[Federal Register Volume 78, Number 160 (Monday, August 19, 2013)]
[Rules and Regulations]
[Pages 50496-51040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-18956]



[[Page 50495]]

Vol. 78

Monday,

No. 160

August 19, 2013

Part II





Department of Health and Human Services





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





Center for Medicare & Medicaid Services





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





42 CFR Parts 412, 413, 414, et al.





Medicare Program; Hospital Inpatient Prospective Payment Systems for 
Acute Care Hospitals and the Long Term Care; Hospital Prospective 
Payment System and Fiscal Year 2014 Rates; Quality Reporting 
Requirements for Specific Providers; Hospital Conditions of 
Participation; Payment Policies Related to Patient Status; Final Rule

  Federal Register / Vol. 78, No. 160 / Monday, August 19, 2013 / Rules 
and Regulations  

[[Page 50496]]


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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, 414, 419, 424, 482, 485, and 489

[CMS-1599-F; CMS-1455-F]
RINs 0938-AR53 and 0938-AR73


Medicare Program; Hospital Inpatient Prospective Payment Systems 
for Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System and Fiscal Year 2014 Rates; Quality Reporting 
Requirements for Specific Providers; Hospital Conditions of 
Participation; Payment Policies Related to Patient Status

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. Some of the changes 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. 
These changes will be applicable to discharges occurring on or after 
October 1, 2013, unless otherwise specified in this final rule. We also 
are updating the rate-of-increase limits for certain hospitals excluded 
from the IPPS that are paid on a reasonable cost basis subject to these 
limits. The updated rate-of-increase limits will be effective for cost 
reporting periods beginning on or after October 1, 2013.
    We also are updating the payment policies 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 that were applied to the LTCH 
PPS by the Affordable Care Act. Generally, these updates and statutory 
changes will be applicable to discharges occurring on or after October 
1, 2013, unless otherwise specified in this final rule.
    In addition, we are making a number of changes relating to direct 
graduate medical education (GME) and indirect medical education (IME) 
payments. We are establishing new requirements or have revised 
requirements for quality reporting by specific providers (acute care 
hospitals, PPS-exempt cancer hospitals, LTCHs, and inpatient 
psychiatric facilities (IPFs)) that are participating in Medicare.
    We are updating policies relating to the Hospital Value-Based 
Purchasing (VBP) Program and the Hospital Readmissions Reduction 
Program. In addition, we are revising the conditions of participation 
(CoPs) for hospitals relating to the administration of vaccines by 
nursing staff as well as the CoPs for critical access hospitals 
relating to the provision of acute care inpatient services.
    We are finalizing proposals issued in two separate proposed rules 
that included payment policies related to patient status: payment of 
Medicare Part B inpatient services; and admission and medical review 
criteria for payment of hospital inpatient services under Medicare Part 
A.

DATES: Effective Date: These final rules are effective on October 1, 
2013.

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, and Medicare 
Disproportionate Share Hospital (DSH) 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.
Mollie Knight, (410) 786-7948 and Bridget Dickensheets, (410) 786-8670, 
Market Basket for IPPS Hospitals and LTCHs Issues.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital 
Demonstration Program Issues.
James Poyer, (410) 786-2261, Hospital Inpatient Quality Reporting and 
Hospital Value-Based Purchasing--Program Administration, Validation, 
and Reconsideration Issues.
Shaheen Halim, (410) 786-0641, Hospital 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, Hospital Inpatient Quality 
Reporting--Hospital Consumer Assessment of Healthcare Providers and 
Systems Measures Issues.
Mary Pratt, (410) 786-6867, LTCH Quality Data Reporting Issues.
Kim Spalding Bush, (410) 786-3232, Hospital Value-Based Purchasing 
Efficiency Measures Issues.
James Poyer, (410) 786-2261, PPS-Exempt Cancer Hospital Quality 
Reporting Issues.
Allison Lee, (410) 786-8691 and Jeffrey Buck, (410) 786-0407, Inpatient 
Psychiatric Facility Quality Reporting Issues.
Sarah Fahrendorf, (410) 786-3112, Conditions of Participation (CoPs) 
for CAHs Issues.
Commander Scott Cooper, USPHS, (410) 786-9465, Hospital Conditions of 
Participation (CoPs)--Pneumococcal Vaccine Issues.
Ann Marshall, (410) 786-3059, Medicare Part B Inpatient Billing: 
Payable Part B Inpatient and Part B Outpatient Services and Beneficiary 
Utilization Days; and Physician Order and Certification for Payment of 
Hospital Inpatient Services under Medicare Part A Issues.
Susanne Seagrave, (410) 786-0044, Physician Order and Certification for 
Payment of Inpatient Rehabilitation Facility Services under Medicare 
Part A Issues.
Jennifer Dupee, (410) 786-6537, and Jennifer Phillips, (410) 786-1023, 
Medical Review Criteria for Payment of Hospital Inpatient Services 
under Medicare Part A Issues.
David Danek, (617) 565-2682, Medicare Part B Inpatient Billing: 
Hospital and Beneficiary Appeals Issues.
Fred Grabau, (410) 786-0206, Medicare Part B Inpatient Billing: Time 
Limits for Filing Claims Issues.
Brian Pabst, (410) 786-2487, Medicare Part B Inpatient Billing: 
Coordination of Benefits Issues.
Anthony Hodge, (410) 786-6645, Qualification for Coverage of Skilled 
Nursing Facilities Services Issues.

SUPPLEMENTARY INFORMATION:

Electronic Access

    This Federal Register document is also available from the Federal 
Register online database through Federal Digital System (FDsys), a 
service of the U.S. Government Printing Office. This database can be 
accessed via the Internet at: http://www.gpo.gov/fdsys.

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 the proposed rule and the final rule 
were published in the Federal Register as part of the annual proposed 
and final rules. However, beginning in FY 2012, some of

[[Page 50497]]

the IPPS tables and LTCH PPS tables are no longer published in the 
Federal Register. 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/Medicare/medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. 
Click on the link on the left side of the screen titled, ``FY 2014 IPPS 
Final Rule Home Page'' or ``Acute Inpatient--Files for Download''. The 
LTCH PPS tables for this FY 2014 final rule are available only through 
the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html 
under the list item for Regulation Number CMS-1599-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 
Michael Treitel at (410) 786-4552.

