIII. MedPAC Recommendations

Under section 1886(e)(4)(B) of the Act, the Secretary must consider
MedPAC's recommendations regarding hospital inpatient payments. Under
section 1886(e)(5) of the Act, the Secretary must publish in the annual
proposed and final IPPS rules the Secretary's recommendations regarding
MedPAC's recommendations. We have reviewed MedPAC's March 2011 ``Report
to the Congress: Medicare Payment Policy'' and have given the
recommendations in the report consideration in conjunction with the
policies set forth in this final rule. MedPAC recommendations for the
IPPS for FY 2012 are addressed in Appendix B to this final rule.
For further information relating specifically to the MedPAC reports
or to obtain a copy of the reports, contact MedPAC at (202) 653-7226,
or visit MedPAC's Web site at: http://www.medpac.gov.

IX. Other Required Information

A. Requests for Data From the Public

In order to respond promptly to public requests for data related to
the prospective payment system, we have established a process under
which commenters can gain access to raw data on an expedited basis.
Generally, the data are now available on compact disc (CD) format.
However, many of the files are available on the Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS. We listed the data files and the
cost for each file, if applicable, in the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 26010 through 26012).
Commenters interested in discussing any data used in constructing
this proposed rule should contact Nisha Bhat at (410) 786-5320.

B. Collection of Information Requirements

1. Statutory Requirement for Solicitation of Comments
Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 226012 through
26015), we solicited public comment on each of these issues for the
following sections of this document that contain information collection
requirements (ICRs). We discuss and respond to any public comments we
received in each individual section.
2. ICRs for Add-On Payments for New Services and Technologies
Section II.I.1. of the preamble of the proposed rule and this final
rule discusses add-on payments for new services and technologies.
Specifically, this section states that applicants for add-on payments
for new medical services or technologies for FY 2012 must submit a
formal request. A formal request includes a full description of the
clinical applications of the medical service or technology and the
results of any clinical evaluations demonstrating that the new medical
service or technology represents a substantial clinical improvement. In
addition, the request must contain a significant sample of the data to
demonstrate that the medical service or technology meets the high-cost
threshold. We detailed the burden associated with this requirement in
the September 7, 2001, IPPS final rule (66 FR 46902). As stated in that
final rule, collection of the information for this requirement is
conducted on an individual case-by-case basis. We believe the
associated burden is thereby exempt from the PRA as stipulated under 5
CFR 1320.3(h)(6). Similarly, we also believe the burden associated with
this requirement is exempt from the PRA under 5 CFR 1320.3(c), which
defines the agency collection of information subject to the
requirements of the PRA as information collection imposed on 10 or more
persons within any 12-month period. This information collection does
not impact 10 or more entities in a 12-month period. In FYs 2008, 2009,
2010, 2011, and 2012, we received 1, 4, 5, 3, and 3 applications,
respectively.
We did not receive any public comments regarding these information
collections.
3. ICRs for the Hospital Inpatient Quality Reporting (IQR) Program
The Hospital Inpatient Quality Reporting (IQR) Program (formerly
referred to as the Reporting Hospital Quality Data for Annual Payment
(RHQDAPU) Program) was originally established to implement section
501(b) of the MMA, Public Law 108-173. This Program expanded our
voluntary Hospital Quality Initiative. The Hospital IQR Program
originally consisted of a ``starter set'' of 10 quality measures. The
collection of information associated with the original starter set of
quality measures was previously approved under OMB control number 0938-
0918. We are currently seeking reinstatement of the information
collection and will publish the required 60-day and 30-day notices in
the Federal Register to solicit public comments.
We added additional quality measures to the Hospital IQR Program
and submitted the information collection request to OMB for approval.
This expansion of the Hospital IQR measures was part of our
implementation of section 5001(a) of the DRA. New section
1886(b)(3)(B)(viii)(III) of the Act, added by section 5001(a) of the
DRA, requires that the Secretary expand the ``starter set'' of 10
quality measures that were established by the Secretary as of November
1, 2003, to include measures ``that the Secretary determines to be
appropriate for the measurement of the quality of care furnished by
hospitals in inpatient settings.'' The burden associated with these
reporting requirements was previously approved under OMB control number
0938-1022. We are currently seeking reinstatement of the information
collection and will publish the required 60-day and 30-day notices in
the Federal Register to solicit public comments.is currently approved
under OMB control number 0938-1022.
For the FY 2014 and FY 2015 payment updates, we intend to seek OMB
approval for a revised information collection request using the same
OMB control number (0938-1022). In the revised request, we will add
five measures that we adopted in the FY 2011 IPPS/LTCH PPS final rule
(four chart-abstracted measures and an HAI measure (Surgical Site
Infection (SSI)) to be collected via NSHN for the FY 2014 payment
determination. In addition, we

[[Page 51779]]

are adding one HAI measure (CAUTI) also to be collected via NHSN, one
structural measure and one claims-based measure that we are adopting in
this final rule for the FY 2014 payment determination. We estimate that
the changes to our FY 2014 payment determination measure set will
increase the collection burden on hospitals by approximately 3,260,175
hours per year. Because the currently approved CDC information
collection request for the NHSN (OCN: 0920-0666) does not include all
of the respondents associated with the Hospital IQR Program, we intend
to request a separate OMB control number for the measures to be
collected via the NHSN.
With respect to the four new chart-abstracted measures for the FY
2014 payment determination, hospitals will be required to submit data
on patients who receive inpatient acute care hospital services.
Specifically, with respect to the two EDT measures and two Global
Immunization measures, hospitals will need to collect information on
patients who receive inpatient acute care hospital services regarding
EDT, as well as influenza and pneumonia vaccination information for all
inpatients for which hospitals currently collect only for patients
admitted for pneumonia. We estimate that hospitals will incur an
additional 3,500,000 burden hours resulting from the addition of these
four measures for the FY 2014 payment determination. We estimate that
hospitals will submit approximately 3,500,000 cases annually for these
4 measures, and the information needed to calculate these measures
requires an average of 1 hour to abstract from medical records for each
case.
The HAI measure (Surgical Site Infection (SSI)) that we added in
the FY 2011 IPPS/LTCH PPS final rule for the FY 2014 payment
determination and the HAI measure that we are adding in this final rule
for the FY 2014 payment determination (CAUTI) are structured to keep
additional burden to a minimum because they are to be collected via
NHSN. More than 4,000 hospitals in 29 States are already using NHSN to
comply with State-mandated reporting. Although these HAI measures will
add burden for hospitals, we believe that the additional burden will be
lessened because hospitals will already be using NHSN to report the
CLABSI measure for the FY 2013 payment determination. In addition, as
mentioned above, not all hospitals will experience any additional
burden because many hospitals already submit data to this system either
voluntarily or as part of mandatory State reporting requirements for
HAIs. The burden associated with these requirements is the time and
effort associated with collecting and submitting the additional data.
We estimate that hospitals will need about 500,000 additional hours to
report Surgical Site Infection (SSI), and CAUTI event data and
denominator information into the system.
The structural measure we are adding for the FY 2014 payment
determination will require hospitals to indicate whether they are
participating in a systematic qualified clinical database for registry
for General Surgery and, if so, to identify the registry. We estimate
that 3,500 hospitals will spend about 5 minutes each to answer this
question each year, resulting in an estimated total increase of 175
hours in terms of the total burden to hospitals each year.
We also are adding one new claims-based measure for the FY 2014
payment determination. We do not believe that this claims-based measure
will create any additional burden for hospitals because it will be
collected and calculated by CMS based on the Medicare FFS claims the
hospitals have already submitted to CMS.
We believe that the overall burden on hospitals will be reduced to
some extent by the policy we finalized in the FY 2011 IPPS/LTCH PPS
final rule to retire two measures (PN-2 and PN-7) beginning with the FY
2014 payment determination. Burden will be further reduced because, in
this final rule, beginning with the FY 2014 payment determination, we
are retiring or suspending data collection for eight additional
measures (AMI-1 Aspirin at Arrival, AMI-3 ACE/ARB, AMI-4 Smoking
Cessation, AMI-5 Beta-Blocker at Discharge, HF-4 Smoking Cessation, PN-
4 Smoking Cessation, PN-5c Antibiotic within 6 Hours of Arrival and
SCIP Inf-6 Appropriate Hair Removal), beginning with discharges
occurring on January 1, 2012. We estimate that the retirement or
suspension of these measures will reduce the burden to hospitals by a
total of 740,000 hours including reductions of 170,000 hours for
abstracting AMI measures, 220,000 hours for abstracting PN measures,
50,000 hours for abstracting HF measures, and 300,000 hours for
abstracting SCIP measures.
We also are adding two new chart-abstracted measure sets to the
Hospital IQR Program for FY 2015: Stroke (eight measures) and Venous
Thromboembolism (VTE) (six measures). Both measure sets are of great
importance to the Medicare population, with stroke affecting about
795,000 people each year (American Stroke Association). Both stroke and
VTE measures are currently collected by The Joint Commission for
accreditation and certification purposes. Both measure sets use
complementary data elements to our current SCIP, VTE, and AMI measure
sets, thus reducing the chart-abstraction burden. The burden associated
with these measure sets is the time and effort associated with
collecting and submitting the additional data. We estimate that each
chart-abstracted measure set will require about 1 hour to abstract. We
anticipate the number of subsection (d) hospitals participating in the
Hospital IQR Program to be approximately 3,500. The number of charts to
be abstracted by all participating hospitals is estimated to be 180,000
per year for the Stroke measure set, and 6,000,000 per year for the VTE
measure set. In total, our addition of the Stroke and VTE measure sets
is estimated to increase the burden to hospitals by 6,180,000 hours per
year.
We also are adding three new HAI measures to be collected via NHSN
to the Hospital IQR Program for FY 2015: (1) Methicillin-resistant
Staphylococcus aureus (MRSA) Bacteremia measure; (2) C. Difficile SIR
measure; and (3) Healthcare Personnel Influenza vaccination measure.
The information needed for these measures will be collected via NHSN,
and, therefore, is structured to keep additional burden to a minimum
because more than 4,000 hospitals in 29 States are already using NHSN
to comply with State-mandated reporting. Although this will add burden
to hospitals, the initial setup and acclimation to the NHSN system will
have already occurred with the adoption of the CLABSI measure for the
Hospital IQR Program for the FY 2013 payment determination. In
addition, as mentioned above, not all hospitals will experience any
additional burden since many hospitals already submit data to this
system either voluntarily or as part of mandatory State reporting
requirements for HAIs. The burden associated with this section is the
time and effort associated with collecting and submitting the
additional data. With respect to the new HAI measures for the FY 2015
payment determination, we estimate that an additional 1,500,000 burden
hours per year (500,000 hours per measure) will be incurred by
hospitals to report data on these measures.
We estimate that our changes to the FY 2015 Hospital IQR Program
measure set will increase the collection burden to hospitals by
approximately 7,680,000 hours per year.
We have stated our intention to explore mechanisms for data
submission using electronic health

[[Page 51780]]

records (EHRs) (73 FR 48614; 74 FR 43866, 43892; 75 FR 50189).
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
capturing, formatting, and transmitting the 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 Hospital IQR Program measure set with less cost
and burden to hospitals. We believe that automatic collection and
reporting of data through EHRs will greatly simplify and streamline
reporting for various CMS quality reporting programs, and that at a
future date, currently targeted to be FY 2015, hospitals will be able
to switch solely to EHR-based reporting of data that are currently
manually chart-abstracted and submitted to CMS for the Hospital IQR
Program.
4. ICRs for the Occupational Mix Adjustment to the FY 2012 Index
(Hospital Wage Index Occupational Mix Survey)
Section II.D. of the preamble of the proposed rule and this final
rule discusses the occupational mix adjustment to the final FY 2012
wage index. While the preamble does not contain any new ICRs, it is
important to note that there is an OMB approved information collection
request associated with the hospital wage index.
Section 304(c) of Public Law 106-554 amended section 1886(d)(3)(E)
of the Act to require CMS to collect data at least once every 3 years
on the occupational mix of employees for each short-term, acute care
hospital participating in the Medicare program in order to construct an
occupational mix adjustment to the wage index. We collect the data via
the occupational mix survey.
The burden associated with this information collection requirement
is the time and effort required to collect and submit the data in the
Hospital Wage Index Occupational Mix Survey to CMS. The aforementioned
burden is subject to the PRA; however, it is currently approved under
OMB control number 0938-0907, with an expiration date of February 28,
2013.
5. Hospital Applications for Geographic Reclassifications by the MGCRB
Section III.I.3. of the preamble of the proposed rule and this
final rule discusses revisions to the wage index based on hospital
redesignations. As stated in that section, under section 1886(d)(10) of
the Act, the MGCRB has the authority to accept short-term IPPS hospital
applications requesting geographic reclassification for wage index or
standardized payment amounts and to issue decisions on these requests
by hospitals for geographic reclassification for purposes of payment
under the IPPS.
The burden associated with this application process is the time and
effort necessary for an IPPS hospital to complete and submit an
application for reclassification to the MGCRB. While this requirement
is subject to the PRA, the associated burden is currently approved
under OMB control number 0938-0573, with an expiration date of December
31, 2011.
We did not receive any public comments on this information
collection requirement.
6. ICRs for the Quality Reporting Program for LTCHs
In section VII.C. of the preamble of the proposed rule and this
final rule, we discuss three quality reporting measures for LTCHs for
FY 2014: (1) Catheter Associated Urinary Tract Infections (CAUTI); (2)
Central Line Associated Blood Stream Infection Event (CLABSI); and (3)
Pressure Ulcers that are New or Have Worsened.
As proposed, we will collect the HAI CLABSI and CAUTI quality
measures through the use of the CDC/NHSN (http://www.cdc.gov/nhsn/). We
will require that LTCH facilities report data on each patient in their
facility who has been diagnosed with either a catheter associated
urinary tract infection or a central line associated bloodstream
infection.
The NHSN is a secure, Internet-based surveillance system which is
maintained and managed by CDC. Many LTCHs already submit data to the
NHSN either voluntarily or as part of mandatory State reporting
requirements for HAIs. There are currently 439 certified LTCHs and,
according to CDC, 80 of these LTCHs already submit HAI data to NHSN.
For these LTCHs, the burden of complying with the requirements of the
quality reporting program will be reduced because these LTCHs are
familiar with the NHSN submission process.
We provide financial incentives to IPPS hospitals to report data
regarding certain HAIs via NHSN as part of the Hospital IQR Program. We
adopted the CLABSI quality measure under the Hospital IQR Program for
the FY 2013 payment determination and are adopting the CAUTI measure
for the FY 2014 payment determination. In addition, hospitals in 29
States are already using NHSN, and CDC supports more than 4,000
hospitals that are already using NHSN. Many LTCHs are integrated into
or are part of large inpatient hospital systems. We believe that these
hospital systems have gained the requisite knowledge and experience
with the submission of data about HAIs via NHSN, under the Hospital IQR
Program, State law, or voluntarily. Therefore, the transition to
reporting HAIs via the NHSN for these LTCHs may be less burdensome.
The burden associated with these quality measures is the time and
effort associated with collecting and submitting the data concerning
CAUTI and CLABSI to NHSN for LTCHs that are not currently reporting
such data. During the 12-month period from April 2010 to March 2011, 58
LTCHs reported CLABSI for at least one month, and the same number
reported CAUTI for at least one month. For LTCHs that already submit
data regarding these HAIs to NHSN, there should be little, if any,
additional burden. For LTCHs who submit data to NHSN for other HAIs,
but not CAUTI and CLABSI data, there may be some burden. However, we
believe that this burden will be significantly decreased because these
LTCHs are already enrolled in the NHSN system and are already familiar
with the NHSN data submission process.
There are currently 435 LTCHs in the United States paid under the
LTCH PPS. We estimate that each LTCH will submit approximately 12 NHSN
submissions (6 CAUTI and 6 CLABSI) per month (144 per LTCH annually).
This equates to a total of approximately 62,640 submissions of HAI data
to NHSN from all LTCHs paid under the LTCH PPS per year. We estimate
that each NHSN assessment will take approximately 25 minutes to
complete. This time estimate consists of 10 minutes of clinical (for
example, nursing time) needed to collect the clinical data and 15
minutes of clerical time necessary to enter the data into the NHSN data
base. Based on this estimate, we expect each LTCH will expend 300
minutes (5 hours) per month and 60 hours per year reporting to NHSN.
Therefore, the total estimated annual hourly burden to all LTCHs paid
under the LTCH PPS for reporting to NHSN is 26,100 hours. The estimated
cost per submission is estimated at $12.07. These costs are estimated
using an hourly wage for a Registered Nurse of $41.59 and a Medical
Billing Clerk/Data Entry person of $20.57 (U.S. Bureau of Labor
Statistics data). Therefore, we estimate that the annual cost per each
LTCH provider will be $1,739 and the total yearly cost to all LTCHs
paid under the LTCH PPS for the

[[Page 51781]]

submission of CAUTI and CLABSI data to NHSN would be $756,326.\71\ The
aforementioned requirements are subject to the PRA and the associated
burden hours will be accounted for in a revision to the information
collection request currently approved as OCN 0920-0666.
---------------------------------------------------------------------------

\71\ Nursing Time--24 hours @ $41.59 per hour = $998.16; $998.16
x 435 LTCHs = $434,200.
Admin Time--36 hours @ $20.57 per hour = $740.52; $740.52 x 435
LTCHs = $322,126.
TOTAL = $434,200 + $322,126 = $756,326.
---------------------------------------------------------------------------

With respect to the pressure ulcer measure, we will post the
specification for the pressure ulcer measure on our Web site along with
the specific data elements necessary to be collected by no later than
January 31, 2012. We expect that the specific data items needed are
part of the Continuity Assessment Record & Evaluation (CARE) data item
set. We developed the CARE as required by section 5008 of the Deficit
Reduction Act of 2005. In 2011, CARE underwent revisions. The revised
CARE data item set now consists of a compilation of items from a
comprehensive CMS standardized item library. The revised Medicare CARE
data item set is intended to be used to: (1) Standardize program
information on Medicare beneficiaries' acuity at discharge from acute
hospitals, (2) document medical severity, functional status and other
factors related to outcomes and resource utilization at admission,
discharge, and interim times during post acute treatment, (3)
understand the relationship between severity of illness, functional
status, social support factors, and resource utilization; and (4)
report quality measure data to CMS.
Because the CMS CARE pressure ulcer data item set has not
previously been introduced in the LTCH setting, there will be some
initial burdens associated with the introduction of this data item set.
These initial costs will mainly be incurred in the training of the
facility staff. However, there should be little, if any, additional
education required, in regards to the collection of the data, because
pressure ulcer assessment should be a vital part of good patient care
and daily in-house patient chart documentation.
LTCHs participating in the LTCH Quality Reporting Program will be
required to perform the CARE pressure ulcer assessment on each patient
upon admission and again upon discharge. We believe that it is
necessary to obtain admission and discharge pressure ulcer assessments
on all patients admitted to LTCH facilities in order to obtain full and
complete statistical data regarding the quality of care provided by the
facility to the patients receiving care in that facility. The delivery
of high quality care in the LTCH setting is imperative. We believe that
collecting quality data on all patients in the LTCH setting supports
our mission to insure quality care for Medicare beneficiaries.
Collecting data on all patients provides the most robust and accurate
reflection of quality in the LTCH setting. Accurate representation of
quality provided in LTCHs is best conveyed using data related to
pressure ulcers on all LTCH patients, regardless of payer, using a
subset of the CARE data item set. An admission assessment is necessary
in order to assess for either the presence or absence of pressure
ulcers upon admission. If pressure ulcers are detected upon admission,
they must be properly assessed, staged and documented. Upon discharge,
an assessment is needed to determine if any worsening of the pressure
ulcers occurred during the LTCH stay. If no pressure ulcers had been
noted on the admission assessment, then a discharge pressure ulcer
assessment would be necessary in order to assess whether the patient
had developed any new pressure ulcers during the LTCH stay.
At the time of publication of this final rule, CMS has not
completed development of the information collection instrument that
LTCHs would have to submit to comply with the reporting requirements
regarding the CARE pressure ulcer assessment. Because the CARE data
item set is still undergoing development, we cannot assign a complete
burden estimate at this time. Once the CARE data item set has been
completed and finalized, we will publish the required 60-day and 30-day
Federal Register notices to solicit public comments on this data
reporting method and to announce the submission of the information
collection request to OMB for its review and approval.

List of Subjects

42 CFR Part 412

Administrative practice and procedure, Health facilities, Medicare,
Puerto Rico, Reporting and recordkeeping requirements.

42 CFR Part 413

Health facilities, Kidney diseases, Medicare, Puerto Rico,
Reporting and recordkeeping requirements.

42 CFR Part 476

Health care, Health professional, Health record, Peer Review
Organization (PRO), Penalties, Privacy, Reporting and recordkeeping
requirements.

For the reasons stated in the preamble of this final rule, the
Centers for Medicare & Medicaid Services confirms the interim rule
published March 14, 2011, at 76 FR 13515, is confirmed as final without
change and is amending 42 CFR Chapter IV as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL
SERVICES

0
1. The authority citation for Part 412 continues to read as follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh), and sec. 124 of Public Law 106-113 (113
Stat. 1501A-332).

0
2. Section 412.23 is amended by--
0
a. In paragraph (e)(3)(i), removing the cross-reference ``paragraph
(e)(3)(ii) through (e)(3)(iv) of this section'' and adding in its place
the cross-reference ``paragraphs (e)(3)(ii) through (v) of this
section''.
0
b. Revising paragraph (e)(3)(iv).
0
c. Adding paragraph (e)(3)(v).
0
d. Adding paragraph (e)(8).
The revision and additions read as follows:

Sec. 412.23 Excluded hospitals: Classifications.

* * * * *
(e) * * *
(3) * * *
(iv) If a hospital seeks exclusion from the inpatient prospective
payment system as a long-term care hospital and a change of ownership
(as described in Sec. 489.18 of this chapter) occurs within the period
of at least 5 months of the 6-month period preceding its petition for
long-term care hospital status, the hospital may be excluded from the
inpatient prospective payment system as a long-term care hospital for
the next cost reporting period if, for the period of at least 5 months
of the 6 months immediately preceding the start of the cost reporting
period for which the hospital is seeking exclusion from the inpatient
prospective payment system as a long-term care hospital (including time
before the change of ownership), the hospital has met the required
average length of stay, has continuously operated as a hospital, and
has continuously participated as a hospital in Medicare.
(v) For periods beginning on or after October 1, 2011, a hospital
that is excluded from the inpatient prospective payment system as a
long-term care hospital that plans to undergo a change of ownership (as
described in Sec. 489.18 of this chapter) must notify its fiscal
intermediary or MAC within 30 days of the effective date of such change
of

[[Page 51782]]

ownership, as specified in Sec. 424.516(e) of this subchapter. The
hospital will continue to be excluded from the inpatient prospective
payment system as a long-term care hospital for the cost reporting
period following the change of ownership only if, for the period of at
least 5 months of the 6 months immediately preceding the change of
ownership, the hospital meets the required average length of stay
(calculated in accordance with paragraph (e)(3)(i) of this section).
* * * * *
(8) Application of LTCH moratorium on the increase in beds at
section 114(d)(1)(B) of Public Law 110-173 to LTCHs and LTCH satellite
facilities established or classified as such under section 114(d)(2) of
Public Law 110-173. Effective for the period beginning October 1, 2011,
and ending December 28, 2012, for long-term care hospitals and long-
term care hospital satellite facilities established under paragraph
(e)(6)(ii) of this section for the period beginning December 29, 2007,
and ending September 30, 2011, the moratorium under paragraph (e)(7) of
this section applies and the number of Medicare-certified beds must not
be increased beyond the number of beds that were certified by Medicare
at the long-term care hospital or the long-term care hospital satellite
facility as of October 1, 2011.
* * * * *

0
3. Section 412.64 is amended by--
0
a. Adding paragraph (d)(1)(iv).
0
b. Revising paragraph (h)(4) introductory text.
The addition and revision read as follows:

Sec. 412.64 Federal rates for inpatient operating costs for Federal
fiscal year 2005 and subsequent fiscal years.

* * * * *
(d) * * *
(1) * * *
(iv) For fiscal year 2012, the percentage increase in the market
basket index less a multifactor productivity adjustment (as determined
by CMS) and less 0.1 percentage point for prospective payment hospitals
(as defined in Sec. 413.40(a) of this subchapter) for hospitals in all
areas.
* * * * *
(h) * * *
(4) For discharges on or after October 1, 2004 and before September
30, 2013, CMS establishes a minimum wage index for each all-urban
State, as defined in paragraph (h)(5) of this section. This minimum
wage index value is computed using the following methodology:
* * * * *

0
4. Section 412.105 is amended by revising paragraph (b)(4) to read as
follows:

Sec. 412.105 Special treatment: Hospitals that incur indirect costs
for graduate medical education programs.

* * * * *
(b) * * *
(4) Beds otherwise countable under this section used for outpatient
observation services, skilled nursing swing-bed services, ancillary
labor/delivery services, or inpatient hospice services;
* * * * *

0
5. Section 412.106 is amended by revising paragraph (a)(1)(ii)(B) to
read as follows:

Sec. 412.106 Special treatment: Hospitals that service a
disproportionate share of low income patients.

(a) * * *
(1) * * *
(ii) * * *
(B) Beds otherwise countable under this section used for outpatient
observation services, skilled nursing swing-bed services, or inpatient
hospice services;
* * * * *

0
6. Section 412.140 is added to Subpart H to read as follows:

Sec. 412.140 Participation, data submission, and validation
requirements under the Hospital Inpatient Quality Review (IQR) Program.

(a) Participation in the Hospital IQR Program. In order to
participate in the Hospital IQR Program, a section 1886(d) of the
hospital must-
(1) Register onQualityNet.org, before it begins to report data;
(2) Identify and register a QualityNet Administrator as part of the
registration process under paragraph (a)(1) of this section; and
(3) Submit a completed Notice of Participation Form to CMS if the
hospital is participating in the program for the first time, has
previously withdrawn from the program and would like to participate
again, or has received a new CMS Certification Number (CNN).
(i) A hospital that would like to participate in the program for
the first time (and to which paragraph (a)(3)(ii) of this section does
not apply), or that previously withdrew from the program and would now
like to participate again, must submit to CMS a completed Notice of
Participation Form by December 31 of the fiscal year preceding the
fiscal year in which it wishes to participate.
(ii) A hospital that has received a new CCN and would like to
participate in the program must submit a completed Notice of
Participation Form to CMS no later than 180 days from the date
identified as the open date on the approved CMS Quality Improvement
Evaluation System (QIES).
(b) Withdrawal from the Hospital IQR Program. CMS will accept
Hospital IQR Program withdrawal forms from hospitals on or before
August 15 of the fiscal year preceding the fiscal year for which a
Hospital IQR payment determination will be made.
(c) Submission and validation of Hospital IQR Program data. (1)
General rule. Except as provided in paragraph (c)(2) of this section,
subsection (d) hospitals that participate in the Hospital IQR Program
must submit to CMS data on measures selected under section
1886(b)(3)(B)(viii) of the Act in a form and manner, and at a time,
specified by CMS. A hospital must begin submitting data on the first
day of the quarter following the date that the hospital submits a
completed Notice of Participation form under paragraph (a)(3) of this
section.
(2) Exception. Upon request by a hospital, CMS may grant an
extension or waiver of one or more data submission deadlines in the
event of extraordinary circumstances beyond the control of the
hospital. Specific requirements for submission of a request for an
extension or waiver are available onQualityNet.org.
(d) Validation of Hospital IQR Program data. CMS may validate one
or more measures selected under section 1886(b)(3)(B)(viii) of the Act
by reviewing patient charts submitted by selected participating
hospitals.
(1) Upon written request by CMS or its contractor, a hospital must
submit to CMS a sample of patient charts that the hospital used for
purposes of data submission under the program. The specific sample that
a hospital must submit will be identified in the written request. A
hospital must submit the patient charts to CMS or its contractor within
30 days of the date identified on the written request.
(2) A hospital meets the validation requirement with respect to a
fiscal year if it achieves a 75-percent score, as determined by CMS.
(e) Reconsiderations and appeals of Hospital IQR Program decisions.
(1) A hospital may request reconsideration of a decision by CMS that
the hospital has not met the requirements of the Hospital IQR Program
for a particular fiscal year. Except as provided in paragraph (c)(2) of
this section, a hospital must submit a reconsideration request to CMS
no later than 30 days from the date identified on the Hospital
Inpatient Quality Reporting Program Annual

[[Page 51783]]

Payment Update Notification Letter provided to the hospital.
(2) A reconsideration request must contain the following
information:
(i) The hospital's CMS Certification Number (CCN);
(ii) The name of the hospital;
(iii) Contact information for the hospital's chief executive
officer and QualityNet system administrator, including each
individual's name, e-mail address, telephone number, and physical
mailing address;
(iv) A summary of the reason(s), as set forth in the Hospital
Inpatient Quality Reporting Program Annual Payment Update Notification
Letter, that CMS concluded the hospital did not meet the requirements
of the Hospital IQR Program;
(v) A detailed explanation of why the hospital believes that it
complied with the requirements of the Hospital IQR Program for the
applicable fiscal year;
(vi) Any evidence that supports the hospital's reconsideration
request, including copies of patient charts, e-mails and other
documents; and
(vii) If the hospital has requested reconsideration on the basis
that CMS concluded it did not meet the validation requirement set forth
in paragraph (d) of this section, the reconsideration request must
contain the following additional information:
(A) A copy of each patient chart that the hospital timely submitted
to CMS or its contractor in response to a request made under paragraph
(d)(1) of this section; and
(B) A detailed explanation identifying which data the hospital
believes was improperly validated by CMS and why the hospital believes
that such data are correct.
(3) A hospital that is dissatisfied with a decision made by CMS on
its reconsideration request may file an appeal with the Provider
Reimbursement Review Board under Part 405, Subpart R of this chapter.

0
7. Section 412.211 is amended by adding paragraph (c)(4) to read as
follows:

Sec. 412.211 Puerto Rico rates for Federal fiscal year 2004 and
subsequent fiscal years.

* * * * *
(c) * * *
(4) For fiscal year 2012 and subsequent fiscal years, the
applicable percentage increase specified in Sec. 412.64(d).
* * * * *

0
8. Section 412.230 is amended by adding paragraph (d)(5) to read as
follows:

Sec. 412.230 Criteria for an individual hospital seeking
redesignation to another rural area or an urban area.

* * * * *
(d) * * *
(5) Single hospital MSA exception. The requirements of paragraph
(d)(1)(iii) of this section do not apply if a hospital is the single
hospital in its MSA that is paid under subpart D of this Part.

0
9. Section 412.523 is amended by adding paragraphs (c)(3)(viii) and
(d)(4) to read as follows:

Sec. 412.523 Methodology for calculating the Federal prospective
payment rates.

* * * * *
(c) * * *
(3) * * *
(viii) For long-term care hospital prospective payment system
fiscal year beginning October 1, 2011, and ending September 30, 2012.
The standard Federal rate for the long-term care hospital prospective
payment system beginning October 1, 2011, and ending September 30,
2012, is the standard Federal rate for the previous long-term care
hospital prospective payment system fiscal year updated by 1.8 percent.
The standard Federal rate is adjusted, as appropriate, as described in
paragraph (d) of this section.
* * * * *
(d) * * *
(4) Changes to the adjustment for area wage levels. Beginning in FY
2012, CMS adjusts the standard Federal rate by a factor that accounts
for the estimated effect of any adjustments or updates to the area wage
level adjustment under Sec. 412.525(c)(1) on estimated aggregate LTCH
PPS payments.
* * * * *

0
10. Section 412.525 is amended by revising paragraph (c) to read as
follows:

Sec. 412.525 Adjustments to the Federal prospective payment.

* * * * *
(c) Adjustments for area wage levels. (1) The labor portion of a
long-term care hospital's Federal prospective payment is adjusted to
account for geographical differences in the area wage levels using an
appropriate wage index (established by CMS), which reflects the
relative level of hospital wages and wage-related costs in the
geographic area (that is, urban or rural area as determined in
accordance with the definitions set forth in Sec. 412.503) of the
hospital compared to the national average level of hospital wages and
wage-related costs. The appropriate wage index that is established by
CMS is updated annually. The labor portion of a long-term care
hospital's Federal prospective payment is established by CMS and is
updated annually.
(2) Beginning in FY 2012, any adjustments or updates to the area
wage level adjustment under this paragraph (c) will be made in a budget
neutral manner such that estimated aggregate LTCH PPS payments are not
affected.
* * * * *

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED
PAYMENT RATES FOR SKILLED NURSING FACILITIES

0
11. The authority citation for Part 413 continues to read as follows:

Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i),
and (n), 1861(v), 1871, 1881, 1883, and 1886 of the Social Security
Act (42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and
(n), 1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww); and sec. 124 of
Public Law 106-133 (113 Stat. 1501A-332).

0
12. Section 413.70 is amended by--
0
a. Revising paragraph (b)(5)(i)(B).
0
b. Adding paragraph (b)(5)(i)(C).
The revision and addition read as follows:

Sec. 413.70 Payment for services of a CAH.

* * * * *
(b) * * *
(5) * * *
(i) * * *
(B) Effective for cost reporting periods beginning on or after
January 1, 2004 and on or before September 30, 2011, payment for
ambulance services furnished by a CAH or an entity that is owned and
operated by a CAH is 101 percent of the reasonable costs of the CAH or
the entity in furnishing those services, but only if the CAH or the
entity is the only provider or supplier of ambulance services located
within a 35-mile drive of the CAH or the entity.
(C) Effective for cost reporting periods beginning on or after
October 1, 2011, payment for ambulance services furnished by a CAH or
an entity that is owned and operated by a CAH is 101 percent of the
reasonable costs of the CAH or the entity in furnishing those services,
but only if the CAH or the entity is the only provider or supplier of
ambulance services located within a 35-mile drive of the CAH. If there
is no provider or supplier of ambulance services located within a 35-
mile drive of the CAH and there is an entity that is owned and operated
by a CAH that is more than a 35-mile drive from the CAH, payment for
ambulance services

[[Page 51784]]

furnished by that entity is 101 percent of the reasonable costs of the
entity in furnishing those services, but only if the entity is the
closest provider or supplier of ambulance services to the CAH.
* * * * *

PART 476--UTILIZATION AND QUALITY CONTROL REVIEW

0
13. The authority citation for Part 476 continues to read as follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395(hh)).

0
14. Section 476.78 is amended by--
0
a. In paragraph (a), removing the reference ``Sec. 466.71'' and adding
in its place the reference ``Sec. 476.71''.
0
b. Revising paragraph (b).
The revision reads as follows:

Sec. 476.78 Responsibilities of health care facilities.

* * * * *
(b) Cooperation with QIOs. Health care providers that submit
Medicare claims must cooperate in the assumption and conduct of QIO
review.
(1) Providers must allocate adequate space to the QIO for its
conduct of review at the times the QIO is conducting review.
(2) Providers must provide patient care data and other pertinent
data to the QIO at the time the QIO is collecting review information
that is required for the QIO to make its determinations. QIOs pay
providers paid under the prospective payment system for the costs of
photocopying records requested by the QIO in accordance with the
payment rate determined under the methodology described in paragraph
(c) of this section and for first class postage for mailing the records
to the QIO. When the QIO does postadmission, preprocedure review, the
provider must provide the necessary information before the procedure is
performed, unless it must be performed on an emergency basis. Providers
must--
(i) Photocopy and deliver to the QIO all required information
within 30 calendar days of a request;
(ii) Deliver all required medical information to the QIO within 21
calendar days from the date of the request in those situations where a
potential ``serious reportable event'' has been identified or where
other circumstances as deemed by the QIO warrant earlier receipt of all
required medical information. For purposes of this paragraph, a serious
reportable event is defined as a preventable, serious, and unambiguous
adverse event that should never occur.
(3) Providers must inform Medicare beneficiaries at the time of
admission, in writing, that the care for which Medicare payment is
sought will be subject to QIO review and indicate the potential
outcomes of that review. Furnishing this information to the patient
does not constitute notice, under Sec. 411.402(a) of this chapter,
that can support a finding that the beneficiary knew the services were
not covered.
(4) When the provider has issued a written determination in
accordance with Sec. 412.42(c)(3) of this chapter that a beneficiary
no longer requires inpatient hospital care, it must submit a copy of
its determination to the QIO within 3 working days.
(5) Providers must assure, in accordance with the provisions of
their agreements with the QIO, that each case subject to preadmission
review has been reviewed and approved by the QIO before admission to
the hospital or a timely request has been made for QIO review.
(6)(i) Providers must agree to accept financial liability for any
admission subject to preadmission review that was not reviewed by the
QIO and is subsequently determined to be inappropriate or not medically
necessary.
(ii) The provisions of paragraph (b)(6)(i) of this section do not
apply if a provider, in accordance with its agreement with a QIO, makes
a timely request for preadmission review and the QIO does not review
the case timely. Cases of this type are subject to retrospective
prepayment review under paragraph (b)(7) of this section.
(7) Hospitals must agree that, if the hospital admits a case
subject to preadmission review without certification, the case must
receive retrospective prepayment review, according to the review
priority established by the QIO.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; Program No. 93.774, Medicare--
Supplementary Medical Insurance Program; and Program No. 93.778,
Medical Assistance)

Dated: July 21, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
Dated: July 27, 2011.
Kathleen Sebelius,
Secretary.

Note: The following Addendum and Appendixes will not appear in
the Code of Federal Regulations.

Addendum--Schedule of Standardized Amounts, Update Factors, and Rate-
of-Increase Percentages Effective With Cost Reporting Periods Beginning
on or After October 1, 2011

I. Summary and Background

In this Addendum, we are setting forth a description of the
methods and data we used to determine the prospective payment rates
for Medicare hospital inpatient operating costs and Medicare
hospital inpatient capital-related costs for FY 2012 for acute care
hospitals. We also are setting forth the rate-of-increase
percentages for updating the target amounts for certain hospitals
excluded from the IPPS for FY 2012. We note that, because certain
hospitals excluded from the IPPS are paid on a reasonable cost basis
subject to a rate-of-increase ceiling (and not by the IPPS), these
hospitals are not affected by the figures for the standardized
amounts, offsets, and budget neutrality factors. Therefore, in this
finalrule, we are finalizing the rate-of-increase percentages for
updating the target amounts for certain hospitals excluded from the
IPPS that are effective for cost reporting periods beginning on or
after October 1, 2011.
In addition, we are setting forth a description of the methods
and data we used to determine the standard Federal rate that will be
applicable to Medicare LTCHs for FY 2012.
In general, except for SCHs, MDHs, and hospitals located in
Puerto Rico, each hospital's payment per discharge under the IPPS is
based on 100 percent of the Federal national rate, also known as the
national adjusted standardized amount. This amount reflects the
national average hospital cost per case from a base year, updated
for inflation.
Currently, SCHs are paid based on whichever of the following
rates yields the greatest aggregate payment: The Federal national
rate; the updated hospital-specific rate based on FY 1982 costs per
discharge; the updated hospital-specific rate based on FY 1987 costs
per discharge; the updated hospital-specific rate based on FY 1996
costs per discharge; or the updated hospital-specific rate based on
the FY 2006 costs per discharge.
Under section 1886(d)(5)(G) of the Act, MDHs historically have
been paid based on the Federal national rate or, if higher, the
Federal national rate plus 50 percent of the difference between the
Federal national rate and the updated hospital-specific rate based
on FY 1982 or FY 1987 costs per discharge, whichever was higher.
However, section 5003(a)(1) of Public Law 109-171 extended and
modified the MDH special payment provision that was previously set
to expire on October 1, 2006, to include discharges occurring on or
after October 1, 2006, but before October 1, 2011. Section 3124(a)
of the Affordable Care Act amended sections 1886(d)(5)(G)(i) and
1886(d)(5)(G)(ii)(II) of the Act to extend the MDH program and
payment methodology from the end of FY 2011 to the end of FY 2012,
by striking ``October 1, 2011'' and inserting ``October 1, 2012''.
Section 3124(b) of the Affordable Care Act also made conforming
amendments to sections 1886(b)(3)(D) and 1886(b)(3)(D)(iv)

[[Page 51785]]

of the Act. Section 3124(b)(2) of the Affordable Care Act also
amended section 13501(e)(2) of OBRA 1993 to extend the provision
permitting hospitals to decline reclassification as an MDH through
FY 2012. Under section 5003(b) of Public Law 109-171, if the change
results in an increase to an MDH's target amount, we must rebase an
MDH's hospital-specific rates based on its FY 2002 cost report.
Section 5003(c) of Public Law 109-171 further required that MDHs be
paid based on the Federal national rate or, if higher, the Federal
national rate plus 75 percent of the difference between the Federal
national rate and the updated hospital-specific rate. Further, based
on the provisions of section 5003(d) of Public Law 109-171, MDHs are
no longer subject to the 12-percent cap on their DSH payment
adjustment factor.
For hospitals located in Puerto Rico, the payment per discharge
is based on the sum of 25 percent of an updated Puerto Rico-specific
rate based on average costs per case of Puerto Rico hospitals for
the base year and 75 percent of the Federal national rate. (We refer
readers to section II.D.3. of this Addendum for a complete
description.)
As discussed below in section II. of this Addendum, we are
making changes in the determination of the prospective payment rates
for Medicare inpatient operating costs for acute care hospitals for
FY 2012. In section III. of this Addendum, we discuss our policy
changes for determining the prospective payment rates for Medicare
inpatient capital-related costs for FY 2012. In section IV. of this
Addendum, we are setting forth our changes for determining the rate-
of-increase limits for certain hospitals excluded from the IPPS for
FY 2012. In section V. of this Addendum, we are making changes in
the determination of the standard Federal rate for LTCHs under the
LTCH PPS for FY 2012. The tables to which we refer in the preamble
of this final rule are listed in section VI. of this Addendum and
are available via the Internet.

II. Changes to Prospective Payment Rates for Hospital Inpatient
Operating Costs for Acute Care Hospitals for FY 2012

The basic methodology for determining prospective payment rates
for hospital inpatient operating costs for acute care hospitals for
FY 2005 and subsequent fiscal years is set forth at Sec. 412.64.
The basic methodology for determining the prospective payment rates
for hospital inpatient operating costs for hospitals located in
Puerto Rico for FY 2005 and subsequent fiscal years is set forth at
Sec. Sec. 412.211 and 412.212. Below we discuss the factors used
for determining the prospective payment rates for FY 2012.
In summary, the standardized amounts set forth in Tables 1A, 1B,
and 1C that are listed and published in section VI. of this Addendum
(and available via the Internet) reflect--
Equalization of the standardized amounts for urban and
other areas at the level computed for large urban hospitals during
FY 2004 and onward, as provided for under section
1886(d)(3)(A)(iv)(II) of the Act.
The labor-related share that is applied to the
standardized amounts and Puerto Rico-specific standardized amounts
to give the hospital the highest payment, as provided for under
sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act.
Updates of 1.9 percent for all areas (that is, the FY
2012 estimate of the market basket rate-of-increase of 3.0 percent
less an adjustment of 1.0 percentage point for multifactor
productivity and less 0.1 percentage point), as required by section
1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and
10319(a) of the Affordable Care Act. For hospitals that fail to
submit data, in a form and manner, and at the time, specified by the
Secretary relating to the quality of inpatient care furnished by the
hospital, pursuant to section 1886(b)(3)(B)(viii) of the Act, the
update is -0.1 percent (that is, the FY 2012 estimate of the market
basket rate-of-increase of 3.0 percent, less 2.0 percentage points
for failure to submit data under the Hospital IQR Program, less an
adjustment of 1.0 percentage point for multifactor productivity, and
less 0.1 percentage point).
An update of 1.9 percent to the Puerto Rico-specific
standardized amount (that is, the FY 2012 estimate of the market
basket rate-of-increase of 3.0 percent less an adjustment of 1.0
percentage point for multifactor productivity and less 0.1
percentage point), in accordance with section 1886(d)(9)(C)(i) of
the Act, as amended by section 401(c) of Public Law 108-173, which
sets the update to the Puerto Rico-specific standardized amount
equal to the applicable percentage increase set forth in section
1886(b)(3)(B)(i) of the Act.
An adjustment to the standardized amount to ensure
budget neutrality for DRG recalibration and reclassification, as
provided for under section 1886(d)(4)(C)(iii) of the Act.
An adjustment to ensure the wage index changes are
budget neutral, as provided for under section 1886(d)(3)(E)(i) of
the Act. We note that section 1886(d)(3)(E)(i) of the Act requires
that when we compute such budget neutrality, we assume that the
provisions of section 1886(d)(3)(E)(ii) of the Act (requiring a 62
percent labor-related share in certain circumstances) had not been
enacted.
An adjustment to ensure the effects of geographic
reclassification are budget neutral, as provided for in section
1886(d)(8)(D) of the Act, by removing the FY 2011 budget neutrality
factor and applying a revised factor.
An adjustment to ensure the effects of the rural
community hospital demonstration required under section 410A of
Public Law 108-173, as amended by sections 3123 and 10313 of Public
Law 111-148, which extended the demonstration for an additional 5
years are budget neutral, as required under section 410A(c)(2) of
Public Law 108-173.
An adjustment in light of the court's decision in Cape
Cod v. Sebelius, (630 F.3d 203 (DC Cir. 2011)).
An adjustment to remove the FY 2011 outlier offset and
apply an offset for FY 2012, as provided for in section
1886(d)(3)(B) of the Act.
As discussed below and in section II.D. of the preamble
to this final rule, an adjustment to meet the requirements of
sections 7(b)(1)(A) and 7(b)(1)(B) of Public Law 110-90 to adjust
the standardized amounts to offset the estimated amount of the
increase in aggregate payments (including interest) due to the
effect of documentation and coding that did not reflect real changes
in case-mix for discharges occurring during FY 2008 and FY 2009.
Beginning in FY 2008, we applied the budget neutrality
adjustment for the rural floor to the hospital wage indices rather
than the standardized amount. As we did for FY 2011, for FY 2012, we
are continuing to apply the rural floor budget neutrality adjustment
to hospital wage indices rather than the standardized amount.
Consistent with section 3141 of the Affordable Care Act, instead of
applying a State level rural floor budget neutrality adjustment on
the wage index, we are applying a uniform, national budget
neutrality adjustment to the FY 2012 wage index for the rural floor.
We note that, as discussed in section III.F.2. of the preamble of
this final rule, we are extending the imputed floor for 2 more
years. Therefore, we are continuing to apply the imputed floor
budget neutrality adjustment to the wage indices. Thus, the imputed
floor is reflected in the final FY 2012 wage index.

A. Calculation of the Adjusted Standardized Amount

1. Standardization of Base-Year Costs or Target Amounts

In general, the national standardized amount is based on per
discharge averages of adjusted hospital costs from a base period
(section 1886(d)(2)(A) of the Act), updated and otherwise adjusted
in accordance with the provisions of section 1886(d) of the Act. For
Puerto Rico hospitals, the Puerto Rico-specific standardized amount
is based on per discharge averages of adjusted target amounts from a
base period (section 1886(d)(9)(B)(i) of the Act), updated and
otherwise adjusted in accordance with the provisions of section
1886(d)(9) of the Act. The September 1, 1983 interim final rule (48
FR 39763) contained a detailed explanation of how base-year cost
data (from cost reporting periods ending during FY 1981) were
established for urban and rural hospitals in the initial development
of standardized amounts for the IPPS. The September 1, 1987 final
rule (52 FR 33043 and 33066) contains a detailed explanation of how
the target amounts were determined and how they are used in
computing the Puerto Rico rates.
Sections 1886(d)(2)(B) and 1886(d)(2)(C) of the Act require us
to update base-year per discharge costs for FY 1984 and then
standardize the cost data in order to remove the effects of certain
sources of cost variations among hospitals. These effects include
case-mix, differences in area wage levels, cost-of-living
adjustments for Alaska and Hawaii, IME costs, and costs to hospitals
serving a disproportionate share of low-income patients.
In accordance with section 1886(d)(3)(E) of the Act, the
Secretary estimates, from time-to-time, the proportion of hospitals'
costs that are attributable to wages and wage-related costs. In
general, the standardized amount is divided into labor-related and
nonlabor-related amounts; only the proportion considered to be the
labor-related amount is adjusted by the wage index. Section

[[Page 51786]]

1886(d)(3)(E) of the Act requires that 62 percent of the
standardized amount be adjusted by the wage index, unless doing so
would result in lower payments to a hospital than would otherwise be
made. (Section 1886(d)(9)(C)(iv)(II) of the Act extends this
provision to the labor-related share for hospitals located in Puerto
Rico.)
For FY 2012, we are continuing to use a labor-related share of
68.8 percent for discharges occurring on or after October 1, 2011,
for the national standardized amounts and 62.1 percent for the
Puerto Rico-specific standardized amount. Consistent with section
1886(d)(3)(E) of the Act, we are applying the wage index to a labor-
related share of 62 percent for all IPPS hospitals whose wage index
values are less than or equal to 1.0000. For all IPPS hospitals
whose wage indices are greater than 1.0000, we are applying the wage
index to a labor-related share of 68.8 percent of the national
standardized amount. For FY 2012, all Puerto Rico hospitals have a
wage index less than 1.0. Therefore, the national labor-related
share will always be 62 percent because the wage index for all
Puerto Rico hospitals is less than 1.0.
For hospitals located in Puerto Rico, we are applying a labor-
related share of 62.1 percent if its Puerto Rico-specific wage index
is greater than 1.0000. For hospitals located in Puerto Rico whose
Puerto-Rico specific wage index values are less than or equal to
1.0000, we are applying a labor share of 62 percent.
The standardized amounts for operating costs appear in Table 1A,
1B, and 1C that are listed and published in section VI. of the
Addendum to this final rule and are available via Internet.

2. Computing the Average Standardized Amount

Section 1886(d)(3)(A)(iv)(II) of the Act requires that,
beginning with FY 2004 and thereafter, an equal standardized amount
be computed for all hospitals at the level computed for large urban
hospitals during FY 2003, updated by the applicable percentage
update. Section 1886(d)(9)(A)(ii)(II) of the Act equalizes the
Puerto Rico-specific urban and rural area rates. Accordingly, we are
calculating the FY 2012 national and Puerto Rico standardized
amounts irrespective of whether a hospital is located in an urban or
rural location.

3. Updating the Average Standardized Amount

Section 1886(b)(3)(B) of the Act specifies the applicable
percentage increase used to update the standardized amount for
payment for inpatient hospital operating costs. As discussed in
section IV.K.3. of the preamble of this final rule, in accordance
with section 1886(b)(3)(B) of the Act, as amended by section 3401(a)
of the Affordable Care Act, we are reducing the FY 2012 applicable
percentage increase (which is based on the second quarter 2011
forecast of the FY 2006-based IPPS market basket) by the multifactor
productivity (MFP) adjustment (the 10-year moving average of MFP for
the period ending FY 2012) of 1.0 percent, which is calculated based
on IHS Global Insight, Inc.'s (IGI's) second quarter 2011 forecast.
In addition, in accordance with section 1886(b)(3)(B)(i) of the Act,
as amended by sections 3401(a) and 10319(a) of the Affordable Care
Act, we are further updating the standardized amount for FY 2012 by
the estimated market basket percentage increase less 0.1 percentage
point for hospitals in all areas. Sections 1886(b)(3)(B)(xi) and
(xii) of Act, as added and amended by sections 3401(a) and 10319(a)
the Affordable Care Act, further state that these adjustments may
result in the applicable percentage increase being less than zero.
The percentage increase in the market basket reflects the average
change in the price of goods and services comprising routine,
ancillary, and special care unit hospital inpatient services. Based
on IGI's 2011 second quarter forecast of the hospital market basket
increase (as discussed in Appendix B of this final rule), the most
recent forecast of the hospital market basket increase for FY 2012
is 3.0 percent. Thus, for FY 2012, the update to the average
standardized amount is 1.9 percent for hospitals in all areas (that
is, the FY 2012 estimate of the market basket rate-of-increase of
3.0 percent less an adjustment of 1.0 percentage point for
multifactor productivity and less 0.1 percentage point). For
hospitals that do not submit quality data pursuant to section
1886(b)(3)(B)(viii), the estimated update to the operating
standardized amount is -0.1 percent (that is, the FY 2012 estimate
of the market basket rate-of-increase of 3.0 percent, less 2.0
percentage points for failure to submit data under the IQR program,
less an adjustment of 1.0 percentage point for multifactor
productivity, and less 0.1 percentage point) The standardized
amounts in Tables 1A through 1C that are published in section VI. of
this Addendum and available via the Internet reflect these
differential amounts.
Section 401(c) of Public Law 108-173 amended section
1886(d)(9)(C)(i) of the Act and states that, for discharges
occurring in a fiscal year (beginning with FY 2004), the Secretary
shall compute an average standardized amount for hospitals located
in any area of Puerto Rico that is equal to the average standardized
amount computed under subclause (I) for FY 2003 for hospitals in a
large urban area (or, beginning with FY 2005, for all hospitals in
the previous fiscal year) increased by the applicable percentage
increase under subsection (b)(3)(B) for the fiscal year involved.
Therefore, the update to the Puerto Rico-specific operating
standardized amount is subject to the applicable percentage increase
set forth in section 1886(b)(3)(B)(i) of the Act, as amended by
sections 3401(a) and 10319(a) of the Affordable Care Act (that is,
the same update factor as for all other hospitals subject to the
IPPS). Accordingly, we are finalizing an applicable percentage
increase to the Puerto Rico-specific standardized amount of 1.9
percent.
Although the update factors for FY 2012 are set by law, we are
required by section 1886(e)(4) of the Act to recommend, taking into
account MedPAC's recommendations, appropriate update factors for FY
2012 for both IPPS hospitals and hospitals and hospital units
excluded from the IPPS. Section 1886(e)(5)(A) of the Act requires
that we publish our proposed recommendations in the Federal Register
for public comment. Our recommendation on the update factors is set
forth in Appendix B of this final rule.

4. Other Adjustments to the Average Standardized Amount

As in the past, we are adjusting the FY 2012 standardized amount
to remove the effects of the FY 2011 geographic reclassifications
and outlier payments before applying the FY 2012 updates. We then
apply budget neutrality offsets for outliers and geographic
reclassifications to the standardized amount based on FY 2012
payment policies.
We do not remove the prior year's budget neutrality adjustments
for reclassification and recalibration of the DRG weights and for
updated wage data because, in accordance with sections
1886(d)(4)(C)(iii) and 1886(d)(3)(E) of the Act, estimated aggregate
payments after updates in the DRG relative weights and wage index
should equal estimated aggregate payments prior to the changes. If
we removed the prior year's adjustment, we would not satisfy these
conditions.
Budget neutrality is determined by comparing aggregate IPPS
payments before and after making changes that are required to be
budget neutral (for example, changes to DRG classifications,
recalibration of the DRG relative weights, updates to the wage
index, and different geographic reclassifications). We include
outlier payments in the simulations because they may be affected by
changes in these parameters.
Consistent with our methodology established in the FY 2011 IPPS/
LTCH final rule (75 FR 50422 through 50433), because IME Medicare
Advantage payments are made to IPPS hospitals under section 1886(d)
of the Act, we believe these payments must be part of these budget
neutrality calculations. However, we note that it is not necessary
to include Medicare Advantage IME payments in the outlier threshold
calculation or the outlier offset to the standardized amount because
the statute requires that outlier payments be not less than 5
percent nor more than 6 percent of total ``operating DRG payments,''
which does not include IME and DSH payments. In order to account for
these Medicare Advantage IME payments in determining the budget
neutrality adjustments for this final rule, we identified Medicare
Advantage claims from IPPS teaching hospitals in the MedPAR data.
Consistent with our methodology established in the FY 2011 IPPS/LTCH
final rule (75 FR 50422-50423), we first searched the MedPAR file
for all claims with an IME payment greater than zero. We then
filtered these claims for a subset of claims with a GHO Paid
indicator with a value of ``1'' or if the IME payment field was
equal to the DRG payment field. The GHO Paid indicator with a value
of ``1'' in the MedPAR file indicates that the claim was paid by a
Medicare Advantage plan (other than the IPPS IME payment specified
at Sec. 412.105(g)). For these Medicare Advantage claims from IPPS
teaching hospitals, we computed a transfer-adjusted CMI by provider
based on the FY 2011 MS-DRG GROUPER Version 28.0 assignment and
relative weights. We also computed a transfer-adjusted CMI for these
Medicare

[[Page 51787]]

Advantage claims from IPPS teaching hospitals based on the FY 2012
MS-DRG GROUPER Version 29.0 assignments and relative weights. These
transfer-adjusted CMIs (and corresponding case counts) were used to
calculate an IME teaching add-on payment in accordance with Sec.
412.105(g). The total Medicare Advantage IME payment amount was then
added to the total Federal payment amount for each provider (where
applicable) in order to account for the Medicare Advantage IME
payment in determining the budget neutrality adjustments. We note
that we did not include Medicare Advantage IME claims when
estimating outlier payments for providers because Medicare Advantage
claims are not eligible for outlier payments under the IPPS.
Also, for this final rule, in order to ensure that we capture
only fee for service claims, we are only including claims with a
``Claim Type'' of 60 (which is a field on the MedPAR file that
indicates a claim is a fee for service claim).
Additionally, consistent with our methodology established in the
FY 2011 IPPS/LTCH final rule (75 FR 50422-50423), we examined the
MedPAR and removed pharmacy charges for antihemophilic blood factor
(which are paid separately under the IPPS) with an indicator of
``3'' for blood clotting with a revenue code of ``0636''from the
covered charge field for the budget neutrality adjustments. We also
removed organ acquisition charges from the covered charge field for
the budget neutrality adjustments because organ acquisition is a
pass-through payment not paid under the IPPS.
Comment: One commenter noted that it is still likely that CMS is
including charges for anti-hemophilic blood factor (which are paid
separately under the IPPS) for the budget neutrality adjustments.
The commenter explained that the majority of patients receiving
blood clotting drugs have a pharmacy indicator of ``5,'' which
denotes ``general drugs and/or IV therapy and blood clotting
drugs.'' The commenter searched the MedPAR file and found 48,494
claims with a pharmacy indicator of ``5'' and 715 claims with a
pharmacy indicator of ``3.'' Based on this analysis the commenter
concluded that a majority of anti hemophilic blood factor claims
contain an indicator of ``5'' rather than ``3.'' The commenter
requested that CMS develop a method to identify and separate the
charges for blood clothing drugs from other pharmacy charges for
blood factor claims with an indicator of ``5.'' The commenter also
stated that, alternatively, CMS could remove all pharmacy charges
for code ``5'' claims that are projected to qualify as outliers
under the FY 2012 proposed rule in situations where no outlier
payments for FY 2010 were shown on the claims, but the patients
would have qualified as outliers in FY 2010 based on the MedPAR
claims for covered charges (which include charges for anti-
hemophilic drugs). The commenter explained that anti-hemophilic
blood factor are typically included in the covered charges but are
excluded by the PRICER program from the charges used to pay the
outlier. In many of these cases an outlier payment would have been
made if the covered charges were used but once the PRICER program
excluded pharmacy charges for blood factor claims with an indicator
of ``5'', no outlier payment was made.
Response: We appreciate the commenter's insights and are
studying methods to uniquely identify anti-hemophilic blood factor
charges in our MedPAR claims database with an indicator of ``5.'' It
is possible that a change would be required to the MedPAR file,
which could delay implementation, depending on the time needed to
adopt the systems change. Additionally, we thank the commenter for
providing an alternative methodology to identify anti-hemophilic
blood factor charges with an indicator of ``5.'' However, we are not
able to determine if the charges the commenter is excluding are only
charges related to anti-hemophilic blood factor, and we are
concerned that this method could exclude other charges that are not
related to these items. Therefore, we prefer to develop a
methodology that is more specific so that charges that are not
related to antihemophilic blood factor are not excluded.

a. Recalibration of DRG Weights and Updated Wage Index--Budget
Neutrality Adjustment

Section 1886(d)(4)(C)(iii) of the Act specifies that, beginning
in FY 1991, the annual DRG reclassification and recalibration of the
relative weights must be made in a manner that ensures that
aggregate payments to hospitals are not affected. As discussed in
section II. of the preamble of this final rule, we normalized the
recalibrated DRG weights by an adjustment factor so that the average
case weight after recalibration is equal to the average case weight
prior to recalibration. However, equating the average case weight
after recalibration to the average case weight before recalibration
does not necessarily achieve budget neutrality with respect to
aggregate payments to hospitals because payments to hospitals are
affected by factors other than average case weight. Therefore, as we
have done in past years, we are making a budget neutrality
adjustment to ensure that the requirement of section
1886(d)(4)(C)(iii) of the Act is met.
Section 1886(d)(3)(E)(i) of the Act requires us to update the
hospital wage index on an annual basis beginning October 1, 1993.
This provision also requires us to make any updates or adjustments
to the wage index in a manner that ensures that aggregate payments
to hospitals are not affected by the change in the wage index.
Section 1886(d)(3)(E)(i) of the Act requires that we implement the
wage index adjustment in a budget neutral manner. However, section
1886(d)(3)(E)(ii) of the Act sets the labor-related share at 62
percent for hospitals with a wage index less than or equal to 1.0,
and section 1886(d)(3)(E)(i) of the Act provides that the Secretary
shall calculate the budget neutrality adjustment for the adjustments
or updates made under that provision as if section 1886(d)(3)(E)(ii)
of the Act had not been enacted. In other words, this section of the
statute requires that we implement the updates to the wage index in
a budget neutral manner, but that our budget neutrality adjustment
should not take into account the requirement that we set the labor-
related share for hospitals with indices less than or equal to 1.0
at the more advantageous level of 62 percent. Therefore, for
purposes of this budget neutrality adjustment, section
1886(d)(3)(E)(i) of the Act prohibits us from taking into account
the fact that hospitals with a wage index less than or equal to 1.0
are paid using a labor-related share of 62 percent. Consistent with
current policy, for FY 2012, we are adjusting 100 percent of the
wage index factor for occupational mix. We describe the occupational
mix adjustment in section III.C. of the preamble of this final rule.
For FY 2012, to comply with the requirement that DRG
reclassification and recalibration of the relative weights be budget
neutral for the Puerto Rico standardized amount and the hospital-
specific rates, we used FY 2010 discharge data to simulate payments
and compared aggregate payments using the FY 2011 labor-related
share percentages, the FY 2011 relative weights, and the FY 2011
pre-reclassified wage data to aggregate payments using the FY 2011
labor-related share percentages, the FY 2012 relative weights, and
the FY 2011 pre-reclassified wage data. Based on this comparison, we
computed a budget neutrality adjustment factor equal to 0.997903. As
discussed in section IV. of this Addendum, we also apply the DRG
reclassification and recalibration budget neutrality factor of
0.997903 to the hospital-specific rates that are effective for cost
reporting periods beginning on or after October 1, 2011.
In order to meet the statutory requirements that we do not take
into account the labor-related share of 62 percent when computing
wage index budget neutrality, it was necessary to use a three-step
process to comply with the requirements that DRG reclassification
and recalibration of the relative weights and the updated wage index
and labor-related share have no effect on aggregate payments for
IPPS hospitals. We first determined a DRG reclassification and
recalibration budget neutrality factor of 0.997903 by using the same
methodology described above to determine the DRG reclassification
and recalibration budget neutrality factor for the Puerto Rico
standardized amount and hospital-specific rates. Secondly, to
compute a budget neutrality factor for wage index and labor-related
share changes, we used FY 2010 discharge data to simulate payments
and compared aggregate payments using FY 2012 relative weights and
FY 2011 pre-reclassified wage indices, and applied the FY 2011
labor-related share of 68.8 percent to all hospitals (regardless of
whether the hospital's wage index was above or below 1.0) to
aggregate payments using the FY 2012 relative weights and the FY
2012 pre-reclassified wage indices, and applied the labor-related
share for FY 2012 of 68.8 percent to all hospitals (regardless of
whether the hospital's wage index was above or below 1.0). In
addition, we applied the DRG reclassification and recalibration
budget neutrality factor (derived in the first step) to the rates
that were used to simulate payments for this comparison of aggregate
payments from FY 2011 to FY 2012. By applying this methodology, we
determined a budget neutrality factor of

[[Page 51788]]

1.000558 for changes to the wage index. Finally, we multiplied the
DRG reclassification and recalibration budget neutrality factor of
0.997903 (derived in the first step) by the budget neutrality factor
of 1.000558 for changes to the wage index (derived in the second
step) to determine the DRG reclassification and recalibration and
updated wage index budget neutrality factor of 0.99846.

b. Reclassified Hospitals--Budget Neutrality Adjustment

Section 1886(d)(8)(B) of the Act provides that, effective with
discharges occurring on or after October 1, 1988, certain rural
hospitals are deemed urban. In addition, section 1886(d)(10) of the
Act provides for the reclassification of hospitals based on
determinations by the MGCRB. Under section 1886(d)(10) of the Act, a
hospital may be reclassified for purposes of the wage index.
Under section 1886(d)(8)(D) of the Act, the Secretary is
required to adjust the standardized amount to ensure that aggregate
payments under the IPPS after implementation of the provisions of
sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal
to the aggregate prospective payments that would have been made
absent these provisions. We note that the wage index adjustments
provided under section 1886(d)(13) of the Act are not budget
neutral. Section 1886(d)(13)(H) of the Act provides that any
increase in a wage index under section 1886(d)(13) shall not be
taken into account ``in applying any budget neutrality adjustment
with respect to such index'' under section 1886(d)(8)(D) of the Act.
To calculate the budget neutrality factor for FY 2012, we used FY
2010 discharge data to simulate payments and compared total IPPS
payments with FY 2012 relative weights, FY 2012 labor-related share
percentages, and FY 2012 wage data prior to any reclassifications
under sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act to
total IPPS payments with FY 2012 relative weights, FY 2012 labor-
related share percentages, and FY 2012 wage data after such
reclassifications. Based on these simulations, we calculated an
adjustment factor of 0.991493 to ensure that the effects of these
provisions are budget neutral, consistent with the statute.
The FY 2012 budget neutrality adjustment factor is applied to
the standardized amount after removing the effects of the FY 2011
budget neutrality adjustment factor. We note that the FY 2012 budget
neutrality adjustment reflects FY 2012 wage index reclassifications
approved by the MGCRB or the Administrator. We note that, for this
final rule, as discussed in section III.B. of the preamble to this
final rule, section 3137(c) of the Affordable Care Act resulted in
some additional hospitals receiving reclassifications, or some
hospitals receiving reclassifications to a different area. These
reclassifications are included in the calculation of
reclassification budget neutrality.

c. Rural Floor and Imputed Floor Budget Neutrality Adjustment

As noted above, as discussed in section III.F.2. of the preamble
of this final rule, we are extending the imputed floor for 2 more
years. We make an adjustment to the wage index to ensure that
aggregate payments to hospitals after implementation of the rural
floor under section 4410 of the BBA (Pub. L. 105-33) and the imputed
floor under Sec. 412.64(h)(4) of the regulations are not affected.
As discussed in section III.F. of the preamble of this final rule,
consistent with section 3141 of the Affordable Care Act, the budget
neutrality adjustment for the rural and imputed floors is a national
adjustment to the wage index.
As discussed in section III.F.2. of the preamble of this final
rule, for the FY 2012 wage index, there is one new hospital in rural
Puerto Rico when previously there were none. Therefore, for FY 2012,
we are calculating a national rural Puerto Rico wage index (used to
adjust the labor-related share of the national standardized amount
for hospitals in Puerto Rico which receive 75 percent of the
national standardized amount) and a rural Puerto Rico-specific wage
index (which is used to adjust the labor-related share of the Puerto
Rico-specific standardized amount for hospitals in Puerto Rico that
receive 25 percent of the Puerto Rico-specific standardized amount).
As the new rural Puerto Rico hospital has no established wage data,
our calculation is based on the policy adopted in the FY 2008 IPPS
final rule with comment period (72 FR 47323). A complete discussion
on the computation of the rural Puerto Rico wage index can be found
in section III.G. of the preamble of this final rule. In past fiscal
years, when there was no rural Puerto Rico wage index, we applied
the national rural floor budget neutrality wage index factor to the
national wage indices used to adjust the labor-related share for the
national standardized amount (including the national Puerto Rico
wage indexes) but did not apply this factor to the Puerto Rico-
specific wage indices. We did not apply the national rural floor
budget neutrality wage index factor to the Puerto Rico-specific wage
indices (nor did we compute a Puerto Rico-specific rural floor
budget neutrality wage index factor) because there were no rural
hospitals in Puerto Rico. As mentioned above, for FY 2012, there is
now one rural Puerto Rico hospital and, therefore, it is necessary
to compute and apply a Puerto Rico-specific rural floor budget
neutrality wage index factor (in addition to the national factor).
To calculate the national rural floor and imputed floor budget
neutrality factor and Puerto Rico-specific rural floor budget
neutrality adjustment factor, we used FY 2010 discharge data and FY
2012 post-reclassified national and Puerto Rico-specific wage
indices to simulate IPPS payments. First, we compared the national
and Puerto Rico-specific simulated payments without the national
rural floor and imputed floor and Puerto Rico-specific rural floor
applied to national and Puerto Rico-specific simulated payments with
the national rural floor and imputed floor and Puerto Rico-specific
rural floor applied to determine the national rural budget
neutrality adjustment factor of 0.991007 and the Puerto Rico-
specific budget neutrality adjustment factor of 0.989417. The
national adjustment was applied to the national wage indices to
produce a national rural floor budget neutral wage index and the
Puerto Rico-specific adjustment was then applied to the Puerto Rico-
specific wage indices to produce a Puerto Rico-specific rural floor
budget neutral wage index.

d. Adjustment in Light of Court Decision in Cape Cod v. Sebelius

In the FY 2012 IPPS/LTCH PPs proposed rule (76 FR 26022), we
proposed a 1.1 percent adjustment to the standardized amount in
recognition of the decision of Cape Cod v. Sebelius (630 F.3d 203
(DC Cir. 2011)) (hereafter referred to as ``Cape Cod''). However, we
emphasized that remand proceedings in that case were not complete at
that time and that the proposal reflected the timing of the
development of the proposed rule and not a final decision as to how
the remand will proceed. In Cape Cod, the plaintiff hospitals
challenged the rural floor budget neutrality adjustments for FY 2007
and FY 2008. In its opinion, the DC Circuit Court found that section
4410 of the Balanced Budget Act of 1997 (BBA) Public Law 105-33,
which authorized both the rural floor and rural floor budget
neutrality, would not permit CMS to ignore prior year errors in
calculating rural floor budget neutrality adjustments. The case was
remanded to CMS for further proceedings consistent with the DC
Circuit Court's opinion.
While Cape Cod involved only FYs 2007 and 2008, in the FY 2012
proposed rule we stated that the decision may have implications for
FY 2012 payment rates, depending on the ultimate result of the
remand proceedings. In light of that opinion and the timing of the
rulemaking development process, we proposed to restore to the FY
2012 standardized amount the offset for the rural floor and imputed
floor on the standardized amount over FY 1998 through 2006. We
stated by making this proposal for FY 2012, all affected parties
would have an opportunity to consider and comment on the proposed
adjustment. Given that the court had remanded the case to the
Secretary for FYs 2007 and 2008 and those remand proceedings were
not yet completed at the time of issuance of the proposed rule, we
indicated that the final rule might adopt a different approach,
depending on public comments or developments in the remand
proceedings.
For purposes of the proposed rule, to assess the overall impact
of applying the rural floor budget neutrality adjustment to the
standardized amount for the years between FY 1998 and FY 2006, we
remodeled the recalibration/wage index budget neutrality factor for
the years at issue (for which data were available), excluding the
effect of the rural floor adjustment. For example, to compute the
revised recalibration/wage index budget neutrality factor for FY
2000, we compared the FY 1999 pre-reclassified wage data with no
rural floor to FY 2000 pre-reclassified wage data with no rural
floor. We then compared the revised factor to the wage/recalibration
budget neutrality factor derived under the original modeling logic;
that is, where the current year's pre-reclassified wage data had a
rural floor applied. The percent change in these

[[Page 51789]]

two factors was then calculated for each remodeled year.
Remodeled years from FY 1998 to FY 2004 showed an approximate
0.1 percentage point increase between the factors for each year.
This increase results in a total of 0.7 percentage point, which we
proposed to return to the standardized amount in setting the FY 2012
IPPS rates. Beginning with FY 2005 through FY 2006, the number of
States for which a floor wage index was available was extended via
the imputed floor policy. With additional States receiving increases
in payment due to the application of the imputed floor, we estimated
the combined effects of the rural and imputed floor to be
approximately 0.2 percentage point per year. This resulted in a
total of 0.4 percentage point, which we proposed to return to the
standardized amount in setting the FY 2012 IPPS rates. Therefore, to
remove the effects of the rural floor from the standardized amount
for FY 1998 through FY 2006, we proposed a one-time adjustment of
1.1 percentage points, which increases the standardized amount (0.7
percentage point plus 0.4 percentage point for a factor of 1.011).
We noted that, in the FY 2008 IPPS final rule with comment period,
we applied a one-time adjustment of 1.002214 to the FY 2008
standardized amount to address a single year transition (from FY
2007 to FY 2008) to a noncumulative system of the rural floor budget
neutrality adjustment. The adjustment of 1.002214 to the FY 2008
standardized amount reflected the increase to the rates to remove
the effects of the rural floor budget neutrality adjustment from FY
2007. Because this 1.002214 factor remains on the rate, we did not
include an adjustment for FY 2007 in our calculation above.
Comment: Commenters supported CMS' proposal to provide a 1.1
percent adjustment in setting FY 2012 IPPS rates in light of the
Court's decision in Cape Cod Hospital vs. Sebelius. Several
commenters requested that CMS provide complete explanations of the
methodologies and data used in the calculation of the 1.1 and 0.9
percent adjustments to the standardized amount and hospital-specific
rate, respectively, for FYs 1998 through 2006. The commenters
suggested that such information would allow them to verify the
adjustment. These commenters, however, did not propose an adjustment
different from the 1.1 percent included in the FY 2012 proposed
rule.
Response: In response to these commenters' comments, we are
providing more detail on how we calculated the one-time adjustment
for purposes of determining the FY 2012 IPPS rates. All of the data
files discussed in this response are available to the public for
download at http://www.cms.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
We first estimated the percentage by which the budget neutrality
factors for wage and recalibration differed due to applying a
cumulative budget rural floor for FYs 1998 through FY 2006. In
calculating the original wage and recalibration budget neutrality
factors, we simulated payments with the prior year's pre-
reclassified wage data that had no rural floor applied and prior
year DRG assignments and weights. We then simulated payments with
the current year's pre reclassified wage data with a rural floor
applied and new DRG assignments and weights. These two simulations
were compared against each other. The revised modeling approach,
which was instituted and described in the FY 2008 IPPS final rule
with comment period, calculates the wage and recalibration budget
neutrality factor by simulating payments with the prior year pre
reclassified wage data with no rural floor applied and prior year
DRG assignments and weights and comparing those to simulated
payments with the current year's pre-reclassified wage data with no
rural floor applied and new DRG assignments and weights.
To estimate the percentage contribution of the rural floor to
the wage and recalibration budget neutrality, we reconstructed
payment data and budget neutrality models for the years involved in
this case and then applied both the original and revised budget
neutrality calculation methodology within the model. Some fiscal
years (for example, FY 1998, FY 2001, and FY 2005) were more
challenging to model than other fiscal years because multiple
statutory changes in those years led to a more complicated payment
structure. Each year, impact files are prepared to analyze the
payment impact of policies and payment changes put forth in the IPPS
final rules and contain the variables needed to simulate payments
within each year. These impact files did not hold a wage index
variable that reflected the ``new'' pre-reclassified wage data with
no floor applied. From FY 2003 forward, we reconstructed pre
reclassified wage index values with and without a floor applied
using the wage and hour data files. For years prior to FY 2003, the
wage and hour data files were not available so we set the wage index
from the standardization file as the pre reclassified no floor wage
index. Standardization files are prepared each year in conjunction
with each final rule and contain pre-reclassified, pre-floor wage
index values for use in the process of recalibrating the DRG
relative weights. Due to the time constraints with preparing the
final rule each year, the wage index values contained in the
standardization files are typically prepared as soon as there is
wage data available and would reflect a pre-reclassified, pre-floor
wage index value. Although they may not reflect all corrections and
edits to the wage data that occurred in a particular year, the
majority of wage index values contained in these files should match
the correct pre-reclassified, pre-floor wage index values.
Therefore, we believe these files are sufficient to approximate the
payment effects of the rural floor policy. To establish a rural
floor for each State, we used the wage index values for providers
physically located in the rural area for their States. We then
compared each provider's pre-reclassified no floor wage index to the
rural floor; if the pre-reclassified no floor wage index was lower,
the provider's wage index value was set equal to its State rural
floor wage index. This established a pre-reclassified wage index
with the rural floor.
For FY 2003, FY 2004, and FY 2006, we reconstructed pre-
reclassified wage index values with and without a rural floor using
the wage data files. Because the wage data files typically reflect
the final wage data for the year and contain the most recent updates
(minor wage data updates can occur throughout the year if there were
mistakes in the data on the part of the provider and/or CMS), these
files produced slightly different national average hourly wage
values than the values published in the Federal Register for the
IPPS final rules. Again, the majority of wage index values contained
in these files should match the correct pre-reclassified, pre-floor
wage index values. Therefore, we believe these files are sufficient
to approximate the payment effects of the rural floor policy. We
followed the same steps that we took for fiscal years prior to FY
2003 in building pre-reclassified with floor wage index values using
the pre-floor wage index values for the rural providers to set the
rural floors. Once the ``with'' and ``without'' rural floor wage
index variables were constructed, they were merged into the impact
files. Using payment simulation programs and rates from the
historical budget neutrality libraries, we were able to estimate the
effect of the rural floor policy for FY 1999, FY 2000, FY 2002, FY
2003, FY 2004, and FY 2006. We used these resulting estimates to
assume a rural floor effect for the years we were unable to remodel
in full because of the complexity of the payment structure in those
years as noted above, that is, FY 1998, FY 2001, and FY 2005.
For each separate fiscal year remodeled, we simulated payments
with the prior year pre-reclassified wage data with no rural floor
applied and prior year DRG assignments and weights. We compared
these to simulated payments with the current year's pre-reclassified
wage data with no rural floor applied (constructed as described in
the preceding paragraph) and new DRG assignments and weights. For
example, for FY 2000, we compared the FY 1999 pre-reclassified wage
data with no rural floor to FY 2000 pre-reclassified wage data with
no rural floor. This produced a wage and recalibration budget
neutrality factor that did not carry any rural floor effects. Using
the same data set, we then repeated the original calculation
methodology that retained prior years' rural floor budget neutrality
on the standardized amount; that is, we simulated payments with the
prior year pre reclassified wage data with no floor applied and
prior year DRG assignments and weights and then compared them to
simulated payments with the new year's pre reclassified wage data
with floor applied (constructed as described in the preceding
paragraph) and new DRG assignments and weights. We then calculated
the percent change between the resulting budget neutrality factors
to determine the percent contribution of the rural floor to the
budget neutrality adjustment. The ``original'' methodology under
which the rural floor was included in the wage and recalibration
budget neutrality calculation was repeated on the data set(s) used
for this estimate rather than using the actual wage and
recalibration factors carried on the rates in order to limit the
percent change between the two numbers solely to the application of
the rural floor and to prevent introducing differences that would be
due to data shifts between the original files and the ones used for
this estimate.

[[Page 51790]]

----------------------------------------------------------------------------------------------------------------
Percent change between
Original budget Revised budget estimated budget
Remodeled budget neutrality neutrality method with neutrality method neutrality factors
rural floor included excluding rural floor (percent)
----------------------------------------------------------------------------------------------------------------
FY 1999.............................. 0.999053 0.999666 0.10
FY 2000.............................. 1.007418 1.008316 0.10
FY 2002.............................. 0.996092 0.997134 0.10
FY 2003.............................. 0.993478 0.994443 0.10
FY 2004.............................. 1.003011 1.003932 0.10
FY 2006.............................. 1.001375 1.003103 0.20
----------------------------------------------------------------------------------------------------------------

We note that there is no difference between applying the
cumulative and non-cumulative rural floor budget neutrality
methodology in FY 1998 because there are no prior year payments to
FY 1998 where the rural floor was applied. The first year in which
there is an impact of the cumulative methodology is FY 1999, which
carries forward the budget neutrality adjustment made in FY 1998.
The only significant change in rural floor wage index policy (during
the FYs 1999 through 2006) happened in FY 2005 when the imputed
floor policy was established. The imputed floor policy provided a
higher wage index to hospitals in States that have no rural areas
and increases the impact of the rural floor on the budget neutrality
calculation. In all the years we modeled through and including FY
2004, the percentage change in the wage and recalibration budget
neutrality showed a 0.1 percent effect for the rural floor within
each year. For FY 2006 and FY 2007, the estimate for the rural floor
showed a 0.2 percent effect. Therefore, we assume that, similar to
FY 2006, FY 2005 would also show a 0.2 percent effect because that
was the year the imputed floor was first implemented. We further
assume that any year prior to FY 2004 for which budget neutrality
was not remodeled (that is, FY 1998 and FY 2001) would show a 0.1
percent effect due to the rural floor. Once the effects within each
year were determined, we determined a cumulative effect of 1.1
percentage points.
We note that, in the FY 2008 IPPS final rule with comment
period, we applied a one-time adjustment of 1.002214 to the FY 2008
standardized amount to address a single year transition (from FY
2007 to FY 2008) to a noncumulative system of the rural floor budget
neutrality adjustment. This adjustment of 1.002214 to the FY 2008
standardized amount reflected the increase to the rates to remove
the effects of the rural floor budget neutrality adjustment from FY
2007. Because this 1.002214 factor remains on the rate, we do not
include an adjustment for FY 2007 in the calculation described
above.

e. Case-Mix Budget Neutrality Adjustment

(1) Adjustment to the FY 2012 IPPS Standardized Amount for the
Prospective Adjustment for FY 2010 and Subsequent Years Authorized by
Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(A)(vi)
of the Act

As stated earlier, beginning in FY 2008, we adopted the MS-DRG
patient classification system for the IPPS to better recognize
patients' severity of illness in Medicare payment rates. In the FY
2008 IPPS final rule with comment period (73 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 changes in documentation and coding. In that
final rule, using the Secretary's authority under section
1886(d)(3)(A)(vi) of the Act to maintain budget neutrality by
adjusting the national standardized amounts to eliminate the effect
of changes in documentation and coding that do not reflect real
change in case-mix, we established prospective documentation and
coding adjustments of -1.2 percent for FY 2008, -1.8 percent for FY
2009, and -1.8 percent for FY 2010 (for a total adjustment of -4.8
percent). On September 29, 2007, Public Law 110-90 was enacted.
Section 7 of Public Law 110-90 included a provision that reduces the
documentation and coding adjustment for the MS-DRG system that we
adopted in the FY 2008 IPPS final rule with comment period to -0.6
percent for FY 2008 and -0.9 percent for FY 2009. To comply with the
provision of section 7(a) of Public Law 110-90, in a final rule that
appeared in the Federal Register on November 27, 2007 (72 FR 66886),
we changed the IPPS documentation and coding adjustment for FY 2008
to -0.6 percent, and revised the FY 2008 national standardized
amounts (as well as other payment factors and thresholds)
accordingly, with these revisions being effective as of 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 specified in the FY 2008 IPPS final rule with
comment period. As required by statute, we applied a documentation
and coding adjustment of -0.9 percent to the FY 2009 IPPS national
standardized amounts. The documentation and coding adjustments
established in the FY 2008 IPPS final rule with comment period are
cumulative. As a result, the -0.9 percent documentation and coding
adjustment in FY 2009 was in addition to the -0.6 percent adjustment
in FY 2008, yielding a combined effect of -1.5 percent.
In the FY 2010 IPPS proposed rule and final rule (74 FR 24092
through 24101 and 43768 through 43772, respectively), we discussed
our analysis of FY 2008 claims data and did not apply any additional
documentation and coding adjustments to the average standardized
amounts under section 1886(d) of the Act. We refer readers to these
rules for a detailed description of our analysis, responses to
comments, and final policy respectively. After analysis of the FY
2009 claims data for the FY 2011 IPPS/LTCH PPS final rule (75 FR
50057 through 50073), we found a total prospective documentation and
coding effect of 1.054. After accounting for the -0.6 percent and
the -0.9 percent documentation and coding adjustments in FYs 2008
and 2009, we found a remaining documentation and coding effect of
3.9 percent. Therefore, we determined that an additional cumulative
adjustment of -3.9 percent would be necessary to meet the
requirements of section 7(b)(1)(A) of Public Law 110-90 to make an
adjustment to the average standardized amounts in order to eliminate
the full effect of the documentation and coding changes on future
payments. As we discussed in the FY 2011 IPPS/LTCH PPS final rule,
we did not propose a prospective adjustment under section 7(b)(1)(A)
of Public Law 110-90 for FY 2011 (75 FR 23868 through 23870). We
note that, as a result, payments in FY 2011 (and in each future year
until we implement the requisite adjustment) were 3.9 percent higher
than they would have been if we had implemented an adjustment under
section 7(b)(1)(A) of Public Law 110-90. Our actuaries estimate that
this 3.9 percentage point increase will result in an aggregate
payment of approximately $4 billion. We refer readers to the FY 2011
IPPS/LTCH PPS final rule for a detailed description of our analysis,
responses to comments, and final policy (75 FR 50057 through 50073).
In the proposed rule, we stated it was imperative that CMS make
a prospective adjustment amount in FY 2012 to prevent the continued
accumulation of unrecoverable overpayments. After consideration of
the public comments we received, and in keeping with our
longstanding policy to mitigate, when possible, the effects of
significant downward adjustments on hospitals to avoid what could be
widespread, disruptive effects of such adjustments on hospitals, we
are finalizing a prospective adjustment of -2.0 percent instead of
the -3.15 percent prospective adjustment that was proposed. We refer
the reader to section II.D. of the preamble of this final rule for
more discussion. In addition, for a complete discussion on our
proposed and final documentation and coding adjustment to the
hospital-specific rates, we refer readers to section II.D.2.c.of
this Addendum.

[[Page 51791]]

(2) Adjustment to the FY 2012 IPPS Standardized Amount for the
Recoupment or Repayment Adjustment for FY 2010 Authorized by Section
7(b)(1)(B) of Public Law 110-90

As indicated in section II.D.4. in the preamble to this final
rule, the change due to documentation and coding that did not
reflect real changes in case-mix for discharges occurring during FY
2008 and FY 2009 exceeded the -0.6 and -0.9 percent prospective
documentation and coding adjustment applied under section 7(a) of
Public Law 110-90 for those 2 years respectively by 1.9 percentage
points in FY 2008 and 3.9 percentage points in FY 2009. In total,
this change exceeded the cumulative prospective adjustments by 5.8
percentage points. Our actuaries estimated that this 5.8 percentage
point increase resulted in an increase in aggregate payments of
approximately $6.9 billion. In the FY 2011 IPPS/LTCH PPS final rule,
we determined that an aggregate adjustment of -5.8 percent in FYs
2011 and 2012, subject to actuarial adjustment to reflect
accumulated interest, would be necessary in order to meet the
requirements of section 7(b)(1)(B) of Public Law 110-90 to adjust
the standardized amounts for discharges occurring in FYs 2010, 2011,
and/or 2012 to offset the estimated amount of the increase in
aggregate payments (including interest) in FYs 2008 and 2009.
It is often our practice to phase in rate adjustments over more
than one year in order to moderate the effect on rates in any one
year. Therefore, as we specified in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50425), we made an adjustment in FY 2011 to the
standardized amount of -2.9 percent, representing half of the
aggregate adjustment required under section 7(b)(1)(B) of Public Law
110-90, for FY 2011. As we have previously noted, unlike the
prospective adjustment to the standardized amounts under section
7(b)(1)(A) of Public Law 110-90 described earlier, the recoupment or
repayment adjustment to the standardized amounts under section
7(b)(1)(B) of Public Law 110-90 is not 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. We refer readers to the FY 2011 IPPS/LTCH PPS
final rule for a detailed description of our analysis, responses to
comments, and final policy (75 FR 50057 through 50073).
While we stated in the FY 2011 IPPS/LTCH PPS final rule the need
to potentially adjust the remaining -2.9 percent estimate to account
for accumulated interest, our actuaries have determined that there
has been no significant interest accumulation and that no additional
adjustment will be required. Therefore, in section II.D. of the
preamble to this final rule, we finalized our proposal to complete
the recoupment adjustment according to the timeframes set forth by
section 7(b)(1)(B) of Public Law 110-90 by implementing the
remaining -2.9 percent adjustment, in addition to removing the
effect of the -2.9 percent adjustment to the standardized amount
finalized in FY 2011.
Because these adjustments will, in effect, balance out, there
will be no year-to-year change in the standardized amount due to
this recoupment adjustment. As this adjustment will complete the
required recoupment for overpayments due to documentation and coding
effects on discharges occurring in FYs 2008 and 2009, we anticipate
removing the effect of this adjustment by adding 2.9 percent to the
standardized amount in FY 2013. We continue to believe that this is
a reasonable and fair approach that satisfies the requirements of
the statute while substantially moderating the financial impact on
hospitals. We refer the reader to section II.D. of the preamble to
this final rule for more discussion.

(3) Adjustment to the FY 2012 Puerto Rico Standardized Amount

As discussed in section II.D.9. of the preamble of this final
rule, in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50071 through
50073), using the same methodology we applied to estimate
documentation and coding changes under IPPS for non-Puerto Rico
hospitals, our best estimate, based on the then most recently
available data (FY 2009 claims paid through March 2010), was that
for documentation and coding changes that occurred over FY 2008 and
FY 2009, a cumulative adjustment of -2.6 percent was required to
eliminate the full effect of the documentation and coding changes on
future payments from the Puerto Rico-specific rate. In FY 2011, as
finalized in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50071
through 50073), we applied an adjustment of -2.6 percent to the
Puerto Rico-specific rate. Therefore, because the Puerto Rico-
specific rate received a full prospective adjustment of -2.6 percent
in FY 2011, in section II.D.9. of the preamble of this final rule,
we finalized our proposal to make no further adjustment for FY 2012.
For a complete discussion on our final policy, we refer readers to
section II.D.9. of the preamble of this final rule.

f. Rural Community Hospital Demonstration Program Adjustment

As discussed in section IV.N. of the preamble to this final
rule, section 410A of Public Law 108-173 originally required the
Secretary to establish a demonstration that modifies reimbursement
for inpatient services for up to 15 small rural hospitals. Section
410A(c)(2) of Public Law 108-173 requires that ``[i]n conducting the
demonstration program under this section, the Secretary shall ensure
that the aggregate payments made by the Secretary do not exceed the
amount which the Secretary would have paid if the demonstration
program under this section was not implemented.''
Sections 3123 and 10313 of the Affordable Care Act extended the
demonstration for an additional 5-year period, and allow up to 30
hospitals to participate in 20 States with low population densities
determined by the Secretary. (In determining which States to include
in the expansion, the Secretary is required to use the same criteria
and data that the Secretary used to determine the States for
purposes of the initial 5-year period). In the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50426), in order to achieve budget neutrality, we
adjusted the national IPPS rates by an amount sufficient to account
for the added costs of this demonstration as described in section
IV.K. of that final rule. In other words, we applied budget
neutrality across the payment system as a whole rather than merely
across the participants of this demonstration, consistent with past
practice. We stated that we believe that the language of the
statutory budget neutrality requirement permits the agency to
implement the budget neutrality provision in this manner. The
statutory language requires that ``aggregate payments made by the
Secretary do not exceed the amount which the Secretary would have
paid if the demonstration * * * was not implemented,'' but does not
identify the range across which aggregate payments must be held
equal.
For FY 2012, we proposed the estimated amount for the adjustment
to the national IPPS rates for FY 2012 to be $52,642,213. For this
final rule, we determined that for the 25 hospitals participating in
the demonstration project an estimated amount for the adjustment to
the national IPPS rates for FY 2012 is $52,452,060. Accordingly, to
account for the estimated costs of the demonstration for the
specific time periods as explained in detail in section IV.N. of the
preamble of this final rule, for FY 2012, we computed a factor of
0.999487 for the rural community hospital demonstration program
budget neutrality adjustment that is applied to the IPPS
standardized rate.
We noted that because the settlement process for the
demonstration hospitals' third and fourth year cost reports, that
is, for cost reporting periods starting in FYs 2007 and 2008, has
experienced a delay, for the proposed rule, we were unable to state
the costs of the demonstration corresponding to FYs 2007 and 2008
for purposes of determining the amount by which the costs of the
demonstration corresponding to FYs 2007 and 2008 exceeded the amount
offset by the budget neutrality adjustments for FYs 2007 and 2008.
As a result, we were unable to propose the specific numeric
adjustment representing this offsetting process that would be a
component of the budget neutrality adjustment and that would be
applied to the national IPPS rates. Therefore, the estimated budget
neutrality adjustment to the national IPPS rate in the proposed rule
did not include a component to account for these costs. We indicated
in the proposed rule that we anticipated that this information may
be available for the FY 2012 IPPS/LTCH PPS final rule, at which
time, if data from settled cost reports are available, under our
proposal, we would incorporate a component into the budget
neutrality adjustment to the national IPPS rates to account for the
amount by which the demonstration costs corresponding to FY 2007 and
FY 2008 exceeded the amount offset by the budget neutrality
adjustments for FYs 2007 and 2008.
Similarly, for this final rule, we are unable to identify the
specific numeric amount representing this offsetting process that
can be incorporated into the budget neutrality adjustment applied to
the national IPPS rates

[[Page 51792]]

due to delays in the settlement process for the demonstration
hospitals' third and fourth year cost reports. We note that we
anticipate that they may be available for the FY 2013 IPPS/LTCH PPS
proposed and final rules. Therefore, the estimated adjustment to the
national IPPS rates in this final rule cannot include a component to
account for these costs.

g. Outlier Payments

Section 1886(d)(5)(A) of the Act provides for payments in
addition to the basic prospective payments for ``outlier'' cases
involving extraordinarily high costs. To qualify for outlier
payments, a case must have costs greater than the sum of the
prospective payment rate for the DRG, any IME and DSH payments, any
new technology add-on payments, and the ``outlier threshold'' or
``fixed-loss'' amount (a dollar amount by which the costs of a case
must exceed payments in order to qualify for an outlier payment). We
refer to the sum of the prospective payment rate for the DRG, any
IME and DSH payments, any new technology add-on payments, and the
outlier threshold as the outlier ``fixed-loss cost threshold.'' To
determine whether the costs of a case exceed the fixed-loss cost
threshold, a hospital's CCR is applied to the total covered charges
for the case to convert the charges to estimated costs. Payments for
eligible cases are then made based on a marginal cost factor, which
is a percentage of the estimated costs above the fixed-loss cost
threshold. The marginal cost factor for FY 2012 is 80 percent, the
same marginal cost factor we have used since FY 1995 (59 FR 45367).
In accordance with section 1886(d)(5)(A)(iv) of the Act, outlier
payments for any year are projected to be not less than 5 percent
nor more than 6 percent of total operating DRG payments plus outlier
payments. We note that the statute requires outlier payments to be
not less than 5 percent nor more than 6 percent of total ``operating
DRG payments'' (which does not include IME and DSH payments) plus
outlier payments. When setting the outlier threshold, we compute the
5.1 percent target by dividing the total operating outlier payments
by the total operating DRG payments plus outlier payments. We do not
include any other payments such as IME and DSH within the outlier
target amount. Therefore, it is not necessary to include Medicare
Advantage IME payments in the outlier threshold calculation. Section
1886(d)(3)(B) of the Act requires the Secretary to reduce the
average standardized amount by a factor to account for the estimated
proportion of total DRG payments made to outlier cases. Similarly,
section 1886(d)(9)(B)(iv) of the Act requires the Secretary to
reduce the average standardized amount applicable to hospitals
located in Puerto Rico to account for the estimated proportion of
total DRG payments made to outlier cases. More information on
outlier payments may be found on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage.

(1) FY 2012 Outlier Fixed-Loss Cost Threshold

For FY 2012, we proposed to continue to use the same methodology
used for FY 2009 (73 FR 48763 through 48766) to calculate the
outlier threshold. Similar to the methodology used in the FY 2009
IPPS final rule, for FY 2012, we proposed to apply an adjustment
factor to the CCRs to account for cost and charge inflation (as
explained below). As we have done in the past, to calculate the
proposed FY 2012 outlier threshold, we simulated payments by
applying proposed FY 2012 rates and policies using cases from the FY
2010 MedPAR files. Therefore, in order to determine the proposed FY
2012 outlier threshold, we inflated the charges on the MedPAR claims
by 2 years, from FY 2010 to FY 2012.
We proposed to continue to use a refined methodology that takes
into account the lower inflation in hospital charges that are
occurring as a result of the outlier final rule (68 FR 34494), which
changed our methodology for determining outlier payments by
implementing the use of more current CCRs. Our refined methodology
uses more recent data that reflect the rate-of-change in hospital
charges under the new outlier policy.
Using the most recent data available, we calculated the 1-year
average annualized rate-of-change in charges per case from the last
quarter of FY 2009 in combination with the first quarter of FY 2010
(July 1, 2009 through December 31, 2009) to the last quarter of FY
2010 in combination with the first quarter of FY 2011 (July 1, 2010
through December 31, 2010). This rate-of-change was 4.43 percent
(1.044394) or 9.07 percent (1.090759) over 2 years. As we have done
in the past, we established the proposed FY 2012 outlier threshold
using hospital CCRs from the December 2010 update to the Provider-
Specific File (PSF)--the most recent available data at the time of
the proposed rule.
As discussed in the FY 2007 IPPS final rule (71 FR 48150), we
worked with the Office of Actuary to derive the methodology
described below to develop the CCR adjustment factor. For FY 2012,
we proposed to continue to use the same methodology to calculate the
CCR adjustment by using the FY 2010 operating cost per discharge
increase in combination with the actual FY 2010 operating market
basket percentage increase determined by IHS Global Insight, Inc.
(IGI), as well as the charge inflation factor described above to
estimate the adjustment to the CCRs. (We note that the FY 2010
actual (otherwise referred to as ``final'') operating market basket
percentage increase reflects historical data, whereas the published
FY 2010 operating market basket update factor was based on IGI's
2009 second quarter forecast with historical data through the first
quarter of 2009. We also note that while the FY 2010 published
operating market basket update was based on the FY 2002-based IPPS
market basket, the actual or ``final'' market basket percentage
increase is based on the FY 2006-based IPPS market basket.
Similarly, the FY 2010 published capital market basket update factor
was based on the FY 2002-based capital market basket and the actual
or ``final'' capital market basket percentage increase is based on
the FY 2006-based capital market basket.) By using the operating
market basket percentage increase and the increase in the average
cost per discharge from hospital cost reports, we are using two
different measures of cost inflation. For FY 2012, we determined the
adjustment by taking the percentage increase in the operating costs
per discharge from FY 2008 to FY 2009 (1.0285) from the cost report
and dividing it by the final operating market basket percentage
increase from FY 2009 (1.026). This operation removes the measure of
pure price increase (the market basket) from the percentage increase
in operating cost per discharge, leaving the nonprice factors in the
cost increase (for example, quantity and changes in the mix of goods
and services). We repeated this calculation for 2 prior years to
determine the 3-year average of the rate of adjusted change in costs
between the operating market basket percentage increase and the
increase in cost per case from the cost report (the FY 2006 to FY
2007 percentage increase of operating costs per discharge of 1.0465
divided by the FY 2007 final operating market basket percentage
increase of 1.036, the FY 2007 to FY 2008 percentage increase of
operating costs per discharge of 1.0506 divided by the FY 2008 final
operating market basket percentage increase of 1.040). For FY 2012,
we averaged the differentials calculated for FY 2007, FY 2008, and
FY 2009, which resulted in a mean ratio of 1.0076. We multiplied the
3-year average of 1.0076 by the FY 2010 final operating market
basket percentage increase of 1.021, which resulted in an operating
cost inflation factor of 2.87 percent or 1.028747. We then divided
the operating cost inflation factor by the 1-year average change in
charges (1.044394) and applied an adjustment factor of 0.985018 to
the operating CCRs from the PSF (calculation performed on unrounded
numbers).
As stated in the FY 2009 IPPS final rule (73 FR 48763), we
continue to believe it is appropriate to apply only a 1-year
adjustment factor to the CCRs. On average, it takes approximately 9
months for a fiscal intermediary or MAC to tentatively settle a cost
report from the fiscal year end of a hospital's cost reporting
period. The average ``age'' of hospitals' CCRs from the time the
fiscal intermediary or the MAC inserts the CCR in the PSF until the
beginning of FY 2009 is approximately 1 year. Therefore, as stated
above, we believe a 1-year adjustment factor to the CCRs is
appropriate.
We used the same methodology for the capital CCRs and determined
the adjustment by taking the percentage increase in the capital
costs per discharge from FY 2008 to FY 2009 (1.0508) from the cost
report and dividing it by the final capital market basket percentage
increase from FY 2009 (1.015). We repeated this calculation for 2
prior years to determine the 3-year average of the rate of adjusted
change in costs between the capital market basket percentage
increase and the increase in cost per case from the cost report (the
FY 2006 to FY 2007 percentage increase of capital costs per
discharge of 1.0507 divided by the FY 2007 final capital market
basket percentage increase of 1.013, the FY 2007 to FY 2008
percentage increase of capital costs per discharge of 1.0811 divided
by the FY 2008 final capital market basket percentage increase of
1.015). For FY 2012, we averaged the differentials calculated for

[[Page 51793]]