Acronyms

3M 3M Health Information System
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
ACoS American College of Surgeons
AHA American Hospital Association
AHIC American Health Information Community
AHIMA American Health Information Management Association
AHRQ Agency for Healthcare Research and Quality
ALOS Average length of stay
ALTHA Acute Long Term Hospital Association
AMA American Medical Association
AMGA American Medical Group Association
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis Related Group System
APRN Advanced practice registered nurse
ARRA American Recovery and Reinvestment Act of 2009, Public Law 111-
5
ASCA Administrative Simplification Compliance Act of 2002, Public 
Law 107-105
ASITN American Society of Interventional and Therapeutic 
Neuroradiology
ATRA American Taxpayer Relief Act of 2012, Public Law 112-240
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
CAUTI Catheter-associated urinary tract infection
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCN CMS Certification Number
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction Center
CDAD Clostridium difficile-associated disease
CDC Center for Disease Control and Prevention
CERT Comprehensive error rate testing
CDI Clostridium difficile
CFR Code of Federal Regulations
CLABSI Central line-associated bloodstream infection
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
DACA Data Accuracy and Completeness Acknowledgement
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
EMTALA Emergency Medical Treatment and Labor Act of 1986, Public Law 
99-272
FAH Federation of American Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
FPL Federal poverty line
FQHC Federally qualified health center
FR Federal Register
FTE Full-time equivalent
FUH Follow-up after hospitalization for mental illness
FY Fiscal year
GAAP Generally Accepted Accounting Principles
GAF Geographic Adjustment Factor
GME Graduate medical education
HAC Hospital-acquired condition
HAI Healthcare-associated infection
HBIPS Hospital-based inpatient psychiatric services
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
IPFQR Inpatient Psychiatric Facility Quality Reporting [Program]
IPPS [Acute care hospital] inpatient prospective payment system
IRF Inpatient rehabilitation facility
IQR Inpatient Quality Reporting
IVR Interactive voice response
LAMCs Large area metropolitan counties
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
LTCHQR Long-Term Care Hospital Quality Reporting
MA Medicare Advantage
MAC Medicare Administrative Contractor
MAP Measure Application Partnership
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

[[Page 50498]]

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
NHSN National Healthcare Safety Network
NOP Notice of Participation
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 1986, 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
OQR [Hospital] Outpatient Quality Reporting
O.R. Operating room
OSCAR Online Survey Certification and Reporting [System]
PCH PPS-exempt cancer hospital
PCHQR PPS-exempt cancer hospital quality reporting
PMSAs Primary metropolitan statistical areas
POA Present on admission
PPI Producer price index
PPS Prospective payment system
PRM Provider Reimbursement Manual
ProPAC Prospective Payment Assessment Commission
PRRB Provider Reimbursement Review Board
PRTFs Psychiatric residential treatment facilities
PSF Provider-Specific File
PS&R Provider Statistical and Reimbursement [System]
PQRS Physician Quality Reporting 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
SCIP Surgical Care Improvement Project
SFY State fiscal year
SIC Standard Industrial Classification
SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
SSI Surgical site infection
SSI Supplemental Security Income
SSO Short-stay outlier
SUD Substance use disorder
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
TPS Total Performance Score
UHDDS Uniform hospital discharge data set
VBP [Hospital] Value Based Purchasing [Program]
VTE Venous thromboembolism

Table of Contents

I. Executive Summary and Background
    A. Executive Summary
    1. Purpose and Legal Authority
    2. Summary of the Major Provisions
    3. Summary of Costs and Benefits
    B. 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)
    C. Provisions of the Patient Protection and Affordable Care Act 
(Pub. L. 111-148), the Health Care and Education Reconciliation Act 
of 2010 (Pub. L. 111-152), and the American Taxpayer Relief Act of 
2012 (Pub. L. 112-240)
    D. Issuance of a Notice of Proposed Rulemaking
    E. Public Comments Received in Response to the FY 2014 IPPS/LTCH 
PPS Proposed Rule
    F. Finalization of the Proposed Rule on Medicare Part B 
Inpatient Billing in Hospitals
II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) 
Classifications and Relative Weights
    A. Background
    B. MS-DRG Reclassifications
    C. Adoption of the MS-DRGs in FY 2008
    D. FY 2014 MS-DRG Documentation and Coding Adjustment
    1. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
    2. Adjustment to the Average Standardized Amounts Required by 
Public Law 110-90
    a. Prospective Adjustment Required by Section 7(b)(1)(A) of 
Public Law 110-90
    b. Recoupment or Repayment Adjustments in FYs 2010 through 2012 
Required by Section 7(b)(1)(B) Public Law 110-90
    3. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data
    4. Prospective Adjustments for FY 2008 and FY 2009 Authorized by 
Section 7(b)(1)(A) of Public Law 110-90
    5. Recoupment or Repayment Adjustment Authorized by Section 
7(b)(1)(B) of Public Law 110-90
    6. Recoupment or Repayment Adjustment Authorized by Section 631 
of the American Taxpayer Relief Act of 2012 (ATRA).
    7. Additional Prospective Adjustments for the MS-DRG 
Documentation and Coding Effect through FY 2010 Authorized under 
Section 1886(d)(3)(A)(vi) of the Act
    E. Refinement of the MS-DRG Relative Weight Calculation
    1. Background
    2. Discussion and Policies for FY 2014
    F. Adjustment to MS-DRGs for Preventable Hospital-Acquired 
Conditions (HACs), Including Infections
    1. Background
    2. HAC Selection
    3. Present on Admission (POA) Indicator Reporting
    4. HACs and POA Reporting in ICD-10-CM and ICD-10-PCS
    5. Current HACs and Previously Considered Candidate HACs
    6. RTI Program Evaluation
    7. Current and Previously Considered Candidate HACs--RTI Report 
on Evidence-Based Guidelines
    G. Changes to Specific MS-DRG Classifications
    1. Pre-Major Diagnostic Categories (Pre-MDCs): Heart Transplants 
and Liver Transplants
    2. MDC 1(Diseases and Disorders of the Nervous System): Tissue 
Plasminogen Activator (tPA) (rtPA) Administration within 24 Hours 
Prior to Admission
    3. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and 
Throat)
    a. Endoscopic Placement of a Bronchial Valve
    b. Pulmonary Thromboendarterectomy (PTE) with Full Circulatory 
Arrest
    4. MDC 5 (Diseases and Disorders of the Circulatory System)
    a. Discharge/Transfer to Designated Disaster Alternative Care 
Site
    b. Discharges/Transfers with a Planned Acute Care Hospital 
Inpatient Readmission
    5. MDC 8 (Diseases and Disorders of the Musculoskeletal System 
and Connective Tissue)
    a. Reverse Shoulder Procedures
    b. Total Ankle Replacement Procedures
    6. MDC 15 (Newborns and Other Neonates with Conditions 
Originating in the Perinatal Period)