FY 2007, FY 2008, and FY 2009, which resulted in a mean ratio of
1.0459. We multiplied the 3-year average of 1.0459 by the FY 2010
final capital market basket percentage increase of 1.010, which
resulted in a capital cost inflation factor of 5.63 percent or
1.056329. We then divided the capital cost inflation factor by the
1-year average change in charges (1.044394) and applied an
adjustment factor of 1.011428 to the capital CCRs from the PSF
(calculation performed on unrounded numbers). We proposed to use the
same charge inflation factor for the capital CCRs that was used for
the operating CCRs. The charge inflation factor is based on the
overall billed charges. Therefore, we believe it is appropriate to
apply the charge factor to both the operating and capital CCRs.
As stated above, for FY 2012, we applied the proposed FY 2012
rates and policies using cases from the FY 2010 MedPAR files in
calculating the proposed outlier threshold. As discussed in section
III.B.3. of the preamble to the FY 2011 IPPS/LTCH PPS final rule (75
FR 50160 and 50161) and in section III.F. of this final rule, in
accordance with section 10324(a) of the Affordable Care Act,
beginning in FY 2011, we created a wage index floor of 1.00 for all
hospitals located in States determined to be frontier States. We
noted that the frontier State floor adjustments will be calculated
and applied after rural and imputed floor budget neutrality
adjustments are calculated for all labor market areas, in order to
ensure that no hospital in a frontier State will receive a wage
index lesser than 1.00 due to the rural and imputed floor
adjustment. In accordance with section 10324(a) of the Affordable
Care Act, the frontier State adjustment will not be subject to
budget neutrality, and will only be extended to hospitals
geographically located within a frontier State. However, for
purposes of estimating the proposed outlier threshold for FY 2012,
it was necessary to apply this provision by adjusting the wage index
of those eligible hospitals in a frontier State when calculating the
outlier threshold that results in outlier payments being 5.1 percent
of total payments for FY 2012. If we did not take into account this
provision, our estimate of total FY 2012 payments would be too low,
and, as a result, our proposed outlier threshold would be too high,
such that estimated outlier payments would be less than our
projected 5.1 percent of total payments.
In the proposed rule, we stated that our estimate of the
cumulative effect of changes in documentation and coding due to the
adoption of the MS-DRGs through FY 2010 of 5.4 percent is already
included within the claims data (FY 2010 MedPAR files) used to
calculate the FY 2012 outlier threshold. We also stated in the
proposed rule that we estimated that there would be no continued
changes in documentation and coding in FYs 2011 and 2012. Therefore,
the cumulative effect of documentation and coding that has occurred
is already reflected within the FY 2010 MedPAR claims data, and we
did not believe there was any need to inflate FY 2010 claims data
for any additional case-mix growth projected to have occurred since
FY 2010.
Using this methodology, we proposed an outlier fixed-loss cost
threshold for FY 2012 equal to the prospective payment rate for the
DRG, plus any IME and DSH payments, and any add-on payments for new
technology, plus $23,375.
As we did in establishing the FY 2009 outlier threshold (73 FR
57891), in our projection of FY 2012 outlier payments, we did not
propose to make any adjustments for the possibility that hospitals'
CCRs and outlier payments may be reconciled upon cost report
settlement. We indicated that we continue to believe that, due to
the policy implemented in the June 9, 2003 outlier final rule (68 FR
34494), CCRs will no longer fluctuate significantly and, therefore,
few hospitals will actually have these ratios reconciled upon cost
report settlement. In addition, it is difficult to predict the
specific hospitals that will have CCRs and outlier payments
reconciled in any given year. We also note that reconciliation
occurs because hospitals' actual CCRs for the cost reporting period
are different than the interim CCRs used to calculate outlier
payments when a bill is processed. Our simulations assume that CCRs
accurately measure hospital costs based on information available to
us at the time we set the outlier threshold. For these reasons, we
proposed not to make any assumptions about the effects of
reconciliation on the outlier threshold calculation.
Comment: Commenters, including major hospital associations,
stated that CMS currently estimates outlier payments in FY 2010 at
4.7 percent of total payments. The commenters commended CMS for
making refinements such as applying an adjustment factor to CCRs
when computing the outlier threshold but noted that, because CMS is
still not reaching the 5.1 percent target for outlier payments,
there is still room for improvement. The commenters further stated
that although CMS currently projects outlier payments in FY 2011 to
be estimated at 4.9 percent of total payments, which is lower the
5.1 percent target, this estimate is based on discharges from a
prior year and, in their view, will likely not reflect the actual
result. The commenters noted that in prior years when CMS provided
its projected estimate of outlier payments for a given fiscal year,
once the actual claims were available to determine the actual
outlier payment (in the following fiscal year), their analysis
showed that the estimate declined between 0.2 percent and 0.3
percent from the projection.
One commenter suggested that the methodology to develop the
adjustment factor to the CCRs is unnecessarily complicated and does
not lead to a more accurate result. The commenter requested
clarification if CMS applies the same CCR throughout the fiscal year
within the outlier model. The commenter also urged CMS to adopt a
methodology that uses recent historical industry wide average rate
of change, similar to the methodology used to develop the charge
inflation factor. Specifically, the commenter recommended that CMS
measure the rate of change in CCRs to develop the adjustment factor
to the CCRs. Further, in addition to recommending an adjustment to
the CCRs based on historical data, the commenter opposed CMS's
methodology of applying the adjustment factor over one year and
suggested that the CCRs should be projected over different periods
of time, some less or more than one year, based on variations in
hospital fiscal year ends. The commenter also opposed CMS' use of
the December 2010 update of the PSF and assert that CMS's
methodology is oversimplified. The commenter believed that its
methodology would more accurately project the decline in CCRs.
The commenter also suggested that, if CMS did not incorporate
the changes described above to its methodology for estimating
outlier payments, it would recommend incorporating an ``estimate
adjustment factor'' into the outlier projections. The commenter
explained that outlier payments have been underpaid in every year
since 2004. Based on actual payments determined by the commenter
using data analysis, the commenter asserted that the underpayment
has exceeded 0.5 percent in all years except one. The commenter
recommended that CMS maintain the outlier threshold at 5.1 percent
but apply an estimate adjustment factor when projecting the outlier
threshold. The commenter provided an example and computed this
factor for FY 2009 and FY 2010 by taking the average variance in the
actual payment for FY 2008 and FY 2009 which was 0.491 percent.
Based on this factor, CMS would model the threshold to a level of
5.591 percent (5.1 plus .491 percent). If CMS were to overpay
outliers, then the adjustment would be become negative. The
commenter stated that this would fulfill the statutory requirement
in section 1886 (d)(5)(A) of the Act that requires that CMS
establish thresholds such that outlier payments will be projected to
achieve at least 5.1 percent of DRG payments and would more closely
achieve a result that is fully consistent with the statute.
The commenter responded to CMS's concerns expressed in last
year's final rule (75 FR 50429) that an ``estimate adjustment
factor'' to the outlier threshold or standardized amount in a given
year to account for ``overpayments'' or ``underpayments'' of
outliers in other years would not result in the agency making
outlier payments that were not directly related to the actual cost
of furnishing care in extraordinarily costly cases. The commenter
believed that an ``estimate adjustment factor'' represents a
prospective adjustment factor based on historical data and would not
constitute a retroactive adjustment to prior outlier payments
because the adjustment would have no impact on past outlier
payments. Moreover, the commenter further opined that the estimate
adjustment factor would be based on historical outlier cases so
payments would be directly related to the actual cost of furnishing
care to outlier patients.
Response: Commenters to previous rules have raised similar
concerns regarding our estimates of outlier payments. We refer
readers to a similar discussion in the FY 2008 final rule with
comment period (72 FR 47418). In response to the comment that CCRs
should be projected over different periods of time, it is possible
that some of the

[[Page 51794]]

CCRs in the March PSF will be used in FY 2009 for actual outlier
payments, while other CCRs may be one year old. Therefore, we apply
a 1-year adjustment to the CCRs. The adjusted CCR is applied
throughout the fiscal year within the outlier model. With respect to
the comment on our methodology used to adjust the CCRs, as we stated
in the FY 2008 IPPS final rule with comment period (72 FR 47418), we
continue to believe this calculation of an adjustment to the CCRs is
more accurate and stable than the commenter's methodology because it
takes into account the costs per discharge and the market basket
percentage increase when determining a cost adjustment factor. There
are times where the market basket and the cost per discharge will be
constant, while other times these values will differ from each
other, depending on the fiscal year. Therefore, as mentioned above,
using the market basket in conjunction with the cost per discharge
takes into account two sources that measure potential cost inflation
and ensures a more accurate and stable cost adjustment factor.
With respect to the comment of computing an ``estimate
adjustment factor,'' we thank the commenter for further explaining
their position on this adjustment. Further analysis by CMS is
necessary to determine if the commenter's approach to applying an
``estimate adjustment factor'' is appropriate. We will consider the
commenter's suggestion of applying an ``estimate adjustment factor''
in future rulemaking if, based on our analysis, we determine that
application of an ``estimate adjustment factor'' is appropriate and
consistent with the statute.
Comment: One commenter was concerned that CMS did not include
outlier reconciliations in developing the outlier threshold. The
commenter requested that CMS disclose in the final rule and future
proposed and final IPPS rules the amount of money it has recovered
through reconciliation. The commenter explained that this
information will allow others to comment specifically on how this
provision would impact the threshold.
Response: We received a similar comment to last year's rule, and
we thank the commenter for again informing us of its concern
regarding not including outlier reconciliation within the
development of the outlier threshold. However, as stated above, we
continue to believe that, due to the policy implemented in the June
9, 2003 outlier final rule (68 FR 34494), CCRs will no longer
fluctuate significantly and, therefore, few hospitals will actually
have these ratios reconciled upon cost report settlement. In
addition, it is difficult to predict the specific hospitals that
will have CCRs and outlier payments reconciled in any given year. We
also noted that reconciliation occurs because hospitals' actual CCRs
for the cost reporting period are different than the interim CCRs
used to calculate outlier payments when a bill is processed. Our
simulations assume that CCRs accurately measure hospital costs based
on information available to us at the time we set the outlier
threshold. For these reasons, we proposed and are finalizing our
policy not to make any assumptions about the effects of
reconciliation on the outlier threshold calculation.
Additionally, we published a manual update (Change Request 7192)
to our outlier policy on December 3, 2010, which also updated
Chapter 3, Section 20.1.2 of the Medicare Claims Processing Manual.
The manual update outlines the outlier reconciliation process for
hospitals and Medicare contractors. The instructions in Change
Request 7192 regarding outlier reconciliation were effective on
April 1, 2011. Medicare contractors record the outlier
reconciliation amount on each provider's cost report (and are not
required to report these data to CMS outside of the cost report
settlement process). Therefore, the outlier reconciliation data that
the commenter is requesting will be publicly available once the cost
report data are posted on our Web site at http://www.cms.gov/CostReports/02_HospitalCostReport.asp#TopOfPage. Since April 1,
2011, we have approved some provider's outlier payments to be
reconciled. Other providers that were flagged for outlier
reconciliation are still under review for approval. Some providers
flagged for outlier reconciliation may experience a delay in
reconciling their outlier payments due to circumstances that prevent
the Medicare contractor from finalizing the hospital's cost report
(such as other payments that may need to be reconciled aside from
outlier payments). As instructed in Change Request 7192, barring an
exception from CMS, Medicare contractors were given until October 1,
2011, to complete the reconciliation process for those providers
flagged for outlier reconciliation prior to April 1, 2011. To
download and view the manual instructions on outlier reconciliation,
we refer readers to the CMS Web site: http://www.cms.hhs.gov/manuals/downloads/clm104c03.pdf.
Because we are not making any changes to our methodology for
this final rule, for FY 2012, we are using the same methodology we
proposed to calculate the outlier threshold.
Using the most recent data available, we calculated the 1-year
average annualized rate-of-change in charges per case from the first
quarter of FY 2010 in combination with the second quarter of FY 2010
(October 1, 2009 through March 31, 2010) to the first quarter of FY
2011 in combination with the second quarter of FY 2011 (October 1,
2010 through March 31, 2010). This rate-of-change was 3.89 percent
(1.038944) or 7.94 percent (1.079405) over 2 years. As we have done
in the past, we established the final FY 2012 outlier threshold
using hospital CCRs from the March 2011 update to the Provider-
Specific File (PSF)--the most recent available data at the time of
this final rule.
For FY 2012, we calculated the CCR adjustment by using the FY
2010 operating cost per discharge increase in combination with the
actual FY 2010 operating market basket percentage increase
determined by IHS Global Insight, Inc. (IGI), as well as the charge
inflation factor described above to estimate the adjustment to the
CCRs. (We note that the FY 2010 actual (otherwise referred to as
``final'') operating market basket percentage increase reflects
historical data, whereas the published FY 2010 operating market
basket update factor was based on IGI's 2009 second quarter forecast
with historical data through the first quarter of 2009. We also note
that while the FY 2010 published operating market basket update was
based on the FY 2002-based IPPS market basket, the actual or
``final'' market basket percentage increase is based on the FY 2006-
based IPPS market basket. Similarly, the FY 2010 published capital
market basket update factor was based on the FY 2002-based capital
market basket and the actual or ``final'' capital market basket
percentage increase is based on the FY 2006-based capital market
basket.) By using the operating market basket percentage increase
and the increase in the average cost per discharge from hospital
cost reports, we are using two different measures of cost inflation.
For FY 2012, we determined the adjustment by taking the percentage
increase in the operating costs per discharge from FY 2008 to FY
2009 (1.0290) from the cost report and divided it by the final
operating market basket percentage increase from FY 2009 (1.026).
This operation removes the measure of pure price increase (the
market basket) from the percentage increase in operating cost per
discharge, leaving the nonprice factors in the cost increase (for
example, quantity and changes in the mix of goods and services). We
repeated this calculation for 2 prior years to determine the 3-year
average of the rate of adjusted change in costs between the
operating market basket percentage increase and the increase in cost
per case from the cost report (the FY 2006 to FY 2007 percentage
increase of operating costs per discharge of 1.0464 divided by the
FY 2007 final operating market basket percentage increase of 1.036,
the FY 2007 to FY 2008 percentage increase of operating costs per
discharge of 1.0507 divided by FY 2008 final operating market basket
percentage increase of 1.040). For FY 2012, we averaged the
differentials calculated for FY 2007, FY 2008, and FY 2009, which
resulted in a mean ratio of 1.0078. We multiplied the 3-year average
of 1.0078 by the FY 2010 final operating market basket percentage
increase of 1.021, which resulted in an operating cost inflation
factor of 2.87 percent or 1.028913. We then divided the operating
cost inflation factor by the 1-year average change in charges
(1.038994) and applied an adjustment factor of 0.990297 to the
operating CCRs from the PSF (calculation performed on unrounded
numbers).
We used the same methodology for the capital CCRs and determined
the adjustment by taking the percentage increase in the capital
costs per discharge from FY 2008 to FY 2009 (1.0494) from the cost
report and dividing it by the final capital market basket percentage
increase from FY 2009 (1.015). We repeated this calculation for 2
prior years to determine the 3-year average of the rate of adjusted
change in costs between the capital market basket percentage
increase and the increase in cost per case from the cost report (the
FY 2006 to FY 2007 percentage increase of capital costs per
discharge of 1.0508 divided by the FY 2007 final capital market
basket percentage increase of 1.013, the FY 2007 to FY 2008
percentage increase of capital costs per discharge of 1.0813 divided
by the FY 2008 final capital market basket percentage increase of
1.015). For FY 2012,

[[Page 51795]]

we averaged the differentials calculated for FY 2007, FY 2008, and
FY 2009, which resulted in a mean ratio of 1.0455. We multiplied the
3-year average of 1.0455 by the FY 2010 final capital market basket
percentage increase of 1.010, which resulted in a capital cost
inflation factor of 5.6 percent or 1.055964. We then divided the
capital cost inflation factor by the 1-year average change in
charges (1.038994) and applied an adjustment factor of 1.011428 to
the capital CCRs from the PSF (calculation performed on unrounded
numbers). We are using the same charge inflation factor for the
capital CCRs that was used for the operating CCRs. The charge
inflation factor is based on the overall billed charges.
As stated above, for FY 2012, we applied the FY 2012 rates and
policies using cases from the FY 2010 MedPAR files in calculating
the outlier threshold. As discussed in section III.B.3. of the
preamble to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50160 and
50161) and in section III.F. of this final rule, in accordance with
section 10324(a) of the Affordable Care Act, beginning in FY 2011,
we created a wage index floor of 1.00 for all hospitals located in
States determined to be frontier States. We noted that the frontier
State floor adjustments will be calculated and applied after rural
and imputed floor budget neutrality adjustments are calculated for
all labor market areas, in order to ensure that no hospital in a
frontier State will receive a wage index lesser than 1.00 due to the
rural and imputed floor adjustment. In accordance with section
10324(a) of the Affordable Care Act, the frontier State adjustment
will not be subject to budget neutrality, and will only be extended
to hospitals geographically located within a frontier State.
However, for purposes of estimating the final outlier threshold for
FY 2012, it was necessary to apply this provision by adjusting the
wage index of those eligible hospitals in a frontier State when
calculating the outlier threshold that results in outlier payments
being 5.1 percent of total payments for FY 2012. If we did not take
into account this provision, our estimate of total FY 2012 payments
would be too low, and, as a result, our proposed outlier threshold
would be too high, such that estimated outlier payments would be
less than our projected 5.1 percent of total payments.
Also, for this final rule, our estimate of the cumulative effect
of changes in documentation and coding due to the adoption of the
MS-DRGs through FY 2010 of 5.4 percent is already included within
the claims data (FY 2010 MedPAR files) used to calculate the FY 2012
outlier threshold. Also, we estimate that there will be no continued
changes in documentation and coding in FYs 2011 and 2012. Therefore,
the cumulative effect of documentation and coding that has occurred
is already reflected within the FY 2010 MedPAR claims data, and we
did not believe there was any need to inflate FY 2010 claims data
for any additional case-mix growth projected to have occurred since
FY 2010.
Using this methodology, we calculated a final outlier fixed-loss
cost threshold for FY 2012 equal to the prospective payment rate for
the DRG, plus any IME and DSH payments, and any add-on payments for
new technology, plus $22,385.
We note that our final threshold is less than the proposed
threshold. We believe this is due to the increase in the
standardized amount from the proposed rule to the final rule. (Some
examples that caused the standardized amount to increase from the
proposed rule to this final rule include, but are not limited to,
the increase in the market basket update and the decreases in the
multifactor productivity adjustment and our prospective
documentation and coding adjustment). As payments increase, fewer
cases will qualify for outlier payments thus requiring us to lower
the threshold from the proposed rule to this final rule.

(2) Other Changes Concerning Outliers

As stated in the FY 1994 IPPS final rule (58 FR 46348), we
establish an outlier threshold that is applicable to both hospital
inpatient operating costs and hospital inpatient capital-related
costs. When we modeled the combined operating and capital outlier
payments, we found that using a common threshold resulted in a lower
percentage of outlier payments for capital-related costs than for
operating costs. We project that the thresholds for FY 2012 will
result in outlier payments that will equal 5.1 percent of operating
DRG payments and 6.18 percent of capital payments based on the
Federal rate.
In accordance with section 1886(d)(3)(B) of the Act, as we
proposed, we are reducing the FY 2012 standardized amount by the
same percentage to account for the projected proportion of payments
paid as outliers.
The outlier adjustment factors that are applied to the
standardized amount based on the FY 2012 outlier threshold are as
follows:

------------------------------------------------------------------------
Operating
standardized Capital
amounts federal rate
------------------------------------------------------------------------
National................................ 0.948990 0.938207
Puerto Rico............................. 0.953549 0.926153
------------------------------------------------------------------------

We are applying the outlier adjustment factors to the FY 2012
rates after removing the effects of the FY 2011 outlier adjustment
factors on the standardized amount.
To determine whether a case qualifies for outlier payments, we
apply hospital-specific CCRs to the total covered charges for the
case. Estimated operating and capital costs for the case are
calculated separately by applying separate operating and capital
CCRs. These costs are then combined and compared with the outlier
fixed-loss cost threshold.
Under our current policy at Sec. 412.84, we calculate operating
and capital CCR ceilings and assign a statewide average CCR for
hospitals whose CCRs exceed 3.0 standard deviations from the mean of
the log distribution of CCRs for all hospitals. Based on this
calculation, for hospitals for which the fiscal intermediary or MAC
computes operating CCRs greater than 1.152 or capital CCRs greater
than 0.159, or hospitals for which the fiscal intermediary or MAC is
unable to calculate a CCR (as described at Sec. 412.84(i)(3) of our
regulations), statewide average CCRs are used to determine whether a
hospital qualifies for outlier payments. Table 8A listed in section
VI. of this Addendum (and available only via the Internet) contains
the statewide average operating CCRs for urban hospitals and for
rural hospitals for which the fiscal intermediary or MAC is unable
to compute a hospital-specific CCR within the above range. Effective
for discharges occurring on or after October 1, 2011, these
statewide average ratios will replace the ratios published in the
IPPS final rule for FY 2011 (75 FR 50390-50392). Table 8B listed in
section VI. of this Addendum (and available via the Internet)
contains the comparable statewide average capital CCRs. Again, the
CCRs in Tables 8A and 8B will be used during FY 2012 when hospital-
specific CCRs based on the latest settled cost report are either not
available or are outside the range noted above. Table 8C listed in
section VI. of this Addendum (and available via the Internet)
contains the statewide average total CCRs used under the LTCH PPS as
discussed in section V. of this Addendum.
We finally note that we published a manual update (Change
Request 3966) to our outlier policy on October 12, 2005, which
updated Chapter 3, Section 20.1.2 of the Medicare Claims Processing
Manual. The manual update covered an array of topics, including
CCRs, reconciliation, and the time value of money. We encourage
hospitals that are assigned the statewide average operating and/or
capital CCRs to work with their fiscal intermediary or MAC on a
possible alternative operating and/or capital CCR as explained in
Change Request 3966. Use of an alternative CCR developed by the
hospital in conjunction with the fiscal intermediary or MAC can
avoid possible overpayments or underpayments at cost report
settlement, thus ensuring better accuracy when making outlier
payments and negating the need for outlier reconciliation. We also
note that a hospital may request an alternative operating or capital
CCR ratio at any time as long as the guidelines of Change Request
3966 are followed. Additionally, as mentioned above, we published an
additional manual update (Change Request 7192) to our outlier policy
on December 3, 2010 which also updated Chapter 3, Section 20.1.2 of
the Medicare Claims Processing Manual. The manual update outlines
the outlier reconciliation process for hospitals and Medicare
contractors. To download and view the manual instructions on outlier
reconciliation, we refer readers to the CMS Web site: http://www.cms.hhs.gov/manuals/downloads/clm104c03.pdf.

(3) FY 2010 and FY 2011 Outlier Payments

In the FY 2011 IPPS final rule (75 FR 50431), we stated that,
based on available data, we estimated that actual FY 2010 outlier
payments would be approximately 4.7 percent of actual total DRG
payments. This estimate was computed based on simulations using the
FY 2009 MedPAR file (discharge data for FY 2009 claims). That is,
the estimate of actual outlier payments did not reflect actual FY
2010 claims, but instead reflected the application of FY 2010 rates
and policies to available FY 2009 claims.
Our current estimate, using available FY 2010 claims data, is
that actual outlier

[[Page 51796]]

payments for FY 2010 were approximately 4.7 percent of actual total
DRG payments. Thus, the data indicate that, for FY 2010, the
percentage of actual outlier payments relative to actual total
payments is lower than we projected for FY 2010. Consistent with the
policy and statutory interpretation we have maintained since the
inception of the IPPS, we do not plan to make retroactive
adjustments to outlier payments to ensure that total outlier
payments for FY 2010 are equal to 5.1 percent of total DRG payments.
We currently estimate that actual outlier payments for FY 2011
will be approximately 4.8 percent of actual total DRG payments,
approximately 0.3 percentage points lower than the 5.1 percent we
projected when setting the outlier policies for FY 2011. This
estimate of 4.8 percent is based on simulations using the FY 2010
MedPAR file (discharge data for FY 2010 claims).
Comment: Commenters disagreed with CMS' use of modeled data
versus actual payment data to compute the outlier payment percentage
for FY 2010. The commenters stated that they performed their own
analysis using actual payment information in the MedPAR file which
resulted in outlier payments being 4.36 percent of actual DRG
payments for FY 2010. The commenters recommended that CMS determine
the FY 2010 outlier payment percentage using actual payments rather
than modeled payments.
The commenters disagreed with CMS' reasons in the FY 2011 final
rule (75 FR 50431) for using modeled data instead of actual data. In
last year's final rule, CMS supported its decision to use modeled
data in part because ``while accurate at the time the MedPAR file is
constructed, claims can be cancelled, edited and resubmitted to NCH
after the MedPAR file is built, and therefore the payment field
shown on MedPAR is subject to change and does not necessarily
represent the final payment on that claim.'' The commenters stated
that while this is true, the argument applies equally to modeling
payments from the MedPAR data. The commenters explained that if a
claim is cancelled after the MedPAR file is built, the modeled
payment for that claim will be included in overall estimates.
The commenters further noted that, in last year's final rule,
CMS expressed concern that SCHs and MDHs complicates the use of the
payment field shown on the MedPAR file (75 FR 50431). The commenter
disagreed with CMS and stated that CMS' argument is valid for
determining the DRG-based operating payments needed to calculate
outlier payment levels; however, the SCH/MDH argument does not apply
to outlier payments. The commenters claimed that ``the PRICER
program determines outlier payments for all hospitals, including
SCH/MDHs, based on the Federal rate only.'' The commenters added
that ``the outlier payments are recorded in the ``OUTLIER AMOUNT''
field (and not included in the DRG PRICE).'' Therefore, the
commenters asserted that ``obtaining the outlier payments directly
from the MedPAR file does not introduce complications related to the
SCH/MDH status.'' Moreover, the commenters noted ``that SCH/MDH
hospitals represent a small percent of hospitals overall.''
The commenters also requested further clarification regarding
how CMS conducted its analysis that showed an outlier payment
percentage of 4.7 percent for FY 2010. The commenters specifically
requested that CMS disclose what CCRs were used to develop the FY
2010 estimate payment set forth in the proposed rule, and state
whether the same CCRs or different CCRs were used to determine the
FY 2010 payments as set forth in the FY 2011 proposed and final
rules.
Response: We continue to believe that modeling FY 2010 outlier
payments is a reasonable approach to compute the outlier payment
percentage for that year. Similar to our response in the FY 2011
final rule, to determine the FY 2010 outlier estimate, we used the
FY 2010 PRICER and the latest update of the FY 2010 MedPAR file to
model actual outlier payments for FY 2009. Although the MedPAR does
contain the actual payment amounts to hospitals, we still believe
that modeling actual outlier payments for FY 2010 produces an
enhanced accuracy of actual outlier payments. For example, we model
which SCHs would have greater hospital-specific payment amounts
versus their Federal payments, (similar to what is currently done at
cost report settlement) and exclude those providers from our
determination of FY 2010 actual outlier payments. Also, we believe
modeling actual outlier payments for FY 2010 is consistent with our
approach of using modeling for the rate setting for FY 2011 (which
also models the FY 2010 payments for use in the FY 2011 rate
setting).
The commenters noted that that if a claim is cancelled after the
MedPAR file is built, the modeled payment for that claim will also
be included in overall estimates. While the commenter is correct,
this concern is relevant regardless of whether we use actual data or
modeled data to compute the outlier payment percentage. Therefore,
we do not believe that this argument supports the use of actual
payment data instead of modeled data. As stated above, we continue
to believe that modeling that outlier payment percentage presents
more accuracy.
We disagree with the commenter that obtaining the outlier
payments directly from the MedPAR file does not introduce
complications related to the SCH/MDH status. Specifically, if an SCH
or MDH is paid at the end of its cost reporting year based on its
target amount, then including the payment in the ``Outlier Amount''
field in the outlier payment percentage would distort the
computation of the outlier payment percentage because the hospital's
actual payment was based on its target amount and not the federal
standardized amount. Therefore, as mentioned above, we model which
SCHs would have greater hospital-specific payment amounts versus
payments based on the standardized amount (similar to what is
currently done at cost report settlement), and we then exclude those
providers from our determination of FY 2010 outlier percentage
payout. Because we are modeling which SCHs would have greater
hospital-specific payment amounts versus their Federal payments, we
believe it is appropriate to model the outlier percentage payout.
Without further detail from the commenters, we are unable to
determine why the commenters were unable to duplicate our estimate
of the FY 2010 outlier percentage payout. However, to provide
further clarification of the CCRs used to model the FY 2010 outlier
percentage payout, we used CCRs from the March 2010 update of the
PSF. This is the same file that was used to compute the FY 2010
outlier percentage payout in the FY 2011 proposed and final rules.

5. FY 2012 Standardized Amount

The adjusted standardized amount is divided into labor-related
and nonlabor-related portions. Tables 1A and 1B listed and published
in section VI. of this Addendum (and available via the Internet)
contain the national standardized amounts that we are applying to
all hospitals, except hospitals located in Puerto Rico, for FY 2012.
The Puerto Rico-specific amounts are shown in Table 1C listed and
published in section VI. of this Addendum (and available via the
Internet). The amounts shown in Tables 1A and 1B differ only in that
the labor-related share applied to the standardized amounts in Table
1A is the labor-related share of 68.8 percent, and Table 1B is 62
percent. In accordance with sections 1886(d)(3)(E) and
1886(d)(9)(C)(iv) of the Act, we are applying a labor-related share
of 62 percent, unless application of that percentage would result in
lower payments to a hospital than would otherwise be made. In
effect, the statutory provision means that we will apply a labor-
related share of 62 percent for all hospitals (other than those in
Puerto Rico) whose wage indices are less than or equal to 1.0000.
In addition, Tables 1A and 1B include the standardized amounts
reflecting the applicable percentage increase of 1.9 percent for FY
2012, and an update of -0.1 percent for hospitals that fail to
submit quality data consistent with section 1886(b)(3)(B)(viii) of
the Act.
Under section 1886(d)(9)(A)(ii) of the Act, the Federal portion
of the Puerto Rico payment rate is based on the discharge-weighted
average of the national large urban standardized amount (this amount
is set forth in Table 1A). The labor-related and nonlabor-related
portions of the national average standardized amounts for Puerto
Rico hospitals for FY 2012 are set forth in Table 1C listed and
published in section VI. of this Addendum (and available via the
Internet). This table also includes the Puerto Rico standardized
amounts. The labor-related share applied to the Puerto Rico specific
standardized amount is the labor-related share of 62.1 percent, or
62 percent, depending on which provides higher payments to the
hospital. (Section 1886(d)(9)(C)(iv) of the Act, as amended by
section 403(b) of Public Law 108-173, provides that the labor-
related share for hospitals located in Puerto Rico be 62 percent,
unless the application of that percentage would result in lower
payments to the hospital.)
The following table illustrates the changes from the FY 2011
national standardized amount. The second column shows the changes
from the FY 2011 standardized amounts for hospitals that satisfy the
quality

[[Page 51797]]

data submission requirement and therefore receive the full update of
1.9 percent. The third column shows the changes for hospitals
receiving the reduced update of -0.1 percent. The first row of the
table shows the updated (through FY 2011) average standardized
amount after restoring the FY 2011 offsets for outlier payments,
demonstration budget neutrality and the geographic reclassification
budget neutrality. The DRG reclassification and recalibration wage
index budget neutrality factors are cumulative. Therefore, the FY
2011 factor is not removed from this table.

Comparison of FY 2011 Standardized Amounts to the FY 2012 Standardized Amount With Full and Reduced Update
--------------------------------------------------------------------------------------------------------------------------------------------------------
Full Update (1.5 Reduced Update (-0.1
Full Update (1.9 percent); Wage index is Reduced Update (-0.1 percent); Wage index is
percent); Wage index is less than or equal to percent); Wage index is less than or equal to
greater than 1.0000 1.0000 greater than 1.0000 1.0000
--------------------------------------------------------------------------------------------------------------------------------------------------------
FY 2011 Base Rate, after removing geographic Labor: $3,947.65 Labor: $3,557.48 Labor: $3,947.65 Labor: $3,557.48
reclassification budget neutrality, Nonlabor: $1,790.21 Nonlabor: $2,180.39 Nonlabor: $1,790.21 Nonlabor: $2,180.39
demonstration budget neutrality, cumulative FY
2008 and FY 2009 documentation and coding
adjustment, FY 2011 documentation and coding
recoupment, and outlier offset (based on the
labor-related share percentage for FY 2011)....
FY 2012 Update Factor........................... 1.019 1.019 0.999 0.999
Adjustment for Restoring Rural Floor Budget 1.011 1.011 1.011 1.011
Neutrality.....................................
FY 2012 DRG Recalibration and Wage Index Budget 0.99846 0.99846 0.99846 0.99846
Neutrality Factor..............................
FY 2012 Reclassification Budget Neutrality 0.991493 0.991493 0.991493 0.991493
Factor.........................................
FY 2012 Rural Demonstration Budget Neutrality 0.999487 0.999487 0.999487 0.999487
Factor.........................................
FY 2012 Outlier Factor.......................... 0.948990 0.948990 0.948990 0.948990
Documentation and coding adjustments required 0.9386 0.9386 0.9386 0.9386
under sections 7(b)(1)(A) and 7(b)(1)(B) of
Public Law 110-90..............................
Final Rate for FY 2012.......................... Labor: $3,584.30 Labor: $3,230.04 Labor: $3,513.95 Labor: $3,166.64
Nonlabor: $1,625.44 Nonlabor: $1,979.70 Nonlabor: $1,593.54 Nonlabor: $1,940.85
--------------------------------------------------------------------------------------------------------------------------------------------------------

B. Adjustments for Area Wage Levels and Cost-of-Living

Tables 1A through 1C, as published in section VI. of this
Addendum (and available via the Internet), contain the labor-related
and nonlabor-related shares that we used to calculate the
prospective payment rates for hospitals located in the 50 States,
the District of Columbia, and Puerto Rico for FY 2012. This section
addresses two types of adjustments to the standardized amounts that
are made in determining the prospective payment rates as described
in this Addendum.

1. Adjustment for Area Wage Levels

Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require
that we make an adjustment to the labor-related portion of the
national and Puerto Rico prospective payment rates, respectively, to
account for area differences in hospital wage levels. This
adjustment is made by multiplying the labor-related portion of the
adjusted standardized amounts by the appropriate wage index for the
area in which the hospital is located. In section III. of the
preamble of this final rule, we discuss the data and methodology for
the FY 2012 wage index.

2. Adjustment for Cost-of-Living in Alaska and Hawaii

Section 1886(d)(5)(H) of the Act authorizes the Secretary to
make an adjustment to take into account the unique circumstances of
hospitals located in Alaska and Hawaii. Higher labor-related costs
for these two States are taken into account in the adjustment for
area wages described above. For FY 2011 and in prior fiscal years,
we used the most recent updated cost of living adjustment (COLA)
factors obtained from the U.S. Office of Personnel Management (OPM)
Web site at http://www.opm.gov/oca/cola/rates.asp. We multiply the
nonlabor-related portion of the standardized amount by the
applicable adjustment factor.
Sections 1911 through 1919 of the Nonforeign Area Retirement
Equity Assurance Act, as contained in subtitle B of title XIX of the
National Defense Authorization Act (NDAA) for Fiscal Year 2010 (Pub.
L. 111-84, October 28, 2009) transitions the Alaska and Hawaii COLAs
to locality pay. Under section 1914 of Public Law 111-84, locality
pay is being phased in over a 3-year period beginning in January
2010 with COLA rates frozen as of the date of enactment, October 28,
2009, and then proportionately reduced to reflect the phase-in of
locality pay.
In the proposed rule, we stated that we did not believe it was
appropriate to use either the 2010 or 2011 reduced factors for
adjusting the nonlabor-related portion of the standardized amount
for hospitals in Alaska and Hawaii for Medicare payment purposes.
Therefore, for FY 2012, we proposed to continue to use the same COLA
factors (published by OPM) that we used to adjust payments in FY
2011 (which are based on OPMs 2009 COLA factors) to adjust the
nonlabor-related portion of the standardized amount for hospitals
located in Alaska and Hawaii. We stated that we believe using these
COLAs will appropriately adjust the nonlabor-related portion of the
standardized amount for hospitals in Alaska and Hawaii consistent
with section 1886(d)(5)(H) of the Act.
We did not receive any public comments on our proposal.
Therefore, we are finalizing our proposal to use the same factors
currently in use under the IPPS for FY 2011 for FY 2012. Below is a
table of factors obtained from OPM that we are using for FY 2012.

[[Page 51798]]

Table of Cost-of-Living Adjustment Factors: Alaska and Hawaii Hospitals
------------------------------------------------------------------------
Cost of living
Area adjustment
factor
------------------------------------------------------------------------
Alaska:
City of Anchorage and 80-kilometer (50-mile) 1.23
radius by road...................................
City of Fairbanks and 80-kilometer (50-mile) 1.23
radius by road...................................
City of Juneau and 80-kilometer (50-mile) radius 1.23
by road..........................................
Rest of Alaska.................................... 1.25
Hawaii:
City and County of Honolulu....................... 1.25
County of Hawaii.................................. 1.18
County of Kauai................................... 1.25
County of Maui and County of Kalawao.............. 1.25
------------------------------------------------------------------------
(The above factors are based on data obtained from the U.S. Office of
Personnel Management Web site at: http://www.opm.gov/oca/cola/rates.asp.)

C. MS-DRG Relative Weights

As discussed in section II.H. of the preamble of this final
rule, we have developed relative weights for each MS-DRG that
reflect the resource utilization of cases in each MS-DRG relative to
Medicare cases in other MS-DRGs. Table 5 listed in section VI. of
this Addendum (and available via the Internet) contains the relative
weights that we are applying to discharges occurring in FY 2012.
These factors have been recalibrated as explained in section II. of
the preamble of this final rule.

D. Calculation of the Prospective Payment Rates

General Formula for Calculation of the Prospective Payment Rates for FY
2012

In general, the operating prospective payment rate for all
hospitals paid under the IPPS located outside of Puerto Rico, except
SCHs and MDHs, for FY 2012 equals the Federal rate.
Currently, SCHs are paid based on whichever of the following
rates yields the greatest aggregate payment: The Federal national
rate; the updated hospital-specific rate based on FY 1982 costs per
discharge; the updated hospital-specific rate based on FY 1987 costs
per discharge; the updated hospital-specific rate based on FY 1996
costs per discharge; or the updated hospital-specific rate based on
the FY 2006 costs per discharge to determine the rate that yields
the greatest aggregate payment.
The prospective payment rate for SCHs for FY 2012 equals the
higher of the applicable Federal rate, or the hospital-specific rate
as described below. The prospective payment rate for MDHs for FY
2012 equals the higher of the Federal rate, or the Federal rate plus
75 percent of the difference between the Federal rate and the
hospital-specific rate as described below. For MDHs, the updated
hospital-specific rate is based on FY 1982, FY 1987 or FY 2002 costs
per discharge, whichever yields the greatest aggregate payment.
The prospective payment rate for hospitals located in Puerto
Rico for FY 2012 equals 25 percent of the Puerto Rico rate plus 75
percent of the applicable national rate.

1. Federal Rate

The Federal rate is determined as follows:
Step 1--Select the applicable average standardized amount
depending on whether the hospital submitted qualifying quality data
(full update for hospitals submitting quality data; update including
a -2.0 percent adjustment for hospitals that did not submit these
data).
Step 2--Multiply the labor-related portion of the standardized
amount by the applicable wage index for the geographic area in which
the hospital is located or the area to which the hospital is
reclassified.
Step 3--For hospitals in Alaska and Hawaii, multiply the
nonlabor-related portion of the standardized amount by the
applicable cost-of-living adjustment factor.
Step 4--Add the amount from Step 2 and the nonlabor-related
portion of the standardized amount (adjusted, if applicable, under
Step 3).
Step 5--Multiply the final amount from Step 4 by the relative
weight corresponding to the applicable MS-DRG (Table 5 listed in
section VI. of this Addendum and available via the Internet).
The Federal rate as determined in Step 5 may then be further
adjusted if the hospital qualifies for either the IME or DSH
adjustment. In addition, for hospitals that qualify for a low-volume
payment adjustment under section 1886(d)(12) of the Act and 42 CFR
412.101(b), the payment in Step 5 would be increased by the formula
described in section IV.E. of the preamble of this final rule.

2. Hospital-Specific Rate (Applicable Only to SCHs and MDHs)

a. Calculation of Hospital-Specific Rate

Section 1886(b)(3)(C) of the Act provides that currently 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 the FY 2006 costs per
discharge to determine the rate that yields the greatest aggregate
payment.
As discussed previously, currently MDHs are paid based on the
Federal national rate or, if higher, the Federal national rate plus
75 percent of the difference between the Federal national rate and
the greater of the updated hospital-specific rates based on either
FY 1982, FY 1987 or FY 2002 costs per discharge.
Hospital-specific rates have been determined for each of these
hospitals based on the FY 1982 costs per discharge, the FY 1987
costs per discharge, or, for SCHs, the FY 1996 costs per discharge
or the FY 2006 costs per discharge, and for MDHs, the FY 2002 cost
per discharge. For a more detailed discussion of the calculation of
the hospital-specific rates, we refer the reader to the FY 1984 IPPS
interim final rule (48 FR 39772); the April 20, 1990 final rule with
comment period (55 FR 15150); the FY 1991 IPPS final rule (55 FR
35994); and the FY 2001 IPPS final rule (65 FR 47082).

b. Updating the FY 1982, FY 1987, FY 1996, FY 2002, and FY 2006
Hospital-Specific Rates for FY 2012

Section 1886(b)(3)(B)(iv) of the Act provides that the
applicable percentage increase applicable to the hospital-specific
rates for SCHs and MDHs equals the applicable percentage increase
set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same
update factor as for all other hospitals subject to the IPPS).
Because the Act sets the update factor for SCHs and MDHs equal to
the update factor for all other IPPS hospitals, the update to the
hospital specific rates for SCHs and MDHs is subject to the
amendments to section 1886(b)(3)(B) of the Act made by sections
3401(a) and 10319(a) of the Affordable Care Act. Accordingly, the
applicable percentage increase to the hospital-specific rates
applicable to SCHs and MDHs is 1.9 percent (that is, the FY 2012
estimate of the market basket rate-of-increase of 3.0 percent less
an adjustment of 1.0 percentage point for multifactor productivity
and less 0.1 percentage point) for hospitals that submit quality
data or -0.1 percent (that is, the FY 2012 estimate of the market
basket rate-of-increase of 3.0 percent, less 2.0 percentage points
for failure to submit data under the Hospital IQR Program, less an
adjustment of 1.0 percentage point for multifactor productivity, and
less 0.1 percentage point) for hospitals that fail to submit quality
data. For a complete discussion of the applicable percentage
increase applicable to the hospital-specific rates for SCHs and
MDHs, we refer readers to section IV.H. of the preamble of this
final rule.

[[Page 51799]]

In addition, because SCHs and MDHs use the same MS-DRGs as other
hospitals when they are paid based in whole or in part on the
hospital-specific rate, the hospital-specific rate is adjusted by a
budget neutrality factor to ensure that changes to the DRG
classifications and the recalibration of the DRG relative weights
are made in a manner so that aggregate IPPS payments are unaffected.
Therefore, for both SCHs and MDHs, the hospital-specific rate is
adjusted by the DRG reclassification and recalibration budget
neutrality factor of 0.997903, as discussed in section III. of this
Addendum. The resulting rate is used in determining the payment rate
an SCH or MDH will receive for its discharges beginning on or after
October 1, 2011.

c. Documentation and Coding Adjustment to the FY 2012 Hospital-Specific
Rates for SCHs and MDHs

As discussed in section II.D. of the preamble of this final
rule, because hospitals (SCHs and MDHs) paid based in whole or in
part 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. Under
section 1886(d)(3)(A)(vi) of the Act, Congress stipulated that
hospitals paid based on the standardized amount should not receive
additional payments based on the effect of documentation and coding
changes that do not reflect real changes in case-mix. Similarly, we
believe that hospitals paid based on the hospital-specific rate
should not have the potential to realize increased payments due to
documentation and coding changes that do not reflect real increases
in patients' severity of illness. Therefore, as discussed in the FY
2011 IPPS/LTCH PPS final rule (75 FR 50426) and in section II.D. of
the preamble of this final rule, we believe they should be equally
subject to a prospective budget neutrality adjustment that we are
applying for adoption of the MS-DRGs to all other hospitals. 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.
As we discuss in section II.D. of the preamble of this final
rule, our best estimate, based on the most recently available data,
is that a cumulative adjustment of -5.4 percent is required to
eliminate the full effect of the documentation and coding changes on
future payments to SCHs and MDHs. Unlike the case of standardized
amounts paid to IPPS hospitals, prior to FY 2011 we had not made any
previous adjustments to the hospital specific rates paid to SCHs and
MDHs to account for documentation and coding changes. Consequently,
in order to maintain consistency as far as possible with the
adjustments applied to IPPS hospitals, we made an adjustment of -2.9
percent in FY 2011 to the hospital-specific rates paid to SCHs and
MDHs.
As discussed above, we are making a -2.0 percent documentation
and coding adjustment for IPPS hospitals in FY 2012 (-2.0 percent
prospective adjustment plus a -2.9 percent recoupment adjustment in
FY 2012, offset by the removal of the -2.9 percent recoupment
adjustment for FY 2011). We believe that any adjustment to the
hospital-specific rate due to documentation and coding effect should
be as similar as possible to adjustments to the IPPS rate.
Accordingly, we are making a -2.0 percent payment adjustment to the
hospital-specific rate. We believe that a prospective adjustment of
-2.0 percent allows CMS to maintain, to the extent possible,
similarity and consistency in payment rates for different IPPS
hospitals paid using the MS-DRG.

d. Adjustment To Restore Prior Rural Floor Budget Neutrality Offsets

As discussed in section II.A.4.d. of this Addendum, in light of
the Cape Cod decision, we are adjusting hospital-specific amounts by
0.9 percent to restore to these amounts the offset for the rural
floor and imputed floor in prior years. Our rationale and
methodology for such adjustment are explained in section II.A.4.d of
this Addendum. As with the standardized amount, we are returning 0.7
percentage point for FYs 1998 through 2004, and 0.2 percentage point
for FY 2005 to the hospital-specific rates. We note that, in the FY
2006 IPPS final rule (70 FR 47429 and 47430), beginning in FY 2006,
we changed our methodology and began applying only the DRG
reclassification and recalibration budget neutrality factor to the
hospital-specific rates. Because the rural floor budget neutrality
adjustment was not applied to the hospital-specific rates in FYs
2006 and 2007, we are not including FY 2006 and FY 2007 in our
assessment. Therefore, to remove the effects of the rural floor from
the hospital-specific rates for FYs 1998 through 2005, we are
applying a one-time permanent adjustment of 0.9 percent to the
hospital-specific rates (that is, a factor of 1.009). We received
comments requesting complete explanations of the methodologies and
data used in the calculation of the 1.1 and 0.9 percent adjustments
to the standardized amount and hospital-specific rate. A complete
summary and response to this comment can be found above in section
II.A.4.d. of this Addendum.

3. General Formula for Calculation of Prospective Payment Rates for
Hospitals Located in Puerto Rico Beginning on or After October 1, 2011,
and Before October 1, 2012

Section 1886(d)(9)(E)(iv) of the Act provides that, effective
for discharges occurring on or after October 1, 2004, hospitals
located in Puerto Rico are paid based on a blend of 75 percent of
the national prospective payment rate and 25 percent of the Puerto
Rico-specific rate.

a. Puerto Rico Rate

The Puerto Rico prospective payment rate is determined as
follows:
Step 1--Select the applicable average standardized amount
considering the applicable wage index (Table 1C published in section
VI. of this Addendum and available via the Internet).
Step 2--Multiply the labor-related portion of the standardized
amount by the applicable Puerto Rico-specific wage index.
Step 3--Add the amount from Step 2 and the nonlabor-related
portion of the standardized amount.
Step 4--Multiply the amount from Step 3 by the applicable MS-DRG
relative weight (Table 5 listed in section VI. of this Addendum and
available via the Internet).
Step 5--Multiply the result in Step 4 by 25 percent.

b. National Rate

The national prospective payment rate is determined as follows:
Step 1--Select the applicable average standardized amount.
Step 2--Multiply the labor-related portion of the standardized
amount by the applicable wage index for the geographic area in which
the hospital is located or the area to which the hospital is
reclassified.
Step 3--Add the amount from Step 2 and the nonlabor-related
portion of the national average standardized amount.
Step 4--Multiply the amount from Step 3 by the applicable MS-DRG
relative weight (Table 5 listed in section VI. of this Addendum and
available via the Internet).
Step 5--Multiply the result in Step 4 by 75 percent.
The sum of the Puerto Rico rate and the national rate computed
above equals the prospective payment for a given discharge for a
hospital located in Puerto Rico. This rate is then further adjusted
if the hospital qualifies for either the IME or DSH adjustment.

III. Changes to Payment Rates for Acute Care Hospital Inpatient
Capital-Related Costs for FY 2012

The PPS for acute care hospital inpatient capital-related costs
was implemented for cost reporting periods beginning on or after
October 1, 1991. Effective with that cost reporting period,
hospitals were paid during a 10-year transition period (which
extended through FY 2001) to change the payment methodology for
Medicare acute care hospital inpatient capital-related costs from a
reasonable cost-based methodology to a prospective methodology
(based fully on the Federal rate).
The basic methodology for determining Federal capital
prospective rates is set forth in the regulations at 42 CFR 412.308
through 412.352. Below we discuss the factors that we used to
determine the capital Federal rate for FY 2012, which is effective
for discharges occurring on or after October 1, 2011.
The 10-year transition period ended with hospital cost reporting
periods beginning on or after October 1, 2001 (FY 2002). Therefore,
for cost reporting periods beginning in FY 2002, all hospitals
(except ``new'' hospitals under Sec. 412.304(c)(2)) are paid based
on the capital Federal rate. For FY 1992, we computed the standard
Federal payment rate for capital-related costs under the IPPS by
updating the FY 1989 Medicare inpatient capital cost per case by an
actuarial estimate of the increase in Medicare inpatient capital

[[Page 51800]]

costs per case. Each year after FY 1992, we update the capital
standard Federal rate, as provided at Sec. 412.308(c)(1), to
account for capital input price increases and other factors. The
regulations at Sec. 412.308(c)(2) also provide that the capital
Federal rate be adjusted annually by a factor equal to the estimated
proportion of outlier payments under the capital Federal rate to
total capital payments under the capital Federal rate. In addition,
Sec. 412.308(c)(3) requires that the capital Federal rate be
reduced by an adjustment factor equal to the estimated proportion of
payments for (regular and special) exceptions under Sec. 412.348.
Section 412.308(c)(4)(ii) requires that the capital standard Federal
rate be adjusted so that the effects of the annual DRG
reclassification and the recalibration of DRG weights and changes in
the geographic adjustment factor (GAF) are budget neutral.
For FYs 1992 through 1995, Sec. 412.352 required that the
capital Federal rate also be adjusted by a budget neutrality factor
so that aggregate payments for inpatient hospital capital costs were
projected to equal 90 percent of the payments that would have been
made for capital-related costs on a reasonable cost basis during the
respective fiscal year. That provision expired in FY 1996. Section
412.308(b)(2) describes the 7.4 percent reduction to the capital
Federal rate that was made in FY 1994, and Sec. 412.308(b)(3)
describes the 0.28 percent reduction to the capital Federal rate
made in FY 1996 as a result of the revised policy for paying for
transfers. In FY 1998, we implemented section 4402 of Public Law
105-33, which required that, for discharges occurring on or after
October 1, 1997, the budget neutrality adjustment factor in effect
as of September 30, 1995, be applied to the unadjusted capital
standard Federal rate and the unadjusted hospital-specific rate.
That factor was 0.8432, which was equivalent to a 15.68 percent
reduction to the unadjusted capital payment rates. An additional 2.1
percent reduction to the rates was effective from October 1, 1997
through September 30, 2002, making the total reduction 17.78
percent. As we discussed in the FY 2003 IPPS final rule (67 FR
50102) and implemented in Sec. 412.308(b)(6), the 2.1 percent
reduction was restored to the unadjusted capital payment rates
effective October 1, 2002.
To determine the appropriate budget neutrality adjustment factor
and the regular exceptions payment adjustment during the 10-year
transition period, we developed a dynamic model of Medicare
inpatient capital-related costs; that is, a model that projected
changes in Medicare inpatient capital-related costs over time. With
the expiration of the budget neutrality provision, the capital cost
model was only used to estimate the regular exceptions payment
adjustment and other factors during the transition period. As we
explained in the FY 2002 IPPS final rule (66 FR 39911), beginning in
FY 2002, an adjustment for regular exception payments is no longer
necessary because regular exception payments were only made for cost
reporting periods beginning on or after October 1, 1991, and before
October 1, 2001 (we refer readers to Sec. 412.348(b) of our
regulations). Because payments are no longer made under the regular
exception policy effective with cost reporting periods beginning in
FY 2002, we discontinued use of the capital cost model. The capital
cost model and its application during the transition period are
described in Appendix B of the FY 2002 IPPS final rule (66 FR
40099).
Section 412.374 provides for blended payments to hospitals
located in Puerto Rico under the IPPS for acute care hospital
inpatient capital-related costs. Accordingly, under the capital PPS,
we compute a separate payment rate specific to hospitals located in
Puerto Rico using the same methodology used to compute the national
Federal rate for capital-related costs. In accordance with section
1886(d)(9)(A) of the Act, under the IPPS for acute care hospital
operating costs, hospitals located in Puerto Rico are paid for
operating costs under a special payment formula. Prior to FY 1998,
hospitals located in Puerto Rico were paid a blended operating rate
that consisted of 75 percent of the applicable standardized amount
specific to Puerto Rico hospitals and 25 percent of the applicable
national average standardized amount. Similarly, prior to FY 1998,
hospitals located in Puerto Rico were paid a blended capital rate
that consisted of 75 percent of the applicable capital Puerto Rico-
specific rate and 25 percent of the applicable capital Federal rate.
However, effective October 1, 1997, in accordance with section 4406
of Public Law 105-33, the methodology for operating payments made to
hospitals located in Puerto Rico under the IPPS was revised to make
payments based on a blend of 50 percent of the applicable
standardized amount specific to Puerto Rico hospitals and 50 percent
of the applicable national average standardized amount. In
conjunction with this change to the operating blend percentage,
effective with discharges occurring on or after October 1, 1997, we
also revised the methodology for computing capital payments to
hospitals located in Puerto Rico to be based on a blend of 50
percent of the Puerto Rico capital rate and 50 percent of the
national capital Federal rate.
As we discussed in the FY 2005 IPPS final rule (69 FR 49185),
section 504 of Public Law 108-173 increased the national portion of
the operating IPPS payments for hospitals located in Puerto Rico
from 50 percent to 62.5 percent and decreased the Puerto Rico
portion of the operating IPPS payments from 50 percent to 37.5
percent for discharges occurring on or after April 1, 2004 through
September 30, 2004 (refer to the March 26, 2004 One-Time
Notification (Change Request 3158)). In addition, section 504 of
Public Law 108-173 provided that the national portion of operating
IPPS payments for hospitals located in Puerto Rico is equal to 75
percent and the Puerto Rico-specific portion of operating IPPS
payments is equal to 25 percent for discharges occurring on or after
October 1, 2004. Consistent with that change in operating IPPS
payments to hospitals located in Puerto Rico, for FY 2005 we revised
the methodology for computing capital payments to hospitals located
in Puerto Rico to be based on a blend of 25 percent of the Puerto
Rico-specific capital rate and 75 percent of the national capital
Federal rate for discharges occurring on or after October 1, 2004
(69 FR 49185).