[[Page 50499]]

    a. Persons Encountering Health Services for Specific Procedures, 
Not Carried Out
    b. Discharges/Transfers of Neonates with a Planned Acute Care 
Hospital Inpatient Readmission
    7. Medicare Code Editor (MCE) Changes
    a. Age Conflict Edit
    b. Discharge Status Code Updates
    8. Surgical Hierarchies
    9. Complications or Comorbidity (CC) Exclusions List
    a. Background of the CC List and the CC Exclusion List
    b. CC Exclusions List for FY 2014
    10. 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
    11. Changes to the ICD-9-CM Coding System, Including Discussion 
of the 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
    H. Recalibration of FY 2014 MS-DRG Relative Weights
    1. Data Sources for Developing the Relative Weights
    2. Methodology for Calculation of the Relative Weights
    3. Development of National Average CCRs
    4. Bundled Payments for Care Improvement (BPCI) Initiative
    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 2014 Status of Technology Approved for FY 2013 Add-On 
Payments
    a. AutoLaser Interstitial Therapy (Auto LITT[supreg]) System
    b. Glucarpidase (Trade Brand Voraxaze[supreg])
    c. DIFICID[supreg] (Fidaxomicin) Tablets
    d. Zenith[supreg] Fenestrated Abdominal Aortic Aneurysm (AAA) 
Endovascular Graft
    4. FY 2014 Applications for New Technology Add-On Payments
    a. Kcentra[supreg]
    b. Argus[supreg] II Retinal Prosthesis System
    c. Responsive Neurostimulator (RNS) System
    d. Zilver[supreg] PTX[supreg] Drug Eluting Stent
    e. MitraClip[supreg] System
III. Changes to the Hospital Wage Index for Acute Care Hospitals
    A. Background
    B. Core-Based Statistical Areas for the Hospital Wage Index
    C. Worksheet S-3 Wage Data for the FY 2014 Wage Index
    1. Included Categories of Costs
    2. Excluded Categories of Costs
    3. Use of Wage Index Data by Providers Other Than Acute Care 
Hospitals under the IPPS
    D. Verification of Worksheet S-3 Wage Data
    E. Method for Computing the FY 2014 Unadjusted Wage Index
    F. Occupational Mix Adjustment to the FY 2014 Wage Index
    1. Development of Data for the FY 2014 Occupational Mix 
Adjustment Based on the 2010 Occupational Mix Survey
    2. New 2013 Occupational Mix Survey for the FY 2016 Wage Index
    3. Calculation of the Occupational Mix Adjustment for FY 2014
    G. Analysis and Implementation of the Occupational Mix 
Adjustment and the FY 2014 Occupational Mix Adjusted Wage Index
    1. Analysis of the Occupational Mix Adjustment and the 
Occupational Mix Adjusted Wage Index
    2. Application of the Rural, Imputed, and Frontier Floors
    a. Rural Floor
    b. Imputed Floor
    c. Frontier Floor
    3. FY 2014 Wage Index Tables
    H. Revisions to the Wage Index Based on Hospital Redesignations 
and Reclassifications
    1. General Policies and Effects of Reclassification/
Redesignation
    2. FY 2014 MGCRB Reclassifications
    a. FY 2014 Reclassification Requirements and Approvals
    b. Applications for Reclassifications for FY 2015
    3. Redesignations of Hospitals under Section 1886(d)(8)(B) of 
the Act
    4. Reclassifications under Section 1886(d)(8)(B) of the Act 
Seeking Reclassification by the MGCRB
    5. Waiving Lugar Redesignation for the Out-Migration Adjustment
    I. FY 2014 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 Proposed FY 2014 Wage Index
IV. Rebasing and Revision of the Hospital Market Baskets for Acute 
Care Hospitals
    A. Background
    B. Rebasing and Revising the IPPS Market Basket
    1. Development of Cost Categories and Weights
    2. Cost Category Computation
    3. Selection of Price Proxies
    4. Labor-Related Share
    C. Market Basket for Certain Hospitals Presently Excluded from 
the IPPS
    D. Rebasing and Revising the Capital Input Price Index (CIPI)
V. Other Decisions and Changes to the IPPS for Operating Costs and 
Graduate Medical Education (GME) Costs
    A. Inpatient Hospital Updates for FY 2014 (Sec. Sec.  412.64(d) 
and 412.211(c))
    1. FY 2014 Inpatient Hospital Update
    2. FY 2014 Puerto Rico Hospital Update
    B. Rural Referral Centers (RRCs): Annual Update to Case-Mix 
Index (CMI) and Discharge Criteria (Sec.  412.96)
    1. Case-Mix Index (CMI)
    2. Discharges
    C. Payment Adjustment for Low-Volume Hospitals (Sec.  412.101)
    1. Background
    a. Original Implementation of the Low-Volume Hospital Payment 
Adjustment
    b. Affordable Care Act Provisions for FYs 2011 and 2012
    2. Provisions of the ATRA for FY 2013
    a. Background
    b. Conforming Regulatory Changes
    3. Low-Volume Hospital Definition and Payment Adjustment for FY 
2014 and Subsequent Years
    D. Indirect Medical Education (IME) Adjustment (Sec.  412.105)
    1. IME Adjustment Factor for FY 2014
    2. Other Policy Changes Affecting GME
    E. Payment Adjustment for Medicare Disproportionate Share 
Hospitals (DSHs) Sec.  412.106)
    1. Background
    2. Counting of Patient Days Associated with Patients Enrolled in 
Medicare Advantage Plans in the Medicare and Medicaid Fractions of 
the Disproportionate Share Patient Percentage (DPP) Calculation
    3. New Payment Adjustment Methodology for Medicare DSH under 
Section 3133 of the Affordable Care Act
    F. Medicare-Dependent, Small Rural Hospital (MDH) Program (Sec.  
412.108)
    1. Background
    2. Provisions of the ATRA for FY 2013
    a. Background
    b. Conforming Regulatory Changes
    c. Expiration of the MDH Program
    G. Hospital Readmissions Reduction Program (Sec. Sec.  412.150 
through 412.154)
    1. Statutory Basis for the Hospital Readmissions Reduction 
Program
    2. Overview
    3. FY 2014 Policies for the Hospital Readmissions Reduction 
Program
    a. Overview
    b. Refinement of the Readmission Measures and Related 
Methodology for FY 2014 and Subsequent Years Payment Determinations
    c. Expansion of the Applicable Conditions for FY 2015
    d. Hospitals Paid under Section 1814(b)(3) of the Act, Including 
the Process to be Exempt from the Hospital Readmissions Reduction 
Program and Definition of ``Base Operating DRG Payment Amount'' for 
Such Hospitals (Sec.  412.152 and Sec.  412.154(d))
    e. Floor Adjustment Factor for FY 2014 (Sec.  412.154(c)(2))
    f. Applicable Period for FY 2014
    g. Refinements of the Methodology to Calculate the Aggregate 
Payments for Excess Readmissions
    h. Clarification of Reporting Hospital-Specific Information, 
Including Opportunity to Review and Submit Corrections
    H. Hospital Value-Based Purchasing Program (Sec. Sec.  412.160 
through 412.165)
    1. Statutory Background
    2. Overview of the FY 2013 Hospital VBP Program
    3. FY 2014 Payment Details

[[Page 50500]]

    4. FY 2014 Hospital VBP Program Measures
    5. FY 2015 Hospital VBP Program Measures
    6. FY 2016 Hospital VBP Program Measures
    a. Measures Previously Adopted and Removal of AMI-8a, PN-3b, and 
HF-1 Measures
    b. New Measures for the FY 2016 Hospital VBP Program
    c. Future Measures for the Efficiency Domain
    7. Performance Periods and Baseline Periods
    a. Background
    b. Clinical Process of Care Domain Performance Period and 
Baseline Periods for the FY 2016 Hospital VBP Program
    c. Experience of Care Domain Performance Period and Baseline 
Period for the FY 2016 Hospital VBP Program
    d. Efficiency Domain Measure Performance Period and Baseline 
Period for the FY 2016 Hospital VBP Program
    e. Outcome Domain Performance Periods and Baseline Periods for 
the FY 2017 through FY 2019 Hospital VBP Programs
    8. Performance Standards for the Hospital VBP Program
    a. Background
    b. Performance Standards for the FY 2016 Hospital VBP Program 
Measures
    c. Certain Performance Standards for the FY 2017, FY 2018, and 
FY 2019 Hospital VBP Programs
    9. FY 2016 Hospital VBP Program Scoring Methodology
    a. General Hospital VBP Program Scoring Methodology
    b. Domain Weighting for the FY 2016 Hospital VBP Program for 
Hospitals That Receive a Score on All Domains
    c. Domain Weighting for the FY 2016 Hospital VBP Program for 
Hospitals Receiving Scores on Fewer than Four Domains
    d. Domain Reclassification and Domain Weighting for the FY 2017 
Hospital VBP Program
    e. Disaster/Extraordinary Circumstance Waivers under the 
Hospital VBP Program
    10. Applicability of the Hospital VBP Program to Hospitals
    a. Background
    b. Minimum Numbers of Cases and Measures for the FY 2016 
Hospital VBP Program Outcome Domain
    c. Hospitals Paid under Section 1814(b)(3) of the Act
    I. Hospital-Acquired Condition (HAC) Reduction Program
    1. Background
    2. Statutory Basis for the HAC Reduction Program
    3. Implementation of the HAC Reduction Program
    a. Definitions
    b. Payment Adjustment under the HAC Reduction Program, Including 
Exemptions
    c. Measure Selection and Conditions, Including a Proposed Risk-
Adjustment Scoring Methodology
    d. Criteria for Applicable Hospitals and Performance Scoring
    e. Reporting Hospital-Specific Information, Including the Review 
and Correction of Information
    f. Limitation on Administrative and Judicial Review
    J. Payment for Graduate Medical Education (GME) and Indirect 
Medical Education (IME) Costs (Sec. Sec.  412.105, 413.75 through 
413.83)
    1. Background
    2. Inclusion of Labor and Delivery Days in the Calculation of 
Medicare Utilization for Direct GME Payment Purposes and for Other 
Medicare Purposes
    3. Notice of Closure of Teaching Hospital and Opportunity to 
Apply for Available Slots
    4. Payments for Residents Training in Approved Residency 
Programs at CAHs
    a. Background
    b. Residents in Approved Medical Residency Training Programs 
That Train at CAHs
    5. Expiration of Inflation Update Freeze for High Per Resident 
Amounts (PRAs)
    K. Rural Community Hospital Demonstration Program
    1. Background
    2. FY 2014 Budget Neutrality Offset Amount
    L. Hospital Emergency Services under EMTALA: Technical Change 
(Sec.  489.24(f))
    M. Hospital Services Furnished under Arrangements
VI. Changes to the IPPS for Capital-Related Costs
    A. Overview
    B. Additional Provisions
    1. Exception Payments
    2. New Hospitals
    3. Hospitals Located in Puerto Rico
    C. Other Changes for FY 2014--Adjustment to Offset the Cost of 
the Policy Proposal on Admission and Medical Review Criteria for 
Hospital Inpatient Services under Medicare Part A
    D. Annual Update for FY 2014
VII. Changes for Hospitals Excluded from the IPPS
    A. Rate-of-Increase in Payments to Excluded Hospitals for FY 
2014
    B. Report of Adjustment (Exceptions) Payments
    C. Critical Access Hospitals (CAHs): Changes to Conditions of 
Participation (CoPs)
    1. Background
    2. Policy Changes
VIII. Changes to the Long-Term Care Hospital Prospective Payment 
System (LTCH PPS) for FY 2014
    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 for FY 2014
    1. Background
    2. Patient Classifications into MS-LTC-DRGs
    a. Background
    b. Changes to the MS-LTC-DRGs for FY 2014
    3. Development of the FY 2014 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 2014
    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 FY 2014 MS-LTC-DRG Relative Weights
    C. LTCH PPS Payment Rates for FY 2014
    1. Overview of Development of the LTCH Payment Rates
    2. FY 2014 LTCH PPS Annual Market Basket Increase
    a. Overview
    b. Revision of Certain Market Basket Updates as Required by the 
Affordable Care Act
    c. Adjustment to the Annual Update to the LTCH PPS Standard 
Federal Rate under the Long-Term Care Hospital Quality Reporting 
(LTCHQR) Program
    1. Background
    2. Reduction to the Annual Update to the LTCH PPS Standard 
Federal Rate under the LTCHQR Program
    d. Market Basket Under the LTCH PPS for FY 2014
    e. Annual Market Basket Update for LTCHs for FY 2014
    3. Adjustment for the Second Year of the Phase-In of the One-
Time Prospective Adjustment to the Standard Federal Rate under Sec.  
412.523(d)(3)
    D. Expiration of Certain Payment Rules for LTCH Services--The 
25-Percent Threshold Payment Adjustment
    E. Research on the Development of a Patient Criteria-Based 
Payment Adjustment under the LTCH PPS
    1. Overview
    2. MedPAC's 2004 Report to Congress
    3. LTCHs in the Medicare Program
    4. CMS' Research: The RTI Report
    5. CMS' Report to Congress: Determining Medical Necessity and 
Appropriateness of Care for Medicare Long-Term Care Hospitals
    6. Current Practices in LTCHs
    7. Identification of Chronically Critically Ill/Medically 
Complex (CCI/MC) Patients
    8. LTCH PPS Payments for CCI/MC Patients
IX. Quality Data Reporting Requirements for Specific Providers and 
Suppliers
    A. Hospital Inpatient Quality Reporting (IQR) Program
    1. Background
    a. History of Measures Adopted for the Hospital IQR Program
    b. Maintenance of Technical Specifications for Quality Measures
    c. Public Display of Quality Measures
    2. Removal and Suspension of Hospital IQR Program Measures