A. Determination of Federal Hospital Inpatient Capital-Related
Prospective Payment Rate Update

In the discussion that follows, we explain the factors that we
used to determine the capital Federal rate for FY 2012. In
particular, we explain why the FY 2012 capital Federal rate
increases approximately 0.3 percent, compared to the FY 2011 capital
Federal rate. As discussed in the impact analysis in Appendix A of
this final rule, we estimate that capital payments per discharge
will increase 1.8 percent during that same period. Because capital
payments constitute about 10 percent of hospital payments, a percent
change in the capital Federal rate yields only about a 0.1 percent
change in actual payments to hospitals.

1. Projected Capital Standard Federal Rate Update

a. Description of the Update Framework

Under Sec. 412.308(c)(1), the capital standard Federal rate is
updated on the basis of an analytical framework that takes into
account changes in a capital input price index (CIPI) and several
other policy adjustment factors. Specifically, we adjust the
projected CIPI rate-of-increase as appropriate each year for case-
mix index-related changes, for intensity, and for errors in previous
CIPI forecasts. The update factor for FY 2012 under that framework
is 1.5 percent based on the best data available at this time. The
update factor under that framework is based on a projected 1.5
percent increase in the CIPI, a 0.0 percent adjustment for
intensity, a 0.0 percent adjustment for case-mix, a 0.0 percent
adjustment for the FY 2010 DRG reclassification and recalibration,
and a forecast error correction of 0.0 percent. As discussed below
in section III.C. of this Addendum, we continue to believe that the
CIPI is the most appropriate input price index for capital costs to
measure capital price changes in a given year. We also explain the
basis for the FY 2012 CIPI projection in that same section of this
Addendum. We note, as discussed in section VI.E.1. of the preamble
of this final rule, we are applying a -1.0 percent adjustment to the
capital rate in FY 2012 to account for the effect of changes in
documentation and coding under the MS-DRGs that do not correspond to
changes in real increases in patients' severity of illness. Below we
describe the policy adjustments that we are applying in the update
framework for FY 2012.
The case-mix index is the measure of the average DRG weight for
cases paid under the IPPS. Because the DRG weight determines the
prospective payment for each case, any percentage increase in the
case-mix index corresponds to an equal percentage increase in
hospital payments.
The case-mix index can change for any of several reasons:
The average resource use of Medicare patients changes
(``real'' case-mix change);
Changes in hospital documentation and coding of patient
records result in higher

[[Page 51801]]

weight DRG assignments (``coding effects''); and
The annual DRG reclassification and recalibration
changes may not be budget neutral (``reclassification effect'').
We define real case-mix change as actual changes in the mix (and
resource requirements) of Medicare patients as opposed to changes in
documentation and coding behavior that result in assignment of cases
to higher weighted DRGs but do not reflect higher resource
requirements. The capital update framework includes the same case-
mix index adjustment used in the former operating IPPS update
framework (as discussed in the May 18, 2004 IPPS proposed rule for
FY 2005 (69 FR 28816)). (We no longer use an update framework to
make a recommendation for updating the operating IPPS standardized
amounts as discussed in section II. of Appendix B in the FY 2006
IPPS final rule (70 FR 47707).)
For FY 2012, we are projecting a 1.0 percent total increase in
the case-mix index. We estimated that the real case-mix increase
will also equal 1.0 percent for FY 2012. The net adjustment for
change in case-mix is the difference between the projected real
increase in case-mix and the projected total increase in case-mix.
Therefore, as we proposed, the net adjustment for case-mix change in
FY 2012 is 0.0 percentage point.
The capital update framework also contains an adjustment for the
effects of DRG reclassification and recalibration. This adjustment
is intended to remove the effect on total payments of prior year's
changes to the DRG classifications and relative weights, in order to
retain budget neutrality for all case-mix index-related changes
other than those due to patient severity. Due to the lag time in the
availability of data, there is a 2-year lag in data used to
determine the adjustment for the effects of DRG reclassification and
recalibration. For example, we have data available to evaluate the
effects of the FY 2010 DRG reclassification and recalibration as
part of our update for FY 2012. To adjust for reclassification and
recalibration effects, under our historical methodology, we would
run the FY 2010 cases through the FY 2009 GROUPER and through the FY
2010 GROUPER. If the resulting ratio of the case-mix indices did not
equate to 1.0, in the update framework for FY 2012, we would make an
adjustment to account for the reclassification and recalibration
effects in FY 2010. In the update framework for FY 2011 (the FY 2011
IPPS final rule (75 FR 50435)), we did not adjust for
reclassification and recalibration effects from FY 2009 because it
was accounted for in the documentation and coding adjustment to the
capital Federal rates for FY 2011. For FY 2012, we are not
performing an analysis of changes in case-mix in FY 2010 due to the
effect of documentation and coding, as this would be most consistent
with our approach under the operating IPPS. Therefore, at this time,
under our broad authority in section 1886(g) of the Act, as we
proposed, we are making a 0.0 percent adjustment for
reclassification and recalibration in the update framework. We may
evaluate the effect of FY 2010 reclassification and recalibration if
we perform an analysis of the documentation and coding effect in FY
2010 in future rulemaking.
The capital update framework also contains an adjustment for
forecast error. The input price index forecast is based on
historical trends and relationships ascertainable at the time the
update factor is established for the upcoming year. In any given
year, there may be unanticipated price fluctuations that may result
in differences between the actual increase in prices and the
forecast used in calculating the update factors. In setting a
prospective payment rate under the framework, we make an adjustment
for forecast error only if our estimate of the change in the capital
input price index for any year is off by 0.25 percentage point or
more. There is a 2-year lag between the forecast and the
availability of data to develop a measurement of the forecast error.
A forecast error of -0.2 percentage point was calculated for the FY
2012 update. That is, current historical data indicate that the
forecasted FY 2010 CIPI (1.2 percent) used in calculating the FY
2010 update factor was 0.2 percentage point higher than the actual
realized price increases (1.0 percent). The two primary contributing
factors for the FY 2010 CIPI forecast being slightly higher than the
actual FY 2010 increase in the CIPI were that the prices for the
nonprofit and government interest cost category grew slower than
what had been forecasted, and the prices for the other capital
expenses cost category also grew slower than what had been
forecasted. Because the estimation of the FY 2010 forecast error for
the CIPI is not greater than 0.25 percentage point, as we proposed,
we are making a 0.0 percent adjustment for forecast error in the
update for FY 2012.
Under the capital IPPS update framework, we also make an
adjustment for changes in intensity. Historically, we calculated
this adjustment using the same methodology and data that were used
in the past under the framework for operating IPPS. The intensity
factor for the operating update framework reflected how hospital
services are utilized to produce the final product, that is, the
discharge. This component accounts for changes in the use of
quality-enhancing services, for changes within DRG severity, and for
expected modification of practice patterns to remove non-cost-
effective services. Our intensity measure is based on a 5-year
average.
Historically, we calculated case-mix constant intensity as the
change in total charges per admission, adjusted for price level
changes (the CIPI for hospital and related services) and changes in
real case-mix. Without reliable estimates of the proportions of the
overall annual intensity increases that are due, respectively, to
ineffective practice patterns and the combination of quality-
enhancing new technologies and complexity within the DRG system, we
assume that one-half of the annual increase is due to each of these
factors. The capital update framework thus provides an add-on to the
input price index rate of increase of one-half of the estimated
annual increase in intensity, to allow for increases within DRG
severity and the adoption of quality-enhancing technology.
We developed a Medicare-specific intensity measure based on a 5-
year average. Past studies of case-mix change by the RAND
Corporation (Has DRG Creep Crept Up? Decomposing the Case Mix Index
Change Between 1987 and 1988 by G. M. Carter, J. P. Newhouse, and D.
A. Relles, R-4098-HCFA/ProPAC (1991)) suggest that real case-mix
change was not dependent on total change, but was usually a fairly
steady increase of 1.0 to 1.5 percent per year. However, we used 1.4
percent as the upper bound because the RAND study did not take into
account that hospitals may have induced doctors to document medical
records more completely in order to improve payment.
In accordance with Sec. 412.308(c)(1)(ii), we began updating
the capital standard Federal rate in FY 1996 using an update
framework that takes into account, among other things, allowable
changes in the intensity of hospital services, as noted above. For
much of the last decade, we found that the charge data appeared to
be skewed as a result of hospitals attempting to maximize outlier
payments, while lessening costs, and we established a 0.0 percent
adjustment for intensity in each of those years. Therefore, for FY
2011, in an effort to further refine the intensity adjustment and
more accurately reflect allowable changes in hospital intensity, we
revised our intensity measure to use changes in hospital costs per
discharge over a 5-year average rather than changes in hospital
charges, which had been the basis of the intensity adjustment in
prior years. The unique nature of capital--how and when it is
purchased, its longevity, and how it is financed--creates a greater
degree of variance in capital cost among hospitals than does
operating cost. As discussed in the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50436), we believe that using changes in capital costs per
discharge as the basis for the intensity adjustment in lieu of
changes in charges will decrease some of the variability of this
adjustment. In this final rule, for FY 2012, as we proposed, we are
using an intensity measure that is based on a 5-year adjusted
average of cost per discharge, as we did for FY 2011. Therefore, the
intensity measure for FY 2012 is based on an average of cost per
discharge data from the 5-year period beginning with FY 2005 and
extending through FY 2009. Based on these data, we estimated that
case-mix constant intensity declined during FYs 2005 through 2009.
In the past, when we found intensity to be declining, we believed a
zero (rather than negative) intensity adjustment was appropriate.
Consistent with this approach, because we estimate that intensity
declined during that 5-year period, we believe it is appropriate to
continue to apply a zero intensity adjustment for FY 2012.
Therefore, as we proposed, we are making a 0.0 percent adjustment
for intensity in the update for FY 2012.
Above, we described the basis of the components used to develop
the 1.5 percent capital update factor under the capital update
framework for FY 2012 as shown in the table below.

[[Page 51802]]

CMS FY 2012 Update Factor to the Capital Federal Rate
------------------------------------------------------------------------

------------------------------------------------------------------------
Capital Input Price Index.................................. 1.5
Intensity:................................................. 0.0
Case-Mix Adjustment Factors:
Real Across DRG Change................................. -1.0
Projected Case-Mix Change.............................. 1.0
------------
Subtotal........................................... 1.5
Effect of FY 2010 Reclassification and Recalibration....... 0.0
Forecast Error Correction.................................. 0.0
------------
Total Update........................................... 1.5
------------------------------------------------------------------------

b. Comparison of CMS and MedPAC Update Recommendation

In its March 2011 Report to Congress, MedPAC did not make a
specific update recommendation for capital IPPS payments for FY
2012. (MedPAC's Report to the Congress: Medicare Payment Policy,
March 2011, Chapter 3).

2. Outlier Payment Adjustment Factor

Section 412.312(c) establishes a unified outlier payment
methodology for inpatient operating and inpatient capital-related
costs. A single set of thresholds is used to identify outlier cases
for both inpatient operating and inpatient capital-related payments.
Section 412.308(c)(2) provides that the standard Federal rate for
inpatient capital-related costs be reduced by an adjustment factor
equal to the estimated proportion of capital-related outlier
payments to total inpatient capital-related PPS payments. The
outlier thresholds are set so that operating outlier payments are
projected to be 5.1 percent of total operating IPPS DRG payments.
For FY 2011, we estimated that outlier payments for capital
would equal 5.96 percent of inpatient capital-related payments based
on the capital Federal rate in FY 2011. Based on the thresholds as
set forth in section II.A. of this Addendum, we estimate that
outlier payments for capital-related costs will equal 6.18 percent
for inpatient capital-related payments based on the capital Federal
rate in FY 2012. Therefore, we are applying an outlier adjustment
factor of 0.9382 in determining the capital Federal rate. Thus, we
estimate that the percentage of capital outlier payments to total
capital standard payments for FY 2012 will be slightly higher than
the percentage for FY 2011. This slight increase in estimated
capital outlier payments is primarily due to the decrease in the
outlier threshold used to identify outlier cases for both inpatient
operating and inpatient capital-related payments, which is discussed
in section II.A. of this Addendum. That is, because the outlier
threshold used to identify outlier cases is lower, cases will
receive higher outlier payments and more cases will qualify for
outlier payments.
The outlier reduction factors are not built permanently into the
capital rates; that is, they are not applied cumulatively in
determining the capital Federal rate. The FY 2012 outlier adjustment
of 0.9382 is a -0.23 percent change from the FY 2011 outlier
adjustment of 0.9404. Therefore, the net change in the outlier
adjustment to the capital Federal rate for FY 2012 is 0.9977
(0.9382/0.9404). Thus, the outlier adjustment will decrease the FY
2012 capital Federal rate by 0.23 percent compared with the FY 2011
outlier adjustment.

3. Budget Neutrality Adjustment Factor for Changes in DRG
Classifications and Weights and the GAF

Section 412.308(c)(4)(ii) requires that the capital Federal rate
be adjusted so that aggregate payments for the fiscal year based on
the capital Federal rate after any changes resulting from the annual
DRG reclassification and recalibration and changes in the GAF are
projected to equal aggregate payments that would have been made on
the basis of the capital Federal rate without such changes. Because
we implemented a separate GAF for Puerto Rico, we apply separate
budget neutrality adjustments for the national GAF and the Puerto
Rico GAF. We apply the same budget neutrality factor for DRG
reclassifications and recalibration nationally and for Puerto Rico.
Separate adjustments were unnecessary for FY 1998 and earlier
because the GAF for Puerto Rico was implemented in FY 1998.
In the past, we used the actuarial capital cost model (described
in Appendix B of the FY 2002 IPPS final rule (66 FR 40099)) to
estimate the aggregate payments that would have been made on the
basis of the capital Federal rate with and without changes in the
DRG classifications and weights and in the GAF to compute the
adjustment required to maintain budget neutrality for changes in DRG
weights and in the GAF. During the transition period, the capital
cost model was also used to estimate the regular exception payment
adjustment factor. As we explained in section III.A. of this
Addendum, beginning in FY 2002, an adjustment for regular exception
payments was no longer necessary. Therefore, we no longer use the
capital cost model. Furthermore, as discussed below, special
exceptions payments will no longer be made in FY 2012, and an
exceptions payment adjustment factor will no longer be necessary, as
there are no remaining hospitals eligible to receive special
exceptions payments.
To determine the proposed factors for FY 2012, we compared
(separately for the national capital rate and the Puerto Rico
capital rate) estimated aggregate capital Federal rate payments
based on the FY 2011 MS-DRG classifications and relative weights and
the FY 2011 GAF to estimated aggregate capital Federal rate payments
based on the FY 2011 MS-DRG classifications and relative weights and
the FY 2012 GAFs. To achieve budget neutrality for the changes in
the national GAFs, based on calculations using updated data, we are
applying an incremental budget neutrality adjustment of 1.0010 for
FY 2012 to the previous cumulative FY 2011 adjustment of 0.9902,
yielding an adjustment of 0.9912, through FY 2012. For the Puerto
Rico GAFs, we are applying an incremental budget neutrality
adjustment of 1.0085 for FY 2012 to the previous cumulative FY 2011
adjustment of 0.9965, yielding a cumulative adjustment of 1.0049
through FY 2012.
We then compared estimated aggregate capital Federal rate
payments based on the FY 2011 DRG relative weights and the FY 2012
GAFs to estimate aggregate capital Federal rate payments based on
the cumulative effects of the FY 2012 MS-DRG classifications and
relative weights and the FY 2012 GAFs. The incremental adjustment
for DRG classifications and changes in relative weights is 0.9994
both nationally and for Puerto Rico. The cumulative adjustments for
MS-DRG classifications and changes in relative weights and for
changes in the GAFs through FY 2012 are 0.9905 nationally and 1.0043
for Puerto Rico. We note that all the values are calculated with
unrounded numbers. The following table summarizes the adjustment
factors for each fiscal year:

[[Page 51803]]

Budget Neutrality Adjustment for DRG Reclassifications and Recalibration and the Geographic Adjustment Factors
--------------------------------------------------------------------------------------------------------------------------------------------------------
National Puerto Rico
-------------------------------------------------------------------------------------------------------------------------
Incremental adjustment Incremental adjustmant
Fiscal year ----------------------------------------------- -----------------------------------------------
Geographic DRG Cumulative Geographic DRG Cumulative
adjustment Reclassifications Combined adjustment Reclassifications Combined
factor and recalibration factor and recalibration
--------------------------------------------------------------------------------------------------------------------------------------------------------
1992.......................... ............ ................. ............ 1.00000 ............ ................. ............ ............
1993.......................... ............ ................. 0.99800 0.99800 ............ ................. ............ ............
1994.......................... ............ ................. 1.00531 1.00330 ............ ................. ............ ............
1995.......................... ............ ................. 0.99980 1.00310 ............ ................. ............ ............
1996.......................... ............ ................. 0.99940 1.00250 ............ ................. ............ ............
1997.......................... ............ ................. 0.99873 1.00123 ............ ................. ............ ............
1998.......................... ............ ................. 0.99892 1.00015 ............ ................. ............ 1.00000
1999.......................... 0.99944 1.00335 1.00279 1.00294 0.99898 1.00335 1.00233 1.00233
2000.......................... 0.99857 0.99991 0.99848 1.00142 0.99910 0.99991 0.99901 1.00134
2001 \1\...................... 0.99782 1.00009 0.99791 0.99933 1.00365 1.00009 1.00374 1.00508
2001 \2\...................... 0.99771 \3\ 1.00009 \3\ 0.99780 \3\ 0.99922 1.00365 \3\ 1.00009 \3\ 1.00374 \3\ 1.00508
2002.......................... 0.99666 \4\ 0.99668 \4\ 0.99335 \4\ 0.99268 0.98991 \4\ 0.99668 \4\ 0.99662 \4\ 0.99164
2003 \5\...................... 0.99915 0.99662 0.99577 0.98848 1.00809 0.99662 1.00468 0.99628
2003 \6\...................... 0.99896 \7\ 0.99662 \7\ 0.99558 \7\ 0.98830 1.00809 0.99662 1.00468 0.99628
2004 \8\...................... 1.00175 \9\ 1.00081 \9\ 1.00256 \9\ 0.99083 1.00028 1.00081 1.00109 0.99736
2004 \10\..................... 1.00164 \9\ 1.00081 \9\ 1.00245 \9\ 0.99072 1.00028 1.00081 1.00109 0.99736
2005 \11\..................... 0.99967 \12\ 1.00094 1.00061 \12\ 0.99137 0.99115 1.00094 0.99208 0.98946
2005 \13\..................... 0.99946 \12\ 1.00094 1.00040 \12\ 0.99117 0.99115 1.00094 0.99208 0.98946
2006.......................... 1.00185 \14\ 0.99892 1.00076 \14\ 0.99198 1.00762 0.99892 1.00653 0.99592
2007.......................... 1.00000 0.99858 0.99858 0.99057 1.00234 0.99858 1.00092 0.99683
2008.......................... 1.00172 0.99792 0.99963 0.99021 1.00079 0.99792 0.99870 0.99554
2009 \15\..................... 1.00206 0.99945 1.00150 0.99170 1.00097 0.99945 1.00041 0.99595
2010 \16\..................... 0.99989 0.99945 0.99941 0.99112 1.00141 0.99953 1.00094 0.99688
2011 \17\..................... 0.99989 0.99914 0.99903 0.99016 1.00050 0.99914 0.999564 0.99652
2012 \18\..................... 1.00104 0.99935 1.00039 0.99054 1.00845 0.99935 1.00780 1.00429
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Factors effective for the first half of FY 2001 (October 2000 through March 2001).
\2\ Factors effective for the second half of FY 2001 (April 2001 through September 2001).
\3\ Incremental factors are applied to FY 2000 cumulative factors.
\4\ Incremental factors are applied to the cumulative factors for the first half of FY 2001.
\5\ Factors effective for the first half of FY 2003 (October 2002 through March 2003).
\6\ Factors effective for the second half of FY 2003 (April 2003 through September 2003).
\7\ Incremental factors are applied to FY 2002 cumulative factors.
\8\ Factors effective for the first half of FY 2004 (October 2003 through March 2004).
\9\ Incremental factors are applied to the cumulative factors for the second half of FY 2003.
\10\ Factors effective for the second half of FY 2004 (April 2004 through September 2004).
\11\ Factors effective for the first quarter of FY 2005 (September 2004 through December 2004).
\12\ Incremental factors are applied to average of the cumulative factors for the first half (October 1, 2003 through March 31, 2004) and second half
(April 1, 2004 through September 30, 2004) of FY 2004.
\13\ Factors effective for the last three quarters of FY 2005 (January 2005 through September 2005).
\14\ Incremental factors are applied to average of the cumulative factors for 2005.
\15\ Final factors for FY 2009, including the implementation of section 124 of Public Law 110-275, which affects wage indices and GAFs for FY 2009.
\16\ Final revised factors for FY 2010 which reflect the effect of the provisions of the Affordable Care Act.
\17\ Final factors for FY 2011.
\18\ Final factors for FY 2012.

The methodology used to determine the recalibration and
geographic adjustment factor (GAF/DRG) budget neutrality adjustment
is similar to the methodology used in establishing budget neutrality
adjustments under the IPPS for operating costs. One difference is
that, under the operating IPPS, the budget neutrality adjustments
for the effect of geographic reclassifications are determined
separately from the effects of other changes in the hospital wage
index and the DRG relative weights. Under the capital IPPS, there is
a single GAF/DRG budget neutrality adjustment factor (the national
capital rate and the Puerto Rico capital rate are determined
separately) for changes in the GAF (including geographic
reclassification) and the DRG relative weights. In addition, there
is no adjustment for the effects that geographic reclassification
has on the other payment parameters, such as the payments for DSH or
IME.
For FY 2011, we established a GAF/DRG budget neutrality factor
of 0.9990 (75 FR 50437). For FY 2012, we are establishing a GAF/DRG
budget neutrality factor of 1.0004. The GAF/DRG budget neutrality
factors are built permanently into the capital rates; that is, they
are applied cumulatively in determining the capital Federal rate.
This follows the requirement that estimated aggregate payments each
year be no more or less than they would have been in the absence of
the annual DRG reclassification and recalibration and changes in the
GAFs. The incremental change in the adjustment from FY 2011 to FY
2012 is 1.0004. The cumulative change in the capital Federal rate
due to this adjustment is 0.9905 (the product of the incremental
factors for FYs 1995 through 2011 and the incremental factor of
1.0004 for FY 2012). (We note that averages of the incremental
factors that were in effect during FYs 2005 and 2006, respectively,
were used in the calculation of the cumulative adjustment of 0.9905
for FY 2012.)
The factor accounts for the MS-DRG reclassifications and
recalibration and for changes in the GAFs. It also incorporates the
effects on the GAFs of FY 2012 geographic reclassification decisions
made by the MGCRB compared to FY 2011 decisions. However, it does
not account for changes in payments due to changes in the DSH and
IME adjustment factors.

[[Page 51804]]

4. Exceptions Payment Adjustment Factor

Section 412.308(c)(3) of our regulations requires that the
capital standard Federal rate be reduced by an adjustment factor
equal to the estimated proportion of additional payments for both
regular exceptions and special exceptions under Sec. 412.348
relative to total capital PPS payments. In estimating the proportion
of regular exception payments to total capital PPS payments during
the transition period, we used the actuarial capital cost model
originally developed for determining budget neutrality (described in
Appendix B of the FY 2002 IPPS final rule (66 FR 40099)) to
determine the exceptions payment adjustment factor, which was
applied to both the Federal and hospital-specific capital rates.
Since FY 2002, an adjustment for regular exception payments was
no longer necessary in determining the capital Federal rate because,
in accordance with Sec. 412.348(b), regular exception payments were
only made for cost reporting periods beginning on or after October
1, 1991 and before October 1, 2001. Accordingly, in FY 2002 and
subsequent fiscal years, no payments are made under the regular
exceptions provision (66 FR 39949). Furthermore, there are no longer
any remaining hospitals eligible to receive a special exceptions
payment under Sec. 412.348(g) because they have reached the
limitation on the period for exception payments under Sec.
412.348(g)(7). A hospital qualifying for a special exceptions
payment could receive exceptions payments for up to 10 years from
the year in which it completed a project that met the applicable
criteria under Sec. 412.348(g). However, the project had to be
completed no later than the end of the hospital's last cost
reporting period beginning before October 1, 2001. Therefore, FY
2012 will be the final year any hospital could have received a
special exceptions payment. However, as we indicated above, based on
the date the projects were completed, there are no remaining
hospitals eligible to receive a special exceptions payment in FY
2012, which negates the need for a special exceptions adjustment for
FY 2012. Furthermore, we note that special exceptions adjustments
will no longer be made in subsequent years because FY 2012 is the
final year payments could have been made to eligible hospitals in
accordance with Sec. 412.348(g)(7).
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50439), we
estimated that total (special) exceptions payments for FY 2011 would
equal 0.04 percent of aggregate payments based on the capital
Federal rate. Therefore, we applied an exceptions adjustment factor
of 0.9996 (1 - 0.0004) to determine the FY 2011 capital Federal
rate. As we stated above, because there are no special exceptions
payments in FY 2012, we are no longer applying an exceptions payment
adjustment factor to the capital Federal rate for FY 2012. However,
the exceptions reduction factors were not built permanently into the
capital rates; that is, the factors were not applied cumulatively in
determining the capital Federal rate. Therefore, we are applying a
permanent factor of 1.0004 (1/0.9996) in determining the FY 2012
capital Federal rate to restore the reduction that resulted from the
0.9996 exceptions adjustment factor that was applied in determining
the FY 2011 capital Federal rate.

5. Capital Standard Federal Rate for FY 2012

For FY 2011, we established a capital Federal rate of $420.01
(75 FR 50439). We are establishing an update of 1.5 percent in
determining the FY 2012 capital Federal rate for all hospitals.
However, as discussed in greater detail in section V.E. of the
preamble of this final rule, under the statutory authority at
section 1886(g) of the Act, consistent with section
1886(d)(3)(A)(vi) of the Act and section 7(b) of Public Law 110-90,
we are making an additional 1.0 percent reduction to the national
capital Federal payment rate in FY 2012 to account for the effect of
changes in case-mix resulting from documentation and coding changes
that do not reflect real changes in the case-mix in light of the
adoption of MS-DRGs. Accordingly, we are applying a cumulative
documentation and coding adjustment factor of 0.9479 in determining
the FY 2012 capital Federal rate (that is, the existing -0.6 percent
adjustment in FY 2008 plus the -0.9 percent adjustment in FY 2009,
plus the -2.9 percent adjustment for FY 2011, plus the -1.0 percent
adjustment for FY 2012, computed as 1 divided by (1.006 x 1.009 x
1.029 x 1.010). (We note that we did not apply a documentation and
coding adjustment to the capital Federal rate in FY 2010 (74 FR
43927).) As a result of the 1.5 percent update and other budget
neutrality factors discussed above, we are establishing a national
capital Federal rate of $421.42 for FY 2012. The national capital
Federal rate for FY 2012 was calculated as follows:
The FY 2012 update factor is 1.015, that is, the update
is 1.5 percent.
The FY 2012 budget neutrality adjustment factor that is
applied to the capital standard Federal payment rate for changes in
the MS-DRG classifications and relative weights and changes in the
GAFs is 1.004.
The FY 2012 outlier adjustment factor is 0.9382.
The FY 2012 (special) exceptions payment adjustment
factor is 1.0000 because we project that there will be no exceptions
payments made in FY 2012 as discussed above in section III.A. of
this Addendum. However, we are applying a permanent factor of 1.0004
(1/0.9996) in determining the FY 2012 capital Federal rate to
restore the reduction that resulted from the 0.9996 exceptions
adjustment factor applied in determining the FY 2011 capital Federal
rate.
The cumulative adjustment factor for FY 2012 applied to
the national capital Federal rate for changes in documentation and
coding under the MS-DRGs is 0.9479.
Because the capital Federal rate has already been adjusted for
differences in case-mix, wages, cost-of-living, indirect medical
education costs, and payments to hospitals serving a
disproportionate share of low-income patients, we are not making
additional adjustments in the capital standard Federal rate for
these factors, other than the budget neutrality factor for changes
in the MS-DRG classifications and relative weights and for changes
in the GAFs.
We are providing the following chart that shows how each of the
factors and adjustments for FY 2012 affects the computation of the
FY 2012 national capital Federal rate in comparison to the FY 2011
national capital Federal rate. The FY 2012 update factor has the
effect of increasing the capital Federal rate by 1.5 percent
compared to the FY 2011 capital Federal rate. The GAF/DRG budget
neutrality factor of 1.0004 has the effect of increasing the capital
Federal rate by 0.04 percent. The FY 2012 outlier adjustment factor
has the effect of decreasing the capital Federal rate by 0.23
percent compared to the FY 2011 capital Federal rate. The FY 2012
special exceptions payment adjustment factor to restore the FY 2011
exceptions adjustment factor of 0.9996 has the net effect of
increasing the FY 2012 national capital Federal rate by 0.04 percent
as compared to the FY 2011 national capital Federal rate. The
combined effect of all the changes will increase the national
capital Federal rate by approximately 0.34 percent compared to the
FY 2011 national capital Federal rate.

Comparison of Factors and Adjustments: FY 2011 Capital Federal Rate and FY 2012 Capital Federal Rate
----------------------------------------------------------------------------------------------------------------
FY 2011 FY 2012 Change Percent change
----------------------------------------------------------------------------------------------------------------
Update Factor \1\............................... 1.0150 1.0150 1.0150 1.50
GAF/DRG Adjustment Factor \1\................... 0.9990 1.0004 1.0004 0.04
Outlier Adjustment Factor \2\................... 0.9404 0.9382 0.9977 -0.23
Exceptions Adjustment Factor \3\................ 0.9996 1.0000 1.0004 0.04
MS-DRG Documentation and Coding Adjustment 0.9574 \4\ 0.9479 \5\ 0.9901 \6\ -0.99
Factor.........................................
Capital Federal Rate \7\........................ $420.01 $421.42 1.0034 0.34
----------------------------------------------------------------------------------------------------------------
\1\ The update factor and the GAF/DRG budget neutrality factors are built permanently into the capital rates.
Thus, for example, the incremental change from FY 2011 to FY 2012 resulting from the application of the 1.0004
GAF/DRG budget neutrality factor for FY 2012 is a net change of 1.0004.

[[Page 51805]]

\2\ The outlier reduction factor is not built permanently into the capital rate; that is, the factor is not
applied cumulatively in determining the capital rate. Thus, for example, the net change resulting from the
application of the FY 2012 outlier adjustment factor is 0.9382/0.9404, or 0.9977.
\3\ There are no longer any hospitals eligible to receive special exception adjustments in FY 2012, but since
the exceptions payment adjustment is not cumulative, we are restoring the 0.9996 special exceptions adjustment
applied to the FY 2011 capital rate.
\4\ The documentation and coding adjustment factor includes the -0.6 percent in FY 2008, -0.9 percent in FY
2009, no additional reduction in FY 2010, and the -2.9 percent in FY 2011.
\5\ The documentation and coding adjustment factor includes the -0.6 percent in FY 2008, -0.9 percent in FY
2009, no additional reduction in FY 2010, the -2.9 percent in FY 2011, and the proposed -1.0 percent in FY
2012.
\6\ The change is measured from the FY 2011 cumulative factor of 0.9574.
\7\ Sum of percent change may not sum due to rounding.

In this final rule, we also are providing the following chart
that shows how the final FY 2012 capital Federal rate differs from
the proposed FY 2012 capital Federal rate as presented in the FY
2012 IPPS/LTCH PPS proposed rule.

Comparison of Factors and Adjustments: Proposed FY 2012 Capital Federal Rate and Final FY 2012 Capital Federal
Rate
----------------------------------------------------------------------------------------------------------------
Proposed FY
2012 Final FY 2012 Percent change
----------------------------------------------------------------------------------------------------------------
Update Factor................................................... 1.0150 1.0150 0.00
GAF/DRG Adjustment Factor....................................... 1.0005 1.0004 -0.01
Outlier Adjustment Factor....................................... 0.9406 0.9382 -0.26
Exceptions Adjustment Factor.................................... 1.0000 1.0000 0.00
MS-DRG Documentation and Coding Adjustment Factor............... 0.9479 0.9479 0.00
Capital Federal Rate............................................ $422.54 $421.42 -0.27
----------------------------------------------------------------------------------------------------------------

6. Special Capital Rate for Puerto Rico Hospitals

Section 412.374 provides for the use of a blended payment system
for payments to hospitals located in Puerto Rico under the PPS for
acute care hospital inpatient capital-related costs. Accordingly,
under the capital PPS, we compute a separate payment rate specific
to hospitals located in Puerto Rico using the same methodology used
to compute the national Federal rate for capital-related costs.
Under the broad authority of section 1886(g) of the Act, as
discussed in section V. of the preamble of this final rule,
beginning with discharges occurring on or after October 1, 2004,
capital payments to hospitals located in Puerto Rico are based on a
blend of 25 percent of the Puerto Rico capital rate and 75 percent
of the capital Federal rate. The Puerto Rico capital rate is derived
from the costs of Puerto Rico hospitals only, while the capital
Federal rate is derived from the costs of all acute care hospitals
participating in the IPPS (including Puerto Rico).
To adjust hospitals' capital payments for geographic variations
in capital costs, we apply a GAF to both portions of the blended
capital rate. The GAF is calculated using the operating IPPS wage
index, and varies depending on the labor market area or rural area
in which the hospital is located. We use the Puerto Rico wage index
to determine the GAF for the Puerto Rico part of the capital-blended
rate and the national wage index to determine the GAF for the
national part of the blended capital rate.
Because we implemented a separate GAF for Puerto Rico in FY
1998, we also apply separate budget neutrality adjustments for the
national GAF and for the Puerto Rico GAF. However, we apply the same
budget neutrality factor for DRG reclassifications and recalibration
nationally and for Puerto Rico. The budget neutrality adjustments
for the national GAF and for the Puerto Rico GAF, and the budget
neutrality factor for MS-DRG reclassifications and recalibration
(which is the same nationally and for Puerto Rico) is discussed
above in section III.A.3. of this Addendum.
In computing the payment for a particular Puerto Rico hospital,
the Puerto Rico portion of the capital rate (25 percent) is
multiplied by the Puerto Rico-specific GAF for the labor market area
in which the hospital is located, and the national portion of the
capital rate (75 percent) is multiplied by the national GAF for the
labor market area in which the hospital is located (which is
computed from national data for all hospitals in the United States
and Puerto Rico). In FY 1998, we implemented a 17.78 percent
reduction to the Puerto Rico capital rate as a result of Public Law
105-33. In FY 2003, a small part of that reduction was restored.
For FY 2011, the special capital rate for hospitals located in
Puerto Rico was $197.66 (75 FR 50441). Consistent with our
adjustment to the FY 2011 Puerto Rico-specific standardized amount,
under the Secretary's broad authority under section 1886(g) of the
Act, we established an adjustment to the Puerto Rico-specific
capital rate of -2.6 percent in FY 2011 for the cumulative increase
in case-mix due to changes in documentation and coding under the MS-
DRGs for FYs 2008 and 2009. The -2.6 percent adjustment to the
capital Puerto Rico-specific rate that we made in FY 2011 reflects
the entire amount of our current estimate of the effects of
documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FYs 2008 and 2009 from hospitals
located in Puerto Rico. Consequently, in this final rule, we are not
making any additional adjustments for the effect of documentation
and coding that did not reflect real changes in case-mix to the
capital Puerto Rico-specific rate for FY 2012. Therefore, with the
changes we are making to the other factors used to determine the
capital rate, the FY 2012 special capital rate for hospitals in
Puerto Rico is $203.86.

B. Calculation of the Inpatient Capital-Related Prospective
Payments for FY 2012

Because the 10-year capital PPS transition period ended in FY
2001, all hospitals (except ``new'' hospitals under Sec. 412.324(b)
and under Sec. 412.304(c)(2)) are paid based on 100 percent of the
capital Federal rate in FY 2012.
For purposes of calculating payments for each discharge during
FY 2012, the capital standard Federal rate is adjusted as follows:
(Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals
located in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME
Adjustment Factor, if applicable). The result is the adjusted
capital Federal rate.
Hospitals also may receive outlier payments for those cases that
qualify under the thresholds established for each fiscal year.
Section 412.312(c) provides for a single set of thresholds to
identify outlier cases for both inpatient operating and inpatient
capital-related payments. The outlier thresholds for FY 2012 are in
section II.A. of this Addendum. For FY 2012, a case would qualify as
a cost outlier if the cost for the case plus the (operating) IME and
DSH payments is greater than the prospective payment rate for the
MS-DRG plus the fixed-loss amount of $22,385.
Currently, as provided in Sec. 412.304(c)(2), we pay a new
hospital 85 percent of its reasonable costs during the first 2 years
of operation unless it elects to receive payment based on 100
percent of the capital Federal rate. Effective with the third year
of operation, we pay the hospital based on 100 percent of the
capital Federal rate (that is, the same methodology used to pay all
other hospitals subject to the capital PPS).

C. Capital Input Price Index

1. Background

Like the operating input price index, the capital input price
index (CIPI) is a fixed-weight price index that measures the price

[[Page 51806]]

changes associated with capital costs during a given year. The CIPI
differs from the operating input price index in one important
aspect--the CIPI reflects the vintage nature of capital, which is
the acquisition and use of capital over time. Capital expenses in
any given year are determined by the stock of capital in that year
(that is, capital that remains on hand from all current and prior
capital acquisitions). An index measuring capital price changes
needs to reflect this vintage nature of capital. Therefore, the CIPI
was developed to capture the vintage nature of capital by using a
weighted-average of past capital purchase prices up to and including
the current year.
We periodically update the base year for the operating and
capital input price indexes to reflect the changing composition of
inputs for operating and capital expenses. In the FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR 44021), we rebased and revised the
CIPI to a FY 2006 base year to reflect the more current structure of
capital costs in hospitals. A complete discussion of this rebasing
is provided in section IV. of the preamble of that final rule.

2. Forecast of the CIPI for FY 2012

Based on the latest forecast by IHS Global Insight, Inc. (second
quarter of 2011), we are forecasting the FY 2006-based CIPI to
increase 1.5 percent in FY 2012. This reflects a projected 1.9
percent increase in vintage-weighted depreciation prices (building
and fixed equipment, and movable equipment), and a projected 2.0
percent increase in other capital expense prices in FY 2012,
partially offset by a projected 1.3 percent decline in vintage-
weighted interest expenses in FY 2012. The weighted average of these
three factors produces the 1.5 percent increase for the FY 2006-
based CIPI as a whole in FY 2012.

IV. Changes to Payment Rates for Excluded Hospitals: Rate-of-Increase
Percentages

Historically, hospitals and hospital units excluded from the
prospective payment system received payment for inpatient hospital
services they furnished on the basis of reasonable costs, subject to
a rate-of-increase ceiling. An annual per discharge limit (the
target amount as defined in Sec. 413.40(a)) was set for each
hospital or hospital unit based on the hospital's own cost
experience in its base year, and updated annually by a rate-of-
increase percentage. The updated target amount for that period was
multiplied by the Medicare discharges during that period and applied
as an aggregate upper limit (the ceiling as defined in Sec.
413.40(a)) on total inpatient operating costs for a hospital's cost
reporting period. Prior to October 1, 1997, these payment provisions
applied consistently to all categories of excluded providers
(rehabilitation hospitals and units (now referred to as IRFs),
psychiatric hospitals and units (now referred to as IPFs), LTCHs,
children's hospitals, and cancer hospitals).
Payments for services furnished in children's hospitals and
cancer hospitals that are excluded from the IPPS continue to be
subject to the rate-of-increase ceiling based on the hospital's own
historical cost experience. (We note that, in accordance with Sec.
403.752(a), RNHCIs are also subject to the rate-of-increase limits
established under Sec. 413.40 of the regulations.)
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 26037), we
proposed that the FY 2012 rate-of-increase percentage for updating
the target amounts for cancer and children's hospitals and RNHCIs be
the estimated percentage increase in the FY 2012 IPPS operating
market basket, estimated to be 2.8 percent, in accordance with
applicable regulations at Sec. 413.40. We also proposed to use the
most recent data available to determine the estimated percentage
increase for the FY 2012 IPPS operating market basket. For this
final rule, we are using the most recent data available to determine
the FY 2012 IPPS operating market basket update. Based on IHS Global
Insight, Inc.'s second quarter 2011 forecast, with historical data
through the 2011 first quarter, the IPPS operating market basket
update is 3.0 percent for FY 2012. Therefore, for cancer and
children's hospitals and RNHCIs, the FY 2012 rate-of-increase
percentage that is applied to the FY 2011 target amounts in order to
determine the FY 2012 target amount is 3.0 percent.
IRFs, IPFs, and LTCHs were previously paid under the reasonable
cost methodology. However, the statute was amended to provide for
the implementation of prospective payment systems for IRFs, IPFs,
and LTCHs. In general, the prospective payment systems for IRFs,
IPFs, and LTCHs provide transitioning periods of varying lengths of
time during which a portion of the prospective payment is based on
cost-based reimbursement rules under 42 CFR Part 413 (certain
providers do not receive a transitioning period or may elect to
bypass the transition as applicable under 42 CFR Part 412, Subparts
N, O, and P.) We note that all of the various transitioning periods
provided for under the IRF PPS, the IPF PPS, and the LTCH PPS have
ended.
The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually.
We refer readers to section VII. of the preamble and section V. of
the Addendum to this final rule for the update changes to the
Federal payment rates for LTCHs under the LTCH PPS for FY 2012. The
annual updates for the IRF PPS and the IPF PPS are issued by the
agency in separate Federal Register documents.
We did not receive any public comments on our proposals under
this section.

V. Changes to the Payment Rate for the LTCH PPS for FY 2012

A. LTCH PPS Standard Federal Rate for FY 2012

1. Background

In section VII. of the preamble of this final rule, we discuss
our changes to the payment rates, factors, and specific policies
under the LTCH PPS for FY 2012.
Under Sec. 412.523(c)(3)(ii) of the regulations, for LTCH PPS
rate years beginning RY 2004 through RY 2006, we updated the
standard Federal rate annually by a factor to adjust for the most
recent estimate of the increases in prices of an appropriate market
basket of goods and services for LTCHs. We established this policy
of annually updating the standard Federal rate because, at that
time, we believed that was the most appropriate method for updating
the LTCH PPS standard Federal rate for years after the initial
implementation of the LTCH PPS in FY 2003. Thus, under Sec.
412.523(c)(3)(ii), for RYs 2004 through 2006, the annual update to
the LTCH PPS standard Federal rate was equal to the previous rate
year's Federal rate updated by the most recent estimate of increases
in the appropriate market basket of goods and services included in
covered inpatient LTCH services.
In determining the annual update to the standard Federal rate
for RY 2007, based on our ongoing monitoring activity, we believed
that, rather than solely using the most recent estimate of the LTCH
PPS market basket update as the basis of the annual update factor,
it was appropriate to adjust the standard Federal rate to account
for the effect of documentation and coding in a prior period that
was unrelated to patients' severity of illness (71 FR 27818).
Accordingly, we established under Sec. 412.523(c)(3)(iii) that the
annual update to the standard Federal rate for RY 2007 was zero
percent based on the most recent estimate of the LTCH PPS market
basket at that time, offset by an adjustment to account for changes
in case-mix in prior periods due to the effect of documentation and
coding that were unrelated to patients' severity of illness. For RY
2008 through FY 2011, we also considered the effect of documentation
and coding that was unrelated to patients' severity of illness in
establishing the annual update to the standard Federal rate as set
forth in the regulations at Sec. 412.523(c)(3)(iv) through
(c)(3)(vii).
Several provisions of the Affordable Care Act revised the annual
update to the standard Federal rate, beginning in RY 2010.
Specifically, section 1886(m)(3)(A) of the Act, as added by section
3401(c) of the Affordable Care Act, specifies that, for rate year
2010 and each subsequent rate year, any annual update to the
standard Federal rate shall be reduced:
For rate year 2010 through 2019, by the other
adjustment specified in section 1886(m)(3)(A)(ii) and (m)(4) of the
Act; and
For rate year 2012 and each subsequent year, by the
productivity adjustment described in section 1886(b)(3)(B)(xi)(II)
of the Act (which we refer to as ``the multifactor productivity
(MFP) adjustment'') as discussed in section VII.E.2.d. of the
preamble of this final rule.
Section 1886(m)(3)(B) of the Act provides that the application
of paragraph (3) of section 1886(m) of the Act may result in the
annual update being less than zero for a rate year, and may result
in payment rates for a rate year being less than such payment rates
for the preceding rate year. (As noted in section VII.E.2.d. of the
preamble of this final rule, the annual update to the LTCH PPS
occurs on October 1 and we have adopted the term ``fiscal year''
(FY) rather than ``rate year'' (RY) under the LTCH PPS beginning
October 1, 2010. Therefore, for purposes of clarity, when discussing
the annual update for the LTCH PPS, including the provisions of the
Affordable Care Act, we employ ``fiscal year'' rather than ``rate
year'' for 2011 and subsequent years.)

[[Page 51807]]

For FY 2011, consistent with our historical practice, we
established an update to the LTCH PPS standard Federal rate based on
the full estimated LTCH PPS market basket increase of 2.5 percent,
the 0.50 percentage point reduction required by sections
1886(m)(3)(A)(i) and (m)(4)(B) of the Act, and an adjustment to
account for the increase in case-mix in prior periods (FYs 2008 and
2009) that resulted from the effect of documentation and coding
practices of -2.5 percent. Accordingly, at Sec. 412.523(c)(vii) of
the regulations, we established an annual update of -0.49 percent to
the standard Federal rate for FY 2011 (75 FR 50443 through 50444).
In this final rule, for FY 2012, as discussed in greater detail
in section VII.E.2. of the preamble of this final rule, we are
establishing an annual update to the LTCH PPS standard Federal rate
of 1.8 percent based on the full estimated increase in the LTCH PPS
market basket of 2.9 percent less the MFP adjustment of 1.0
percentage point required under 1886(m)(3)(A)(ii) of the Act and
less the 0.1 percentage point required by sections 1886(m)(3)(A)(i)
and (m)(4)(C) of the Act. As discussed in greater detail below, for
FY 2012, we are not making an adjustment to account for the increase
in case-mix in a prior period (FY 2010) resulting from the effect of
documentation and coding.

2. Development of the FY 2012 LTCH PPS Standard Federal Rate

We continue to believe that the annual update to the LTCH PPS
standard Federal rate should be based on the most recent estimate of
the increase in the LTCH PPS market basket, including any statutory
adjustments. We also continue to believe it is appropriate that the
standard Federal rate be offset by an adjustment to account for any
effect of documentation and coding practices that does not reflect
increased severity of illness. Such an adjustment protects the
integrity of the Medicare Trust Funds by ensuring that the LTCH PPS
payment rates better reflect the true costs of treating LTCH
patients.
Consistent with past LTCH payment policy, we have continued to
monitor the most recent available LTCH data. In the FY 2012 IPPS/
LTCH PPS proposed rule (76 FR 26038), we stated that, based on an
analysis of FY 2010 LTCH claims from the December 2010 update of the
MedPAR files, it did not appear that an adjustment for the effect of
documentation and coding in FY 2010 was warranted. Therefore, we did
not propose to make an adjustment for the effect of documentation
and coding during FY 2010 in our proposed annual update to the LTCH
PPS standard Federal rate for FY 2012. Furthermore, we proposed
that, consistent with our historical practice of using the best
available data, if more recent data subsequently became available,
we would examine such data for the final rule to determine if an
adjustment for the effect of documentation and coding during FY 2010
is warranted.
For this final rule, based on an analysis of the most recent
available data, that is FY 2010 LTCH claims from the March 2011
update of the MedPAR file, it does not appear that an adjustment for
the effect of documentation and coding in FY 2010 is warranted.
Therefore, in this final rule, as we proposed, we are not making an
adjustment for the effect of documentation and coding during FY 2010
in our annual update to the LTCH PPS standard Federal rate for FY
2012.
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50443 through
50444), we established an annual update to the LTCH PPS standard
Federal rate for FY 2011 based on the full estimated LTCH PPS market
basket increase of 2.5 percent, the 0.50 percentage point reduction
required by sections 1886(m)(3)(A)(i), (m)(3)(A)(ii), and (m)(4)(B)
of the Act, and an adjustment to account for the increase in case-
mix in prior periods (FYs 2008 and 2009) that resulted from the
effect of documentation and coding practices of -2.5 percent.
Accordingly, at Sec. 412.523(c)(vii), we established an annual
update to the standard Federal rate for FY 2011 of -0.49 percent.
That is, we applied an update factor of 0.9951 (calculated as 1.020
x 1 divided by 1.025 = 0.9951 or -0.49 percent) to the RY 2010
Federal rate of $39,794.95 (as established in the June 2, 2010 FY
2010 IPPS/RY 2010 LTCH PPS notice (75 FR 31128 through 31129)) to
determine the FY 2011 standard Federal rate. Consequently, we
established a standard Federal rate for FY 2011 of $39,599.95, which
is applicable to LTCH PPS discharges occurring on or after October
1, 2010, through September 30, 2011.
In the FY 2012 IPPS/LTCH PPS proposed rule, for FY 2012, as
noted above and as discussed in greater detail in section VII.E.2.
of the preamble of the proposed rule, consistent with our historical
practice, we proposed to establish an annual update to the LTCH PPS
standard Federal rate of 1.5 percent, based on the full estimated
increase in the proposed LTCH PPS market basket of 2.8 percent less
the proposed MFP adjustment of 1.2 percentage points required under
1886(m)(3)(A)(ii) and less the 0.1 percentage point required by
sections 1886(m)(3)(A)(i) and(m)(4)(C) of the Act. Accordingly, we
proposed an update factor to the standard Federal rate for FY 2012
of 1.5 percent. That is, under proposed Sec. 412.523(c)(viii), we
proposed to apply a factor of 1.015 to the FY 2011 standard Federal
rate of $39,599.95 (as established in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50444)) to determine the FY 2012 standard Federal
rate. Furthermore, as discussed in greater detail in section
VII.E.3. of the preamble of the proposed rule, for FY 2012, we
proposed to apply an area wage level budget neutrality factor of
0.99723 to the standard Federal rate to ensure that any changes to
the area wage level adjustment (that is, the annual update of the
wage index values and labor-related share) would not result in any
change (increase or decrease) in estimated aggregate LTCH PPS
payments. Consequently, we proposed to establish a standard Federal
rate for FY 2012 of $40,082.61 (calculated as $39,599.95 x 1.015 x
0.99723), which would be applicable to LTCH PPS discharges occurring
on or after October 1, 2011, through September 30, 2012.
Comment: Several commenters expressed general support for the
development of the proposed standard Federal rate. In particular,
commenters agreed that an adjustment for the effect of documentation
and coding during FY 2010 was not warranted.
Response: We appreciate the commenters' support for the
development of the proposed standard Federal rate. We are finalizing
our proposed approach for the development of the standard Federal
rate for FY 2012 (based on the latest available data) without
modification in this final rule.
In this final rule, for FY 2012, as noted above and as discussed
in greater detail in section VII.E.2. of the preamble of the final
rule, consistent with our historical practice, we are establishing
an annual update to the LTCH PPS standard Federal rate of 1.8
percent, based on the full estimated increase in the LTCH PPS market
basket of 2.9 percent less the MFP adjustment of 1.0 percentage
point required under section 1886(m)(3)(A)(ii) of the Act and less
the 0.1 percentage point required by sections 1886(m)(3)(A)(i)
and(m)(4)(C) of the Act. Accordingly, the update factor to the
standard Federal rate for FY 2012 is 1.8 percent. That is, under
Sec. 412.523(c)(viii), we apply a factor of 1.018 to the FY 2011
standard Federal rate of $39,599.95 (as established in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50444)) to determine the FY 2012
standard Federal rate. Furthermore, as discussed in greater detail
in section VII.E.3. of the preamble of this final rule, for FY 2012,
we are applying an area wage level budget neutrality factor of
0.99775 to the standard Federal rate to ensure that any changes to
the area wage level adjustment (that is, the annual update of the
wage index values and labor-related share) will not result in any
change (increase or decrease) in estimated aggregate LTCH PPS
payments. Consequently, we are establishing a standard Federal rate
for FY 2012 of $40,222.05 (calculated as $39,599.95 x 1.018 x
0.99775), which will be applicable to LTCH PPS discharges occurring
on or after October 1, 2011, through September 30, 2012.

B. Adjustment for Area Wage Levels Under the LTCH PPS for FY 2012

1. Background

Under the authority of section 123 of the BBRA as amended by
section 307(b) of the BIPA, we established an adjustment to the LTCH
PPS standard Federal rate to account for differences in LTCH area
wage levels at Sec. 412.525(c). The labor-related share of the LTCH
PPS standard Federal rate is adjusted to account for geographic
differences in area wage levels by applying the applicable LTCH PPS
wage index. The applicable LTCH PPS wage index is computed using
wage data from inpatient acute care hospitals without regard to
reclassification under section 1886(d)(8) or section 1886(d)(10) of
the Act.
As we discussed in the August 30, 2002 LTCH PPS final rule (67
FR 56015), when we implemented the LTCH PPS, we established a 5-year
transition to the full area wage index level adjustment. The area
wage level adjustment was completely phased-in for cost reporting
periods beginning in FY 2007. Therefore, for cost reporting periods
beginning on or after October 1, 2006, the applicable LTCH wage
index values are the full LTCH PPS wage index values calculated
based on acute care hospital inpatient wage

[[Page 51808]]

index data without taking into account geographic reclassification
under section 1886(d)(8) and section 1886(d)(10) of the Act. For
additional information on the phase-in of the area wage level
adjustment under the LTCH PPS, we refer readers to the August 30,
2002 LTCH PPS final rule (67 FR 56017 through 56019) and the RY 2008
LTCH PPS final rule (72 FR 26891).

2. Geographic Classifications/Labor Market Area Definitions

As discussed in the August 30, 2002 LTCH PPS final rule, which
implemented the LTCH PPS (67 FR 56015 through 56019), in
establishing an adjustment for area wage levels, the labor-related
portion of a LTCH's Federal prospective payment is adjusted by using
an appropriate wage index based on the labor market area in which
the LTCH is located. Specifically, the application of the LTCH PPS
area wage level adjustment at existing Sec. 412.525(c) is made on
the basis of the location of the LTCH in either an urban area or a
rural area as defined in Sec. 412.503. Currently under the LTCH PPS
at Sec. 412.503, an ``urban area'' is defined as a Metropolitan
Statistical Area (which would include a metropolitan division, where
applicable) as defined by the Executive OMB and a ``rural area'' is
defined as any area outside of an urban area.
In the RY 2006 LTCH PPS final rule (70 FR 24184 through 24185),
in regulations at Sec. 412.525(c), we revised the labor market area
definitions used under the LTCH PPS effective for discharges
occurring on or after July 1, 2005, based on the Executive OMB's
CBSA designations, which are based on 2000 Census data. We made this
revision because we believe that the CBSA-based labor market area
definitions will ensure that the LTCH PPS wage index adjustment most
appropriately accounts for and reflects the relative hospital wage
levels in the geographic area of the hospital as compared to the
national average hospital wage level. We note that these are the
same CBSA-based designations implemented for acute care hospitals
under the IPPS at Sec. 412.64(b), effective October 1, 2004 (69 FR
49026 through 49034). (For further discussion of the CBSA-based
labor market area (geographic classification) definitions currently
used under the LTCH PPS, we refer readers to the RY 2006 LTCH PPS
final rule (70 FR 24182 through 24191).) We have updated the LTCH
PPS CBSA-based labor market area definitions annually since they
were adopted for RY 2006 (73 FR 26812 through 26814, 74 FR 44023
through 44204, and 75 FR 50444 through 50445).
As we discussed in the FY 2012 IPPS/LTCH PPS proposed rule (76
FR 26039), in OMB Bulletin No. 10-2, issued on December 1, 2009, OMB
announced that the CBSA changes in that bulletin would be the final
update prior to the 2010 Census of Population and Housing. We
adopted those changes under the LTCH PPS in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50444 through 50445), effective beginning
October 1, 2010, and they are also reflected in this FY 2012 final
rule. In 2013, OMB plans to announce new area delineations based on
its 2010 standards (75 FR 37246) and the 2010 Census data.
The OMB bulletin is available on the OMB Web site at http://www.whitehouse.gov/OMB-go to ``Agency Information'' and click on
``Bulletins''.

3. LTCH PPS Labor-Related Share

Under the adjustment for differences in area wage levels at
Sec. 412.525(c), the labor-related share of a LTCH's PPS Federal
prospective payment is adjusted by the applicable wage index for the
labor market area in which the LTCH is located. The LTCH PPS labor-
related share currently represents the sum of the labor-related
portion of operating costs (wages and salaries, employee benefits,
professional fees, and all other labor-intensive services) and a
labor-related portion of capital costs using the applicable LTCH PPS
market basket. Currently, as established in the RY 2007 LTCH PPS
final rule (71 FR 27829 through 27830), the LTCH PPS labor-related
share is based on the relative importance of the labor-related share
of operating costs and capital costs of the rehabilitation,
psychiatric, and long-term care hospital (RPL) market basket based
on FY 2002 data, as those were the best available data at that time
that reflected the cost structure of LTCHs. For the past 4 years (RY
2008, RY 2009, RY 2010, and FY 2011), we updated the LTCH PPS labor-
related share annually based on the latest available data for the FY
2002-based RPL market basket. For FY 2011, in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 20445), we established a labor-related share
of 75.271 percent based on the best available data at that time for
the FY 2002-based RPL market basket for FY 2011. (Additional
background information on the historical development of the labor-
related share under the LTCH PPS and the development of the RPL
market basket can be found in the RY 2007 LTCH PPS final rule (71 FR
27810 through 27817 and 27829 through 27830).)
As discussed in section VII.D. of the preamble of this final
rule, we are finalizing our proposal to revise and rebase the market
basket used under the LTCH PPS beginning in FY 2012 by adopting the
newly created FY 2008-based RPL market basket. We also are
finalizing our proposal to determine the labor-related share for FY
2012 as the sum of the FY 2012 relative importance of each labor-
related cost category of the FY 2008-based RPL market basket. (The
summary of comments we received on the proposed LTCH PPS labor-
related share for FY 2012 and our responses can be found in section
VII.D.3.f. of the preamble of this final rule.)
As we discuss in section VII.D.3.f. of the preamble of this
final rule, we are establishing a labor-related share under the LTCH
PPS for FY 2012 based on IHS Global Insight, Inc.'s second quarter
2011 forecast of the FY 2008-based RPL market basket for FY 2012, as
these are the most recent available data that reflect the cost
structure of LTCHs. Consistent with our proposal, the labor-related
share for FY 2012 is the sum of the FY 2012 relative importance of
each labor-related cost category of the FY 2008-based RPL market
basket, and reflects the different rates of price change for these
cost categories between the base year (FY 2008) and FY 2012. As
discussed in greater detail in section VII.D.3.f. of this preamble,
the sum of the relative importance for FY 2012 for operating costs
(Wages and Salaries, Employee Benefits, Professional Fees: Labor-
Related, Administrative and Business Support Services, and All-
Other: Labor-related Services) is 66.564 percent and the proposed
labor-related share of capital costs is 3.635 percent. Therefore, in
this final rule, under the authority set forth in section 123 of the
BBRA as amended by section 307(b) of the BIPA, we are establishing a
labor-related share of 70.199 percent (66.564 percent plus 3.635
percent) under the LTCH PPS for the FY 2012, which will be effective
for discharges occurring on or after October 1, 2011, and through
September 30, 2012. (For additional details on the development of
the LTCH PPS labor-related share for FY 2012, we refer readers to
section VII.D.3.f. of the preamble of this final rule.)

4. LTCH PPS Wage Index for FY 2012

Historically, under the LTCH PPS, we have established LTCH PPS
wage index values calculated from acute care IPPS hospital wage data
without taking into account geographic reclassification under
sections 1886(d)(8) and 1886(d)(10) of the Act (67 FR 56019). The
area wage level adjustment established under the LTCH PPS is based
on a LTCH's actual location without regard to the urban or rural
designation of any related or affiliated provider.
In the FY 2011 LTCH PPS final rule (75 FR 50445 through 50446),
we calculated the FY 2011 LTCH PPS wage index values using the same
data used for the FY 2011 acute care hospital IPPS (that is, data
from cost reporting periods beginning during FY 2007), without
taking into account geographic reclassification under sections
1886(d)(8) and 1886(d)(10) of the Act, as these were the most recent
complete data available at that time. In that same final rule, we
indicated that we computed the FY 2011 LTCH PPS wage index values
consistent with the urban and rural geographic classifications
(labor market areas) and consistent with the pre-reclassified IPPS
wage index policy (that is, our historical policy of not taking into
account IPPS geographic reclassifications in determining payments
under the LTCH PPS). We also continued to use our existing policy
for determining wage index values in areas where there are no IPPS
wage data.
Consistent with our historical methodology, to determine the
applicable wage index values under the LTCH PPS for FY 2012, under
the broad authority conferred upon the Secretary by section 123 of
the BBRA, as amended by section 307(b) of BIPA, to determine
appropriate adjustments under the LTCH PPS, we proposed to use wage
data collected from cost reports submitted by IPPS hospitals for
cost reporting periods beginning during FY 2008, without taking into
account geographic reclassification under sections 1886(d)(8) and
1886(d)(10) of the Act. We proposed to use FY 2008 data because
these data are the most recent complete data available. These are
the same data used to compute the FY 2012 acute care hospital
inpatient wage index, as discussed in section III. of the preamble
of this final rule. (For our rationale for using IPPS hospital wage
data as a proxy for determining the wage index values used under the
LTCH PPS, we refer

[[Page 51809]]

readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44024
through 44025).)
The FY 2012 LTCH PPS wage index values we are presenting in this
final rule are computed consistent with the urban and rural
geographic classifications (labor market areas) discussed above in
section V.B.2. of the Addendum to this final rule and consistent
with the pre-reclassified IPPS wage index policy (that is, our
historical policy of not taking into account IPPS geographic
reclassifications under sections 1886(d)(8) and 1886(d)(10) of the
Act in determining payments under the LTCH PPS). As with the IPPS
wage index, wage data for multicampus hospitals with campuses
located in different labor market areas (CBSAs) are apportioned to
each CBSA where the campus or campuses are located (as discussed in
section III.F. of the preamble of this final rule). Furthermore, in
determining the FY 2012 LTCH PPS wage index values in this final
rule, we are continuing to use our existing policy for determining
wage index values in areas where there are no IPPS wage data.
As discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR
50446), we established a methodology for determining LTCH PPS wage
index values for areas that have no IPPS wage data in the RY 2009
LTCH PPS final rule, and as we proposed, we are continuing to use
this methodology for FY 2012. As was the case in FY 2011, there are
currently no LTCHs located in labor areas without IPPS hospital wage
data (or IPPS hospitals) for FY 2012. However, we calculate LTCH PPS
wage index values for these areas using our established methodology
in the event that, in the future, a LTCH should open in one of those
areas. Under our existing methodology, the LTCH PPS wage index value
for urban CBSAs with no IPPS wage data is determined by using an
average of all of the urban areas within the State, and the LTCH PPS
wage index value for rural areas with no IPPS wage data is
determined by using the unweighted average of the wage indices from
all of the CBSAs that are contiguous to the rural counties of the
State. (We refer readers to 73 FR 26817 through 26818 for an
explanation of and rationale for our policy.)
Comment: One commenter pointed out that it is not necessary to
use our methodology for determining a LTCH PPS wage index value for
areas with no IPPS wage data to determine a LTCH PPS wage index
value for the rural area of Massachusetts for FY 2012, as we
proposed, because there are, in fact, data for rural Massachusetts
(CBSA code 22) in the FY 2008 IPPS wage data that we proposed to use
to determine the FY 2012 LTCH PPS wage index values in the proposed
rule.
Response: We appreciate the commenter pointing out that we
mistakenly stated in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR
26040) that there was no IPPS wage data for the rural area of
Massachusetts in the FY 2008 IPPS wage data that we proposed to use
to determine the FY 2012 LTCH PPS wage index values. We note that,
although our proposal incorrectly stated that we would use our
established methodology for rural areas with no IPPS wage data to
compute the FY 2012 LTCH PPS wage index for the rural area of
Massachusetts, the proposed FY 2012 LTCH PPS wage index for the
rural area of Massachusetts (CBSA code 22, as shown in Table 12B of
that same proposed rule) was computed based on the proposed FY 2008
IPPS wage data (and was not computed using our policy for rural
areas with no IPPS wage data as our proposal indicated).
Accordingly, in this final rule, we determined the FY 2012 LTCH PPS
wage index value for the rural area of Massachusetts (CBSA code 22)
using the FY 2008 IPPS wage data that we are generally using to
determine all of the FY 2012 LTCH PPS wage index values in this
final rule.
Based on the FY 2008 IPPS wage data that we used to determine
the FY 2012 LTCH PPS wage index values in this final rule, there are
no IPPS wage data for the urban area Hinesville-Fort Stewart, GA
(CBSA 25980). Consistent with the methodology discussed above and as
we proposed, we calculated the FY 2012 wage index value for CBSA
25980 as the average of the wage index values for all of the other
urban areas within the State of Georgia (that is, CBSAs 10500,
12020, 12060, 12260, 15260, 16860, 17980, 19140, 23580, 31420,
40660, 42340, 46660 and 47580), as shown in Table 12A, which is
listed in section VI. of the Addendum to this final rule and
available via the Internet). We note that, as IPPS wage data are
dynamic, it is possible that urban areas without IPPS wage data will
vary in the future.
The FY 2012 LTCH wage index values that will be applicable for
LTCH discharges occurring on or after October 1, 2011, through
September 30, 2012, are presented in Table 12A (for urban areas) and
Table 12B (for rural areas), which are listed in section VI. of the
Addendum of this final rule and available via the Internet.

e. Budget Neutrality Adjustment for Changes to the Area Wage Level
Adjustment

Historically, the LTCH PPS wage index and labor-related share
are updated annually based on the latest available data. However,
there are currently no statutory or regulatory requirements that the
annual update to the LTCH PPS area wage level adjustment at existing
Sec. 412.525(c) (that is, the wage index and the labor-related
share) be budget neutral such that estimated aggregate LTCH PPS
payments would be unaffected (that is, would be neither greater than
nor less than estimated aggregate LTCH PPS payments without such
changes). In section VII.E.3. of the preamble of this final rule, as
we proposed, under new Sec. 412.525(c)(2), we are providing that,
beginning in FY 2012, any changes to the wage index values or labor-
related share will be made in a budget neutral manner such that
estimated aggregate LTCH PPS payments are unaffected, that is, will
be neither greater than nor less than estimated aggregate LTCH PPS
payments without such changes to the area wage level adjustment.
Under this policy, as we proposed, we have also determined an area
wage level adjustment budget neutrality factor that is applied to
the standard Federal rate to ensure that any changes to the area
wage level adjustment are budget neutral such that any changes to
the wage index values or labor-related share will not result in any
change (increase or decrease) in estimated aggregate LTCH PPS
payments. Therefore, under Sec. 412.523(d)(4), we are applying an
area wage level adjustment budget neutrality factor of 0.99775
(determined under the methodology described in section VII.E.3. of
the preamble of this final rule) to determine the FY 2012 LTCH PPS
standard Federal rate. (The development of the LTCH PPS standard
Federal rate for FY 2012 is discussed in section V.A.2. of this
Addendum.)

C. LTCH PPS Cost-of-Living Adjustment for LTCHs Located in Alaska
and Hawaii

In the August 30, 2002 final rule (67 FR 56022), we established,
under Sec. 412.525(b), a cost-of-living adjustment (COLA) for LTCHs
located in Alaska and Hawaii to account for the higher costs
incurred in those States. Specifically, we apply a COLA to payments
to LTCHs located in Alaska and Hawaii by multiplying the nonlabor-
related portion of the standard Federal payment rate by the
applicable COLA factors established annually by CMS. Higher labor-
related costs for LTCHs located in Alaska and Hawaii are taken into
account in the adjustment for area wage levels described above.
For FY 2011 and in prior years, we used the most recent updated
COLA factors obtained from the U.S. Office of Personnel Management
(OPM) Web site at http://www.opm.gov/oca/cola/rates.asp to adjust
the payments for LTCHs in Alaska and Hawaii. Sections 1911 through
1919 of the Nonforeign Area Retirement Equity Assurance Act, as
contained in subtitle B of title XIX of the National Defense
Authorization Act (NDAA) for Fiscal Year 2010 (Pub. L. 111-84,
October 28, 2009) transitions the Alaska and Hawaii COLAs to
locality pay. Under section 1914 of Public Law 111-84, locality pay
is being phased in over a 3-year period beginning in January 2010
with COLA rates frozen as of the date of enactment, October 28,
2009, and then proportionately reduced to reflect the phase-in of
locality.
As we discussed in the FY 2012 IPPS/LTCH PPS proposed rule (76
FR 26040), we do not believe it is appropriate to use either the
2010 or 2011 reduced factors for adjusting the nonlabor-related
portion of the standard Federal rate for LTCHs in Alaska or Hawaii.
Therefore, for FY 2012, we proposed to continue to use the same COLA
factors (published by OPM) that we used to adjust payments in FY
2011 (which are based on OPM's 2009 COLA factors) to adjust the
nonlabor-related portion of the standard Federal rate for LTCHs
located in Alaska and Hawaii, and we invited public comment on this
proposal. We believe using these COLA factors would appropriately
adjust the nonlabor-related portion of the standard Federal rate for
LTCHs in Alaska and Hawaii consistent with Sec. 412.525(b). We did
not receive any public comments on this proposal.
In this final rule, for FY 2012, under the broad authority
conferred upon the Secretary by section 123 of the BBRA, as amended
by section 307(b) of BIPA, to determine appropriate adjustments
under the LTCH PPS, as we proposed, we will continue to use the same
COLA factors (published by OPM)

[[Page 51810]]

that we use to adjust LTCH PPS payments in FY 2011. We believe using
these COLA factors will appropriately adjust the nonlabor-related
portion of the standard Federal rate for LTCHs in Alaska and Hawaii
consistent with Sec. 412.525(b). (We note that this policy is
consistent with the proposed adjustment for cost-of-living in Alaska
and Hawaii for IPPS hospitals discussed in section II.B.2. of this
Addendum). Therefore, consistent with our current policy, under
Sec. 412.525(b), for FY 2012 we are applying a COLA to payments to
LTCHs located in Alaska and Hawaii by multiplying the nonlabor-
related portion of the standard Federal payment rate by the factors
listed in the chart below because they are the most recent available
data at this time. As discussed above, these factors were obtained
from the OPM and are also used under the IPPS for FY 2012.

Cost-of-Living Adjustment Factors for Alaska and Hawaii Hospitals for
the LTCH PPS for FY 2012
------------------------------------------------------------------------
--
------------------------------------------------------------------------
Alaska: .................
City of Anchorage and 80-kilometer (50[dash]mile) 1.23
radius by road..................................
City of Fairbanks and 80-kilometer (50[dash]mile) 1.23
radius by road..................................
City of Juneau and 80-kilometer (50[dash]mile) 1.23
radius by road..................................
All other areas of Alaska........................ 1.25
Hawaii: .................
City and County of Honolulu...................... 1.25
County of Hawaii................................. 1.18
County of Kauai.................................. 1.25
County of Maui and County of Kalawao............. 1.25
------------------------------------------------------------------------
(The above factors are based on data obtained from the U.S. Office of
Personnel Management Web site at: http://www.opm.gov/oca/cola/rates.asp.)

D. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases

1. Background

Under the broad authority conferred upon the Secretary by
section 123 of the BBRA as amended by section 307(b) of BIPA, in the
regulations at Sec. 412.525(a), we established an adjustment for
additional payments for outlier cases that have extraordinarily high
costs relative to the costs of most discharges. We refer to these
cases as high cost outliers (HCOs). Providing additional payments
for outliers strongly improves the accuracy of the LTCH PPS in
determining resource costs at the patient and hospital level. These
additional payments reduce the financial losses that would otherwise
be incurred when treating patients who require more costly care and,
therefore, reduce the incentives to underserve these patients. We
set the outlier threshold before the beginning of the applicable
rate year so that total estimated outlier payments are projected to
equal 8 percent of total estimated payments under the LTCH PPS.
Under Sec. 412.525(a) in the regulations (in conjunction with
Sec. 412.503), we make outlier payments for any discharges if the
estimated cost of a case exceeds the adjusted LTCH PPS payment for
the MS-LTC-DRG plus a fixed-loss amount. Specifically, in accordance
with Sec. 412.525(a)(3) (in conjunction with Sec. 412.503), we
make an additional payment to an HCO case that is equal to 80
percent of the difference between the estimated cost of the patient
case and the outlier threshold, which is the sum of the adjusted
Federal prospective payment for the MS-LTC-DRG and the fixed-loss
amount. The fixed-loss amount is the amount used to limit the loss
that a hospital will incur under the outlier policy for a case with
unusually high costs. This results in Medicare and the LTCH sharing
financial risk in the treatment of extraordinarily costly cases.
Under the LTCH PPS HCO policy, the LTCH's loss is limited to the
fixed-loss amount and a fixed percentage of costs above the outlier
threshold (adjusted MS-LTC-DRG payment plus the fixed-loss amount).
The fixed percentage of costs is called the marginal cost factor. We
calculate the estimated cost of a case by multiplying the Medicare
allowable covered charge by the hospital's overall hospital cost-to-
charge ratio (CCR).
Under the LTCH PPS HCO policy at Sec. 412.525(a), we determine
a fixed-loss amount, that is, the maximum loss that a LTCH can incur
under the LTCH PPS for a case with unusually high costs before the
LTCH will receive any additional payments. We calculate the fixed-
loss amount by estimating aggregate payments with and without an
outlier policy. The fixed-loss amount results in estimated total
outlier payments being projected to be equal to 8 percent of
projected total LTCH PPS payments. Currently, MedPAR claims data and
CCRs based on data from the most recent Provider-Specific File (PSF)
(or from the applicable statewide average CCR if a LTCH's CCR data
are faulty or unavailable) are used to establish a fixed-loss
threshold amount under the LTCH PPS.

2. Determining LTCH CCRs Under the LTCH PPS

a. Background

The following is a discussion of CCRs that are used in
determining payments for HCO and SSO cases under the LTCH PPS, at
Sec. 412.525(a) and Sec. 412.529, respectively. Although this
section is specific to HCO cases, because CCRs and the policies and
methodologies pertaining to them are used in determining payments
for both HCO and SSO cases (to determine the estimated cost of the
case at Sec. 412.529(d)(2)), we are discussing the determination of
CCRs under the LTCH PPS for both of these types of cases
simultaneously.
In determining both HCO payments (at Sec. 412.525(a)) and SSO
payments (at Sec. 412.529), we calculate the estimated cost of the
case by multiplying the LTCH's overall CCR by the Medicare allowable
charges for the case. In general, we use the LTCH's overall CCR,
which is computed based on either the most recently settled cost
report or the most recent tentatively settled cost report, whichever
is from the latest cost reporting period, in accordance with Sec.
412.525(a)(4)(iv)(B) and Sec. 412.529(f)(4)(ii) for HCOs and SSOs,
respectively. (We note that, in some instances, we use an
alternative CCR, such as the statewide average CCR in accordance
with the regulations at Sec. 412.525(a)(4)(iv)(C) and Sec.
412.529(f)(4)(iii), or a CCR that is specified by CMS or that is
requested by the hospital under the provisions of the regulations at
Sec. 412.525(a)(4)(iv)(A) and Sec. 412.529(f)(4)(i).) Under the
LTCH PPS, a single prospective payment per discharge is made for
both inpatient operating and capital-related costs. Therefore, we
compute a single ``overall'' or ``total'' LTCH-specific CCR based on
the sum of LTCH operating and capital costs (as described in Section
150.24, Chapter 3, of the Medicare Claims Processing Manual (Pub.
100-4)) as compared to total charges. Specifically, a LTCH's CCR is
calculated by dividing a LTCH's total Medicare costs (that is, the
sum of its operating and capital inpatient routine and ancillary
costs) by its total Medicare charges (that is, the sum of its
operating and capital inpatient routine and ancillary charges).

b. LTCH Total CCR Ceiling

Generally, a LTCH is assigned the applicable statewide average
CCR if, among other things, a LTCH's CCR is found to be in excess of
the applicable maximum CCR threshold (that is, the LTCH CCR
ceiling). This is because CCRs above this threshold are most likely
due to faulty data reporting or entry, and, therefore, CCRs based on
erroneous data should not be used to identify and make payments for
outlier cases. Thus, under our established policy, generally, if a
LTCH's calculated CCR is above the applicable ceiling, the
applicable LTCH PPS statewide average CCR is assigned to the LTCH
instead of the CCR computed from its most recent (settled or
tentatively settled) cost report data.
In accordance with Sec. 412.525(a)(4)(iv)(C)(2) for HCOs and
Sec. 412.529(f)(4)(iii)(B) for SSOs, in the proposed rule, using
our established methodology for determining the LTCH total CCR
ceiling (described above), based on IPPS total CCR data from the
December 2010 update of the PSF, we proposed to establish

[[Page 51811]]

a total CCR ceiling of 1.210 under the LTCH PPS that would be
effective for discharges occurring on or after October 1, 2011,
through September 30, 2012. Consistent with our historical policy of
using the best available data, we also proposed that if more recent
data became available, we would use such data to establish a total
CCR ceiling for FY 2012 in the final rule. Consistent with that
proposal, in accordance with Sec. 412.525(a)(4)(iv)(C)(2) for HCOs
and Sec. 412.529(f)(4)(iii)(B) for SSOs, in this final rule, using
our established methodology for determining the LTCH total CCR
ceiling (described above), based on IPPS total CCR data from the
March 2011 update of the PSF, we are establishing a total CCR
ceiling of 1.215 under the LTCH PPS that will be effective for
discharges occurring on or after October 1, 2011, through September
30, 2012.

c. LTCH Statewide Average CCRs

Our general methodology established for determining the
statewide average CCRs used under the LTCH PPS is similar to our
established methodology for determining the LTCH total CCR ceiling
(described above) because it is based on ``total'' IPPS CCR data.
Under the LTCH PPS HCO policy at Sec. 412.525(a)(4)(iv)(C) and the
SSO policy at Sec. 412.529(f)(4)(iii), the fiscal intermediary or
MAC may use a statewide average CCR, which is established annually
by CMS, if it is unable to determine an accurate CCR for a LTCH in
one of the following circumstances: (1) new LTCHs that have not yet
submitted their first Medicare cost report (for this purpose,
consistent with current policy, a new LTCH is defined as an entity
that has not accepted assignment of an existing hospital's provider
agreement in accordance with Sec. 489.18); (2) LTCHs whose CCR is
in excess of the LTCH CCR ceiling; and (3) other LTCHs for whom data
with which to calculate a CCR are not available (for example,
missing or faulty data). (Other sources of data that the fiscal
intermediary or MAC may consider in determining a LTCH's CCR include
data from a different cost reporting period for the LTCH, data from
the cost reporting period preceding the period in which the hospital
began to be paid as a LTCH (that is, the period of at least 6 months
that it was paid as a short-term, acute care hospital), or data from
other comparable LTCHs, such as LTCHs in the same chain or in the
same region.)
In the proposed rule, using our established methodology for
determining the LTCH statewide average CCRs, based on the most
recent complete IPPS total CCR data from the December 2010 update of
the PSF, we proposed LTCH PPS statewide average total CCRs for urban
and rural hospitals that would be effective for discharges occurring
on or after October 1, 2011, through September 30, 2012, in Table 8C
which is listed in section VI. of the Addendum to that proposed rule
and available via the Internet. Consistent with our historical
practice of using the best available data, in this final rule, using
our established methodology for determining the LTCH statewide
average CCRs, based on the most recent complete IPPS total CCR data
from the March 2011 update of the PSF, we are establishing LTCH PPS
statewide average total CCRs for urban and rural hospitals that will
be effective for discharges occurring on or after October 1, 2011,
through September 30, 2012, in Table 8C which is listed in section
VI. of the Addendum to this final rule and available via the
Internet.
As we explained in the proposed rule (76 FR 26042), all areas in
the District of Columbia, New Jersey, and Rhode Island are
classified as urban. Therefore, there are no rural statewide average
total CCRs listed for those jurisdictions in Table 8C listed in
section VI. of the Addendum to this final rule and available via the
Internet. This policy is consistent with the policy that we
established when we revised our methodology for determining the
applicable LTCH statewide average CCRs in the FY 2007 IPPS final
rule (71 FR 48119 through 48121) and is the same as the policy
applied under the IPPS. In addition, although North Dakota has areas
that are designated as rural, there are no short-term, acute care
IPPS hospitals or LTCHs located in those areas as of March 2011.
Therefore, there is no rural statewide average total CCR listed for
rural North Dakota in Table 8C listed in section VI. of the Addendum
to this final rule and available via the Internet.
In addition, consistent with our existing methodology and as we
proposed, in determining the urban and rural statewide average total
CCRs for Maryland LTCHs paid under the LTCH PPS, in this final rule,
we used, as a proxy, the national average total CCR for urban IPPS
hospitals and the national average total CCR for rural IPPS
hospitals, respectively. We used this proxy because we believe that
the CCR data on the PSF for Maryland hospitals may not be entirely
accurate (as discussed in greater detail in the FY 2007 IPPS final
rule (71 FR 48120)).

d. Reconciliation of LTCH HCO and SSO Payments

We note that under the LTCH PPS HCO policy at Sec.
412.525(a)(4)(iv)(D) and the LTCH PPS SSO policy at Sec.
412.529(f)(4)(iv), the payments for HCO and SSO cases, respectively,
are subject to reconciliation. Specifically, any reconciliation of
outlier payments is based on the CCR that is calculated based on a
ratio of cost-to-charge data computed from the relevant cost report
determined at the time the cost report coinciding with the discharge
is settled. For additional information, we refer readers to sections
150.26 through 150.28 of the Medicare Claims Processing Manual (Pub.
100-4) as added by Change Request 7192 (Transmittal 2111; December
3, 2010) and the RY 2009 LTCH PPS final rule (73 FR 26820 through
26821).

3. Establishment of the LTCH PPS Fixed-Loss Amount for FY 2012

When we implemented the LTCH PPS, as discussed in the August 30,
2002 LTCH PPS final rule (67 FR 56022 through 56026), under the
broad authority of section 123 of the BBRA as amended by section
307(b) of BIPA, we established a fixed-loss amount so that total
estimated outlier payments are projected to equal 8 percent of total
estimated payments under the LTCH PPS. To determine the fixed-loss
amount, we estimate outlier payments and total LTCH PPS payments for
each case using claims data from the MedPAR files. Specifically, to
determine the outlier payment for each case, we estimate the cost of
the case by multiplying the Medicare covered charges from the claim
by the LTCH's CCR. Under Sec. 412.525(a)(3) (in conjunction with
Sec. 412.503), if the estimated cost of the case exceeds the
outlier threshold, we make an outlier payment equal to 80 percent of
the difference between the estimated cost of the case and the
outlier threshold (that is, the sum of the adjusted Federal
prospective payment for the MS-LTC-DRG and the fixed-loss amount).
In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 26042), we
proposed to continue to use our existing methodology to calculate
the fixed-loss amount for FY 2012 (based on data and the rates and
policies presented in that proposed rule) in order to maintain
estimated HCO payments at the projected 8 percent of total estimated
LTCH PPS payments. Consistent with our historical practice of using
the best data available, in determining the fixed-loss amount for FY
2012, we used the most recent available LTCH claims data and CCR
data at this time. Specifically, for the proposed rule, we used LTCH
claims data from the December 2010 update of the FY 2010 MedPAR file
and CCRs from the December 2010 update of the PSF to determine a
fixed-loss amount that would result in estimated outlier payments
projected to be equal to 8 percent of total estimated payments in FY
2012 because these data were the most recent complete LTCH data
available at that time. We also proposed to determine the FY 2012
fixed-loss amount based on the proposed MS-LTC-DRG classifications
and proposed relative weights from the version of the GROUPER that
would be in effect as of the beginning of FY 2012, that is, Version
29.0 of the GROUPER. In that same proposed rule, under the broad
authority of section 123(a)(1) of the BBRA and section 307(b)(1) of
BIPA, we proposed to establish a fixed-loss amount of $19,270 for FY
2012. Thus, we proposed to make an additional payment to an HCO case
that is equal to 80 percent of the difference between the estimated
cost of the case and the proposed outlier threshold (the sum of the
adjusted proposed Federal LTCH payment for the proposed MS-LTC-DRG
and the proposed fixed-loss amount of $19.270).
In this final rule, as we proposed, we are continuing to use our
existing methodology to calculate the fixed-loss amount for FY 2012
(based on updated data and the rates and policies presented in this
final rule) in order to maintain estimated HCO payments at the
projected 8 percent of total estimated LTCH PPS payments. (For an
explanation of our rationale for establishing an HCO payment
``target'' of 8 percent of total estimated LTCH payments, we refer
readers to the August 30, 2002 LTCH PPS final rule (67 FR 56022
through 56024).) Consistent with our historical practice of using
the best data available, in determining the fixed-loss amount for FY
2012, we used the most recent available LTCH claims data and CCR
data at this time. Specifically, for this final rule, we used LTCH
claims data from the March 2011 update of the FY 2010 MedPAR file
and

[[Page 51812]]

CCRs from the March 2011 update of the PSF to determine a fixed-loss
amount that would result in estimated outlier payments projected to
be equal to 8 percent of total estimated payments in FY 2012 because
these data are the most recent complete LTCH data currently
available. Furthermore, we determined the FY 2012 fixed-loss amount
based on the MS-LTC-DRG classifications and relative weights from
the version of the GROUPER that is in effect as of the beginning of
FY 2012, that is, Version 29.0 of the GROUPER.
Under the broad authority of section 123(a)(1) of the BBRA and
section 307(b)(1) of BIPA, we are establishing a fixed-loss amount
of $17,931 for FY 2012. Thus, we will make an additional payment to
an HCO case that is equal to 80 percent of the difference between
the estimated cost of the case and the outlier threshold (the sum of
the adjusted Federal LTCH payment for the MS-LTC-DRG and the fixed-
loss amount of $17.931). We also note that the fixed-loss amount of
$17,931 for FY 2012 is lower than the FY 2011 fixed-loss amount of
$18,785, and is also somewhat lower than the proposed FY 2012 fixed-
loss amount of $19,270 (which was determined using LTCH claims data
from the December 2010 update of the FY 2010 MedPAR file and CCRs
from the December 2010 update of the PSF because these data were the
most recent complete data available at that time). Based on our
payment simulations using the most recent available data at this
time, the decrease in the fixed-loss amount for FY 2012 is necessary
to maintain the existing requirement that estimated outlier payments
would equal 8 percent of estimated total LTCH PPS payments. (For
further information on the existing 8 percent HCO ``target''
requirement, as noted above, we refer readers to the August 30, 2002
LTCH PPS final rule (67 FR 56022 through 56024.) Maintaining the
fixed-loss amount at the current level would result in HCO payments
that are less than the current regulatory 8-percent requirement
because a higher fixed-loss amount would result in fewer cases
qualifying as outlier cases. In addition, maintaining the higher
fixed-loss amount would result in a decrease in the amount of the
additional payment for an HCO case because the maximum loss that a
LTCH must incur before receiving an HCO payment (that is, the fixed-
loss amount) would be larger. For these reasons, we believe that
lowering the fixed-loss amount is appropriate and necessary to
maintain that estimated outlier payments would equal 8 percent of
estimated total LTCH PPS payments as required under Sec.
412.525(a).

4. Application of Outlier Policy to SSO Cases

As we discussed in the August 30, 2002 final rule (67 FR 56026),
under some rare circumstances, a LTCH discharge could qualify as a
SSO case (as defined in the regulations at Sec. 412.529 in
conjunction with Sec. 412.503) and also as a HCO case. In this
scenario, a patient could be hospitalized for less than five-sixths
of the geometric average length of stay for the specific MS-LTC-DRG,
and yet incur extraordinarily high treatment costs. If the estimated
costs exceeded the HCO threshold (that is, the SSO payment plus the
fixed-loss amount), the discharge is eligible for payment as a HCO.
Thus, for a SSO case in FY 2012, the HCO payment would be 80 percent
of the difference between the estimated cost of the case and the
outlier threshold (the sum of the fixed-loss amount of $17,931 and
the amount paid under the SSO policy as specified in Sec. 412.529).

E. Computing the Adjusted LTCH PPS Federal Prospective Payments for
FY 2012

Section 412.525 sets forth the adjustments to the LTCH PPS
standard Federal rate. Under Sec. 412.525(c), the standard Federal
rate is adjusted to account for differences in area wages by
multiplying the labor-related share of the standard Federal rate by
the appropriate LTCH PPS wage index (as shown in Tables 12A and 12B
listed in section VI. of the Addendum of this final rule and
available via the Internet). The standard Federal rate is also
adjusted to account for the higher costs of hospitals in Alaska and
Hawaii by multiplying the nonlabor-related portion of the standard
Federal rate by the appropriate cost-of-living factor (shown in the
chart in section V.C.5. of the Addendum of this final rule) in
accordance with Sec. 412.525(b). In this final rule, we are
establishing a standard Federal rate for FY 2012 of $40,222.05, as
discussed above in section V.A.2. of the Addendum of this final
rule. We illustrate the methodology to adjust the LTCH PPS Federal
rate for FY 2012 in the following example:
Example:
During FY 2012, a Medicare patient is in a LTCH located in
Chicago, Illinois (CBSA 16974). The FY 2012 LTCH PPS wage index
value for CBSA 16974 is 1.0600 (Table 12A listed in section VI. of
the Addendum of this final rule and available via the Internet). The
Medicare patient is classified into proposed MS-LTC-DRG 28 (Spinal
Procedures with MCC), which has a relative weight for FY 2012 of
1.7420 (Table 11 listed in section VI. of the Addendum of this final
rule and available via the Internet).
To calculate the LTCH's total adjusted Federal prospective
payment for this Medicare patient in FY 2012, we computed the wage-
adjusted Federal prospective payment amount by multiplying the
unadjusted standard Federal rate ($40,222.05) by the labor-related
share (70.199 percent) and the wage index value (1.0600). This wage-
adjusted amount is then added to the nonlabor-related portion of the
unadjusted standard Federal rate (29.801 percent; adjusted for cost
of living, if applicable) to determine the adjusted Federal rate,
which is then multiplied by the MS-LTC-DRG relative weight (1.7420)
to calculate the total adjusted Federal LTCH PPS prospective payment
for FY 2012 ($73,017.99). The table below illustrates the components
of the calculations in this example.

Unadjusted Standard Federal Prospective Payment Rate. $40,222.05
Labor-Related Share.................................. x 0.70199
------------------
Labor-Related Portion of the Federal Rate............ = $28,235.48
Wage Index (CBSA 16974).............................. x 1.0600
------------------
Wage-Adjusted Labor Share of Federal Rate............ = $29,929.61
Nonlabor-Related Portion of the Federal Rate + $11,986.57
($40,222.08 x 0.29801)..............................
------------------
Adjusted Federal Rate Amount......................... = $41,916.18
MS-LTC-DRG 28 Relative Weight........................ x 1.7420
------------------
Total Adjusted Federal Prospective Payment........... = $73,017.99

VI. Tables Referenced in This Final Rule and Available Only Through the
Internet on the CMS Web Site

This section lists the tables referred to throughout the
preamble of this final rule and in this Addendum. In the past, a
majority of these tables were published in the Federal Register as
part of the annual proposed and final rules. However, beginning in
FY 2012, IPPS tables 2, 3A, 3B, 4A, 4B, 4C, 4D, 4E, 4F, 4J, 5, 6A,
6B, 6C, 6D, 6E, 6F, 7A, 7B, 8A, 8B, 9A, 9C, and 10, and LTCH PPS
tables 8C, 11, 12A, and 12B will no longer be published as part of
the annual IPPS/LTCH PPS proposed and final rulemakings. Instead,
these tables, along with new LTCH PPS tables 13A and 13B, and new
IPPS table 14 will be available only through the Internet. IPPS
tables 1A, 1B, 1C, and 1D, and LTCH PPS table 1E, displayed at the
end of this section, will continue to be published in the Federal
Register as part of the annual proposed and final rules. We note
that previously tables 6G, 6H, 6I, 6I.1, 6I.2, 6J, 6J.1, 6J.2, and
6K were already made available only through the Internet. We will
continue to post these tables through the Internet.
Readers who experience any problems accessing any of the tables
that are posted on the CMS Web sites identified below should contact
Ing Jye Cheng at (410) 786-4548.
The following IPPS tables for this FY 2012 final rule are
available only through the

[[Page 51813]]

Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp. Click on the link on the left
side of the screen titled, ``FY 2012 IPPS Final Rule Home Page'' or
``Acute Inpatient--Files for Download''.
Table 2.--Acute Care Hospitals Case-Mix Indexes for Discharges
Occurring in Federal Fiscal Year 2010; Hospital Wage Indexes for
Federal Fiscal Year 2012; Hospital Average Hourly Wages for Federal
Fiscal Years 2010 (2006 Wage Data), 2011 (2007 Wage Data), and 2012
(2008 Wage Data); and 3-Year Average of Hospital Average Hourly
Wages
Table 3A.--FY 2012 and 3-Year Average Hourly Wage for Acute Care
Hospitals in Urban Areas by CBSA
Table 3B.--FY 2012 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 2012
Table 4B.--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Acute Care Hospitals in Rural Areas by CBSA and by State--
FY 2012
Table 4C.--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Acute Care Hospitals That Are Reclassified by CBSA and by
State--FY 2012
Table 4D.--States Designated as Frontier, with Acute Care
Hospitals Receiving at a Minimum the Frontier State Floor Wage
Index\1\; Urban Areas with Acute Care Hospitals Receiving the
Statewide Rural Floor Wage Index--FY 2012
Table 4E.--Urban CBSAs and Constituent Counties for Acute Care
Hospitals--FY 2012
Table 4F.--Puerto Rico Wage Index and Capital Geographic
Adjustment Factor (GAF) for Acute Care Hospitals by CBSA--FY 2012
Table 4J.--Out-Migration Adjustment for Acute Care Hospitals--FY
2012
Table 5.--List of Medicare Severity Diagnosis-Related Groups
(MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic
Mean Length of Stay--FY 2012
Table 6A.--New Diagnosis Codes--FY 2012
Table 6B.--New Procedure Codes--FY 2012
Table 6C.--Invalid Diagnosis Codes--FY 2012
Table 6D.--Invalid Procedure Codes--FY 2012
Table 6E.--Revised Diagnosis Code Titles--FY 2012
Table 6F.--Revised Procedure Code Titles--FY 2012
Table 6G.--Additions to the CC Exclusions List--FY 2012
Table 6H.--Deletions from the CC Exclusions List--FY 2012
Table 6I.--Complete MCC List--FY 2012
Table 6I.1.--Additions to the MCC List--FY 2012
Table 6I.2.--Deletions to the MCC List--FY 2012
Table 6J.--Complete CC List--FY 2012
Table 6J.1.--Additions to the CC List--FY 2012
Table 6J.2.--Deletions to the CC List--FY 2012
Table 6K.--Complete List of CC Exclusions--FY 2012
Table 7A.--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2010 MedPAR Update--March 2011
GROUPER V28.0 MS-DRGs
Table 7B.--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2010 MedPAR Update--March 2011
GROUPER V29.0 MS-DRGs
Table 8A.--FY 2012 Statewide Average Operating Cost-to-Charge
Ratios (CCRs) for Acute Care Hospitals (Urban and Rural)
Table 8B.--FY 2012 Statewide Average Capital Cost-to-Charge
Ratios (CCRs) for Acute Care Hospitals
Table 9A.--Hospital Reclassifications and Redesignations--FY
2012
Table 9C.--Hospitals Redesignated as Rural under Section
1886(d)(8)(E) of the Act--FY 2012
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)
Table 14.--List of Hospitals with Fewer than 1,600 Medicare
Discharges Based on the March 2011 Update of the FY 2010 MedPAR File
and Their FY 2012 Low-Volume Payment Adjustment
The following LTCH PPS tables for this FY 2012 final rule are
available only through the Internet on the CMS Web site at http://www.cms.gov/LongTermCareHospitalPPS/LTCHPPSRN/list.asp under the
list item for Regulation Number CMS-1518-P.
Table 8C.--FY 2012 Statewide Average Total Cost-to-Charge Ratios
(CCRs) for LTCHs (Urban and Rural)
Table 11.--MS-LTC-DRGs, Relative Weights, Geometric Average
Length of Stay, and Short-Stay Outlier (SSO) Threshold for
Discharges Occurring from October 1, 2011 through September 30, 2012
under the LTCH PPS
Table 12A.--LTCH PPS Wage Index for Urban Areas for Discharges
Occurring from October 1, 2011 through September 30, 2012
Table 12B.--LTCH PPS Wage Index for Rural Areas for Discharges
Occurring From October 1, 2011 through September 20, 2012
Table 13A.--Composition of Low-Volume Quintiles for MS-LTC-
DRGs--FY 2012
Table 13B.--No-Volume MS-LTC-DRG Crosswalk for FY 2012

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)--FY 2012
----------------------------------------------------------------------------------------------------------------
Full update (1.90 percent) Reduced update (-0.10 percent)
----------------------------------------------------------------------------------------------------------------
Labor-related Nonlabor-related Labor-related Nonlabor-related
----------------------------------------------------------------------------------------------------------------
$3,584.30 $1,625.44 $3,513.95 $1,593.54
----------------------------------------------------------------------------------------------------------------

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)--FY 2012
----------------------------------------------------------------------------------------------------------------
Full update (1.90 percent) Reduced update (-0.10 percent)
----------------------------------------------------------------------------------------------------------------
Labor-related Nonlabor-related Labor-related Nonlabor-related
----------------------------------------------------------------------------------------------------------------
$3,230.04 $1,979.70 $3,166.64 $1,940.85
----------------------------------------------------------------------------------------------------------------

Table 1C--Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor--FY 2012
----------------------------------------------------------------------------------------------------------------
Rates if wage index is greater than Rates if wage index is less than or
1 equal to 1
---------------------------------------------------------------------------
Labor Nonlabor Labor Nonlabor
----------------------------------------------------------------------------------------------------------------
National............................ $3,584.30 $1,625.44 $3,230.04 $1,979.70
Puerto Rico......................... 1,553.29 947.98 1,550.79 950.48
----------------------------------------------------------------------------------------------------------------

[[Page 51814]]

Table 1D--Capital Standard Federal Payment Rate--FY 2012
------------------------------------------------------------------------
Rate
------------------------------------------------------------------------
National................................................... $421.42
Puerto Rico................................................ 203.86
------------------------------------------------------------------------

Table 1E--LTCH Standard Federal Prospective Payment Rate--FY 2012
------------------------------------------------------------------------
Rate
------------------------------------------------------------------------
Standard Federal Rate...................................... $40,222.05
------------------------------------------------------------------------

Appendix A: Economic Analyses

I. Regulatory Impact Analysis

A. Introduction

We have examined the impacts of this final rule as required by
Executive Order 12866 on Regulatory Planning and Review (September
30, 1993), Executive Order 13563 on Improving Regulation and
Regulatory Review (February 2, 2011) the Regulatory Flexibility Act
(RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the
Social Security Act, section 202 of the Unfunded Mandates Reform Act
of 1995 (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on
Federalism (August 4, 1999), and the Congressional Review Act (5
U.S.C. 804(2)).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that
maximize net benefits (including potential economic, environmental,
public health and safety effects, distributive impacts, and equity).
Executive Order 13563 emphasizes the importance of quantifying both
costs and benefits, of reducing costs, of harmonizing rules, and of
promoting flexibility. A regulatory impact analysis (RIA) must be
prepared for major rules with economically significant effects ($100
million or more in any 1 year).
We have determined that this final rule is a major rule as
defined in 5 U.S.C. 804(2). We estimate that the changes for FY 2012
acute care hospital operating and capital payments will redistribute
amounts in excess of $100 million among different types of inpatient
cases. The applicable percentage increase to the IPPS rates required
by the statute, in conjunction with other payment changes in this
final rule, will result in an estimated $1.13 billion increase in FY
2012 operating payments (or 1.1 percent change) and an estimated
$151 million increase in FY 2012 capital payments (or 1.8 percent
change). The impact analysis of the capital payments can be found in
section I.I. of this Appendix. In addition, as described in section
I.J. of this Appendix, LTCHs are expected to experience a change in
payments by $126 million (or 2.5 percent).
Our operating impact estimate includes the -2.0 percent
documentation and coding adjustment applied to the hospital-specific
rates and to the IPPS standardized amounts. In addition, our
operating impact estimate includes the 1.9 percent hospital update
to the standardized amount (which includes the 3.0 percent market
basket update with the reduction of 1.0 percentage point for the
multifactor productivity adjustment and the 0.1 percentage point
reduction required under the Affordable Care Act). Finally, our
operating impact estimate includes the 1.1 percent update to the
standardized amount and the 0.9 percent update to the hospital-
specific rates in light of DC Circuit's decision in Cape Cod v.
Sebelius (630 F.3d 203 (DC Cir. 2011)). The estimates of IPPS
operating payments to acute care hospitals do not reflect any
changes in hospital admissions or real case-mix intensity, which
would also affect overall payment changes.
The analysis in this Appendix, in conjunction with the remainder
of this document, demonstrates that this final rule is consistent
with the regulatory philosophy and principles identified in
Executive Orders 12866 and 13563, the RFA, and section 1102(b) of
the Act. The final rule will affect payments to a substantial number
of small rural hospitals, as well as other classes of hospitals, and
the effects on some hospitals may be significant.

B. Need

This final rule is necessary in order to make payment and policy
changes under the Medicare IPPS for Medicare acute care hospital
inpatient services for operating and capital-related costs as well
as for certain hospitals and hospital units excluded from the IPPS.
This final rule also is necessary to make payment and policy changes
for Medicare hospitals under the LTCH PPS payment system.

C. Objectives of the IPPS

The primary objective of the IPPS is to create incentives for
hospitals to operate efficiently and minimize unnecessary costs
while at the same time ensuring that payments are sufficient to
adequately compensate hospitals for their legitimate costs. In
addition, we share national goals of preserving the Medicare
Hospital Insurance Trust Fund.
We believe the changes in this final rule will further each of
these goals while maintaining the financial viability of the
hospital industry and ensuring access to high quality health care
for Medicare beneficiaries. We expect that these changes will ensure
that the outcomes of the prospective payment systems are reasonable
and equitable while avoiding or minimizing unintended adverse
consequences.

D. Limitations of Our Analysis

The following quantitative analysis presents the projected
effects of our policy changes, as well as statutory changes
effective for FY 2012, on various hospital groups. We estimate the
effects of individual policy changes by estimating payments per case
while holding all other payment policies constant. We use the best
data available, but, generally, we do not attempt to make
adjustments for future changes in such variables as admissions,
lengths of stay, or case-mix.

E. Hospitals Included in and Excluded From the IPPS

The prospective payment systems for hospital inpatient operating
and capital-related costs of acute care hospitals encompass most
general short-term, acute care hospitals that participate in the
Medicare program. There were 32 Indian Health Service hospitals in
our database, which we excluded from the analysis due to the special
characteristics of the prospective payment methodology for these
hospitals. Among other short-term, acute care hospitals, only the 46
such hospitals in Maryland remain excluded from the IPPS pursuant to
the waiver under section 1814(b)(3) of the Act.
As of July 2011, there are 3,423 IPPS acute care hospitals to be
included in our analysis. This represents about 64 percent of all
Medicare-participating hospitals. The majority of this impact
analysis focuses on this set of hospitals. There also are
approximately 1,346 CAHs. These small, limited service hospitals are
paid on the basis of reasonable costs rather than under the IPPS.
(We refer readers to section I.H.15. of this Appendix for a further
description of the impact of CAH-related policy changes.) There are
also 1,290 IPPS-excluded hospitals and 2,119 IPPS-excluded hospital
units. These IPPS-excluded hospitals and units include IPFs, IRFs,
LTCHs, RNHCIs, children's hospitals, and cancer hospitals, which are
paid under separate payment systems. Changes in the prospective
payment systems for IPFs and IRFs are made through separate
rulemaking. Payment impacts for these IPPS-excluded hospitals and
units are not included in this final rule. The impact of the update
and policy changes to the LTCH PPS for FY 2012 is discussed in
section I.J. of this Appendix.