[[Page 50501]]

    a. Considerations in Removing Quality Measures from the Hospital 
IQR Program
    b. Hospital IQR Program Measures Removed in Previous Rulemaking
    c. Removal of Hospital IQR Program Measures for the FY 2016 
Payment Determination and Subsequent Years
    d. Suspension of Data Collection for the FY 2014 Payment 
Determination and Subsequent Years
    3. Process for Retaining Previously Adopted Hospital IQR Program 
Measures for Subsequent Payment Determinations
    4. Additional Considerations in Expanding and Updating Quality 
Measures under the Hospital IQR Program
    5. Changes to Hospital IQR Program Measures Previously Adopted 
for the FY 2015 and FY 2016 Payment Determinations and Subsequent 
Years
    a. Previously Adopted Hospital IQR Program Measures for the FY 
2015 Payment Determination and Subsequent Years
    b. Refinements to Existing Measures in the Hospital IQR Program
    6. Additional Hospital IQR Program Measures for the FY 2016 
Payment Determination and Subsequent Years
    a. Hospital 30-Day, All-Cause, Risk-Standardized Readmission 
Rate (RSRR) Following Chronic Obstructive Pulmonary Disease (COPD) 
Hospitalization Measure (NQF 1891)
    b. Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate 
(RSMR) Following Chronic Obstructive Pulmonary Disease (COPD) 
Hospitalization Measure (NQF 1893)
    c. Hospital 30-day, All-Cause Risk-Standardized Rate of 
Readmission Following Acute Ischemic Stroke (Stroke Readmission) 
Measure
    d. Hospital 30-Day, All-Cause Risk-Standardized Rate of 
Mortality Following an Admission for Acute Ischemic Stroke (Stroke 
Mortality) Measure
    e. Hospital Risk-Standardized Payment Associated with a 30-day 
Episode-of-Care for Acute Myocardial Infarction (AMI) Measure
    7. Electronic Clinical Quality Measures
    8. Possible New Quality Measures and Measure Topics for Future 
Years
    9. Form, Manner, and Timing of Quality Data Submission
    a. Background
    b. Procedural Requirements for the FY 2016 Payment Determination 
and Subsequent Years
    c. Data Submission Requirements for Chart-Abstracted Measures
    d. Data Submission Requirements for Quality Measures That May be 
Voluntarily Electronically Reported for the FY 2016 Payment 
Determination
    e. Sampling and Case Thresholds for the FY 2016 Payment 
Determination and Subsequent Years
    f. HCAHPS Requirements for the FY 2017 Payment Determination and 
Subsequent Years
    g. Data Submission Requirements for Structural Measures for the 
FY 2015 and FY 2016 Payment Determinations
    h. Data Submission and Reporting Requirements for Healthcare-
Associated Infection (HAI) Measures Reported via NHSN
    10. Modifications to the Validation Process for Chart-Abstracted 
Measures under the Hospital IQR Program
    a. Timing and Number of Quarters Included in Validation
    b. Selection of Measures and Sampling of Charts to be Included 
in Validation
    c. Procedures for Scoring Records for Validation
    d. Procedures to Select Hospitals for Validation
    e. Procedures for Submitting Records for Validation
    11. Data Accuracy and Completeness Acknowledgement Requirements 
for the FY 2015 Payment Determination and Subsequent Years
    12. Public Display Requirements for the FY 2016 Payment 
Determination and Subsequent Years
    13. Reconsideration and Appeal Procedures for the FY 2015 
Payment Determination and Subsequent Years
    14. Hospital IQR Program Extraordinary Circumstances Extensions 
or Waivers
    B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program
    1. Statutory Authority
    2. Covered Entities
    3. Previously Finalized Quality Measures for PCHs for the FY 
2014 Program Year and Subsequent Years
    4. Considerations in the Selection of the Quality Measures
    5. New Quality Measures
    a. New Measure Beginning for the FY 2015 Program Year and 
Subsequent Years--NHSN Healthcare-Associated Infection (HAI) 
Measure: Surgical Site Infection (SSI) (NQF 0753)
    b. New Measures Beginning for the FY 2016 PQHQR Program Year and 
Subsequent Years
    6. Possible New Quality Measure Topics for Future Years
    7. Maintenance of Technical Specifications for Quality Measures
    8. Public Display Requirements for the FY 2014 Program Year and 
Subsequent Years
    9. Form, Manner, and Timing of Data Submission Beginning with FY 
2015 Program Year and Subsequent Years
    a. Background
    b. Waivers from Program Requirements
    c. Reporting Periods and Submission Timelines for the Finalized 
SSI Measure
    d. Exceptions to Reporting and Data Submission for HAI Measures 
(CAUTI, CLABSI, and SSI)
    e. Reporting and Data Submission Requirements for the Finalized 
Clincial Process/Oncology Care Measures
    f. Reporting and Data Submission Requirements for the Finalized 
SCIP Measures
    g. HCAHPS Requirements
    C. Long-Term Care Hospital Quality Reporting (LTCHQR) Program
    1. Statutory History
    2. General Considerations Used for Selection of Quality Measures 
for the LTCHQR Program
    3. Process for Retention of LTCHQR Program Measures Adopted in 
Previous Payment Determinations
    4. Process for Adopting Changes to LTCHQR Program Measures
    5. Previously Adopted Quality Measures for the FY 2014 and FY 
2015 Payment Determinations and Subsequent Years
    6. Previously Adopted Quality Measures for the FY 2016 Payment 
Determination and Subsequent Years
    7. Revisions to Previously Adopted Quality Measures
    a. Revisions for Influenza Vaccination Coverage among Healthcare 
Personnel (NQF 0431)
    b. Revisions for Percent of Residents or Patients Who Were 
Assessed and Appropriately Given the Seasonal Influenza Vaccine 
(Short-Stay) (NQF 0680) for the FY 2016 Payment 
Determination and Subsequent Years
    c. Revisions for Percent of Residents or Patients with Pressure 
Ulcers That Are New or Worsened (Short-Stay) (NQF 0678) for 
the FY 2015 Payment Determination and Subsequent Years
    8. New LTCHQR Program Quality Measures Affecting the FY 2017 an 
FY 2018 Payment Determinations and Subsequent Years
    a. Considerations in Updating and Expanding Quality Measures 
under the LTCHQR Program for the FY 2017 Payment Determination and 
Subsequent Years
    b. New LTCHQR Program Quality Measures for the FY 2017 Payment 
Determination and Subsequent Years
    c. New LTCHQR Program Quality Measure for the FY 2018 Payment 
Determination and Subsequent Years
    d. LTCHQR Program Quality Measures and Concepts under 
Consideration for Future Years Payment Determinations
    9. Form, Manner, and Timing of Quality Data Submission for the 
FY 2016 Payment Determination and Subsequent Years
    a. Background
    b. Finalized Timeline for Data Submission under the LTCHQR 
Program for the FY 2016 Payment Determination
    c. Timeline for Data Submission for the NQF 0431 
Influenza Vaccination Coverage Among Healthcare Personnel Measure 
for the FY 2016 Payment Determination and Subsequent Years
    d. Timeline for Data Submission for the NQF 0680 
Percent of Residents or Patients Who Were Assessed and Appropriately 
Given the Seasonal Influenza Vaccine (Short Stay) Measure for the FY 
2016 Payment Determination and Subsequent Years
    e. Timeline for Data Submission under the LTCHQR Program for the 
FY 2017 Payment Determination and Subsequent Years
    f. Timeline for Data Submission under the LTCHQR Program for the 
FY 2018 Payment Determination and Subsequent Years
    10. Public Display of Data Quality Measures for the LTCHQR 
Program