F. Effects on Hospitals and Hospital Units Excluded From the IPPS

As of July 2011, there were 3,409 hospitals and hospital units
excluded from the IPPS. Of these, 78 children's hospitals, 11 cancer
hospitals, and 17 RNHCIs are being paid on a reasonable cost basis
subject to the rate-of-increase ceiling under Sec. 413.40. The
remaining providers, 235 rehabilitation hospitals and 940
rehabilitation units, and 437 LTCHs, are paid the Federal
prospective per discharge rate under the IRF PPS and the LTCH PPS,
respectively, and 512 psychiatric hospitals and 1,179 psychiatric
units are paid the Federal per diem amount under the IPF PPS. As
stated above, IRFs and IPFs are not affected by the rate updates
discussed in this final rule. The impacts of the changes to LTCHs
are discussed in section I.J. of this Appendix.
In the past, certain hospitals and units excluded from the IPPS
have been paid based on their reasonable costs subject to limits as
established by the Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA). Cancer and children's hospitals continue to be paid on a
reasonable cost basis subject to TEFRA limits for FY 2012. For these
hospitals (cancer and children's hospitals), consistent with the
authority provided in section 1886(b)(3)(B)(ii) of the Act, the
update is the FY 2012 percentage increase in the IPPS

[[Page 51815]]

operating market basket. In compliance with section 404 of the MMA,
in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43930), we
replaced the FY 2002-based IPPS operating and capital market baskets
with the revised and rebased FY 2006-based IPPS operating and
capital market baskets. Therefore, consistent with current law,
based on IHS Global Insight, Inc.'s 2011 second quarter forecast,
with historical data through the 2011 first quarter, we are
estimating that the FY 2012 update based on the IPPS operating
market basket is 3.0 percent (that is, the current estimate of the
market basket rate-of-increase). However, the Affordable Care Act
requires an adjustment for multifactor productivity (currently
estimated to be 1.0 percentage point) and a 0.1 percentage point
reduction to the market basket update resulting in a 1.9 percent
applicable percentage increase for IPPS hospitals. RNCHIs,
children's hospitals and cancer hospitals are not subject to the
reductions in the applicable percentage increase required under the
Affordable Care Act. In accordance with Sec. 403.752(a) of the
regulations, RNHCIs are paid under Sec. 413.40. Therefore, for
RNHCIs, the update is the same as for children's and cancer
hospitals, which is the percentage increase in the FY 2012 IPPS
operating market basket, estimated at 3.0 percent, without the
reductions required under the Affordable Care Act.
The impact of the update in the rate-of-increase limit on those
excluded hospitals depends on the cumulative cost increases
experienced by each excluded hospital since its applicable base
period. For excluded hospitals that have maintained their cost
increases at a level below the rate-of-increase limits since their
base period, the major effect is on the level of incentive payments
these excluded hospitals receive. Conversely, for excluded hospitals
with per-case cost increases above the cumulative update in their
rate-of-increase limits, the major effect is the amount of excess
costs that will not be reimbursed.
We note that, under Sec. 413.40(d)(3), an excluded hospital
that continues to be paid under the TEFRA system and whose costs
exceed 110 percent of its rate-of-increase limit receives its rate-
of-increase limit plus 50 percent of the difference between its
reasonable costs and 110 percent of the limit, not to exceed 110
percent of its limit. In addition, under the various provisions set
forth in Sec. 413.40, cancer and children's hospitals can obtain
payment adjustments for justifiable increases in operating costs
that exceed the limit.

G. Quantitative Effects of the Policy Changes Under the IPPS for
Operating Costs

1. Basis and Methodology of Estimates

In this final rule, we are announcing policy changes and payment
rate updates for the IPPS for FY 2012 for operating costs of acute
care hospitals. FY 2012 updates to the capital payments to acute
care hospitals are discussed in section I.I. of this Appendix.
Based on the overall percentage change in payments per case
estimated using our payment simulation model, we estimate that total
FY 2012 operating payments will increase by 1.1 percent compared to
FY 2011, largely due to the documentation and coding adjustments and
the applicable percentage increase applied to the IPPS rates. In
addition to the applicable percentage increase, this amount reflects
the FY 2012 adjustments for documentation and coding and recoupment
described in section II.D. of the preamble of this final rule: - 2.0
percent for the IPPS national standardized amounts and the IPPS
hospital-specific rates. The impacts do not illustrate changes in
hospital admissions or real case-mix intensity, which will also
affect overall payment changes.
We have prepared separate impact analyses of the changes to each
system. This section deals with changes to the operating inpatient
prospective payment system for acute care hospitals. Our payment
simulation model relies on the most recent available data to enable
us to estimate the impacts on payments per case of certain changes
in this final rule. However, there are other changes for which we do
not have data available that would allow us to estimate the payment
impacts using this model. For those changes, we have attempted to
predict the payment impacts based upon our experience and other more
limited data.
The data used in developing the quantitative analyses of changes
in payments per case presented below are taken from the FY 2010
MedPAR file and the most current Provider-Specific File (PSF) that
is used for payment purposes. Although the analyses of the changes
to the operating PPS do not incorporate cost data, data from the
most recently available hospital cost reports were used to
categorize hospitals. Our analysis has several qualifications.
First, in this analysis, we do not make adjustments for future
changes in such variables as admissions, lengths of stay, or
underlying growth in real case-mix. Second, due to the
interdependent nature of the IPPS payment components, it is very
difficult to precisely quantify the impact associated with each
change. Third, we use various data sources to categorize hospitals
in the tables. In some cases, particularly the number of beds, there
is a fair degree of variation in the data from the different
sources. We have attempted to construct these variables with the
best available source overall. However, for individual hospitals,
some miscategorizations are possible.
Using cases from the FY 2010 MedPAR file, we simulated payments
under the operating IPPS given various combinations of payment
parameters. As described above, Indian Health Service hospitals and
hospitals in Maryland were excluded from the simulations. The impact
of payments under the capital IPPS, or the impact of payments for
costs other than inpatient operating costs, are not analyzed in this
section. Estimated payment impacts of the capital IPPS for FY 2012
are discussed in section I.I. of this Appendix.
We discuss the following changes below:
Effects of the application of the documentation and
coding adjustment and applicable percentage increase (including the
market basket update, the multifactor productivity adjustment and
the applicable percentage reduction in accordance with the
Affordable Care Act) to the standardized amount and hospital-
specific rates.
Effects of the increase to the standardized amount and
hospital-specific rates in light of D.C. Circuit's decision in Cape
Cod v. Sebelius, 630 F.3d 203 (DC Cir. 2011).
The effects of the annual reclassification of diagnoses
and procedures, full implementation of the MS-DRG system and 100
percent cost-based MS-DRG relative weights.
The effects of the changes in hospitals' wage index
values reflecting updated wage data from hospitals' cost reporting
periods beginning during FY 2008, compared to the FY 2007 wage data.
The effects of the recalibration of the MS-DRG relative
weights as required by section 1886(d)(4)(C) of the Act, including
the wage and recalibration budget neutrality factors.
The effects of the geographic reclassifications by the
MGCRB that will be effective in FY 2012.
The effects of the rural floor and imputed floor with
the application of the national budget neutrality factor applied to
the wage index, as required by the Affordable Care Act.
The effects of the frontier State wage index provision
that requires that hospitals located in States that qualify as
frontier States cannot have a wage index less than 1.0. This
provision is not budget neutral.
The effects of section 505 of Public Law 108-173, which
provides for an increase in a hospital's wage index if the hospital
qualifies by meeting a threshold percentage of residents of the
county where the hospital is located who commute to work at
hospitals in counties with higher wage indexes.
The total estimated change in payments based on the FY
2012 policies relative to payments based on FY 2011 policies that
include the applicable percentage increase of 1.9 percent (or 3.0
percent market basket update with a reduction of 1.0 percentage
point for the multifactor productivity adjustment, and a 0.1
percentage point reduction, as required under the Affordable Care
Act).
To illustrate the impact of the FY 2012 changes, our analysis
begins with a FY 2011 baseline simulation model using: The FY 2012
applicable percentage increase of 1.9 percent and the documentation
and coding adjustment of -2.0 percent; the FY 2011 MS-DRG GROUPER
(Version 28.0); the most current CBSA designations for hospitals
based on OMB's MSA definitions; the FY 2011 wage index; and no MGCRB
reclassifications. Outlier payments are set at 5.1 percent of total
operating MS-DRG and outlier payments for modeling purposes.
Section 1886(b)(3)(B)(viii) of the Act, as added by section
5001(a) of Public Law 109-171, as amended by section 4102(b)(1)(A)
of the ARRA (Pub. L. 111-5) and by section 3401(a)(2) of the
Affordable Care Act (Pub. L. 111-148), provides that, for FY 2007
through FY 2014, the update factor will include a reduction of 2.0
percentage points for any hospital that does not submit quality data
in a form and manner and at a time specified by the Secretary.
(Beginning in FY 2015, the reduction is one-quarter of such
applicable percentage increase determined without

[[Page 51816]]

regard to section 1886(b)(3)(B)(ix), (xi), or (xii) of the Act.) At
the time that this impact was prepared, 57 hospitals did not receive
the full market basket rate-of-increase for FY 2011 because they
failed the quality data submission process or did not choose to
participate. For purposes of the simulations shown below, we modeled
the payment changes for FY 2012 using a reduced update for these 57
hospitals. However, we do not have enough information at this time
to determine which hospitals will not receive the full update factor
for FY 2012.
Each policy change, statutory or otherwise, is then added
incrementally to this baseline, finally arriving at an FY 2012 model
incorporating all of the changes. This simulation allows us to
isolate the effects of each change.
Our final comparison illustrates the percent change in payments
per case from FY 2011 to FY 2012. Three factors not discussed
separately have significant impacts here. The first factor is the
update to the standardized amount. In accordance with section
1886(b)(3)(B)(i) of the Act, we are updating the standardized
amounts for FY 2012 using an applicable percentage increase of 1.9
percent. This includes our forecasted IPPS operating hospital market
basket increase of 3.0 percent with a reduction of 1.0 percentage
point for the multifactor productivity adjustment and a 0.1
percentage point reduction as required under the Affordable Care
Act. (Hospitals that fail to comply with the quality data submission
requirements will receive an update of -0.1 percent (this update
includes the 2.0 percentage point reduction for failure to submit
these data)). Under section 1886(b)(3)(B)(iv) of the Act, the
updates to the hospital-specific amounts for SCHs and for MDHs are
also equal to the applicable percentage increase, or 1.9 percent. In
addition, we are updating the Puerto Rico-specific amount by an
applicable percentage increase of 1.9 percent.
A second significant factor that affects the changes in
hospitals' payments per case from FY 2011 to FY 2012 is the change
in hospitals' geographic reclassification status from one year to
the next. That is, payments may be reduced for hospitals
reclassified in FY 2011 that are no longer reclassified in FY 2012.
Conversely, payments may increase for hospitals not reclassified in
FY 2011 that are reclassified in FY 2012.
A third significant factor is that we currently estimate that
actual outlier payments during FY 2011 will be 4.8 percent of total
MS-DRG payments. Our updated FY 2011 outlier estimate accounts for
changes to the FY 2011 IPPS payments required under the Affordable
Care Act. When the FY 2011 final rule was published, we projected FY
2011 outlier payments would be 5.1 percent of total MS-DRG plus
outlier payments; the average standardized amounts were offset
correspondingly. The effects of the lower than expected outlier
payments during FY 2011 (as discussed in the Addendum to this final
rule) are reflected in the analyses below comparing our current
estimates of FY 2011 payments per case to estimated FY 2012 payments
per case (with outlier payments projected to equal 5.1 percent of
total MS-DRG payments).
Comment: One commenter noted that in examining the IPPS Impact
File associated with the FY 2012 IPPS/LTCH PPS proposed rule posted
on the CMS Web site, it found that approximately 27,000 claims were
included in the calculation of the case-mix index and case counts
(fields such as BILLS, TACMIV29, and CASETA29) which may be Medicare
Advantage (MA) patient claims submitted by teaching hospitals in
order to receive their IME payments. These claims only had an IME
payments listed. The commenter stated that if these claims are MA
claims, they are not eligible for outlier payments under the IPPS
and, as agreed by CMS, must not be included as part of the
calculation of the outlier thresholds or be included in the
statistics posted in the IPPS Impact File. Accordingly, the
commenter requested that CMS review these 27,000 ``IME only'' claims
to determine whether they represent MA claims.
Response: We have reviewed our MedPAR claims file used to
calculate outlier thresholds and used to report hospital case counts
and case-mix values and have determined that there are MA claims
that may be submitted by teaching hospitals that do not have a GHO
Paid indicator with a value of 1,'' which is the indicator for MA
claims. However, we can identify those claims as likely to be MA
claims because the IME payment field is equal to the DRG payment
field. We agree with the commenter that MA claims submitted by
teaching hospitals for the purpose of the IME payment should not be
included in the calculation of the outlier threshold and have
excluded those claims from the outlier calculation that have a GHO
Paid indicator with a value of ``1'' or do not have a GHO Paid
indicator with a value of ``1'' but do have an IMEPAY field equal to
the DRGPAY field because these are probably MA claims that are
likely not paid under the IPPS and therefore would not incur an
outlier payment. Claims that are trimmed using the criteria
discussed above are not part of the calculation of the outlier
threshold, hospital case count or fee-for-service case mix values
reported on the IPPS Impact File in this final rule.
Comment: One commenter requested that CMS provide a table
indicating the State-by-State impact of the rural floor provision
for providers in each State, including a schedule of what the area
wage indexes would be if the rural floor was not applied. The
commenter also suggested that CMS publish this information annually.
Response: In this final rule, we are including in this impact
section a table indicating State level impacts of the rural floor
and imputed floor provision. Also, we are revising Table 4D of the
Addendum, which specifies the wage index for States or urban areas
receiving the frontier State wage index or rural and imputed floors,
to include a column indicating the pre-floor area wage index.

2. Analysis of Table I

Table I displays the results of our analysis of the changes for
FY 2012. The table categorizes hospitals by various geographic and
special payment consideration groups to illustrate the varying
impacts on different types of hospitals. The top row of the table
shows the overall impact on the 3,423 acute care hospitals included
in the analysis.
The next four rows of Table I contain hospitals categorized
according to their geographic location: all urban, which is further
divided into large urban and other urban; and rural. There are 2,498
hospitals located in urban areas included in our analysis. Among
these, there are 1,371 hospitals located in large urban areas
(populations over 1 million), and 1,127 hospitals in other urban
areas (populations of 1 million or fewer). In addition, there are
925 hospitals in rural areas. The next two groupings are by bed-size
categories, shown separately for urban and rural hospitals. The
final groupings by geographic location are by census divisions, also
shown separately for urban and rural hospitals.
The second part of Table I shows hospital groups based on
hospitals' FY 2012 payment classifications, including any
reclassifications under section 1886(d)(10) of the Act. For example,
the rows labeled urban, large urban, other urban, and rural show
that the numbers of hospitals paid based on these categorizations
after consideration of geographic reclassifications (including
reclassifications under sections 1886(d)(8)(B) and 1886(d)(8)(E) of
the Act that have implications for capital payments) are 2,519;
1,384; 1,135; and 904, respectively.
The next three groupings examine the impacts of the changes on
hospitals grouped by whether or not they have GME residency programs
(teaching hospitals that receive an IME adjustment) or receive DSH
payments, or some combination of these two adjustments. There are
2,391 nonteaching hospitals in our analysis, 792 teaching hospitals
with fewer than 100 residents, and 240 teaching hospitals with 100
or more residents.
In the DSH categories, hospitals are grouped according to their
DSH payment status, and whether they are considered urban or rural
for DSH purposes. The next category groups together hospitals
considered urban or rural, in terms of whether they receive the IME
adjustment, the DSH adjustment, both, or neither.
The next five rows examine the impacts of the changes on rural
hospitals by special payment groups (SCHs, RRCs, and MDHs). There
were 175 RRCs, 320 SCHs, 193 MDHs, and 120 hospitals that are both
SCHs and RRCs, and 18 hospitals that are both MDHs and RRCs.
The next series of groupings are based on the type of ownership
and the hospital's Medicare utilization expressed as a percent of
total patient days. These data were taken from the FY 2008 or FY
2007 Medicare cost reports.
The next two groupings concern the geographic reclassification
status of hospitals. The first grouping displays all urban hospitals
that were reclassified by the MGCRB for FY 2012. The second grouping
shows the MGCRB rural reclassifications. The final category shows
the impact of the policy changes on the 19 cardiac hospitals.
BILLING CODE 4120-01-P

[[Page 51817]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.023

[[Page 51818]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.024

[[Page 51819]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.025

[[Page 51820]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.026

[[Page 51821]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.027

[[Page 51822]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.028

BILLING CODE 4120-01-C

a. Effects of the Hospital Update and Documentation and Coding
Adjustment (Column 2)

As discussed in section II.D. of the preamble of this final
rule, this column includes the hospital update, including the 3.0
percent market basket update, the reduction of 1.0 percentage point
for the multifactor productivity adjustment, and the 0.1 percentage
point reduction in accordance with the Affordable Care Act. In
addition, this column includes the FY 2012 documentation and coding
adjustment of -2.0 percent on the national standardized amount and
the hospital-specific rates. As a result, we are applying a -0.1
percent adjustment to the national standardized amount and the
hospital specific rate. Overall, hospitals will experience a -0.1
percent decrease in payments due to the effects of the hospital
update and documentation and coding adjustment on the national
standardized amount. Puerto Rico hospitals will experience a 0.3
percent increase in payments because we are not making any
documentation and coding adjustment to the Puerto Rico-specific
rate, which is 25 percent of Puerto Rico's payment rate.

b. Effects of the Adjustment to the Standardized Amount for Cape Cod
Hospital v. Sebelius (Column 3)

Column 3 shows the impact of the 1.1 percent adjustment to the
national standardized amount and the 0.9 percent adjustment to the
hospital-specific rate in light of the decision in Cape Cod Hospital
v. Sebelius, as discussed in section II. of the Addendum to this
final rule.
Overall, hospitals will experience a 1.1 percent increase in
payments due to the effects of the adjustment on the national
standardized amount. Hospital categories that experience less than a
1.1 percent increase in payments include hospitals that are paid
under the hospital-specific rate, which we are increasing by 0.9
percent. Rural hospitals will experience a 1.0 percent increase in
payments because many rural hospitals are paid under the hospital-
specific rate, which we are increasing by 0.9 percent.

c. Effects of the Changes to the MS-DRG Reclassifications and Relative
Cost-Based Weights With Recalibration Budget Neutrality (Column 4)

Column 4 shows the effects of the changes to the MS-DRGs and
relative weights with the application of the recalibration budget
neutrality factor to the standardized amounts. Section
1886(d)(4)(C)(i) of the Act requires us annually to make appropriate
classification changes in order to reflect changes in treatment
patterns, technology, and any other factors that may change the
relative use of hospital resources. Consistent with section
1886(d)(4)(C)(iii) of the Act, we are calculating a recalibration
budget neutrality factor to account for the changes in MS-DRGs and
relative weights to ensure that the overall payment impact is budget
neutral.
As discussed in section II.E. of the preamble of this rule, the
FY 2012 MS-DRG relative weights will be 100 percent cost-based and
100 percent MS-DRGs. For FY 2012, the MS-DRGs are calculated using
the FY 2010 MedPAR data grouped to the Version 29.0 (FY 2012) MS-
DRGs. The methods of calculating the relative weights and the
reclassification changes to the GROUPER are described in more detail
in section II.H. of the preamble of this final rule.
The ``All Hospitals'' line in Column 4 indicates that changes
due to MS-DRGs and relative weights will result in a 0.0 percent
change in payments with the application of the recalibration budget
neutrality factor of 0.997903 on to the standardized amount. Due to
changes to the MS-DRG GROUPER in this final rule, there were some
shifts in payments due to changes in the relative weights with rural
hospitals experiencing a 0.2 percent decrease in payments and large
urban hospitals experiencing a 0.1 percent increase in payments.

d. Effects of Wage Index Changes (Column 5)

Column 5 shows the impact of updated wage data with the
application of the wage budget neutrality factor. Section
1886(d)(3)(E) of the Act requires that, beginning October 1, 1993,
we annually update the wage data used to calculate the wage index.
In accordance with this requirement, the wage index for acute care
hospitals for FY 2012 is based on data submitted for hospital cost
reporting periods beginning on or after October 1, 2007 and before
October 1, 2008. The estimated impact of the updated wage data and
labor share on hospital payments is isolated in Column 5 by holding
the other payment parameters constant in this simulation. That is,
Column 5 shows the percentage change in payments when going from a
model using the FY 2011 wage index, based on FY 2007 wage data, the
current labor-related share and having a 100-percent occupational
mix adjustment applied, to a model using the FY 2012 pre-
reclassification wage index with the labor-related share, also
having a 100-percent occupational mix adjustment applied, based on
FY 2008 wage data (while holding other payment parameters such as
use of the Version 29.0 MS-DRG GROUPER constant). The occupational
mix adjustment is based on the 2007-2008 occupational mix survey.
In addition, the column shows the impact of the application of
wage budget neutrality to the national standardized amount. In FY
2010, we began calculating separate wage budget neutrality and
recalibration budget neutrality factors, in accordance with section
1886(d)(3)(E) of the Act, which specifies that budget neutrality to
account for wage changes or updates made under that subparagraph
must be made without regard to the 62 percent labor-related share
guaranteed under section 1886(d)(3)(E)(ii) of the Act. Therefore,
for FY 2012, we are calculating the wage budget neutrality factor to
ensure that payments under updated wage data and the labor-related
share are budget neutral without regard to the lower labor-related
share of 62 percent applied to hospitals with a wage index less than
or equal to 1. In other words, the wage budget neutrality is
calculated under the assumption that all hospitals receive the
higher labor-related share of the standardized amount. The wage
budget neutrality factor is 1.000558, and the overall payment change
is 0 percent.
Column 5 shows the impacts of updating the wage data using FY
2008 cost reports. Overall, the new wage data will lead to a 0.0
percent change for all hospitals before being combined with the wage
budget neutrality adjustment shown in Column 5. Among the regions,
the largest increase is in the rural New England region, which
experiences a 0.7 percent increase due to increases in the wage
index among rural Connecticut and rural Massachusetts hospitals. The
largest decline from updating the wage data is seen in the rural
East South Central region (-0.5 percent decrease).
In looking at the wage data itself, the national average hourly
wage increased 3.7 percent compared to FY 2011. Therefore, the

[[Page 51823]]

only manner in which to maintain or exceed the previous year's wage
index was to match or exceed the national 3.7 percent increase in
average hourly wage. Of the 3,428 hospitals with wage data for both
FYs 2011 and 2012, 1,729, or 50.4 percent, experienced an average
hourly wage increase of 3.4 percent or more.
The following chart compares the shifts in wage index values for
hospitals for FY 2012 relative to FY 2011. Among urban hospitals, 32
will experience an increase of more than 5 percent and less than 10
percent and 4 will experience an increase of more than 10 percent.
Among rural hospitals, 1 will experience an increase of more than 5
percent and less than 10 percent, and none will experience an
increase of more than 10 percent. However, 924 rural hospitals will
experience increases or decreases of less than 5 percent, while
2,448 urban hospitals will experience increases or decreases of less
than 5 percent. Sixteen urban hospitals will experience decreases in
their wage index values of more than 5 percent and less than 10
percent. Three urban hospitals will experience decreases in their
wage index values of greater than 10 percent. No rural hospitals
will experience a decrease of more than 10 percent. No rural
hospitals will experience decreases in their wage index values of
greater than 5 percent but less than 10 percent. These figures
reflect changes in the wage index which is an adjustment to either
68.8 percent or 62 percent of the labor-related share of a
hospital's standardized amount, depending upon whether its wage
index is greater than 1.0 or less than or equal to 1.0. Therefore,
these figures illustrate a somewhat larger change in the wage index
than will occur to the hospital's total payment.
The following chart shows the projected impact for urban and
rural hospitals.

------------------------------------------------------------------------
Number of hospitals
Percentage change in area wage index -----------------------------------
values Urban Rural
------------------------------------------------------------------------
Increase more than 10 percent....... 4 0
Increase more than 5 percent and 32 0
less than 10 percent...............
Increase or decrease less than 5 2,448 924
percent............................
Decrease more than 5 percent and 16 0
less than 10 percent...............
Decrease more than 10 percent....... 3 0
------------------------------------------------------------------------

e. Combined Effects of the MS-DRG and Wage Index Changes (Column 6)

Section 1886(d)(4)(C)(iii) of the Act requires that changes to
MS-DRG reclassifications and the relative weights cannot increase or
decrease aggregate payments. In addition, section 1886(d)(3)(E) of
the Act specifies that any updates or adjustments to the wage index
are to be budget neutral. We computed a wage budget neutrality
factor of 1.000558, and a recalibration budget neutrality factor of
0.997903 (which is applied to the Puerto Rico-specific standardized
amount and the hospital-specific rates). The product of the two
budget neutrality factors is the cumulative wage and recalibration
budget neutrality factor. The cumulative wage and recalibration
budget neutrality adjustment is 0.998460, or approximately -0.15
percent, which is applied to the national standardized amounts.
Because the wage budget neutrality and the recalibration budget
neutrality are calculated under different methodologies according to
the statute, when the two budget neutralities are combined and
applied to the standardized amount, the overall payment impact is
not necessarily budget neutral. However, in this final rule, we are
estimating that the changes in the MS-DRG relative weights and
updated wage data with wage and budget neutrality applied will
result in a 0.0 change in payments.
We estimate that the combined impact of the changes to the
relative weights and MS-DRGs and the updated wage data with budget
neutrality applied will result in no change in payments for urban
hospitals and 0.1 percent decrease in payments for rural hospitals.
Urban Pacific hospitals will experience a 0.3 percent increase in
payments due to increases in their wages compared to the national
average, while the urban East North Central area will experience a -
0.4 decrease in payments because of below average increases in
wages. Among the rural hospital categories, rural New England
hospitals will experience the greatest increase in payment (0.4
percent) primarily due to above average increases in the wage data,
while the rural East North Central area will experience a 0.6
percent decrease in payments due to decreases in the wage data.

f. Effects of MGCRB Reclassifications (Column 7)

Our impact analysis to this point has assumed acute care
hospitals are paid on the basis of their actual geographic location
(with the exception of ongoing policies that provide that certain
hospitals receive payments on other bases than where they are
geographically located). The changes in Column 7 reflect the per
case payment impact of moving from this baseline to a simulation
incorporating the MGCRB decisions for FY 2012 which affect
hospitals' wage index area assignments.
By spring of each year, the MGCRB makes reclassification
determinations that will be effective for the next fiscal year,
which begins on October 1. The MGCRB may approve a hospital's
reclassification request for the purpose of using another area's
wage index value. Hospitals may appeal denials of MGCRB decisions to
the CMS Administrator. Further, hospitals have 45 days from
publication of the IPPS rule in the Federal Register to decide
whether to withdraw or terminate an approved geographic
reclassification for the following year.
The overall effect of geographic reclassification is required by
section 1886(d)(8)(D) of the Act to be budget neutral. Therefore,
for the purposes of this impact analysis, we are applying an
adjustment of 0.991943 to ensure that the effects of the section
1886(d)(10) reclassifications are budget neutral (section II.A. of
the Addendum to this final rule). Geographic reclassification
generally benefits hospitals in rural areas. We estimate that
geographic reclassification will increase payments to rural
hospitals by an average of 1.8 percent. By region, all the rural
hospital categories, with the exception of the one rural Puerto Rico
hospital, will experience increases in payments due to MGCRB
reclassification. Rural hospitals in the East South Central region
will experience a 2.6 percent increase in payments and rural
hospitals in the Mountain region will experience a 0.5 percent
increase in payments. Urban hospitals in New England and the Middle
Atlantic will experience an increase in payments of 0.7 percent and
0.3 percent, respectively, largely due to reclassifications of
hospitals in Connecticut and New Jersey.
Table 9A listed in section VI. of the Addendum to this final
rule and available via the Internet reflects the approved
reclassifications for FY 2012.
g. Effects of the Rural and Imputed Floor, Including Application
of National Budget Neutrality (Column 8)
As discussed in section III.B. of the preamble of the FY 2009
IPPS final rule, the FY 2010 IPPS/RY 2010 LTCH PPS final rule, the
FY 2011 IPPS/LTCH PPS final rule and this final rule, section 4410
of Public Law 105-33 established the rural floor by requiring that
the wage index for a hospital in any urban area cannot be less than
the wage index received by rural hospitals in the same State.
Beginning with FY 2008, we apply a uniform budget neutrality
adjustment is applied to the wage index. In addition, as discussed
in section III.F.2. of the preamble of this final rule, the imputed
floor, which is budget neutral, was set to expire with the FY 2011
wage index but we are finalizing to extend the imputed floor for 2
additional years. The imputed floor only benefits hospitals located
in New Jersey. For FY 2012 (and in FY 2011), the Affordable Care Act
requires that we apply one rural floor budget neutrality factor to
the wage index, nationally and the imputed floor is part of the
rural floor budget neutrality factor applied to the wage index,
nationally. The FY 2012 rural floor budget neutrality factor applied
to the wage index is 0.991007, which will reduce wage indexes by -
0.9 percent.
Column 8 shows the projected impact of the rural floor and
imputed floor with the national rural floor budget neutrality factor
applied to the wage index. The column compares the post-
reclassification FY 2012

[[Page 51824]]

wage index of providers before the rural floor and imputed floor
adjustment and the post-reclassification FY 2012 wage index of
providers with the rural floor and imputed floor adjustment. Only
urban hospitals can benefit from the rural floor provision. Because
the provision is budget neutral, all other hospitals (that is, all
rural hospitals and those urban hospitals to which the adjustment is
not made) experience a decrease in payments due to the budget
neutrality adjustment applied nationally to their wage index.
We project that, in the aggregate, rural hospitals will
experience a -0.3 percent decrease in payments as a result of the
application of rural floor budget neutrality because the rural
hospitals do not benefit from the rural floor, but have their wage
indexes downwardly adjusted to ensure that the application of the
rural floor is budget neutral overall. We project hospitals located
in other urban areas (populations of 1 million or fewer) will
experience a 0.1 percent increase in payments because those
providers benefit from the rural floor. Urban hospitals in the New
England region can expect a 5.3 percent increase in payments
primarily due to the application of the rural floor in Massachusetts
and the applicable national rural floor budget neutrality as
required by the Affordable Care Act. All 60 urban providers in
Massachusetts are expected to receive the rural floor wage index
value, including rural floor budget neutrality, of 1.3452. During
most past years, there have been no IPPS hospitals located in rural
areas in Massachusetts. There was one urban IPPS hospital that was
reclassified to rural Massachusetts under section 1886(d)(8)(E) of
the Act which established the Massachusetts rural floor, but the
wage index resulting from that hospital's data was not high enough
for any urban hospital to benefit from the rural floor policy.
However, beginning with the FY 2012 wage index, the rural floor for
the State is established by the conversion of a CAH to an IPPS
hospital that is geographically located in rural Massachusetts.
Massachusetts hospitals can expect approximately an 8.7 percent
increase in IPPS payments due to the application of the rural floor.
Urban Puerto Rico hospitals are expected to experience a 0.1
percent increase in payments as a result of the application of a
Puerto Rico rural floor. Similar to Massachusetts, this is the first
year in which urban Puerto Rico hospitals will receive a rural floor
as a result of a new IPPS hospital located in rural Puerto Rico
setting a rural floor. We are applying a rural floor budget
neutrality factor to the Puerto Rico-specific wage index of 0.989417
or 1.1 percent. The Puerto Rico-specific wage index adjusts the
Puerto Rico-specific standardized amount, which represents 25
percent of payments to Puerto Rico hospitals.
There are 39 hospitals in New Jersey that benefit from the
extension of the imputed floor and receive the imputed floor wage
index value, including rural floor budget neutrality of 1.1264.
Urban Middle Atlantic hospitals will experience a -0.1 percent
decrease in payments which reflects the increase in payments for New
Jersey hospitals receiving the imputed floor and a decrease for all
other urban hospitals in the Middle Atlantic region.
In response to a public comment, we are providing the payment
impact of the rural floor and imputed floor with budget neutrality
at the State level. Column 1 of the table displays the number of
IPPS hospitals located in each State. Column 2 displays the number
of hospitals in each State that will be receiving the rural floor or
imputed floor wage index for FY 2012. Column 3 displays the
percentage of total payments each State receives or contributes to
fund the rural floor and imputed floor with national budget
neutrality. The column compares the post-reclassification FY 2012
wage index of providers before the rural floor and imputed floor
adjustment and the post-reclassification FY 2012 wage index of
providers with the rural floor and imputed floor adjustment. Column
4 displays an estimated payment amount that each State will gain or
lose due to the application of the rural floor and imputed floor
with national budget neutrality.

FY 2012 IPPS Estimated Payments due to Rural Floor and Imputed Floor With National Budget Neutrality
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent change in
Number of hospitals payments due to
State Number of hospitals receiving rural floor application of rural Difference (in
or imputed floor floor and imputed floor millions)
with budget neutrality
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama............................................. 95 3 -0.4 -$7.5
Alaska.............................................. 6 4 1.7 2.3
Arizona............................................. 57 0 -0.5 -8.8
Arkansas............................................ 47 0 -0.4 -5.0
California.......................................... 308 100 0.2 20.3
Colorado............................................ 46 7 0.4 4.3
Connecticut......................................... 32 12 1.9 30.0
Delaware............................................ 5 0 -0.5 -2.0
Florida............................................. 168 5 -0.4 -29.1
Georgia............................................. 108 0 -0.5 -13.0
Hawaii.............................................. 14 0 -0.4 -1.1
Idaho............................................... 15 0 -0.4 -1.0
Illinois............................................ 130 0 -0.5 -26.3
Indiana............................................. 89 1 -0.5 -11.1
Iowa................................................ 34 5 -0.3 -3.0
Kansas.............................................. 55 1 -0.4 -3.5
Kentucky............................................ 65 1 -0.4 -8.5
Louisiana........................................... 97 10 -0.5 -7.2
Maine............................................... 20 0 -0.4 -2.1
Massachusetts....................................... 61 60 8.7 274.8
Michigan............................................ 100 0 -0.5 -21.4
Minnesota........................................... 51 0 -0.5 -8.1
Mississippi......................................... 64 0 -0.5 -5.6
Missouri............................................ 80 4 -0.4 -10.5
Montana............................................. 12 1 -0.3 -0.8
Nebraska............................................ 23 0 -0.4 -2.4
Nevada.............................................. 24 0 -0.5 -3.7
New Hampshire....................................... 13 9 1.5 6.3
New Jersey.......................................... 67 39 1.4 54.2
New Mexico.......................................... 28 0 -0.3 -1.6
New York............................................ 170 2 -0.5 -47.5
North Carolina...................................... 89 4 -0.4 -15.5
North Dakota........................................ 6 0 -0.3 -0.8

[[Page 51825]]

Ohio................................................ 138 9 -0.4 -15.8
Oklahoma............................................ 85 2 -0.4 -5.7
Oregon.............................................. 33 3 -0.4 -3.5
Pennsylvania........................................ 152 16 -0.4 -17.3
Puerto Rico......................................... 51 12 0.1 0.1
Rhode Island........................................ 11 0 -0.6 -2.2
South Carolina...................................... 55 0 -0.4 -7.2
South Dakota........................................ 19 0 -0.3 -0.9
Tennessee........................................... 99 11 -0.3 -7.7
Texas............................................... 320 4 -0.5 -34.0
Utah................................................ 32 2 -0.4 -1.7
Vermont............................................. 6 0 -0.3 -0.6
Virginia............................................ 81 2 -0.4 -10.8
Washington.......................................... 48 2 -0.4 -7.3
Washington, D.C..................................... 7 0 -0.5 -2.5
West Virginia....................................... 32 3 -0.3 -2.2
Wisconsin........................................... 64 2 -0.4 -6.4
Wyoming............................................. 11 0 0 0.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

h. Effects of the Application of the Frontier State Wage Index (Column
9)

Section 10324(a) of the Affordable Care Act requires that we
establish a minimum post-reclassified wage index of 1.00 for all
hospitals located in ``frontier States.'' The term ``frontier
States'' is defined in the statute as States in which at least 50
percent of counties have a population density less than 6 persons
per square mile. Based on these criteria, five States (Montana,
North Dakota, Nevada, South Dakota, and Wyoming) are considered
frontier States and 48 hospitals located in those States will
receive a frontier wage index of 1.0. This provision is not budget
neutral and is estimated to increase IPPS operating payments by
approximately $50 million.
Urban hospitals located in the West North Central region and
urban hospitals located in the Mountain region will experience an
increase in payments by 0.6 percent and 0.2 percent, respectively
because many of the hospitals located in this region are frontier
hospitals. Similarly, rural hospitals located in the Mountain region
and rural hospitals in the West North Central region will experience
an increase in payments by 0.6 percent and 0.1 percent,
respectively.

i. Effects of the Wage Index Adjustment for Out-Migration (Column 10)

Section 1886(d)(13) of the Act, as added by section 505 of
Public Law 108-173, provides for an increase in the wage index for
hospitals located in certain counties that have a relatively high
percentage of hospital employees who reside in the county, but work
in a different area with a higher wage index. Hospitals located in
counties that qualify for the payment adjustment are to receive an
increase in the wage index that is equal to a weighted average of
the difference between the wage index of the resident county, post-
reclassification and the higher wage index work area(s), weighted by
the overall percentage of workers who are employed in an area with a
higher wage index. Overall, rural hospitals will experience a 0.1
percent increase in payments as a result of the outmigration
adjustment. Rural DSH providers will experience a 0.5 percent
increase in payments. There are 255 providers that will receive the
out-migration adjustment in FY 2012. This out-migration wage
adjustment is not budget neutral, and we estimate the impact of
these providers receiving the out-migration increase to be
approximately $15 million.

j. Effects of the Expiration of Section 508 (Column 11)

Column 11 shows our estimate of the changes in payments due to
the expiration of section 508, a non-budget neutral reclassification
provision, applied under the MMEA. Because this provision is not
budget neutral, the expiration of this reclassification provision
results in a -0.2 percent decrease in payments, overall. There are
88 section 508 hospitals in this payment analysis. Section 508
hospitals are generally urban hospitals, resulting in a -0.2 percent
decrease in payments among the urban hospital category and a 0.0
percent change in payments among rural hospitals. Urban Middle
Atlantic and East North Central regions will experience a decrease
in payments of -0.4 percent and -0.5 percent respectively because
many section 508 hospitals are located in those regions. Urban
teaching hospitals that do not receive DSH will experience a -0.4
percent decrease in payments due to the expiration of section 508.

k. Effects of All FY 2012 Changes (Column 12)

Column 12 shows our estimate of the changes in payments per
discharge from FY 2011 and FY 2012, resulting from all changes
reflected in this final rule for FY 2012. It includes combined
effects of the previous columns in the table.
The average increase in payments under the IPPS for all
hospitals is approximately 1.1 percent for FY 2012 relative to FY
2011. As discussed in section II.D. of the preamble of this final
rule, this column includes the FY 2012 documentation and coding
adjustment of -2.0 percent on the national standardized amount and
on the hospital-specific rates. In addition, this column includes
the annual hospital update of 1.9 percent to the national
standardized amount. This annual hospital update includes the 3.0
percent market basket update, the reduction of 1.0 percentage point
for the multifactor productivity adjustment, and the 0.1 percentage
point reduction under section 3401 of the Affordable Care Act. As
described in Column 2, the annual hospital update, combined with the
documentation and coding adjustment, results in a -0.1 percent
decrease in payments in FY 2012 relative to FY 2011. As described in
Column 3, the 1.1 percent adjustment to the national standardized
amount and the 0.9 percent adjustment to the hospital specific rate
in light of a recent court decision related to rural floor budget
neutrality results in a 1.1 percent increase in payments in FY 2012
relative to FY 2011. In addition, Column 11 describes a -0.2 percent
decrease in payments due to the expiration of section 508
reclassifications that had been extended for FY 2011 under the MMEA.
Section 508 was not a budget-neutral provision. The impact of moving
from our estimate of FY 2011 outlier payments, 4.8 percent, to the
estimate of FY 2012 outlier payments, 5.1 percent, results in an
increase of 0.3 percent in FY 2012 payments relative to FY 2011.
There might also be interactive effects among the various factors
comprising the payment system that we are not able to isolate. For
these reasons, the values in Column 12 may not equal the sum of the
percentage changes described above.

[[Page 51826]]

The overall change in payments per discharge for hospitals paid
under the IPPS in FY 2012 is estimated to increase by 1.1 percent.
The payment increase among the hospital categories is largely
attributed to the updates to the rate including the hospital update
and the increase to the rate associated with a recent court decision
related to rural floor budget neutrality. Hospitals in urban areas
will experience an estimated 1.2 percent increase in payments per
discharge in FY 2012 compared to FY 2011. Hospital payments per
discharge in rural areas are estimated to increase by 0.2 percent in
FY 2012 as compared to FY 2011.
Among urban census divisions, the smallest estimated payment
increase will be 0.2 percent in the East North Central region
because many of the urban providers in this region had benefited
from section 508 reclassifications in FY 2011 that have expired for
FY 2012. Urban hospitals in New England will see the largest payment
increases (5.6 percent) because the Massachusetts hospitals are
benefitting from the rural floor in their State. Furthermore, urban
Puerto Rico hospitals will experience a 1.2 percent increase in
payments due to the application of the rural floor.
Among the rural regions, the providers in the East South Central
and West South Central regions will experience decreases in payments
of -0.5 percent and 0.3 percent respectively, due to decreases in
wage data and the downward adjustment applied to their wage index
for rural floor budget neutrality. Rural hospitals in the Pacific
region will experience an increase in payments of 0.7 percent
because the rural providers in this region benefit from higher than
average wage data and MGCRB reclassification.
Among special categories of hospitals, MDHs will receive an
estimated payment increase of 0.5 percent. MDHs are paid the higher
of the IPPS rate based on the national standardized amount, that is,
the Federal rate, or, if the hospital-specific rate exceeds the
Federal rate, the Federal rate plus 75 percent of the difference
between the Federal rate and the hospital-specific rate. SCHs are
paid the higher of their Federal rate and the hospital-specific
rate. Overall, SCHs will experience an estimated decrease in
payments by 0.7 percent.
Rural hospitals reclassified for FY 2012 are anticipated to
receive a 0.5 percent payment increase. Rural hospitals that are not
reclassifying are estimated to receive a payment decrease of 0.3
percent due to lower wage data, changes to the relative weights and
application of rural floor budget neutrality. Urban reclassified
hospitals will experience the average payment increase at 1.1
percent due to the benefits under MGCRB reclassification and the
rural floor. Urban nonreclassified hospitals will experience a
payment increase of 1.2 percent.
Cardiac hospitals are expected to experience a payment decrease
of 1.2 percent in FY 2012 relative to FY 2011.

3. Impact Analysis of Table II

Table II presents the projected impact of the changes for FY
2012 for urban and rural hospitals and for the different categories
of hospitals shown in Table I. It compares the estimated average
payments per discharge for FY 2011 with the average payments per
discharge for FY 2012, as calculated under our models. Thus, this
table presents, in terms of the average dollar amounts paid per
discharge, the combined effects of the changes presented in Table I.
The estimated percentage changes shown in the last column of Table
II equal the estimated percentage changes in average payments per
discharge from Column 12 of Table I.

Table II--Impact Analysis of Changes for FY 2012 Acute Care Hospital Operating Prospective Payment System
[Payments per discharge]
----------------------------------------------------------------------------------------------------------------
Average FY 2011 Average FY 2012
Number of payment per payment per All FY 2012
hospitals discharge discharge changes
............... (2) (3) (4)
----------------------------------------------------------------------------------------------------------------
All hospitals............................... 3,423 $10,249 $10,359 1.1
By Geographic Location:
Urban hospitals......................... 2,498 10,658 10,783 1.2
Large urban areas (populations over 1 1,371 11,239 11,378 1.2
million)...............................
Other urban areas (populations of 1 1,127 9,944 10,051 1.1
million or fewer)......................
Rural hospitals......................... 925 7,657 7,675 0.2
Bed Size (Urban):
0-99 beds............................... 632 8,202 8,289 1.1
100-199 beds............................ 782 8,989 9,101 1.2
200-299 beds............................ 449 9,738 9,847 1.1
300-499 beds............................ 430 10,952 11,062 1
500 or more beds........................ 205 13,141 13,316 1.3
Bed Size (Rural):
0-49 beds............................... 320 6,174 6,157 -0.3
50-99 beds.............................. 348 7,169 7,162 -0.1
100-149 beds............................ 152 7,424 7,449 0.3
150-199 beds............................ 58 8,416 8,458 0.5
200 or more beds........................ 47 9,438 9,501 0.7
Urban by Region:
New England............................. 120 11,136 11,761 5.6
Middle Atlantic......................... 320 11,772 11,877 0.9
South Atlantic.......................... 380 9,809 9,891 0.8
East North Central...................... 401 10,043 10,060 0.2
East South Central...................... 153 9,492 9,535 0.5
West North Central...................... 169 10,256 10,379 1.2
West South Central...................... 366 9,995 10,123 1.3
Mountain................................ 159 10,803 10,892 0.8
Pacific................................. 380 13,112 13,316 1.6
Puerto Rico............................. 50 5,299 5,362 1.2
Rural by Region:
New England............................. 23 10,175 10,210 0.3
Middle Atlantic......................... 69 8,037 8,096 0.7
South Atlantic.......................... 165 7,362 7,400 0.5
East North Central...................... 120 7,966 7,997 0.4
East South Central...................... 170 7,027 6,992 -0.5
West North Central...................... 99 8,145 8,196 0.6

[[Page 51827]]

West South Central...................... 183 6,737 6,720 -0.3
Mountain................................ 66 8,509 8,533 0.3
Pacific................................. 29 10,235 10,307 0.7
Puerto Rico............................. 1 2,280 2,299 0.8
By Payment Classification:
Urban hospitals......................... 2,519 10,643 10,768 1.2
Large urban areas (populations over 1 1,384 11,224 11,362 1.2
million)...............................
Other urban areas (populations of 1 1,135 9,925 10,032 1.1
million or fewer)......................
Rural areas............................. 904 7,733 7,751 0.2
Teaching Status:
Non-teaching............................ 2391 8,592 8,676 1
Fewer than 100 Residents................ 792 10,136 10,233 1
100 or more Residents................... 240 15,078 15,289 1.4
Urban DSH:
Non-DSH................................. 739 8,951 9,026 0.8
100 or more beds........................ 1547 11,137 11,275 1.2
Less than 100 beds...................... 337 7,627 7,696 0.9
Rural DSH:
SCH..................................... 417 7,117 7,069 -0.7
RRC..................................... 222 8,471 8,526 0.7
100 or more beds........................ 27 6,372 6,384 0.2
Less than 100 beds...................... 134 5,928 5,952 0.4
Urban teaching and DSH:
Both teaching and DSH................... 827 12,180 12,327 1.2
Teaching and no DSH..................... 144 9,858 9,946 0.9
No teaching and DSH..................... 1057 9,120 9,237 1.3
No teaching and no DSH.................. 491 8,529 8,600 0.8
Rural Hospital Types:
RRC..................................... 175 8,561 8,616 0.6
SCH..................................... 320 8,149 8,090 -0.7
MDH..................................... 193 6,397 6,432 0.5
SCH and RRC............................. 120 9,420 9,479 0.6
MDH and RRC............................. 18 8,467 8,513 0.5
Type of Ownership:
Voluntary............................... 1,985 10,394 10,512 1.1
Proprietary............................. 870 9,115 9,195 0.9
Government.............................. 566 10,869 10,967 0.9
Medicare Utilization as a Percent of
Inpatient Days:........................
0-25.................................... 358 14,311 14,494 1.3
25-50................................... 1,695 10,897 11,025 1.2
50-65................................... 1,081 8,505 8,567 0.7
Over 65................................. 198 7,456 7,522 0.9
Hospitals Reclassified by the Medicare
Geographic Classification Review Board:
FY 2012 Reclassifications:
All Reclassified Hospitals FY 2012...... 655 9,793 9,881 0.9
All Non-Reclassified Hospitals FY 2012.. 2768 10,371 10,487 1.1
Urban Reclassified Hospitals FY 2012:... 323 10,668 10,780 1.1
Urban Non-reclassified Hospitals FY 2012 2142 10,673 10,800 1.2
Rural Reclassified Hospitals FY 2012.... 332 8,260 8,305 0.5
Rural Nonreclassified Hospitals FY 2012: 532 6,825 6,803 -0.3
All Section 401 Reclassified Hospitals:. 40 8,598 8,615 0.2
Other Reclassified Hospitals (Section 62 7,263 7,283 0.3
1886(d)(8)(B)).........................
Specialty Hospitals:
Cardiac Hospitals....................... 19 11,158 11,288 1.2
----------------------------------------------------------------------------------------------------------------

H. Effects of Other Policy Changes

In addition to those policy changes discussed above that we are
able to model using our IPPS payment simulation model, we are making
various other changes in this final rule. Generally, we have limited
or no specific data available with which to estimate the impacts of
these changes. Our estimates of the likely impacts associated with
these other changes are discussed below.

1. Effects of Proposed Policy on HACs, Including Infections

In section II.F. of the preamble of this final rule, we discuss
our implementation of section 1886(d)(4)(D) of the Act, which
requires the Secretary to identify conditions that are: (1) High
cost, high volume, or both; (2) result in the assignment of a case
to an MS-DRG that has a higher payment when present as a secondary
diagnosis; and (3) could reasonably have been prevented

[[Page 51828]]

through application of evidence-based guidelines. For discharges
occurring on or after October 1, 2008, hospitals will not receive
additional payment for cases in which one of the selected conditions
was not present on admission, unless, based on data and clinical
judgment, it cannot be determined at the time of admission whether a
condition is present. That is, the case will be paid as though the
secondary diagnosis were not present. However, the statute also
requires the Secretary to continue counting the condition as a
secondary diagnosis that results in a higher IPPS payment when doing
the budget neutrality calculations for MS-DRG reclassifications and
recalibration. Therefore, we will perform our budget neutrality
calculations as though the payment provision did not apply, but
Medicare will make a lower payment to the hospital for the specific
case that includes the secondary diagnosis. Thus, the provision
results in cost savings to the Medicare program.
We note that the provision will only apply when one or more of
the selected conditions are the only secondary diagnosis or
diagnoses present on the claim that will lead to higher payment.
Medicare beneficiaries will generally have multiple secondary
diagnoses during a hospital stay, such that beneficiaries having one
MCC or CC will frequently have additional conditions that also will
generate higher payment. Only a small percentage of the cases will
have only one secondary diagnosis that would lead to a higher
payment. Therefore, if at least one nonselected secondary diagnosis
that leads to higher payment is on the claim, the case will continue
to be assigned to the higher paying MS-DRG and there will be no
Medicare savings from that case. In addition, as discussed in
section II.F.3.e. of the preamble of this final rule, it is possible
to have two severity levels where the HAC does not affect the MS-DRG
assignment or for an MS-DRG not to have severity levels. In either
of these circumstances, the case will continue to be assigned to the
higher paying MS-DRG and there will be no Medicare savings from that
case.
In section II.F. of the preamble of this final rule, we discuss
our decision not to add one HAC for FY 2012: Contrast-Induced Acute
Kidney Injury. Therefore, we have deleted the cost estimates for
this proposed HAC from the proposed savings estimates for the next 5
fiscal years.
The HAC payment provision went into effect on October 1, 2008.
Our savings estimates for the next 5 fiscal years are shown below:

------------------------------------------------------------------------
Savings (in
Year millions)
------------------------------------------------------------------------
FY 2012............................................... $21
FY 2013............................................... 22
FY 2014............................................... 23
FY 2015............................................... 25
FY 2016............................................... 27
------------------------------------------------------------------------

2. Effects of Policy Relating to New Medical Service and Technology
Add-On Payments

In section II.I. of the preamble to this final rule, we discuss
two applications for add-on payments for new medical services and
technologies for FY 2012, as well as the status of the new
technology that was approved to receive new technology add-on
payments in FY 2011. As explained in that section, add-on payments
for new technology under section 1886(d)(5)(K) of the Act are not
required to be budget neutral. As discussed in section II.I.4. of
the preamble of this final rule, we are not approving either of the
two applications for new technology add-on payments for FY 2012.
However, we are finalizing our proposal to continue to make new
technology add-on payments in FY 2012 for the AutoLITT\TM\ (because
the technology is still within the 3-year anniversary of the
product's entry onto the market). We note that new technology add-on
payments per case are limited to the lesser of (1) 50 percent of the
costs of the new technology or (2) 50 percent of the amount by which
the costs of the case exceed the standard MS-DRG payment for the
case. Because it is difficult to predict the actual new technology
add-on payment for each case, our estimate below is based on the
increase in add-on payments for FY 2012 as if every claim that would
qualify for a new technology add-on payment would receive the
maximum add-on payment. For FY 2011, the applicant estimates that
approximately 170 Medicare beneficiaries will be eligible for the
AutoLITT\TM\. Therefore, based on the applicant's estimate from FY
2011, we currently estimate that payments for the AutoLITT\TM\ will
increase overall FY 2012 payments by $900,000.

3. Effects of Requirements for Hospital Inpatient Quality Reporting
(IQR) Program

In section VII.C. of Appendix A of the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50662 through 50663), we discussed the impact of
the FY 2011 through FY 2014 Hospital Inpatient Quality Reporting
(IQR) Program requirements we adopted in that final rule. We
estimated that 95 hospitals would not receive the full payment
update in any fiscal year from FY 2012 through FY 2014. At the time
that analysis was prepared, 104 hospitals did not receive the full
payment update in FY 2010.
In section IV.A. of this final rule, we discuss our requirements
for hospitals to report quality data under the Hospital IQR Program
in order to receive the full update to the standardized amount for
FY 2012 through FY 2015. We now estimate that approximately 104
hospitals may not receive the full update in any fiscal year. (In
section IV.A.2.b. of this final rule, we finalized that, for the FY
2014 payment determination, we would retire four measures (AMI-4,
HF-4, PN-4, and PN-5c) and suspend data collection for four measures
(AMI-1, AMI-3, AMI-5, and SCIP-INF-6), beginning with January 1,
2012 discharges. We believe that these changes will not have a
significant effect on our estimate.) We believe that most of these
hospitals will be either small rural or small urban hospitals.
However, at this time, information is not available to determine the
precise number of hospitals that will not meet the requirements to
receive the full annual percentage increase for FY 2012 through FY
2015.
In section IV.A.7. of the FY 2011 IPPS/LTCH PPS final rule (75
FR 50225 through 50229), we established Hospital IQR validation
requirements for the FY 2012 and FY 2013 payment determinations.
Beginning with the FY 2012 payment update, hospitals must pass our
validation requirement of a minimum of 75 percent reliability, based
upon our chart-audit validation process, for four quarters of data
from the last quarter of CY 2011 through the third quarter of CY
2012.
In previous years, charts were requested by the CMS CDAC
contractor and hospitals were given 45 days from the date of the
request to submit the requested records. In section IV.A.6.a. of
this final rule and in proposed Sec. 412.140(d)(1), beginning with
the FY 2012 we are reducing the deadline from 45 days to 30 days for
hospitals to return requested medical record documentation to
support our validation requirement. This may be an additional
administrative burden to hospitals selected for validation. However,
this deadline is in line with our QIO regulations at Sec. 476.78
and the burden will be 18 charts for each for the four quarters that
must be copied and mailed in a 30 day period for FY 2012 and
subsequent years.
In addition, we are adding a new Sec. 478.78(b)(2)(ii) that
will require the submission of medical information within 21 days in
those situations in which a ``serious reportable event'' or other
circumstance has been identified during the course of a QIO review.
We do not believe this will cause a significantly higher
administrative burden on the hospitals, because CMS reimburses
providers returning medical records to QIOs at the rate of 12 cents
per page for copying and approximately $4.00 per chart for postage.
Given that we reimburse for the data collection effort, we believe
that this requirement represents a minimal burden to providers. We
have continued our efforts to ensure that QIOs provide assistance to
all hospitals that wish to participate in the Hospital IQR Program.
In section IV.A.6.b. of this final rule, for FY 2014 payment
determinations and subsequent years, we are adding two strata to the
current Hospital IQR validation sample of SCIP, AMI, HF, and PN
cases. For the first stratum, we are selecting three cases per
selected hospital per quarter to validate the CLABSI measure using a
two step selection process that would target potential patients with
positive infection from blood culture results and a Central Venous
Catheter. The requirement of an additional 3 charts per hospital
submitted for validation for the CLABSI measure will result in
approximately 2,400 total additional charts per quarter being
submitted to CMS by all selected hospitals. We reimburse hospitals
for the cost of sending charts to the CDAC contractor at the rate of
12 cents per page for copying and approximately $4.00 per chart for
postage. Our experience shows that the average chart received by the
CDAC contractor is approximately 275 pages. Thus, we will expend
approximately $88,800 per quarter to collect the additional charts
we need to validate the CLASBI measure. Additionally, we will
collect the CLABSI-specific data elements from all charts currently
requested for the Hospital IQR validation. We will validate a total
of 15 records per quarter per

[[Page 51829]]

validated hospital in 5 strata (SCIP, AMI, HF, PN, CLABSI and the
ED/Global Immunization measure).
In section IV.A.6.b. of this final rule, for FY 2014 and
subsequent years, we are adding a second stratum to our validation
sample, which will enable us to validate the EDT and the
Immunization for Influenza and Immunization for Pneumonia global
measures. Thus, we will be validating a total of 18 records per
quarter per selected hospital in 6 strata ((1) SCIP, (2) AMI, (3)
HF, (4) PN, (5) CLABSI, and (6) EDT/immunization measures). Under
the assumptions outlined above, we will expend approximately $88,800
per quarter to collect the additional charts for the EDT/
immunization measures. The total requirement of 18 charts per
hospital will result in approximately 14,400 charts per quarter
being submitted to CMS. Using the assumptions discussed above, for
the FY 2014 Hospital IQR Program, we estimate that CMS will have
expenditures of approximately $532,800 per quarter related to the
validation requirement. Additionally, we will collect the CLABSI-
specific data and the EDT/Immunization data elements from all charts
currently requested for Hospital IQR validation. We will validate a
total of 18 records per quarter per validated hospital in 6 strata
(SCIP, AMI, HF, PN, CLABSI and the ED/Global Immunization measure).
We do not believe this will be an additional burden on the hospitals
because these data will be abstracted from records already
submitted.
Given that we reimburse for the data collection effort, we
believe that a requirement for 18 charts per hospital per quarter
represents a minimal burden to participating hospitals selected for
validation.
Finally, with respect to our validation requirements, we also
are providing that, for FY 2015, we will select additional hospitals
for validation if they were open under their current CCNs in FY 2012
but not selected for validation in the three previous annual
Hospital IQR Program validation selections. This provision could
affect data collection costs and burdens, but we are unable to
estimate any impact at this time.

4. Effects of Additional Hospital Value-Based Purchasing (VBP) Program
Requirements

Section 1886(o)(1)(B) of the Act directs the Secretary to begin
making value-based incentive payments under the Hospital VBP Program
to hospitals for discharges occurring on or after October 1, 2012.
These incentive payments will be funded for FY 2013 through a
reduction to the FY 2013 base operating MS-DRG payment for each
discharge of 1 percent, as required by section 1886(o)(7)(B)(i) of
the Act. The applicable percentage for FY 2014 is 1.25 percent, for
FY 2015 is 1.5 percent, for FY 2016 is 1.75 percent, and for FY 2017
and subsequent years is 2 percent.
In section IV.B. of the preamble of this final rule, we are
adding requirements for the FY 2014 Hospital VBP Program.
Specifically, we are adding a Medicare Spending per Beneficiary
Measure, how the measure will be scored, and the measure's
performance period and baseline period. Because this additional
measure is claims-based and is required for the Hospital IQR
Program, its inclusion in the Hospital VBP Program does not result
in any additional burden because the Hospital VBP Program uses data
that are required for the Hospital IQR Program.

5. Effects of Requirements for Hospital Readmissions Reduction Program

In section IV.C. of the preamble of this final rule, we are
selecting three high cost, high volume conditions for the Hospital
Readmission Reduction Program FY 2013 payment reduction, and the
definition of readmission for these conditions. We also are
finalizing the use of the following three measures for these
conditions for the FY 2013 payment determination:

Heart failure [HF] 30-day Risk Standardized Readmission
Measure
Acute Myocardial Infarction [AMI] 30-day Risk Standardized
Readmission Measure
Pneumonia [PN] 30-day Risk Standardized Readmission Measure

These three risk-adjusted NQF endorsed measures will be
calculated by CMS for hospitals subject to this provision using
Medicare FFS Part A and B claims data, and require no submission of
additional data by the hospital. Therefore, there is no data
collection burden associated with this provision for FY 2013. These
measures also are used under the Hospital IQR Program, and have been
publicly reported on the Hospital Compare Web site since 2009.
Therefore, there is a high degree of familiarity and acceptance
among the stakeholder community with regard to these measures.
We also are establishing a methodology for calculating the
Excess Readmission Ratio using these three measures for the FY 2013
payment determination. This is defined as a ratio of the number of
risk-adjusted readmissions (based on actual readmissions) for the
given condition at a specified hospital compared with the number of
readmissions that will be expected for an average hospital caring
for the same patients. Below is a description of this calculation:
Numerator--Adjusted number of readmission at specific hospital
(calculated for each patient and add up results for all patients):
Hospital-specific readmission effect + average hospital
contribution to readmission risk + [risk factor weights x patient
risk factors]
Denominator--Number of readmissions if an average hospital
treated the same patients (calculated for each patient and summed
for all patients):
Average hospital contribution to readmission risk + [risk factor
weights x patient risk factors]
We are providing a minimum case threshold of 25 cases for a
given condition in order to have an Excess Readmission Ratio
calculated. Using the 25-case threshold, we have analyzed the
distribution of Excess Readmission Ratio calculations on various
types of IPPS hospitals. The results of these analyses are shown in
the three tables below.
BILLING CODE 4120-01-P

[[Page 51830]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.029

[[Page 51831]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.030

[[Page 51832]]

[GRAPHIC] [TIFF OMITTED] TR18AU11.031

The three tables above show the distribution of Excess
Readmission Ratios for AMI hospitalizations, HF hospitalizations,
and PN hospitalizations respectively. The data for these tables come
from the publicly-reported risk-standardized rates of

[[Page 51833]]

readmission reported in 2010 on Hospital Compare (representing
hospitalizations between July 2006 and June 2009). The distributions
of the ratios are shown only for hospitals with at least 25 cases
included in the measures over the 3-year period.
The first column of the tables lists hospital characteristics
(census region, bed size, teaching status, and urban/rural location)
and the second column shows the number of hospitals included in the
distribution for the particular category. For example, for the first
table, AMI readmission, a total of 2,477 hospitals had at least 25
included hospitalizations between July 2006 and June 2009. Of these
hospitals, 148 were in the New England region.
The third and fourth columns show the number and percentage of
hospitals (of those with 25 or more cases) in the particular
category with an Excess Readmission Ratio less than or equal to 1;
such hospitals would not have their payments adjusted due to the
Readmission Reduction Program because they would not be found to
have ``excess'' readmissions. For example in the first table, for
AMI readmissions, 72 of the 148 hospitals in the New England region
(that had 25 or more AMI hospitalizations) had an Excess Readmission
Ratio of less than or equal to 1, which means that 48.6 percent of
the hospitals in the New England region (with at least 25 cases of
AMI in 3 years) would not have their payments affected by the
Hospital Readmission Reduction Program, whereas the remaining
hospitals would be at risk of a payment reduction based on excess
readmissions.
The following eight columns show the distribution of the excess
readmissions. For example, for AMI, in the New England region the
mean Excess Readmission Ratio is 1.0060, the lowest 5th percentile
hospitals had ratios of 0.9172 or less and the hightest 95th
percentile of hospitals had Excess Readmission Ratios of 1.1104 or
greater.
The final column of each table shows the number of hospitals,
within the given category, that are not included in the distribution
based on sample size. For example, for AMI, in the New England
region 30 hospitals are not included in the distribution because
they had fewer than 25 AMI hospitalizations over the 3-year period.
Currently, 25 hospitalizations is the minimum number of
hospitalizations for public reporting. Hospitals with fewer than 25
cases for a given condition do not have risk-standardized rates of
readmission reported on Hospital Compare. We are finalizing this
threshold for the Readmission Reduction Program.
Overall these analyses show, for all three conditions, that in
all hospital categories approximately half of the hospitals are at
risk of payment reductions based on excess readmissions. This
percentage does not vary greatly by region; however for all three
measures the Mid-Atlantic region has the lowest percentage of
hospitals with Excess Readmission Ratios of less than or equal to 1
and, therefore, the Mid-Atlantic region is the region with the
highest percentage of hospitals at risk of payment reduction. By
contrast, the Mountain region has the largest percentage of
hospitals with ratios of less than or equal to 1. The distributions
do not differ greatly by bed size, though the largest hospitals have
slightly lower percentages of hospitals with ratios less than or
equal to 1 for AMI and PN. The distributions do not vary greatly by
teaching status or rural/urban location for any of the measures.
We also are publicly reporting the readmission rates for these
three measures on the Hospital Compare Web site using the current
processes employed for public reporting of these measures, which
includes a preview period. We believe that this also poses no
additional burden to hospitals, as they currently employ this system
for Hospital IQR public reporting.

6. Effects of Policy Changes Relating to Payment Adjustments for
Medicare Disproportionate Share Hospitals (DSHs) and Indirect Medical
Education (IME)

In section IV.G. of the preamble of this final rule, we are
finalizing our proposal to exclude from the hospital's
disproportionate patient percentage (DPP) of the Medicare DSH
calculation and from the available bed day count used to calculate
the DSH payment adjustment and the IME payment adjustments, patient
days for hospice patients receiving inpatient hospice services in a
hospital setting. For the purpose of the DSH payment adjustment
calculation, the patient days for hospice patients receiving
inpatient hospice services in the hospital are excluded from both
the numerator and the denominator of the Medicare and Medicaid
fractions. As such, the impact on hospitals' DSH payment adjustment
will vary based on the demographic composition of an individual
hospital's patient population. In other words, under this policy,
some hospitals may receive increased DSH payment adjustments and
other hospitals may expect to receive lower DSH payment adjustments,
depending on the extent to which a hospital provides inpatient
hospice services to hospice patients.
The final policy of excluding, from the available bed count,
patient days for hospice patients receiving hospice services in an
inpatient hospital setting only impacts DSH payment adjustments for
limited situations. Specifically, urban hospitals with fewer than
100 beds or rural hospitals with fewer than 500 beds, with the
exception of rural referral centers or MDHs, are subject to a cap of
their DSH payment adjustment of 12 percent. Thus, a decrease in the
number of available beds due to the exclusion of beds used to
provide inpatient hospice services only impacts a provider's DSH
payment adjustments if it results in the hospital's bed count
falling below the bed count threshold. Should a hospital fall below
the bed count threshold, it would become subject to the Medicare DSH
payment adjustment cap and its DSH payment could decrease.
For IME payment purposes, a decrease in a hospital's number of
available beds results in an increase in the resident-to-bed ratio.
The exclusion of bed days associated with hospice patients from the
available bed count for IME will reduce the available beds, increase
the resident-to-bed ratio, and, consequently, may increase IME
payments to teaching hospitals, depending on the extent to which
these hospitals were providing inpatient hospice services to hospice
patients.

7. Effects of the FY 2012 Low-Volume Hospital Payment Adjustment

As discussed in section IV.E. of the preamble to this final
rule, we discuss the provisions of sections 3125 and 10314 of the
Affordable Care Act that expand eligibility for the low-volume
hospital payment adjustment at section 1886(d)(12) of the Act for
FYs 2011 and 2012 to hospitals with less than 1,600 Medicare
discharges (instead of the prior requirement of less than 800 total,
Medicare and non-Medicare, discharges) and hospitals that are
located more than 15 miles from other IPPS hospitals (rather than
the prior requirement of more than 25 miles). The payment adjustment
is also changed from an empirically determined additional 25 percent
payment adjustment to qualifying hospitals with less than 200 total
discharges (69 FR 49099 through 49102 and 70 FR 47432 through 47434)
to a continuous, linear sliding scale adjustment ranging from an
additional 25 percent payment adjustment to qualifying hospitals
with 200 or fewer Medicare discharges to no additional payment to
hospitals with 1,600 or more Medicare discharges (75 FR 50241).
Based on FY 2010 claims data (March 2011 update of the MedPAR
file), we estimate that 514 out of the 529 hospitals in our database
that qualified as a low-volume hospital for FY 2011 will continue to
meet the Medicare discharges criterion to qualify as a low-volume
hospital for FY 2012. For purposes of this impact analysis, we are
assuming that all of these 514 hospitals will continue to meet the
distance criterion in FY 2012. If all 514 hospitals qualified for
the low-volume payment adjustment in FY 2012, we estimate that these
hospitals will receive an additional estimated $293 million based on
the FY 2012 low-volume payment adjustment (described in section
IV.E. of the preamble of this final rule) as compared to FY 2012
payments without the proposed low-volume adjustment. (As discussed
in section IV.E. of the preamble of this final rule, for FY 2012, we
are determining a hospital's number of Medicare discharges based on
the most recent update of the FY 2010 MedPAR files (that is, the
March 2011 update for this final rule.)
In addition, we identified an additional 86 hospitals in our
database that meet the Medicare discharges criterion to qualify as a
low-volume hospital for FY 2012 based on our policy of determining a
hospital's Medicare discharges based on data from the March 2011
update of the FY 2010 MedPAR file (as established in section IV.E.
of the preamble of this final rule). (We note that these 86
hospitals did not meet the discharge criterion to qualify as a low-
volume hospital for FY 2011.) However, we are not able to estimate
the number of these 86 hospitals that will also meet the distance
criterion. The actual number of hospitals that will also meet the
distance criterion to qualify as a low-volume hospital is very
likely be significantly less than the estimated 86 maximum number of
potential additional low-volume hospitals for FY 2012 (as compared
to FY 2011). (We note that approximately 40 percent of the hospitals
that met the discharge criterion for

[[Page 51834]]

FY 2011 also met the mileage criterion and, therefore, are eligible
to receive the low-volume payment adjustment in FY 2011.) If all
these 86 hospitals were to qualify as low-volume hospitals in FY
2012, we estimate that an additional $23 million in payments will be
made for the FY 2012 low-volume payment adjustment at section
1886(d)(12) of the Act.

8. Effects of Changes Relating to MDHs

As discussed in section IV.H. of the preamble to this final
rule, section 3124 of Public Law 111-148 extended the MDH program
for 1 additional year, from the end of FY 2011 (that is, for
discharges before October 1, 2011) to the end of FY 2012 (that is,
for discharges before October 1, 2012). The extension had no impact
on FY 2011. For FY 2012, the extension allows the continuation of
MDH status and the payment methodology, for an MDH to be paid its
hospital-specific rate, based on its FY 1982, 1987, or 2002 updated
costs per discharge, rather than the Federal rate, if this results
in a greater aggregate payment. Therefore, the impact of the
extension is one additional year of hospital-specific rate payments,
when greater than Federal rate payments, for these hospitals as
MDHs, rather than Federal rate payments for these hospitals without
special treatment as MDHs.

9. Effects of Policy Relating to CRNA Services Furnished in Rural
Hospitals and CAHs

In section IV.I. of the preamble of this final rule, we discuss
the interim final rule with comment that appeared in the November
24, 2010 Federal Register (75 FR 72256) regarding pass-through
payment for CRNA services. In that interim final rule with comment
period, we stated that we were changing the effective date of our
policy to allow hospitals and CAHs that have reclassified as rural
under 42 CFR 412.103 to be eligible for CRNA pass-through from
``cost reporting periods beginning on or after October 1, 2010'' to
an effective date of ``December 2, 2010.'' In section IV.I. of the
preamble of this final rule, we respond to the comment received on
the interim final rule with comment period and state that we are
finalizing the effective date of December 2, 2010, that was
established in the interim final rule with comment period. Also in
the interim final rule with comment period (75 FR 72258), we stated
that a change to the effective date would only affect at most a
small subset of hospitals and CAHs affected by the change to the
regulations adopted in the FY 2010 IPPS/LTCH PPS final rule and, for
this reason, we expected the change to the effective date in the
interim final rule with comment period to have a minor impact on
Federal expenditures. We continue to expect that this change to the
effective date will have a minor impact on Federal expenditures.

10. Effect of the Additional Payments to Qualifying Hospitals in Low
Medicare Spending Counties

Under section 1109 of Public Law 111-152, Congress allocated
$400 million to be spent for FYs 2011 and 2012 to qualifying
hospitals located in a county that ranks, based upon its ranking in
age, sex, and race adjusted spending for benefits under Medicare
Parts A and B per enrollee, within the lowest quartile of counties.
In the FY 2011 IPPS/LTCH PPS final rule, we identified the list of
eligible counties, the qualifying hospitals, and their payment
amounts and stated that we would distribute $150 million in FY 2011
and $250 million in FY 2012. In section IV.J. of the preamble to
this final rule, we modified the lists of qualifying hospitals and
their payment amounts for FYs 2011 and 2012 because we found that
some of the hospitals listed as qualifying hospitals for section
1109 payments were no longer subsection (d) hospitals, a requirement
to receive payments under section 1109 of the Act. Following these
revisions, for FY 2011, there are 404 subsection (d) hospitals that
are receiving payments under section 1109 of the Act. For FY 2012,
there are 402 subsection (d) hospitals that will receive payments
under section 1109 of the Act, although the number of qualifying
hospitals may change should any of them cease to be a subsection (d)
hospital prior to FY 2012. Furthermore, in this final rule, we
finalized our proposal to spend the remaining $250 million in FY
2012. We also finalized our proposal to make payments to the
qualifying hospitals through a one-time annual payment made by one
Medicare contractor who would directly pay all of the qualifying
hospitals. In section IV.J. of the preamble to this final rule,
Table J1 lists the distribution of payments among the list of
qualifying hospitals.

11. Effects of Changes Relating to ESRD Add-On Payment

In section IV.L. of the preamble of this final rule, we discuss
our clarification that the term ``Medicare discharges'' as used in
Sec. 412.104(a) refers to discharges of all beneficiaries entitled
to Medicare Part A; that is, discharges associated with individuals
entitled to Part A, including discharges of individuals receiving
benefits under original Medicare, discharges of individuals whose
inpatient benefits are exhausted or whose stay was not covered by
Medicare, and discharges for individuals enrolled in Medicare
Advantage Plans, cost contracts under section 1876 of the Act
(health maintenance organizations (HMOs)) and competitive medical
plans (CMPs).
We are not able to provide a detailed analysis of the impact of
the clarification of this definition. We are not making any changes
to the existing regulations at Sec. 412.104 under which we will
continue to provide an additional Medicare payment to a hospital for
inpatient services provided to Medicare beneficiaries with ESRD who
receive a dialysis treatment during a hospital stay, if the hospital
has established that ESRD Medicare beneficiary discharges, excluding
certain MS-DRGs for renal failure, admission for renal dialysis, and
kidney transplant, where the beneficiary received dialysis services
during the inpatient stay, are 10 percent or more of its total
Medicare discharges. We note that this clarification could change
both the denominator (total Medicare discharges) and the numerator
(ESRD Medicare beneficiary discharges, excluding certain MS-DRGs for
renal failure, admission for renal dialysis, and kidney transplant)
associated with this calculation. As a result of our clarification,
these discharges will be included in the denominator of the
calculation for the determination of eligibility for the ESRD
additional payment to hospitals. Similarly, for the numerator of
this calculation, we also will include all discharges of ESRD
beneficiaries who are entitled to Medicare Part A and who receive
inpatient dialysis, subject to the exclusions of certain MS-DRG
codes described above. Depending on whether or not the additional
discharges are for ESRD beneficiaries, the calculation may increase
or decrease.

12. Effects of Changes Relating to the Reporting Requirements for
Pension Costs for Medicare Cost-Finding and Wage Reporting Purposes

In sections III.D.3. and IV.M. of the preamble of this final
rule, we are revising our policy for determining pension cost for
Medicare purposes. We are setting forth two distinct policies: one
for determining and reporting defined benefit pension costs on the
cost report for Medicare cost-finding purposes and the other for
determining and reporting defined benefit pension costs for Medicare
wage index purposes. The allowable pension cost under the current
rules and the revised policies are based on the amount funded. The
current rules impose an actuarially based limit on the allowable
amount and the rules adopted in this final rule limit the costs used
in Medicare cost-finding based on historical funding data. Because
the current rules and the policies adopted in this final rule are
both tied to the amount funded, we expect that there will be minimal
impact. We note that it is not possible to determine a precise
impact for Medicare cost-finding purposes because we do not
currently have data in the form and manner required to calculate the
pension costs for all providers under our final policies. Moreover,
because we lack these data, we are unable to determine a hospital-
level impact for the Medicare wage index. We note that our policies
may result in redistribution within the Medicare wage index, but
section 1886(d)(3)(E) of the Act requires any adjustments or updates
made to the Medicare wage index to be budget neutral.

13. Effects of Implementation of Rural Community Hospital Demonstration
Program

In section IV.N. of the preamble of this final rule, we discuss
our implementation of section 410A of Public Law 108-173, as
amended, which requires the Secretary to conduct a demonstration
that would modify reimbursement for inpatient services for up to 30
rural community hospitals. Section 410A(c)(2) requires that ``[i]n
conducting the demonstration program under this section, the
Secretary shall ensure that the aggregate payments made by the
Secretary do not exceed the amount which the Secretary would have
paid if the demonstration program under this section was not
implemented.'' As discussed in section IV.N. of the preamble of this
final rule, in the IPPS final rules for each of the previous 7
fiscal years, we have estimated the additional payments made by the
program for each of the participating hospitals as a result of the

[[Page 51835]]

demonstration. In order to achieve budget neutrality, we are
adjusting the national IPPS rates by an amount sufficient to account
for the added costs of this demonstration. In other words, we are
applying budget neutrality across the payment system as a whole
rather than merely across the participants of this demonstration. We
believe that the language of the statutory budget neutrality
requirement permits the agency to implement the budget neutrality
provision in this manner. The statutory language requires that
``aggregate payments made by the Secretary do not exceed the amount
which the Secretary would have paid if the demonstration * * * was
not implemented'' but does not identify the range across which
aggregate payments must be held equal.
We are making an adjustment in the FY 2012 IPPS final rule of
$52,452,060 to the national IPPS rates to account for estimated
demonstration cost for FY 2012 for the 7 ``pre-expansion''
participating hospitals that are currently participating in the
demonstration and the 18 additional hospitals selected to
participate as a result of the expansion of the demonstration under
the Affordable Care Act. In addition, in the FY 2012 proposed rule,
we stated that the budget neutrality adjustment would also account
for any differences between the cost of the demonstration program
for hospitals participating in the demonstration during FYs 2007 and
2008, represented by their cost reports beginning in FYs 2007 and
2008, and the amount that was offset by the budget neutrality
adjustment for FYs 2007 and 2008. In the proposed rule, we stated
that we could not establish the amount of this difference because
settled cost reports beginning in FYs 2007 and 2008 in the
demonstration were not available. Similarly, for this final rule,
the estimated $52,452,060 that we are offsetting does not account
for any differences between the cost of the demonstration program
for hospitals participating in the demonstration during FYs 2007 and
2008 and the amount that was offset by the budget neutrality
adjustment for FYs 2007 and 2008 because the specific numeric value
associated with this component of the adjustment to the national
IPPS rates cannot be known at this time. This is because settled
cost reports beginning in FYs 2007 and 2008 of the hospitals
participating during FYs 2007 and 2008 in the demonstration also are
not available at this time.

14. Effects of Changes to the List of MS-DRGs Subject to Postacute Care
Transfer and DRG Special Pay Policy

In section IV.P. of the preamble to this final rule, we discuss
changes to the list of MS-DRGs subject to the postacute care
transfer and DRG special payment policies. As reflected in Table 5
listed in section VI. of the Addendum to this final rule and
available via the Internet, using criteria set forth in regulation
at Sec. 412.4, we evaluated MS-DRG charges, discharge, and transfer
data to determine which MS-DRGs qualify for the postacute care
transfer and DRG special pay policies. We note that we are making no
change to these payment policies in this FY 2012 final rule. We are
changing the status of certain MS-DRGs as a result of revision of
the MS-DRGs for FY 2012. We are changing the status of five MS-DRGs
to qualify for the postacute care transfer policy in FY 2012, after
not qualifying in FY 2011. An additional three MS-DRGs that
qualified under the policy in FY 2011 do not qualify in FY 2012, and
we are changing their status accordingly. Finally, three MS-DRGs now
qualify for the MS-DRG special pay policy in FY 2012 after not
qualifying in FY 2011, and we are adding them to the list of
qualifying MS-DRGs. Column 4 of Table I in this Appendix A shows the
effects of the changes to the MS-DRGs and relative weights with the
application of the recalibration budget neutrality factor to the
standardized amounts. Section 1886(d)(4)(C)(i) of the Act requires
us annually to make appropriate classification changes in order to
reflect changes in treatment patterns, technology, and any other
factors that may change the relative use of hospital resources. The
analysis and methods determining the changes due to the MS-DRGs and
relative weights accounts for and includes changes in MS-DRG
postacute care transfer and special pay policy statuses. We refer
readers to section I.G.2.f. of this Appendix for a more detailed
discussion of payment impacts due to MS-DRG reclassification
policies.

15. Effects of Changes Relating to Hospital Services Furnished Under
Arrangements

In section IV.Q. of the preamble of this final rule, we are
limiting the services that a hospital may provide under arrangement.
Routine services must be provided in the hospital in which the
patient is a registered inpatient in order for the services to be
considered as being provided by the hospital. Only diagnostic and
therapeutic services (that is, ancillary services) may be provided
under arrangement outside the hospital. We are aware of only a few
cases where routine services are being provided outside the hospital
other than where the patient is a registered inpatient. Even in
those few instances where a hospital (hospital A) is currently
treating the services that are provided under arrangements at
another hospital (hospital B), as if they are provided by hospital A
and reporting the costs on hospital A's cost report, complying with
this change should not be a burden on either the patient or the
hospital. Under this policy, when the patient is transferred to
hospital B for the services, the patient will need to be discharged
from hospital A and admitted to hospital B. Therefore, we have
determined that the impact of this change is negligible.

16. Effects of Change Relating to CAH Payment for Ambulance Services

In section VI.B. of the preamble of this final rule, we discuss
our revision of the regulations at Sec. 413.70(b)(5) to state that,
effective for cost reporting periods beginning on or after October
1, 2011, payment for ambulance services furnished by a CAH or by a
CAH-owned and operated entity is 101 percent of the reasonable costs
of the CAH or the entity in furnishing those services, but only if
the CAH or the entity is the only provider or supplier of ambulance
services located within a 35-mile drive of the CAH. In addition, we
are revising the regulations at Sec. 413.70(b)(5) to state that,
effective for cost reporting periods beginning on or after October
1, 2011, if there is no provider or supplier of ambulance services
located within a 35-mile drive of the CAH, but there is a CAH-owned
and operated entity located more than a 35-mile drive from the CAH,
the CAH owned and operated entity would be paid at 101 percent of
reasonable costs for its ambulance services as long as that entity
is the closest provider or supplier of ambulance services to the
CAH. We believe this change will continue to allow for sufficient
ambulance services to CAHs. We do not have sufficient information or
data to determine how many CAH-owned and operated entities can
qualify for reasonable cost-based payments under the change. As a
result, we are unable to quantify the financial impact of this
change for payment based on 101 percent of reasonable costs.
However, even those entities that do not qualify for payment based
on 101 percent of reasonable costs would be paid for ambulance
services under the Medicare ambulance fee schedule.

I. Effects of Changes in the Capital IPPS

1. General Considerations

For the impact analysis presented below, we used data from the
March 2011 update of the FY 2010 MedPAR file and the March 2011
update of the Provider-Specific File (PSF) that is used for payment
purposes. Although the analyses of the changes to the capital
prospective payment system do not incorporate cost data, we used the
March 2011 update of the most recently available hospital cost
report data (FYs 2008 and 2009) to categorize hospitals. Our
analysis has several qualifications. We use the best data available
and make assumptions about case-mix and beneficiary enrollment as
described below. In addition, as discussed in section V.E. of the
preamble to this final rule, we are making a -1.0 percent
documentation and coding adjustment to the national capital rate for
FY 2012 in addition to the -0.6 percent adjustment established for
FY 2008, the -0.9 percent adjustment for FY 2009, and the -2.9
percent adjustment for FY 2011. This results in a cumulative
adjustment factor of 0.9479 that we applied in determining the FY
2012 national capital rate to account for improvements in
documentation and coding that do not reflect real changes in case
mix under the MS-DRGs. We note that we applied a -2.6 percent
documentation and coding adjustment to the Puerto Rico-specific
capital rate in FY 2011, which reflects the entire amount of our
current estimate of the effects of documentation for FYs 2008 and
2009 that do not reflect real changes in case-mix under the MS-DRGs.
Therefore, we are not adjusting the Puerto Rico-specific capital
rate in FY 2012 to account for changes in documentation and coding.
Due to the interdependent nature of the IPPS, it is very
difficult to precisely quantify the impact associated with each
change. In addition, we draw upon various sources for the data used
to categorize hospitals in the tables. In some cases (for instance,
the number of beds), there is a fair degree of variation in the data
from different sources. We have attempted to construct these
variables with the best available sources overall. However, it is
possible that some

[[Page 51836]]

individual hospitals are placed in the wrong category.
Using cases from the March 2011 update of the FY 2010 MedPAR
file, we simulated payments under the capital IPPS for FY 2011 and
FY 2012 for a comparison of total payments per case. Any short-term,
acute care hospitals not paid under the general IPPS (Indian Health
Service hospitals and hospitals in Maryland) are excluded from the
simulations.
The methodology for determining a capital IPPS payment is set
forth at Sec. 412.312. The basic methodology for calculating
capital IPPS payments in FY 2012 is as follows:
(Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for
hospitals located in Alaska and Hawaii) x (1 + DSH Adjustment Factor
+ IME adjustment factor, if applicable).
In addition to the other adjustments, hospitals may also receive
outlier payments for those cases that qualify under the threshold
established for each fiscal year. We modeled payments for each
hospital by multiplying the capital Federal rate by the GAF and the
hospital's case-mix. We then added estimated payments for indirect
medical education, disproportionate share, and outliers, if
applicable. For purposes of this impact analysis, the model includes
the following assumptions:
We estimate that the Medicare case-mix index will
increase by 1.0 percent in both FYs 2011 and 2012.
We estimate that the Medicare discharges will be
approximately 11.8 million in FY 2011 and 12.2 million in FY 2012.
The capital Federal rate was updated beginning in FY
1996 by an analytical framework that considers changes in the prices
associated with capital-related costs and adjustments to account for
forecast error, changes in the case-mix index, allowable changes in
intensity, and other factors. As discussed in section III.A.1.a. of
the preamble of this final rule, the update is 1.5 percent for FY
2012.
In addition to the FY 2012 update factor, the FY 2012
capital Federal rate was calculated based on a GAF/DRG budget
neutrality factor of 1.0004, and a outlier adjustment factor of
0.9382. As discussed in section III.A.4. of the Addendum to this
final rule, an exceptions adjustment factor is not necessary in FY
2012 because there are no longer any hospitals eligible to receive
special exceptions payments in FY 2012. However, the special
exceptions adjustment factor was not built permanently into the
capital rate; that is, was not applied cumulatively. Therefore,
because there will be no special exceptions payments in FY 2012, we
are only applying an adjustment to restore the special exceptions
adjustment that was applied to the FY 2011 capital rate, that is,
1.0004 (calculated as 1/0.9996).
For FY 2012, as discussed above and in section V.E. of
the preamble to this final rule, we are applying a cumulative 0.9479
adjustment in determining the FY 2012 national capital rate for
changes in documentation and coding that are expected to increase
case-mix under the MS-DRGs but do not reflect real case-mix change.
This cumulative adjustment of 0.9479 reflects the additional -1.0
percent adjustment in FY 2012 for the effects of documentation and
coding in FYs 2008 and 2009.

2. Results

We used the actuarial model described above to estimate the
potential impact of our changes for FY 2012 on total capital
payments per case, using a universe of 3,419 hospitals. As described
above, the individual hospital payment parameters are taken from the
best available data, including the March 2011 update of the FY 2010
MedPAR file, the March 2011 update to the PSF, and the most recent
cost report data from the March 2011 update of HCRIS. In Table III,
we present a comparison of estimated total payments per case for FY
2011 and estimated total payments per case for FY 2012 based on the
FY 2012 payment policies. Column 2 shows estimates of payments per
case under our model for FY 2011. Column 3 shows estimates of
payments per case under our model for FY 2012. Column 4 shows the
total percentage change in payments from FY 2011 to FY 2012. The
change represented in Column 4 includes the 1.5 percent update to
the capital Federal rate and other changes in the adjustments to the
capital Federal rate. The comparisons are provided by: (1)
Geographic location; (2) region; and (3) payment classification.
The simulation results show that, on average, capital payments
per case in FY 2012 are expected to increase as compared to capital
payments per case in FY 2011. The capital rate for FY 2012 will
increase approximately 0.34 percent as compared to the FY 2011
capital rate. The changes to the GAFs are expected to result, on
average, in a slight decrease in capital payments for most regions
with the certain exceptions. The regional variations in the
estimated change in capital payments are consistent with the changes
in payments due to changes in the wage index (and policies affecting
the wage index) shown in Table I in section I of this Appendix.
We also are estimating a slight increase in outlier payments in
FY 2012 as compared to FY 2011. This is primarily because, based on
the FY 2010 claims from the March 2011 update of the MedPAR file, we
are currently estimating that FY 2011 capital outlier payments are
slightly less the projected percentage of 5.96 percent that we used
to determine the outlier offset that we applied in determining the
FY 2011 capital Federal rate.
The net impact of these changes, as discussed above, is an
estimated 1.8 percent change in capital payments per discharge from
FY 2011 to FY 2012 for all hospitals (as shown below in Table III).
The geographic comparison shows that, on average, all hospitals,
urban and rural, are expected to experience an increase in capital
IPPS payments per case in FY 2012 as compared to FY 2011. Capital
IPPS payments per case for urban hospitals are estimated to increase
1.8 percent, while rural hospitals are expected to experience a 1.2
percent increase.
The comparisons by region show that all regions will experience,
on average, increases in capital IPPS payments. For urban areas, the
estimated increase in capital payments per discharge from FY 2011 to
FY 2012 ranges from a 1.0 percent increase for the East North
Central and East South Central urban regions to a 5.8 percent
increase for the New England urban region. As discussed above, the
New England urban region is estimated to have a larger than average
increase in capital payments per case in FY 2012 as compared to FY
2011 due to the application of a rural floor. For rural regions, the
estimated percent increase in capital payments per discharge from FY
2011 to FY 2012 ranges from a 0.7 percent increase for the East
North Central rural region to a 2.6 percent increase for the Pacific
rural region.
By type of ownership, voluntary hospitals and government
hospitals are estimated to experience a 1.8 percent increase in
capital payments per case; and proprietary hospitals are estimated
to experience a 1.6 percent increase in capital payments per case
from FY 2011 to FY 2012.
Section 1886(d)(10) of the Act established the MGCRB. Hospitals
may apply for reclassification for purposes of the wage index for FY
2012. Reclassification for wage index purposes also affects the GAFs
because that factor is constructed from the hospital wage index.
To present the effects of the hospitals being reclassified for
FY 2012, we show the average capital payments per case for
reclassified hospitals for FY 2012. All reclassified and
nonreclassified hospitals are expected to experience an increase in
capital payments in FY 2012 as compared to FY 2011. Urban
reclassified hospitals are estimated to experience an increase of
1.7 percent, while urban nonreclassified are estimated to experience
the largest increase of 1.9 percent. Rural reclassified hospitals
are estimated to experience an increase of 1.4 percent, while rural
nonreclassified hospitals are estimated to have a 0.8 percent
increase in capital payments per case. Other reclassified hospitals
(that is, hospitals reclassified under section 1886(d)(8)(B) of the
Act) are expected to experience an increase of 0.5 percent in
capital payments from FY 2011 to FY 2012.

[[Page 51837]]

Table III--Comparison of Total Payments Per Case
[FY 2011 payments compared to FY 2012 payments]
----------------------------------------------------------------------------------------------------------------
Number of Average FY 2011 Average FY 2012
hospitals payments/case payments/case Change
----------------------------------------------------------------------------------------------------------------
By Geographic Location:
All hospitals........................... 3,423 786 800 1.8
Large urban areas (populations over 1 1,371 865 882 1.9
million)...............................
Other urban areas (populations of 1 1,127 774 787 1.7
million of fewer)......................
Rural areas............................. 925 542 549 1.2
Urban hospitals......................... 2,498 824 839 1.8
0-99 beds........................... 632 664 675 1.6
100-199 beds........................ 782 711 724 1.9
200-299 beds........................ 449 762 775 1.7
300-499 beds........................ 430 842 856 1.6
500 or more beds.................... 205 993 1,015 2.1
Rural hospitals......................... 925 542 549 1.2
0-49 beds........................... 320 433 439 1.3
50-99 beds.......................... 348 500 505 1.0
100-149 beds........................ 152 536 543 1.3
150-199 beds........................ 58 613 621 1.2
200 or more beds.................... 47 656 664 1.2
By Region:
Urban by Region......................... 2,498 824 839 1.8
New England......................... 120 862 912 5.8
Middle Atlantic..................... 320 877 890 1.4
South Atlantic...................... 380 770 781 1.6
East North Central.................. 401 800 808 1.0
East South Central.................. 153 729 737 1.0
West North Central.................. 169 816 830 1.8
West South Central.................. 366 779 796 2.1
Mountain............................ 159 847 861 1.7
Pacific............................. 380 983 1,004 2.2
Puerto Rico......................... 50 378 388 2.5
Rural by Region......................... 925 542 549 1.2
New England......................... 23 721 728 1.0
Middle Atlantic..................... 69 554 562 1.4
South Atlantic...................... 165 529 536 1.3
East North Central.................. 120 574 577 0.4
East South Central.................. 170 498 501 0.7
West North Central.................. 99 570 581 1.8
West South Central.................. 183 484 491 1.4
Mountain............................ 66 575 581 1.1
Pacific............................. 29 685 703 2.6
Puerto Rico......................... 1 163 166 1.8
By Payment Classification:
All hospitals........................... 3,423 786 800 1.8
Large urban areas (populations over 1 1,384 864 881 1.9
million)...............................
Other urban areas (populations of 1 1,135 774 787 1.7
million of fewer)......................
Rural areas............................. 904 544 550 1.2
Teaching Status:
Non-teaching............................ 2,391 671 682 1.7
Fewer than 100 Residents................ 792 784 795 1.5
100 or more Residents................... 240 1,112 1,137 2.2
Urban DSH:
100 or more beds........................ 1,547 848 864 1.9
Less than 100 beds...................... 337 590 599 1.4
Rural DSH:
Sole Community (SCH/EACH)............... 417 475 482 1.4
Referral Center (RRC/EACH).............. 222 596 604 1.3
Other Rural:
100 or more beds........................ 27 485 488 0.5
Less than 100 beds...................... 134 450 453 0.7
Urban teaching and DSH:
Both teaching and DSH................... 827 917 935 1.9
Teaching and no DSH..................... 144 806 817 1.4
No teaching and DSH..................... 1,057 711 725 1.9
No teaching and no DSH.................. 491 734 745 1.5
Rural Hospital Types:
Non special status hospitals............ 2,402 828 843 1.8
RRC/EACH................................ 56 741 750 1.2
SCH/EACH................................ 33 725 740 2.0
Medicare-dependent hospitals (MDH)...... 11 557 566 1.6
SCH, RRC and EACH....................... 17 770 784 1.8

[[Page 51838]]

Hospitals Reclassified by the Medicare
Geographic Classification Review Board:
FY 2012 Reclassifications:
All Urban Reclassified.................. 323 827 841 1.7
All Urban Non-Reclassified.............. 2,142 826 841 1.9
All Rural Reclassified.................. 332 588 596 1.4
All Rural Non-Reclassified.............. 532 475 479 0.8
Other Reclassified Hospitals (Section 54 547 550 0.5
1886(d)(8)(B)).........................
Type of Ownership:
Voluntary............................... 1,985 802 816 1.8
Proprietary............................. 870 705 717 1.6
Government.............................. 566 801 815 1.8
Medicare Utilization as a Percent of
Inpatient Days:
0-25.................................... 358 1,005 1,026 2.1
25-50................................... 1,695 836 852 1.9
50-65................................... 1,081 667 676 1.4
Over 65................................. 198 581 590 1.5
----------------------------------------------------------------------------------------------------------------

J. Effects of Payment Rate Changes and Policy Changes Under the
LTCH PPS

1. Introduction and General Considerations

In section VII. of the preamble and section V. of the Addendum
to this final rule, we set forth the annual update to the payment
rates for the LTCH PPS for FY 2012. In the preamble, we specify the
statutory authority for the provisions that are presented, identify
those policies, and present rationales for our decisions as well as
alternatives that were considered. In this section of Appendix A to
this final rule, we discuss the impact of the changes to the payment
rates, factors, and other payment rate policies related to the LTCH
PPS that are presented in the preamble of this final rule in terms
of their estimated fiscal impact on the Medicare budget and on
LTCHs.
Currently, our database of 426 LTCHs includes the data for 82
nonprofit (voluntary ownership control) LTCHs and 322 proprietary
LTCHs. Of the remaining 22 LTCHs, 13 LTCHs are government-owned and
operated and the ownership type of the other 9 LTCHs is unknown. In
the impact analysis, we used the rates, factors, and policies
presented in this final rule, including the 1.8 percent annual
update, which is based on the full increase of the LTCH PPS market
basket and the reductions required by sections 1886(m)(3) and (m)(4)
of the Act, the update to the MS-LTC-DRG classifications and
relative weights, the update to the wage index values and labor-
related share, including the application of a budget neutrality
adjustment for changes to the area wage adjustment, and the best
available claims and CCR data to estimate the change in payments for
FY 2012. The standard Federal rate for FY 2012 is $40,222.05. This
rate reflects the 1.8 percent annual update to the standard Federal
rate and the area wage level budget neutrality factor of 0.99775,
which ensures that the changes in the wage indexes and labor-related
share do not influence estimated aggregate payments.
Based on the best available data for the 426 LTCHs in our
database, we estimate that the update to the standard Federal rate
for FY 2012 (discussed in section V.A.2. of the Addendum to this
final rule) and the changes to the area wage adjustment for FY 2012
(discussed in section V.B. of the Addendum to this final rule), in
addition to an estimated increase in HCO payments and an estimated
increase in SSO payments, will result in an increase in estimated
payments from FY 2011 of approximately $126 million (or about 2.5
percent). Based on the 426 LTCHs in our database, we estimate that
the FY 2012 LTCH PPS payments will be approximately $5.257 billion,
an increase from FY 2011 LTCH PPS payments which were approximately
$5.131 billion. Because the combined distributional effects and
estimated changes to the Medicare program payments are approximately
$100 million, this final rule is considered a major economic rule,
as defined in this section. We note that the approximately $126
million for the projected increase in estimated aggregate LTCH PPS
payments from FY 2011 to FY 2012 does not reflect changes in LTCH
admissions or case-mix intensity in estimated LTCH PPS payments,
which also will affect overall payment changes.
The projected 2.5 percent increase in estimated payments per
discharge from FY 2011 to FY 2012 is attributable to several
factors, including the 1.8 percent annual update to the standard
Federal rate, and projected increases in estimated HCO and SSO
payments. As Table IV shows, the change attributable solely to the
final update to the standard Federal rate is projected to result in
an increase of 1.6 percent in payments per discharge from FY 2011 to
FY 2012, on average, for all LTCHs. Because we are applying an area
wage level budget neutrality factor to the standard Federal rate,
the update to the wage data and labor-related share does not impact
the increase in payments.
As discussed in section V.B. of the Addendum to this final rule,
we are updating the wage index values for FY 2012 based on the most
recent available data. In addition, we are decreasing the labor-
related share from 75.271 percent to 70.199 percent under the LTCH
PPS for FY 2012, based on the most recent available data on the
relative importance of the labor-related share of operating and
capital costs of the FY 2008-based RPL market basket. We also are
applying an area wage level budget neutrality factor to the standard
Federal rate to ensure that annual changes to the area wage level
adjustment (that is, the wage index and labor-related changes) are
budget neutral. We are making an area wage level budget neutrality
factor of 0.99775, which reduces the final standard Federal rate by
0.23 percent. Therefore, the changes to the wage data and labor-
related share do not result in a change in aggregate LTCH PPS
payments.
Table IV below shows the impact of the payment rate and policy
changes on LTCH PPS payments for FY 2012 presented in this final
rule by comparing estimated FY 2011 payments to estimated FY 2012
payments. The projected increase in payments per discharge from FY
2011 to FY 2012 is 2.5 percent (shown in Column 8). This projected
increase in payments was attributable to the impacts of the change
to the standard Federal rate (1.6 percent in Column 6), as well as
the effect of the estimated increase in payments for HCO cases and
SSO cases in FY 2012 as compared to FY 2011 (0.5 percent and 0.3
percent, respectively). That is, estimated total HCO payments are
projected to increase from FY 2011 to FY 2012 in order to ensure
that the estimated HCO payments would be 8 percent of the total
estimated LTCH PPS payments in FY 2012. An analysis of the most
recent available LTCH PPS claims data (that is, FY 2010 claims data
from the March 2011 update of the MedPAR file) indicates that the FY
2011 HCO threshold of $18,785 (as established in the FY 2011 IPPS/
LTCH PPS final rule) may result in HCO payments in FY 2011 that fall
slightly below the estimated 8 percent. Specifically, we currently
estimate that HCO payments will

[[Page 51839]]

be approximately 7.5 percent of the estimated total LTCH PPS
payments in FY 2011. We estimated that the impact of the increase in
HCO payments will result in approximately a 0.5 percent increase in
estimated payments from FY 2011 to FY 2012, on average, for all
LTCHs. Furthermore, in calculating the estimated increase in
payments from FY 2011 to FY 2012 for HCO and SSO cases, we increased
estimated costs by the applicable market basket percentage increase
as projected by our actuaries, which increases estimated payments by
0.3 percent relative to last year. We note that estimated payments
for all SSO cases comprised approximately 13 percent of the
estimated total LTCH PPS payments, and estimated payments for HCO
cases comprised approximately 8 percent of the estimated total LTCH
PPS payments. Payments for HCO cases are based on 80 percent of the
estimated cost of the case above the HCO threshold, while the
majority of the payments for SSO cases (over 65 percent) are based
on the estimated cost of the SSO case.
As we discuss in detail throughout this final rule, based on the
most recent available data, we believe that the provisions of this
final rule relating to the LTCH PPS will result in an increase in
estimated aggregate LTCH PPS payments and that the resulting LTCH
PPS payment amounts will result in appropriate Medicare payments.

2. Impact on Rural Hospitals

For purposes of section 1102(b) of the Act, we define a small
rural hospital as a hospital that is located outside of an urban
area and has fewer than 100 beds. As shown in Table IV, we are
projecting a 3.5 percent increase in estimated payments per
discharge for FY 2012 as compared to FY 2011 for rural LTCHs that
will result from the changes presented in this final rule, as well
as the effect of estimated changes to HCO and SSO payments. This
estimated impact is based on the data for the 26 rural LTCHs in our
database (out of 426 LTCHs) for which complete data were available.
The estimated increase in LTCH PPS payments from FY 2011 to FY
2012 for rural LTCHs is primarily due to the higher than average
impacts from the changes to the area wage level adjustment,
specifically, the reduction to the labor-related share from 75.271
to 70.199. Although we are applying an area wage level budget
neutrality factor for changes to the wage indexes and labor-related
share to ensure that there is no change in aggregate LTCH PPS
payments due to those changes, we estimated rural hospitals will
experience a 0.7 percent increase in payments due to the changes to
the area wage level adjustment, as shown in Column 7 below. Rural
hospitals generally have a wage index of less than 1; therefore, a
decrease to the labor-related share results in their wage index
reducing a smaller portion of the standard Federal rate, resulting
in an estimated increase in payments in FY 2012 as compared to FY
2011.