[[Page 50502]]

    11. LTCHQR Program Submission Waiver Requirements for the FY 
2015 Payment Determination and Subsequent Years
    12. LTCHQR Program Reconsideration and Appeals for the FY 2015 
Payment Determination and Subsequent Years
    a. LTCHQR Program Reconsideration and Appeals for the FY 2014 
Payment Determination
    b. LTCHQR Program Reconsideration and Appeals for the FY 2015 
Payment Determination
    D. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) 
Program
    1. Statutory Authority
    2. Application of the Payment Update Reduction for Failure to 
Report for the FY 2014 Payment Determination and Subsequent Years
    3. Covered Entities
    4. Considerations in Selecting Quality Measures
    5. Quality Measures for the FY 2015 Payment Determination and 
Subsequent Years
    a. Background
    b. New Quality Measures for the FY 2016 Payment Determination 
and Subsequent Years
    c. Maintenance of Technical Specifications for Quality Measures
    6. Request for Voluntary Information--IPF Assessment of Patient 
Experience of Care
    7. Request for Recommendations for New Quality Measures for 
Future Years
    8. Public Display Requirements for the FY 2014 Payment 
Determination and Subsequent Years
    9. Form, Manner, and Timing of Quality Data Submission for the 
FY 2014 Payment Determination and Subsequent Years
    a. Background
    b. Procedural Requirements
    c. Submission Requirements for the FY 2016 Payment Determination 
and Subsequent Years
    d. Reporting Requirements for the FY 2016 Payment Determination 
and Subsequent Years
    e. Population, Sampling, and Minimum Case Threshold for the FY 
2016 Payment Determination and Subsequent Years
    f. Data Accuracy and Completeness Acknowledgement (DACA) 
Requirements
    10. Reconsideration and Appeals Procedures for the FY 2014 
Payment Determination and Subsequent Years
    11. Waivers from Quality Reporting Requirements for the FY 2014 
Payment Determination and Subsequent Years
    12. Electronic Health Records (EHRs)
    E. Electronic Health Records (EHRs) Incentive Program and 
Meaningful Use (MU)
    1. Background
    2. Expanded Electronic Submission Period for CQMs
    3. Quality Reporting Data Architecture Category III (QRDA-III) 
Option in 2014
    4. Case Number Threshold Exemption--Requirements Regarding Data 
Submission
X. Change to the Medicare Hospital Conditions of Participation 
(CoPs) Relating to the Administration of Pneumococcal Vaccines
XI. Payment Policies Related to Patient Status
    A. Background
    B. Payment of Medicare Part B Hospital Inpatient Services
    1. Payable Medicare Part B Inpatient Services
    a. Payment Methodology
    b. Other Revisions Resulting from Our Review of the Regulations
    2. Billing for Part B Outpatient Services in the 3-Day Payment 
Window
    3. Applicability: Hospital Self-Audit
    4. Applicability: Types of Hospitals
    5. Beneficiary Liability under Section 1879 of the Act
    6. Applicable Beneficiary Liability: Hospital Services
    7. Applicable Beneficiary Liability: Skilled Nursing Facility 
Services
    8. Time Limits for Filing Claims
    9. Appeal Procedures
    10. Coordination of Benefits with Supplemental Insurers
    11. Public Comments on Other Issues
    a. Application to Disproportionate Share Hospital (DSH) 
Payments, Indirect Medical Education (IME) and Graduate Medical 
Education (GME) Payments, and Other IPPS Adjustments
    b. Application to Beneficiary Utilization Days under Medicare 
Part A
    c. Applicability to the Medicare Advantage (MA) Program
    12. Regulatory Impact Analysis: Final Part B Inpatient Payment 
Policy
    a. Statement of Need
    b. Overall Impact
    c. Estimated Impacts of the Final Part B Inpatient Payment 
Policy
    d. Alternatives Considered
    e. Accounting Statement and Table
    f. Conclusion
    13. Collection of Information Requirements
    C. Admission and Medical Review Criteria for Hospital Inpatient 
Services under Medicare Part A
    1. Background
    2. Requirements for Physician Orders and Physician Certification
    a. Applicability for All Hospitals
    b. Applicability to Inpatient Rehabilitation Facilities (IRFs)
    3. Inpatient Admission Guidelines
    a. Correct Coding Reviews
    b. Complete and Accurate Documentation
    c. Medical Necessity Reviews
    4. Impacts of Changes in Admission and Medical Review Criteria
XII. MedPAC Recommendations
XIII. 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 Occupational Mix Adjustment to the FY 2014 Wage 
Index (Hospital Wage Index Occupational Mix Survey)
    4. Hospital Applications for Geographic Reclassifications by the 
MGCRB
    5. ICRs for Application for GME Resident Slots
    6. ICRs for the Hospital Inpatient Quality Reporting (IQR) 
Program
    7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) 
Program
    8. ICRs for Hospital Value-Based Purchasing (VBP) Program
    9. ICRs for the Long-Term Care Hospital Quality Reporting 
(LTCHQR) Program
    10. ICRs for the Inpatient Psychiatric Facilities Quality 
Reporting (IPFQR) Program