3. Anticipated Effects of LTCH PPS Payment Rate Changes and Policy
Changes

a. Budgetary Impact

Section 123(a)(1) of the BBRA requires that the PPS developed
for LTCHs ``maintain budget neutrality.'' We believe that the
statute's mandate for budget neutrality applies only to the first
year of the implementation of the LTCH PPS (that is, FY 2003).
Therefore, in calculating the FY 2003 standard Federal rate under
Sec. 412.523(d)(2), we set total estimated payments for FY 2003
under the LTCH PPS so that estimated aggregate payments under the
LTCH PPS were estimated to equal the amount that would have been
paid if the LTCH PPS had not been implemented.
As discussed above in section I.J.1. of this Appendix, we
project an increase in aggregate LTCH PPS payments in FY 2012 of
approximately $126 million (or 2.5 percent) based on the 426 LTCHs
in our database.

b. Effects of Requirements for LTCH Quality Reporting Program

In section VII.C. of the preamble of this final rule, we discuss
our requirements for LTCHs to report quality data under the LTCH
quality reporting program. As set forth at section 1886(m)(5)(A) of
the Act, beginning with FY 2014, the Secretary must reduce by 2.0
percentage points any annual update to the standard Federal rate for
discharges for any LTCH which does not comply with the LTCH quality
data submission requirements. In the FY 2012 IPPS/LTCH PPS proposed
rule (76 FR 26076), we estimated that should we adopt the proposed
requirements for the LTCH quality reporting program for FY 2014, few
LTCHs would not receive the full payment update in any fiscal year
as a result of failure to comply with the quality reporting program
that has been mandated by section 3004 of the Affordable Care Act.
We stated this because we believe that most LTCHs will see the new
quality reporting program as an important step in improving the
quality of care patients receive in these facilities. We also
believe that most LTCHs will quickly and easily adapt to this new
quality reporting program and find that the benefits of this program
outweigh the burdens.
At this time, information is not available to determine the
precise number of LTCHs that will receive the 2-percent reduction to
the annual update to the standard Federal rate for discharges due to
noncompliance with the requirements of section 3004 of the
Affordable Care Act. At this time, we have no way to estimate how
many LTCHs will fully comply with the LTCH quality reporting
program.
In section VII.C. of the preamble of this final rule, we are
adopting three quality reporting measures for LTCHs for FY 2014: (1)
Catheter-Associated Urinary Tract Infections (CAUTI); (2) Central
Line Catheter-Associated Blood Stream Infection Event (CLABSI); and
(3) Pressure Ulcers that are New or Have Worsened. In the FY 2012
IPPS/LTCH PPS proposed rule (76 FR 26076), we estimated that the
total LTCH costs to report these data, including NHSN registration
and training for the CAUTI and CLABSI quality measures; data
submission for all three measures, and monitoring data submission
would be $1,128,440.
Comment: Several commenters expressed concern over the potential
for negative financial implications and believed that large burdens
would be imposed by requiring the reporting of CLABSI and CAUTI
measures to the CDC via NHSN.
Response: We wish to minimize any burdens associated with the
LTCH quality reporting program. We believe that using the NHSN
minimizes the potential reporting burdens on LTCHs. We note that the
CDC estimates that 200 LTCHs out of a total of 435 certified LTCHs
currently submit HAI data to the CDC via NHSN. This means that 46
percent of LTCHs are already enrolled in NHSN, are familiar with the
data collection mechanism, and have knowledge of the submission
processes required by the CDC. For LTCHs that currently report both
measures using the NHSN, there will be no additional burden.
For LTCHs that currently report only one of the HAIs to NHSN
(for example, an LTCH that reports CAUTI to NHSN, but does not
report CLABSI), there will be only modest additional burdens as a
result of new LTCH quality reporting program. Because these LTCHs
are currently reporting data to NHSN for other purposes, they have
already registered with the NHSN and taken the mandatory training.
In addition, these LTCHs should already have staff members whom are
familiar with the reporting procedures used by NHSN.
LTCHs that do not already report information to NHSN will incur
the most additional burden. This burden would consist of the
following:
(1) Registration with the NHSN;
(2) Mandatory NHSN training (which is estimated to take
approximately 4-5 hours);
(3) LTCH training of administrative staff on how to transmit
data to the NHSN; and
(4) Quarterly reporting time.
NHSN does not charge a fee for registration or the submission of
data. The mandatory training is also free. This training must be
taken before the LTCH can become a registered user. The training
must be taken by an administrator, but this may be a person such as
an infection control specialist, Director of Nursing, or another
person associated with the LTCH's quality reporting program. Only
one person is required to take the NHSN mandatory training in order
for the LTCH to become registered.
Once the LTCH is registered with the NHSN, it may wish to train
other members of the staff about the use of the NHSN system. Each
LTCH may decide how many additional staff should be trained.
However, it is not likely that more than a few staff members per
LTCH will need to be trained on the use of the NHSN system.
The new quality reporting program requires that each LTCH must
collect the CLABSI and CAUTI data to submit to NHSN. However, the
collection of data pertaining to infectious diseases incurred by
patients in an LTCH is an important part of safe and effective
patient care. We believe that most, if not all, LTCHs already
collect and record data pertaining to CAUTI, CLABSI, and pressure
ulcers as a part of their safe and effective patient care. This
belief is supported by research and environmental scans which have
been performed by our measure developer contractor, as well as
statements by LTCH providers during open door forums and during TEP
discussions. Therefore, we

[[Page 51840]]

do not believe that there will be any significant additional burden
related to data collection for the three quality measures.
We anticipate that the amount of time that will be needed by
each LTCH to report the data collected to the NHSN will be minimal
for several reasons. First, these data will be aggregated and
reported at intervals. Secondly, based on statistics provided by the
CDC, we believe that only a small percentage of patients admitted to
LTCHs will experience one of these serious HAIs. We estimate that
there may be approximately six CAUTI and six CLABSI events per LTCH
per month. This equates to approximately 144 HAI events per LTCH per
year. We estimate that it will take approximately 15 minutes of
administrative data entry time per submission to submit these data
to NHSN. If the data are aggregated and submitted once per month,
the time required of an administrative data entry person will be 3
hours per month. If the average wage of an administrative assistant
is $20.57, the estimated cost to an LTCH for the monthly submission
of the CAUTI and CLABSI data will be $61.71, or $740.52 per LTCH per
year.
Comment: One commenter recommended that hospitals receive some
payment to mitigate the additional cost associated with reporting
this information.
Response: The Affordable Care Act amended the Act to require the
Secretary to implement quality reporting programs in settings that
have not been required to do so in the past, including LTCHs. As
noted above, we wish to minimize any burdens associated with the
LTCH quality reporting program. However, the Act does not provide
for additional payments to LTCHs for quality data reporting. In
addition, by using NHSN and a subset of the CARE data item set, we
are attempting to minimize the burden of the LTCH quality reporting
program by using data submission methods that have been used or are
being used by some LTCHs.
After consideration of the public comments we received, we are
finalizing the three quality reporting measures, namely (1)
Catheter-Associated Urinary Tract Infections (CAUTI); (2) Central
Line Catheter-Associated Blood Stream Infection Event (CLABSI); and
(3) Pressure Ulcers that are New or Have Worsened as proposed for
the FY 2014 payment determination.
At this time, the data reporting mechanism for transferring
pressure ulcer data to CMS remains under development. As discussed
elsewhere in the preamble to this final rule, we expect the data
reporting mechanism to be used will be a subset of the CARE data
item set. Upon completion of the pressure ulcer assessment subset of
the CARE data item set, a PRA package will be published in the
Federal Register, in which CMS will state burden estimates related
to the quality measure entitled ``Pressure Ulcers that are New or
Have Worsened.'' Additionally, CMS will release further details and
specifications regarding the data collection mechanism via the CMS
Web site by no later than January 31, 2012.

c. Impact of Application of LTCH Moratorium on the Increase in Beds at
Section 114(d)(1)(B) of Public Law 110-173 (MMSEA) to LTCHs and LTCH
Satellite Facilities Established or Classified as Such Under Section
114(d)(1)(B) of Public Law 110-173

As discussed in section VII.F. of the preamble of this final
rule, at Sec. 412.23(e)(8), for the period beginning October 1,
2011, and ending December 28, 2012, we are applying the moratorium
on the increase in the number of beds under section 114(d)(1)(B) of
the MMSEA, as specified in Sec. 412.23(e)(7), to LTCHs and LTCH
satellite facilities that were established or classified during the
period after December 29, 2007 and ending September 30, 2011, under
one of the exceptions to the moratorium at section 114(d)(2) of the
MMSEA, as set forth in paragraph (e)(6)(ii) of Sec. 412.23. The
final regulation precludes a LTCH or LTCH satellite facility that
was developed under an exception to the moratorium on the
establishment of new LTCHs and LTCH satellite facilities from
increasing the number of Medicare-certified beds beyond the number
certified by Medicare on October 1, 2011. Approximately 50 LTCHs and
8 LTCH satellite facilities were developed under the exceptions at
Sec. 412.23(e)(6)(ii); and under the moratorium at section
114(d)(4) of the MMSEA, which solely applied to ``existing'' LTCHs
and LTCH satellite facilities, additional beds may have been added
to these LTCHs and LTCH satellite facilities since establishment.
Under the new regulation at Sec. 412.23(e)(8), these ``new'' LTCHs
and LTCH satellite facilities will also be subject to the moratorium
on bed increases. Because additional increases in the number of LTCH
beds in these facilities could result in added costs to the Medicare
program, the impact of precluding additional growth in the number of
Medicare-certified beds in these facilities is expected to result in
no additional spending under the Medicare program from these LTCHs
and LTCH satellite facilities.

d. Impact of the Clarification to the Greater Than 25 Day Average
Length of Stay Requirement for LTCHs

In section VII.E.5. of the preamble of this final rule, we
present two clarifications to our existing policy for determining
whether a hospital is meeting the greater than 25 day average length
of stay requirement for payment under the LTCH PPS. First, we are
clarifying and revising the regulations at Sec. 412.23(e)(3)(iv)
dealing with the average length of stay determination when there is
a change of ownership of either a hospital seeking to qualify as an
LTCH or of an existing LTCH. Second, we described and are clarifying
our existing policy regarding the inclusion of Medicare Advantage
days in the average length of stay calculation. Because typically
LTCHs track the lengths of stay of their Medicare patients on an
ongoing basis for purposes of maintaining their LTCH status, and
Medicare contractors are already tasked with evaluating each LTCH's
average length of stay, we do not believe that there is any actual
impact resulting from the clarification of these existing policies
nor do they impose any additional burdens on either LTCHs or
Medicare contractors.

e. Impact on Providers

The basic methodology for determining a per discharge LTCH PPS
payment is set forth in Sec. 412.515 through Sec. 412.536. In
addition to the basic MS-LTC-DRG payment (the standard Federal rate
multiplied by the MS-LTC-DRG relative weight), we make adjustments
for differences in area wage levels, the COLA for Alaska and Hawaii,
and SSOs. Furthermore, LTCHs may also receive HCO payments for those
cases that qualify based on the threshold established each year.
To understand the impact of the changes to the LTCH PPS payments
presented in this final rule on different categories of LTCHs for FY
2012, it is necessary to estimate payments per discharge for FY 2011
using the rates, factors (including the FY 2011 GROUPER (Version
28.0), and relative weights and the policies established in the FY
2011 IPPS/LTCH PPS final rule (75 FR 50364 through 50400 and 50442
through 50449). It is also necessary to estimate the payments per
discharge that would have been made under the LTCH PPS rates,
factors, policies, and GROUPER (Version 29.0) for FY 2012 (as
discussed in VII. of the preamble and section V. of the Addendum to
this final rule). These estimates of FY 2011 and FY 2012 LTCH PPS
payments are based on the best available LTCH claims data and other
factors, such as the application of inflation factors to estimate
costs for SSO and HCO cases in each year. We also evaluated the
change in estimated FY 2011 payments to estimated FY 2012 payments
(on a per discharge basis) for each category of LTCHs.
Hospital groups were based on characteristics provided in the
OSCAR data, FY 2008 through FY 2009 cost report data in HCRIS, and
PSF data. Hospitals with incomplete characteristics were grouped
into the ``unknown'' category. Hospital groups included the
following:
Location: large urban/other urban/rural.
Participation date.
Ownership control.
Census region.
Bed size.
To estimate the impacts of the final payment rates and policy
changes among the various categories of existing providers, we used
LTCH cases from the FY 2010 MedPAR file to estimate payments for FY
2011 and to estimate payments for FY 2012 for 426 LTCHs. We believe
that the discharges based on the FY 2010 MedPAR data for the 426
LTCHs in our database, which includes 322 proprietary LTCHs, provide
sufficient representation in the MS-LTC-DRGs containing discharges
for patients who received LTCH care for the most commonly treated
LTCH patients' diagnoses.

f. Calculation of Prospective Payments

For purposes of this impact analysis, to estimate per discharge
payments under the LTCH PPS, we simulated payments on a case-by-case
basis using LTCH claims from the FY 2010 MedPAR files. For modeling
estimated LTCH PPS payments for FY 2011, we applied the FY 2011
standard Federal rate (that is, $39,599.95, under which LTCH
discharges occurring on or after October 1,

[[Page 51841]]

2010, to September 30, 2011 are paid). For modeling estimated LTCH
PPS payments for FY 2012, we applied the FY 2012 standard Federal
rate of $40,222.05, which will be effective for LTCH discharges
occurring on or after October 1, 2011, and through September 30,
2012. The final FY 2012 standard Federal rate of $40,222.05 includes
the application of an area wage level budget neutrality factor of
0.99775 (as discussed in section VII.E.4. of the preamble of this
final rule).
Furthermore, in modeling estimated LTCH PPS payments for both FY
2011 and FY 2012 in this impact analysis, we applied the FY 2011 and
the FY 2012 adjustments for area wage levels and the COLA for Alaska
and Hawaii. Specifically, we adjusted for differences in area wage
levels in determining estimated FY 2011 payments using the current
LTCH PPS labor-related share of 75.271 percent (75 FR 50445) and the
wage index values established in the Tables 12A and 12B of the
Addendum to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50627
through 50646). We also applied the FY 2011 COLA factors shown in
the table in section V.B.5. of the Addendum to that final rule (75
FR 50446) to the FY 2011 nonlabor-related share (24.729 percent) for
LTCHs located in Alaska and Hawaii. Similarly, we adjusted for
differences in area wage levels in determining the estimated FY 2012
payments using the LTCH PPS FY 2012 labor-related share of 70.199
percent and the FY 2012 wage index values presented in Tables 12A
and 12B listed in section VI. of the Addendum to this final rule
(and available via the Internet). We also applied the FY 2012 COLA
factors shown in the table in section V.B.5. of the Addendum to the
FY 2011 IPPS/LTCH PPS final rule to the FY 2012 nonlabor-related
share (29.801 percent) for LTCHs located in Alaska and Hawaii.
As discussed above, our impact analysis reflects an estimated
change in payments for SSO cases, as well as an estimated increase
in payments for HCO cases (as described in section V.C. of the
Addendum to this final rule). In modeling final payments for SSO and
HCO cases in FY 2012, we are applying an inflation factor of 1.057
(determined by OACT) to the estimated costs of each case determined
from the charges reported on the claims in the FY 2010 MedPAR files
and the best available CCRs from the March 2011 update of the PSF.
Furthermore, in modeling estimated LTCH PPS payments for FY 2012 in
this impact analysis, we used the FY 2012 fixed-loss amount of
$17,931 (as discussed in section V. of the Addendum to this final
rule).
These impacts reflect the estimated ``losses'' or ``gains''
among the various classifications of LTCHs from the FY 2011 to FY
2012 based on the payment rates and policy changes presented in this
final rule. Table IV illustrates the estimated aggregate impact of
the LTCH PPS among various classifications of LTCHs.
The first column, LTCH Classification, identifies the
type of LTCH.
The second column lists the number of LTCHs of each
classification type.
The third column identifies the number of LTCH cases.
The fourth column shows the estimated payment per
discharge for FY 2011 (as described above).
The fifth column shows the estimated payment per
discharge for FY 2012 (as described above).
The sixth column shows the percentage change in
estimated payments per discharge from FY 2011 to FY 2012 due to the
update to the standard Federal rate (as discussed in section V.A.2.
of the Addendum to this final rule).
The seventh column shows the percentage change in
estimated payments per discharge from FY 2011 to FY 2012 for changes
to the area wage level adjustment (that is, the final wage indexes
and labor-related share), including the application of an area wage
level budget neutrality factor (as discussed in section V.B.5. of
the Addendum to the final rule).
The eighth column shows the percentage change in
estimated payments per discharge from FY 2011 (Column 4) to FY 2012
(Column 5) for all changes (and includes the effect of estimated
changes to HCO and SSO payments).

Table IV--Impact of Payment Rate and Policy Changes to LTCH PPS Payments for FY 2012
[Estimated FY 2011 payments compared to estimated FY 2012 payments*]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent
Percent change in
change in estimated
estimated payments per Percent
payments per discharge change in
Average FY Average FY discharge from FY 2011 payments per
Number of Number of 2011 LTCH 2012 LTCH from FY 2011 to FY 2012 discharge
LTCH Classification LTCHs LTCH PPS PPS payment PPS payment to FY 2012 for changes from FY 2011
cases per case per case \1\ for the to the area to FY 2012
annual wage level for all
update to adjustment changes \4\
the federal with budget
rate \2\ neutrality
\3\
(1) (2) (3) (4) (5) (6) (7) (8)
--------------------------------------------------------------------------------------------------------------------------------------------------------
All Providers............................................. 426 135,100 $37,977 $38,911 1.6 0.0 2.5
By Location:
Rural................................................. 26 5,862 33,445 34,366 1.7 0.7 3.5
Urban................................................. 400 129,238 38,182 39,118 1.6 0.0 2.4
Large................................................. 204 77,420 39,911 40,884 1.6 -0.2 2.2
Other................................................. 196 51,818 35,599 36,478 1.6 0.3 2.8
By Participation Date:
Before Oct. 1983...................................... 16 5,914 33,691 34,509 1.6 -0.6 1.9
Oct. 1983-Sept. 1993.................................. 44 16,673 40,019 41,075 1.5 -0.2 2.4
Oct. 1993-Sept. 2002.................................. 186 63,376 37,198 38,085 1.6 0.0 2.4
After October 2002.................................... 176 48,317 38,826 39,794 1.6 0.1 2.6
Unknown Participation Date............................ 4 820 37,558 38,534 1.6 1.5 4.1
By Ownership Type:
Voluntary............................................. 82 19,596 38,992 40,120 1.6 0.0 2.9
Proprietary........................................... 322 113,085 37,702 38,596 1.6 0.0 2.4
Government............................................ 13 1,720 42,710 44,026 1.6 -0.2 2.9
Unknown Ownership Type................................ 9 699 42,249 43,546 1.6 -0.2 2.9
By Region:
New England........................................... 15 7,313 33,726 34,501 1.5 -0.6 1.7
Middle Atlantic....................................... 30 7,970 38,866 39,802 1.6 -0.1 2.3
South Atlantic........................................ 59 15,577 41,327 42,388 1.5 0.0 2.6
East North Central.................................... 70 19,913 39,857 40,820 1.6 -0.5 2.0
East South Central.................................... 29 8,177 37,658 38,635 1.6 0.2 2.8

[[Page 51842]]

West North Central.................................... 26 5,903 39,877 40,921 1.6 0.3 2.9
West South Central.................................... 141 50,675 33,357 34,176 1.7 0.5 2.9
Mountain.............................................. 32 6,742 41,479 42,579 1.6 -0.4 2.2
Pacific............................................... 24 12,830 48,595 49,716 1.5 -0.4 1.8
By Bed Size:
Beds: 0-24............................................ 29 3,667 32,708 33,554 1.7 0.5 3.1
Beds: 25-49........................................... 199 43,952 37,489 38,410 1.6 0.1 2.6
Beds: 50-74........................................... 114 36,429 38,383 39,368 1.6 0.1 2.6
Beds: 75-124.......................................... 47 21,072 40,614 41,622 1.6 -0.3 2.2
Beds: 125-199......................................... 23 16,057 36,539 37,410 1.5 -0.1 2.3
Beds: 200 +........................................... 14 13,923 37,509 38,339 1.6 0.0 2.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimated FY 2012 LTCH PPS payments based on the final payment rates and policy changes presented in the preamble and the Addendum to this final
rule.
\2\ Percent change in estimated payments per discharge from FY 2011 to FY 2012 for the annual update to the standard Federal rate, as discussed in
section V.A.2. of the Addendum to this final rule.
\3\ Percent change in estimated payments per discharge from FY 2011 to FY 2012 for changes to the area wage level adjustment at Sec. 412.525(c) (as
discussed in section V.B. of the Addendum to this final rule).
\4\ Percent change in estimated payments per discharge from FY 2011 LTCH PPS (shown in Column 4) to FY 2012 LTCH PPS (shown in Column 5), including all
of the changes presented in the preamble and the Addendum to this final rule. Note, this column, which shows the percent change in estimated payments
per discharge for all changes, does not equal the sum of the percent changes in estimated payments per discharge for the annual update to the standard
Federal rate (column 6) and the changes to the area wage level adjustment with budget neutrality (Column 7) due to the effect of estimated changes in
both estimated payments to SSO cases that are paid based on estimated costs and aggregate HCO payments (as discussed in this impact analysis), as well
as other interactive effects that cannot be isolated.

g. Results

Based on the most recent available data for 426 LTCHs, we have
prepared the following summary of the impact (as shown above in
Table IV) of the LTCH PPS payment rate and policy changes presented
in this final rule. The impact analysis in Table IV shows that
estimated payments per discharge are expected to increase
approximately 2.5 percent, on average, for all LTCHs from FY 2011 to
FY 2012 as a result of the payment rate and policy changes presented
in this final rule, as well as estimated increases in HCO and SSO
payments. We note that we updated the standard Federal rate for FY
2012 by 1.8 percent, which is based on the latest estimate of the
LTCH PPS market basket increase (2.9 percent), the reduction of 1.0
percentage point for the multifactor productivity adjustment and the
0.1 percentage point reduction required under sections 1886(m)(3)
and (m)(4) of the Act. We noted earlier in this section that for
most categories of LTCHs, as shown in Table IV (Column 6), the
impact of the increase of approximately 1.8 percent for the annual
update to the standard Federal rate is projected to result in
approximately a 1.6 percent change in estimated payments per
discharge for all LTCHs from FY 2011 to FY 2012. Because payments to
cost-based SSO cases and a portion of payments to SSO cases that are
paid based on the ``blend'' option of the SSO payment formula at
Sec. 412.529(c)(2)(iv) are not affected by the annual update to the
standard Federal rate, we estimated that the effect of the 1.8
percent annual update to the standard Federal rate will result in a
1.6 percent increase on estimated aggregate LTCH PPS payments for
all LTCH PPS cases, including SSO cases. Furthermore, as discussed
previously in this regulatory impact analysis, the average increase
in estimated payments per discharge from the FY 2011 to FY 2012 for
all LTCHs of approximately 2.5 percent (as shown in Table IV) was
determined by comparing estimated FY 2012 LTCH PPS payments (using
the rates and policies discussed in this final rule) to estimated FY
2011 LTCH PPS payments (as described above in section I.J.1. of this
Appendix).

(1) Location

Based on the most recent available data, the vast majority of
LTCHs are located in urban areas. Only approximately 6 percent of
the LTCHs are identified as being located in a rural area, and
approximately 4 percent of all LTCH cases are treated in these rural
hospitals. The impact analysis presented in Table IV shows that the
average percent increase in estimated payments per discharge from FY
2011 to FY 2012 for all hospitals is 2.5 percent for all changes.
For rural LTCHs, the percent change for all changes is estimated to
be 3.5 percent, while for urban LTCHs, we estimate the increase to
be 2.4 percent. Large urban LTCHs are projected to experience an
increase of 2.2 percent in estimated payments per discharge from FY
2011 to FY 2012, while other urban LTCHs are projected to experience
an increase of 2.8 percent in estimated payments per discharge from
FY 2011 to FY 2012, as shown in Table IV.

(2) Participation Date

LTCHs are grouped by participation date into four categories:
(1) Before October 1983; (2) between October 1983 and September
1993; (3) between October 1993 and September 2002; and (4) after
October 2002. Based on the most recent available data, the majority
(approximately 47 percent) of the LTCH cases are in hospitals that
began participating in the Medicare program between October 1993 and
September 2002, and are projected to experience nearly the average
increase (2.4 percent) in estimated payments per discharge from FY
2011 to FY 2012, as shown in Table IV.
In the participation category where LTCHs began participating in
the Medicare program before October 1983, LTCHs are projected to
experience a lower than average percent increase (1.9 percent) in
estimated payments per discharge from FY 2011 to FY 2012, as shown
in Table IV. Approximately 4 percent of LTCHs began participating in
Medicare before October 1983. The LTCHs in this

[[Page 51843]]

category are projected to experience a lower than average increase
in estimated payments because of decrease in payments due to the
changes to the area wage adjustment. Approximately 10 percent of
LTCHs began participating in Medicare between October 1983 and
September 1993. These LTCHs are projected to experience a 2.4
percent increase in estimated payments from FY 2011 to FY 2012.
LTCHs that began participating in Medicare after October 2002
currently represent approximately 41 percent of all LTCHs, and are
projected to experience an average increase (2.6 percent) in
estimated payments from FY 2011 to FY 2012.

(3) Ownership Control

Other than LTCHs whose ownership control type is unknown, LTCHs
are grouped into three categories based on ownership control type:
voluntary, proprietary, and government. Based on the most recent
available data, approximately 19 percent of LTCHs are identified as
voluntary (Table IV). We expect that, for these LTCHs in the
voluntary category, estimated FY 2012 LTCH payments per discharge
will increase higher than the average (2.9 percent) in comparison to
estimated payments in FY 2011 primarily because we project an
increase in estimated HCO payments and SSO payments to be higher
than the average for these LTCHs. The majority (76 percent) of LTCHs
are identified as proprietary and these LTCHs are projected to
experience a nearly average increase (2.4 percent) in estimated
payments per discharge from FY 2011 to FY 2012. Finally, government-
owned and operated LTCHs (3 percent) are also expected to experience
a higher than average increase in payments of 2.9 percent in
estimated payments per discharge from FY 2011 to FY 2012.

(4) Census Region

Estimated payments per discharge for FY 2012 are projected to
increase for LTCHs located in all regions in comparison to FY 2011.
Of the 9 census regions, we project that the increase in estimated
payments per discharge will have the largest positive impact on
LTCHs in the West North Central and West South Central regions (2.9
percent, as shown in Table IV). The estimated percent increase in
payments per discharge from FY 2011 to FY 2012 for those regions is
largely attributable to the changes in the area wage level
adjustment.
In contrast, LTCHs located in the New England region are
projected to experience the smallest increase in estimated payments
per discharge from FY 2011 to FY 2012. The average estimated
increase in payments of 1.7 percent for LTCHs in the New England
region is primarily due to estimated decreases in payments
associated with the area wage level adjustment.

(5) Bed Size

LTCHs are grouped into six categories based on bed size: 0-24
beds; 25-49 beds; 50-74 beds; 75-124 beds; 125-199 beds; and greater
than 200 beds.
We project that payments for small LTCHs (0-24 beds) will
experience a 3.1 percent increase in payments due to increases in
the area wage adjustment while large LTCHs (200+ beds) will
experience a 2.2 percent increase in payments. LTCHs with between 75
and 124 beds and between 125 and 199 beds are expected to experience
a slightly below average increase in payments per discharge from FY
2011 to FY 2012 (2.2 percent and 2.3 percent, respectively)
primarily due to an estimated decrease in their payments from FY
2011 to FY 2012 due to the area wage level adjustment.

4. Effect on the Medicare Program

As noted previously, we project that the provisions of this
final rule will result in an increase in estimated aggregate LTCH
PPS payments in FY 2012 of approximately $126 million (or
approximately 2.5 percent) for the 426 LTCHs in our database.

5. Effect on Medicare Beneficiaries

Under the LTCH PPS, hospitals receive payment based on the
average resources consumed by patients for each diagnosis. We do not
expect any changes in the quality of care or access to services for
Medicare beneficiaries under the LTCH PPS, but we continue to expect
that paying prospectively for LTCH services will enhance the
efficiency of the Medicare program.

K. Alternatives Considered

1. General

This final rule contains a range of policies. It also provides
descriptions of the statutory provisions that are addressed,
identifies policies, and presents rationales for our decisions and,
where relevant, alternatives that were considered.

2. Alternative Considered for Hospital Inpatient Quality Review (IQR)
and Value-Based Purchasing (VBP) Programs: Medicare Spending per
Beneficiary Measure

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25896 and
25897 and 76 FR 25927 and 25928), we described our proposed policy
for implementing the claims-based Medicare spending per beneficiary
measure for the FY 2014 Hospital IQR Program and the claims-based
Medicare spending per beneficiary measure for the FY 2014 Hospital
VBP Program. In addition, we described an alternative we considered
for the Medicare spending per beneficiary measure (76 FR 26080
through 26082). We considered this alternative approach based on the
principle that Medicare spending per beneficiary benchmarks for
lower quality hospitals should not exceed the benchmarks for higher
quality hospitals. This alternative approach was more complex than
the approach we are finalizing. Due to its increased complexity, in
the proposed rule, we included the discussion of this alternative
approach in this section, rather than earlier in the preamble of the
proposed rule, for ease of presentation. The approach consisted of
setting differential spending benchmarks for different quality
score-based cohorts of hospitals and applying an efficiency
adjustment to the quality score.
We did not receive any public comments on the discussion of an
alternative approach to incorporating a Medicare spending per
beneficiary measure into the FY 2014 Hospital VBP Program or the
Hospital IQR Program. We are finalizing the addition of a Medicare
spending per beneficiary measure to the FY 2014 Hospital IQR
Program, as described in section IV.A.3.b.(ii)(B) of the preamble to
this final rule, and to the FY 2014 Hospital VBP Program, as
described in section IV.B.3.b.(iii) of the preamble to this final
rule.

L. Overall Conclusion

1. Acute Care Hospitals

Table I of section I.G. of this Appendix demonstrates the
estimated distributional impact of the IPPS budget neutrality
requirements for the MS-DRG and wage index changes, and for the wage
index reclassifications under the MGCRB. Table I also shows an
overall increase of 1.1 percent in operating payments. We estimate
that operating payments will increase by approximately $1.13 billion
in FY 2012. For FY 2012, we are distributing $250 million to
hospitals that qualify to receive additional payment under section
1109 of Public Law 111-152, which is an additional $100 million than
what we had distributed under this provision in FY 2011. In
addition, we estimate a savings of $21 million associated with the
HACs policies in FY 2012, which is an additional $1 million in
savings than in FY 2011. We estimate that we will spend $900,000 in
new technology add-on payments in FY 2012, which is approximately
$17 million less than what we spent in FY 2011. We estimate that low
volume payments in FY 2012 will be $5 million more than the low
volume payments made in FY 2011. These estimates, added to our FY
2012 operating estimate of $1.13 billion, will result in an increase
of $1.22 billion for FY 2012. We estimate that capital payments will
experience a 1.8 percent increase in payments per case, as shown in
Table III of section I.I. of this Appendix. We project that there
would be a $151 million increase in capital payments in FY 2012
compared to FY 2011. The cumulative operating and capital payments
should result in a net increase of $1.369 billion to IPPS providers.
The discussions presented in the previous pages, in combination with
the rest of this final rule, constitute a regulatory impact
analysis.

2. LTCHs

Overall, LTCHs are projected to experience an increase in
estimated payments per discharge in FY 2012. In the impact analysis,
we are using the rates, factors, and policies presented in this
final rule, including updated wage index values and relative
weights, and the best available claims and CCR data to estimate the
change in payments under the LTCH PPS for FY 2012. Accordingly,
based on the best available data for the 426 LTCHs in our database,
we estimate that FY 2012 LTCH PPS payments will increase
approximately $126 million (or approximately 2.5 percent).

M. Accounting Statements and Tables

1. Acute Care Hospitals

As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table V below, we
have prepared an accounting statement showing the classification of
the expenditures associated with the provisions

[[Page 51844]]

of this final rule as they relate to acute care hospitals. This
table provides our best estimate of the change in Medicare payments
to providers as a result of the changes to the IPPS presented in
this final rule. All expenditures are classified as transfers to
Medicare providers.

Table V--Accounting Statement: Classification of Estimated Expenditures
Under the IPPS From FY 2011 to FY 2012
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............ $1.369 billion.
From Whom to Whom......................... Federal Government to IPPS
Medicare Providers.
-----------------------------
Total................................. $1.369 billion
------------------------------------------------------------------------

2. LTCHs

As discussed in section I.J. of this Appendix, the impact
analysis for the changes under the LTCH PPS for this final rule
projects an increase in estimated aggregate payments of
approximately $126 million (or approximately 2.5 percent) for the
426 LTCHs in our database that are subject to payment under the LTCH
PPS. Therefore, as required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table VI below,
we have prepared an accounting statement showing the classification
of the expenditures associated with the provisions of this final
rule as they relate to changes to the LTCH PPS. Table VI provides
our best estimate of the estimated increase in Medicare payments
under the LTCH PPS as a result of the provisions presented in this
final rule based on the data for the 426 LTCHs in our database. All
expenditures are classified as transfers to Medicare providers (that
is, LTCHs).

Table VI--Accounting Statement: Classification of Estimated
Expenditures From the FY 2011 LTCH PPS to the FY 2012 LTCH PPS
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers Positive transfer--Estimated
increase in expenditures:
$126 million.
------------------------------------------------------------------------

II. Regulatory Flexibility Act (RFA) Analysis

The RFA requires agencies to analyze options for regulatory
relief of small entities. For purposes of the RFA, small entities
include small businesses, nonprofit organizations, and small
government jurisdictions. We estimate that most hospitals and most
other providers and suppliers are small entities as that term is
used in the RFA. The great majority of hospitals and most other
health care providers and suppliers are small entities, either by
being nonprofit organizations or by meeting the SBA definition of a
small business (having revenues of less than $7.5 million to $34.5
million in any 1 year). (For details on the latest standards for
health care providers, we refer readers to page 33 of the Table of
Small Business Size Standards for NAIC 622 found on the SBA Web site
at: http://www.sba.gov/contractingopportunities/sizestandardtopics/tableofsize/index.html.)
For purposes of the RFA, all hospitals and other providers and
suppliers are considered to be small entities. Individuals and
States are not included in the definition of a small entity. We
believe that the provisions of this final rule relating to acute
care hospitals will have a significant impact on small entities as
explained in this Appendix. Because we lack data on individual
hospital receipts, we cannot determine the number of small
proprietary LTCHs. Therefore, we are assuming that all LTCHs are
considered small entities for the purpose of the analysis in section
I.J. of this Appendix. Medicare fiscal intermediaries and MACs are
not considered to be small entities. Because we acknowledge that
many of the affected entities are small entities, the analysis
discussed throughout the preamble of this final rule constitutes our
regulatory flexibility analysis. In the FY 2012 IPPS/LTCH PPS
proposed rule, we solicited public comments on our estimates and
analysis of the impact of our proposals on those small entities. We
did not receive any public comments.

III. Impact on Small Rural Hospitals

Section 1102(b) of the Social Security Act requires us to
prepare a regulatory impact analysis for any proposed or final rule
that may have a significant impact on the operations of a
substantial number of small rural hospitals. This analysis must
conform to the provisions of section 603 of the RFA. With the
exception of hospitals located in certain New England counties, for
purposes of section 1102(b) of the Act, we now define a small rural
hospital as a hospital that is located outside of an urban area and
has fewer than 100 beds. Section 601(g) of the Social Security
Amendments of 1983 (Pub. L. 98-21) designated hospitals in certain
New England counties as belonging to the adjacent urban area. Thus,
for purposes of the IPPS and the LTCH PPS, we continue to classify
these hospitals as urban hospitals. (We refer readers to Table I in
section I.G. of this Appendix for the quantitative effects of the
policy changes under the IPPS for operating costs.)

IV. Unfunded Mandates Reform Act Analysis

Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4) also requires that agencies assess anticipated costs and
benefits before issuing any rule whose mandates require spending in
any 1 year of $100 million in 1995 dollars, updated annually for
inflation. In 2011, that threshold level is approximately $136
million. This final rule will not mandate any requirements for
State, local, or tribal governments, nor will it affect private
sector costs.

V. Executive Order 12866

In accordance with the provisions of Executive Order 12866, the
Executive Office of Management and Budget reviewed this final rule.

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

I. Background

Section 1886(e)(4)(A) of the Act requires that the Secretary,
taking into consideration the recommendations of MedPAC, recommend
update factors for inpatient hospital services for each fiscal year
that take into account the amounts necessary for the efficient and
effective delivery of medically appropriate and necessary care of
high quality. Under section 1886(e)(5) of the Act, we are required
to publish update factors recommended by the Secretary in the
proposed and final IPPS rules, respectively. Accordingly, this
Appendix provides the recommendations for the update factors for the
IPPS national standardized amount, the Puerto Rico-specific
standardized amount, the hospital-specific rates for SCHs and MDHs,
and the rate-of-increase limits for certain hospitals excluded from
the IPPS, as well as LTCHs, IPFs, and IRFs. We also discuss our
response to MedPAC's recommended update factors for inpatient
hospital services.

II. Inpatient Hospital Update for FY 2012

A. FY 2012 Inpatient Hospital Update

Section 1886(b)(3)(B) of the Act, as amended by sections 3401(a)
and 10319(a) of the Affordable Care Act, sets the applicable
percentage increase under the IPPS for FY 2012 as equal to the rate-
of-increase in the hospital market basket for IPPS hospitals in all
areas, subject to a reduction of 2.0 percentage points if the
hospital fails to submit quality information under rules established
by the Secretary in accordance with section 1886(b)(3)(B)(viii) of
the Act, and then subject to an adjustment based on changes in
economy-wide productivity and an additional reduction of 0.1
percentage point. Sections 1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of
the Act, as added by section 3401(a) of the Affordable Care Act,
state that the application of the multifactor productivity
adjustment and the additional FY 2012 adjustment of 0.1 percentage
point may result in the applicable percentage increase being less
than zero.
In accordance with section 1886(b)(3)(B) of the Act, as amended
by section 3401(a) of the Affordable Care Act, in section IV.K.3. of
the preamble of the proposed rule, based on IGI's first quarter 2011
forecast of multifactor productivity (MFP), we proposed a MFP
adjustment (the 10-year moving average of MFP for the period ending
FY 2012) of 1.2 percent.
Therefore, in the FY 2012 IPPS/LTCH PPS proposed rule, based on
IGI's first quarter 2011 forecast of the FY 2012 market basket
increase, we proposed an applicable percentage increase to the FY
2012 operating standardized amount of 1.5 percent (that is, the FY
2012 estimate of the market basket rate-of-increase of 2.8 percent
less an

[[Page 51845]]

adjustment of 1.2 percentage points for economy-wide productivity
and less 0.1 percentage point) for hospitals in all areas, provided
the hospital submits quality data in accordance with section
1886(b)(3)(B)(viii) of the Act and our rules. For hospitals that
fail to submit quality data, we proposed an applicable percentage
increase to the operating standardized amount of -0.5 percent (that
is, the FY 2012 estimate of the market basket rate-of increase of
2.8 percent less 2.0 percentage points for failure to submit quality
data, less an adjustment of 1.2 percentage points for economy-wide
productivity, and less an additional adjustment of 0.1 percentage
point).
For this final rule, in accordance with section 1886(b)(3)(B) of
the Act, as amended by section 3401(a) of the Affordable Care Act,
based on IGI's second quarter 2011 forecast of MFP, we are
finalizing a MFP adjustment (the 10-year moving average of MFP for
the period ending FY 2012) of 1.0 percent for FY 2012.
Based on IGI's second quarter 2011 forecast of the FY 2012
market basket increase, we are finalizing an applicable percentage
increase to the FY 2012 operating standardized amount of 1.9 percent
(that is, the FY 2012 estimate of the market basket rate-of-increase
of 3.0 percent less an adjustment of 1.0 percentage point for
economy-wide productivity and less 0.1 percentage point) for
hospitals in all areas, provided the hospital submits quality data
in accordance with section 1886(b)(3)(B)(viii) of the Act and our
rules. For hospitals that fail to submit quality data, we are making
an applicable percentage increase to the operating standardized
amount of -0.1 percent (that is, the FY 2012 estimate of the market
basket rate-of increase of 3.0 percent less 2.0 percentage points
for failure to submit quality data, less an adjustment of 1.0
percentage point for economy-wide productivity, and less an
additional adjustment of 0.1 percentage point).

B. Update for SCHs and MDHs for FY 2012

Section 1886(b)(3)(B)(iv) of the Act provides that the FY 2012
applicable percentage increase in the hospital-specific rates for
SCHs and MDHs equals the applicable percentage increase set forth in
section 1886(b)(3)(B)(i) of the Act (that is, the same update factor
as for all other hospitals subject to the IPPS). Therefore, the
update to the hospital specific rates for SCHs and MDHs is subject
to section 1886(b)(3)(B)(i) of the Act, as amended by sections
3401(a) and 10319(a) of the Affordable Care Act. Accordingly, the
applicable percentage increase to the hospital-specific rates
applicable to SCHs and MDHs for FY 2012 is 1.9 percent for hospitals
that submit quality data or -0.1 percent for hospitals that fail to
submit quality data.

C. FY 2012 Puerto Rico Hospital Update

Section 401(c) of Public Law 108-173 amended section
1886(d)(9)(C)(i) of the Act and states that, for discharges
occurring in a fiscal year (beginning with FY 2004), the Secretary
shall compute an average standardized amount for hospitals located
in any area of Puerto Rico that is equal to the average standardized
amount computed under subclause (I) for FY 2003 for hospitals in a
large urban area (or, beginning with FY 2005, for all hospitals in
the previous fiscal year) increased by the applicable percentage
increase under subsection (b)(3)(B) for the fiscal year involved.
Therefore, the update to the Puerto Rico-specific operating
standardized amount is subject to the applicable percentage increase
set forth in section 1886(b)(3)(B)(i) of the Act as amended by
sections 3401(a) and 10319(a) of the Affordable Care Act (that is,
the same update factor as for all other hospitals subject to the
IPPS). Accordingly, the applicable percentage increase to the Puerto
Rico-specific standardized amount for FY 2012 is 1.9 percent.

D. Update for Hospitals Excluded From the IPPS

Section 1886(b)(3)(B)(ii) of the Act is used for purposes of
determining the percentage increase in the rate-of-increase limits
for children's and cancer hospitals. Section 1886(b)(3)(B)(ii) of
the Act sets the percentage increase in the rate-of-increase limits
equal to the market basket percentage increase. In accordance with
Sec. 403.752(a) of the regulations, RNHCIs are paid under Sec.
413.40, which also uses section 1886(b)(3)(B)(ii) of the Act to
update the percentage increase in the rate-of-increase limits.
Section 1886(j)(3)(C) of the Act addresses the increase factor
for the Federal prospective payment rate of IRFs. Section 123 of
Public Law 106-113, as amended by section 307(b) of Public Law 106-
554 (and codified at section 1886(m)(1) of the Act), provides the
statutory authority for updating payment rates under the LTCH PPS.
In addition, section 124 of Public Law 106-113 provides the
statutory authority for updating all aspects of the payment rates
for IPFs.
Currently, children's hospitals, cancer hospitals, and RNHCIs
are the remaining three types of hospitals still reimbursed under
the reasonable cost methodology. In this final rule, we are
providing our current estimate of the FY 2012 IPPS operating market
basket percentage increase (3.0 percent) to update the target limits
for children's hospitals, cancer hospitals, and RNHCIs for FY 2012.
For FY 2012, as discussed in section VII. of the preamble to
this final rule, we are establishing an update to the LTCH PPS
standard Federal rate for FY 2012 based on the full proposed LTCH
PPS market basket increase estimate (2.9 percent). The annual update
also includes the requirement at section 1886(m)(3)(A)(i) of the Act
to reduce the annual update by the economy-wide productivity
adjustment described in section 1886(b)(3)(B)(xi)(ii) of the Act,
which is currently estimated to be 1.0 percent. In addition, section
1886(m)(3)(A)(ii) of the Act requires that any annual update for FY
2012 be reduced by the ``other adjustment'' at section 1886(m)(4)(C)
of the Act, which is 0.1 percentage point. Accordingly, the update
factor to the standard Federal rate for FY 2012 is 1.8 percent (that
is, we are applying a factor of 1.018 in determining the LTCH PPS
standard Federal rate for FY 2012).
Effective for cost reporting periods beginning on or after
January 1, 2005, IPFs are paid under the IPF PPS. IPF PPS payments
are based on a Federal per diem rate that is derived from the sum of
the average routine operating, ancillary, and capital costs for each
patient day of psychiatric care in an IPF, adjusted for budget
neutrality. In the RY 2012 IPF PPS final rule (76 FR 26434 through
26435), we extended the IPF PPS RY 2012 by 3 months (a total of 15
months instead of 12 months) through September 30, 2012. Based on
IGI's first quarter 2011 forecast, with history through the fourth
quarter of 2010, the projected 15-month market basket update based
on the FY 2008-based RPL market basket for the 15-month RY 2012
(July 1, 2011 through September 30, 2012) is 3.2 percent. In
accordance with section 1886(s)(2)(A)(ii) of the Act, which requires
the application of an ``other adjustment,'' described in section
1886(s)(3) of the Act (specifically, section 1886(s)(3)(A) for RYs
2011 and 2012), that reduces the update to the IPF PPS base rate for
the rate year beginning in CY 2011, we adjusted the IPF PPS update
by 0.25 percentage point for RY 2012. Therefore, we applied the 15-
month FY 2008-based RPL market basket increase of 3.2 percent for RY
2012, which was then adjusted by the ``other adjustment'' of 0.25
percentage point.
IRFs are paid under the IRF PPS for cost reporting periods
beginning on or after January 1, 2002. For cost reporting periods
beginning on or after October 1, 2002 (FY 2003), and thereafter, the
Federal prospective payments to IRFs are based on 100 percent of the
adjusted Federal IRF prospective payment amount, updated annually
(69 FR 45721). Sections 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii)
of the Act require the application of a 0.1 percentage point
reduction to the market basket increase factor for FYs 2012 and
2013. In addition, section 1886(j)(3)(C)(ii)(I) of the Act requires
the application of an economy-wide productivity adjustment. As
published elsewhere in this Federal Register, in accordance with
section 1886(j)(3)(C) of the Act, as amended by section 3401(d) of
the Affordable Care Act, we base the FY 2012 market basket update,
used to determine the applicable percentage increase for the IRF
payments, on the second quarter 2011 forecast of the FY 2008-based
RPL market basket (estimated to be 2.9 percent). This percentage
increase is then reduced by the MFP adjustment (the 10-year moving
average of MFP for the period ending FY 2012) of 1.0 percent, which
was calculated based on IGI's second quarter 2011 forecast.
Following application of the productivity adjustment, the applicable
percentage increase is then reduced by 0.1 percentage point, as
required by section 1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of
the Act, as added and amended by sections 3401 (d) of the Affordable
Care Act. Therefore the final FY 2012 IRF update is 1.8 percent (2.9
percent market basket update less 1.0 percentage point MFP
adjustment less 0.1 percentage point legislative adjustment).

III. Secretary's Final Recommendations

MedPAC is recommending an inpatient hospital update equal to one
percent for FY

[[Page 51846]]

2012. MedPAC's rationale for this update recommendation is described
in more detail below. As mentioned above, section 1886(e)(4)(A) of
the Act requires that the Secretary, taking into consideration the
recommendations of MedPAC, recommend update factors for inpatient
hospital services for each fiscal year that take into account the
amounts necessary for the efficient and effective delivery of
medically appropriate and necessary care of high quality. Consistent
with current law, we are recommending an applicable percentage
increase to the standardized amount of 1.9 percent (that is, the FY
2012 estimate of the market basket rate-of-increase of 3.0 percent
less an MFP adjustment of 1.0 percentage point and less 0.1
percentage point). We are recommending that the same applicable
percentage increase apply to SCHs and MDHs and the Puerto Rico-
specific standardized amount.
In addition to making a recommendation for IPPS hospitals, in
accordance with section 1886(e)(4)(A) of the Act, we are
recommending update factors for all other types of hospitals.
Consistent with our update for these facilities, we are recommending
an update for children's hospitals, cancer hospitals, and RNHCIs of
3.0 percent.
For FY 2012, consistent with policy set forth in section VII. of
the preamble of this final rule, we are recommending an update of
1.8 percent to the LTCH PPS standard Federal rate. In addition,
consistent with the update specified in the FY 2012 IRF PPS final
rule (as described above), we are recommending an update of 1.8
percent (that is, the market basket increase factor of 2.9 percent
less 1.0 percentage point for the MFP adjustment and less 0.1
percentage point in accordance with sections 1886(j)(3)(C)(ii)(II)
and 1886(j)(3)(D)(ii) of the Act) to the IRF PPS Federal rate for FY
2012. Finally, consistent with the update specified in the FY 2012
IPF PPS final rule (as described above), we are recommending an
update of 3.2 percent reduced by 0.25 percentage point to the IPF
PPS Federal rate for RY 2012 for the Federal per diem payment
amount.

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating
Payments in Traditional Medicare

In its March 2011 Report to Congress, MedPAC assessed the
adequacy of current payments and costs, and the relationship between
payments and an appropriate cost base. MedPAC recommended an update
to the hospital inpatient rates equal to one percent. MedPAC expects
Medicare margins to remain low in 2012. At the same time though,
MedPAC's analysis finds that efficient hospitals have been able to
maintain positive Medicare margins while maintaining a relatively
high quality of care. MedPAC also recommended that Congress should
require the Secretary to make adjustments to inpatient payment rates
in future years to recover all overpayments due to documentation and
coding improvements. MedPAC noted that priority should be given to
preventing future overpayments.
Response: With regard to MedPAC's recommendation of an update to
the hospital inpatient rates equal to one percent, for FY 2012, as
discussed above, sections 3401(a) and 10319(a) of the Affordable
Care Act amended section 1886(b)(3)(B) of the Act. Section
1886(b)(3)(B) of the Act, as amended by these sections, sets the
requirements for the FY 2012 applicable percentage increase.
Therefore, we are establishing an applicable percentage increase for
FY 2012 of 1.9 percent, provided the hospital submits quality data,
consistent with these statutory requirements.
Similar to our response last year, we agree with MedPAC that
hospitals should control costs rather than have Medicare accommodate
the current rate of growth. As MedPAC noted, the lack of financial
pressure at certain hospitals can lead to higher costs and in turn
bring down the overall Medicare margin for the industry.
With regard to MedPAC's recommendation that Congress should
require the Secretary to make adjustments to inpatient payment rates
in future years to recover all overpayments due to documentation and
coding improvements, we refer the reader to section III. D. of the
preamble to this final rule for a complete discussion on the FY 2012
MS-DRG documentation and coding adjustment. In section III. D. of
the preamble to this final rule, we are making a prospective
adjustment of 2.0 percent and a recoupment of 2.9 percent to the FY
2012 inpatient payment rates to recover overpayments due to
documentation and coding improvements. We note that any recoupments
for overpayments due to documentation and coding improvements beyond
the authority of section 7(b)(1)(B) of Public Law 110-90 would
require additional changes to current law by Congress. Therefore,
without a change to current law, our ability to recoup all
overpayments due to documentation and coding improvements is
limited.
We note that, because the operating and capital prospective
payment systems remain separate, we are continuing to use separate
updates for operating and capital payments. The update to the
capital rate is discussed in section III. of the Addendum to this
final rule.
We address public comments related to MedPAC's recommendation of
an update to the hospital inpatient rates equal to 1.0 percent in
section II.D. of the preamble to this final rule.

[FR Doc. 2011-19719 Filed 8-1-11; 4:15 pm]
BILLING CODE 4120-01-P