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, 2013 and Payment Rates for LTCHs 
Effective with Discharges Occurring on or after October 1, 2013
I. Summary and Background
II. Changes to the Prospective Payment Rates for Hospital Inpatient 
Operating Costs for Acute Care Hospitals for FY 2014
    A. Calculation of the Adjusted Standardized Amount
    B. Adjustments for Area Wage Levels and Cost-of-Living
    C. Calculation of the Prospective Payment Rates
III. Changes to Payment Rates for Acute Care Hospital Inpatient 
Capital-Related Costs for FY 2014
    A. Determination of Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update
    B. Calculation of the Inpatient Capital-Related Prospective 
Payments for FY 2014
    C. Capital Input Price Index
IV. Changes to Payment Rates for Excluded Hospitals: Rate-of-
Increase Percentages for FY 2014
V. Updates to the Payment Rates for the LTCH PPS for FY 2014
    A. LTCH PPS Standard Federal Rate for FY 2014
    B. Adjustment for Area Wage Levels under the LTCH PPS for FY 
2014
    1. Background
    2. Geographic Classifications/Labor Market Area Definitions
    3. LTCH PPS Labor-Related Share
    4. LTCH PPS Wage Index for FY 2014
    5. Budget Neutrality Adjustment for Changes to the Area Wage 
Level Adjustment
    C. LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs Located 
in Alaska and Hawaii
    D. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases
    E. Computing the Adjusted LTCH PPS Federal Prospective Payments 
for FY 2014
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
    E. Hospitals Included in and Excluded from the IPPS
    F. Effects on Hospitals and Hospital Units Excluded from the 
IPPS

[[Page 50503]]

    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 MS-DRGs for Preventable HACs, Including 
Infections
    2. Effects of Policy Relating to New Medical Service and 
Technology Add-On Payments
    3. Effects of Payment Adjustment for Low-Volume Hospitals for FY 
2014
    4. Effects of Extension of the MDH Program
    5. Effects of Changes under the FY 2014 Hospital Value-Based 
Purchasing (VBP) Program
    6. Effects of the Implementation of the HAC Reduction Program
    7. Effects of Policy Changes Relating to Payments for Direct GME 
and IME Costs
    8. Effects of Implementation of Rural Community Hospital 
Demonstration Program
    9. Effects of the Extended Effective Date for Policy on Hospital 
Services Furnished under Arrangements
    I. Effects of Policy Relating to the Furnishing of Acute Care 
Inpatient Services by CAHs
    J. Effects of Changes to the COPs for Hospitals Relating to the 
Administration of Pneumococcal Vaccines
    K. Effects of Changes in the Capital IPPS
    1. General Considerations
    2. Results
    L. 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 Changes and 
Policy Changes
    4. Effect on the Medicare Program
    5. Effect on Medicare Beneficiaries
    M. Effects of Requirements for Hospital Inpatient Quality 
Reporting (IQR) Program
    N. Effects of Changes in the PPS-Exempt Cancer Hospital Quality 
Reporting (PCHQR) Program
    O. Effects of Changes in the LTCH Quality Reporting (LTCHQR) 
Program
    P. Effects of Changes in the Requirements for the Inpatient 
Psychiatric Facilities Quality Reporting (IPFQR) Program
II. Alternatives Considered
III. Overall Conclusion
    1. Acute Care Hospitals
    2. LTCHs
IV. Accounting Statements and Tables
    A. Acute Care Hospitals
    B. LTCHs
    C. Part B Inpatient Hospital Services
V. Regulatory Flexibility Act (RFA) Analysis
VI. Impact on Small Rural Hospitals
VII. Unfunded Mandate Reform Act (UMRA) Analysis
VIII. 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 2014
    A. FY 2014 Inpatient Hospital Update
    B. Update for SCHs for FY 2014
    C. FY 2014 Puerto Rico Hospital Update
    D. Update for Hospitals Excluded from the IPPS
    E. Update for LTCHs for FY 2014
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and 
Updating Payments in Traditional Medicare

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority
    This final rule makes payment and policy changes under the Medicare 
inpatient prospective payment systems (IPPS) for operating and capital-
related costs of acute care hospitals as well as for certain hospitals 
and hospital units excluded from the IPPS. In addition, it makes 
payment and policy changes for inpatient hospital services provided by 
long-term care hospitals (LTCHs) under the long-term care hospital 
prospective payment system (LTCH PPS). It also makes policy changes to 
programs associated with Medicare IPPS hospitals, IPPS-excluded 
hospitals, and LTCHs.
    Under various statutory authorities, we are making changes to the 
Medicare IPPS, to the LTCH PPS, and to other related payment 
methodologies and programs for FY 2014 and subsequent fiscal years. 
These statutory authorities include, but are not limited to, the 
following:
     Section 1886(d) of the Social Security Act (the Act), 
which 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 that, instead of paying for capital-related costs of inpatient 
hospital services on a reasonable cost basis, the Secretary use a 
prospective payment system (PPS).
     Section 1886(d)(1)(B) of the Act, which specifies that 
certain hospitals and hospital units are excluded from the IPPS. These 
hospitals and units are: rehabilitation hospitals and units; LTCHs; 
psychiatric hospitals and units; children's hospitals; and cancer 
hospitals. Religious nonmedical health care institutions (RNHCIs) are 
also excluded from the IPPS.
     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), which provide for the development and implementation of a 
prospective payment system for payment for inpatient hospital services 
of long-term care hospitals (LTCHs) described in section 
1886(d)(1)(B)(iv) of the Act.
     Sections 1814(l), 1820, and 1834(g) of the Act, which 
specifies that payments are made to critical access hospitals (CAHs) 
(that is, rural hospitals or facilities that meet certain statutory 
requirements) for inpatient and outpatient services and that these 
payments are generally based on 101 percent of reasonable cost.
     Section 1866(k) of the Act, as added by section 3005 of 
the Affordable Care Act, which establishes a quality reporting program 
for hospitals described in section 1886(d)(1)(B)(v) of the Act, 
referred to as ``PPS-Exempt Cancer Hospitals.''
     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.
     Section 1886(d)(4)(D) of the Act, which 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.
     Section 1886(a)(4) of the Act, which specifies that 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.
     Section 1886(b)(3)(B)(viii) of the Act, which requires the 
Secretary to reduce the applicable percentage

[[Page 50504]]

increase in payments to a subsection (d) hospital for a fiscal year if 
the hospital does not submit data on measures in a form and manner, and 
at a time, specified by the Secretary.
     Section 1886(o) of the Act, which requires the Secretary 
to establish a Hospital Value-Based Purchasing (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.
     Section 1886(p) of the Act, as added by section 3008 of 
the Affordable Care Act, which establishes an adjustment to hospital 
payments for hospital-acquired conditions (HACs), or a Hospital-
Acquired Condition (HAC) Reduction Program, under which payments to 
applicable hospitals are adjusted to provide an incentive to reduce 
hospital-acquired conditions, effective for discharges beginning on 
October 1, 2014.
     Section 1886(q) of the Act, as added by section 3025 of 
the Affordable Care Act and amended by section 10309 of the Affordable 
Care Act, which 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.
     Section 1886(r) of the Act, as added by section 3313 of 
the Affordable Care Act, which provides for a reduction to 
disproportionate share payments under section 1886(d)(5)(F) of the Act 
and for a new uncompensated care payment to eligible hospitals. 
Specifically, section 1886(r) of the Act now requires that, for 
``fiscal year 2014 and each subsequent fiscal year,'' ``subsection (d) 
hospitals'' that would otherwise receive a ``disproportionate share 
payment . . . made under subsection (d)(5)(F)'' will receive two 
separate payments: (1) 25 percent of the amount they previously would 
have received under subsection (d)(5)(F) for DSH (``the empirically 
justified amount''), and (2) an additional payment for the DSH 
hospital's proportion of uncompensated care, determined as the product 
of three factors. These three factors are: (1) 75 percent of the 
payments that would otherwise be made under subsection (d)(5)(F); (2) 1 
minus the percent change in the percent of individuals under the age of 
65 who are uninsured (minus 0.1 percentage points for FY 2014, and 
minus 0.2 percentage points for FY 2015 through FY 2017); and (3) a 
hospital's uncompensated care amount relative to the uncompensated care 
amount of all DSH hospitals expressed as a percentage.
     Section 1886(s)(4) of the Act, as added and amended by 
section 3401(f) and 10322(a) of the Affordable Care Act, respectively, 
which requires the Secretary to implement a quality reporting program 
for inpatient psychiatric hospitals and psychiatric units. Under this 
program, known as the Inpatient Psychiatric Facility Quality Reporting 
(IPFQR) Program, beginning with FY 2014, the Secretary must reduce any 
annual update to a standard Federal rate for discharges occurring 
during a fiscal year by 2.0 percentage points for any inpatient 
psychiatric hospital or psychiatric unit that does not comply with 
quality data submission requirements with respect to an applicable 
fiscal year.
2. Summary of the Major Provisions
a. MS-DRG Documentation and Coding Adjustment
    Section 631 of the American Taxpayer Relief Act (ATRA, Pub. L. 112-
240) amended section 7(b)(1)(B) of Public Law 110-90 to require the 
Secretary to make a recoupment adjustment to the standardized amount of 
Medicare payments to acute care hospitals to account for changes in MS-
DRG documentation and coding that do not reflect real changes in case-
mix, totaling $11 billion over a 4-year period of FYs 2014, 2015, 2016, 
and 2017. This adjustment represents the amount of the increase in 
aggregate payments as a result of not completing the prospective 
adjustment authorized under section 7(b)(1)(A) of Public Law110-90 
until FY 2013. Prior to the ATRA, this amount could not have been 
recovered under Public Law 110-90.
    While our actuaries estimate that a -9.3 percent adjustment to the 
standardized amount would be necessary if CMS were to fully recover the 
$11 billion recoupment required by section 631 of the ATRA in FY 2014, 
it is often our practice to delay or phase in rate adjustments over 
more than one year, in order to moderate the effects on rates in any 
one year. Therefore, consistent with the policies that we have adopted 
in many similar cases, we are making a -0.8 percent recoupment 
adjustment to the standardized amount in FY 2014. Although we are not 
making an additional prospective adjustment in FY 2014 for the 
cumulative MS-DRG documentation and coding effects through FY 2010, we 
solicited public comments as to whether any portion of the proposed -
0.8 percent recoupment adjustment to the operating IPPS standardized 
amount should be reduced and instead applied as a prospective 
adjustment to the operating IPPS standardized amount (and hospital-
specific rates) for the cumulative MS-DRG documentation and coding 
effect through FY 2010. The public comments that we received are 
addressed in section II.C. of the preamble of this final rule.
b. Refinement of the MS-DRG Relative Weight Calculation
    Beginning in FY 2007, we implemented relative weights for DRGs 
based on cost report data instead of charge information. To address the 
issue of charge compression (the hospital practice of applying higher 
charges to lower cost items and applying lesser charges to higher cost 
items) when using cost report data to set the MS-DRG relative weights, 
in FYs 2009 and 2010, we created additional cost centers on the 
Medicare cost report to distinguish implantable devices from other 
medical supplies, MRIs and CT scans, respectively, from other radiology 
services, and cardiac catheterization from other cardiology services. 
As compared to previous years, we currently have a significant volume 
of hospitals completing all, or some, of these new cost centers on the 
Medicare cost report. Therefore, beginning in FY 2014, we are 
calculating the MS-DRG relative weights using 19 CCRs, creating 
distinct CCRs from cost report data for implantable devices, MRIs, CT 
scans, and cardiac catheterization.
c. Rebasing and Revision of the Hospital Market Baskets for Acute Care 
Hospitals
    In section IV. of the preamble of this final rule, we are rebasing 
and revising the acute care hospital operating and capital market 
baskets used to update IPPS payment rates. For both market baskets, we 
are updating the base year cost weights from a FY 2006 base year to a 
FY 2010 base year. We also are recalculating the labor-related share 
using the FY 2010-based hospital market basket, for discharges 
occurring on or after October 1, 2013. We used the FY 2010-based market 
baskets in developing the FY 2014 update factor for the operating and 
capital prospective payment rates and the FY 2014 update factor for the 
excluded hospital rate-of-increase limits. We also are setting forth 
the data sources used to determine the revised market basket costs 
weights.
d. Reduction of Hospital Payments for Excess Readmissions
    We are making a number of changes in policies to implement section 
1886(q) of the Act, as added by section 3025 of the Affordable Care 
Act, which

[[Page 50505]]

establishes the Hospital Readmissions Reduction Program. The Hospital 
Readmissions Reduction Program requires a reduction to a hospital's 
base operating DRG payment to account for excess readmissions of 
selected applicable conditions. For FYs 2013 and 2014, these conditions 
are acute myocardial infarction, heart failure, and pneumonia. For FY 
2014, we are establishing additional exclusions to the three existing 
readmission measures (that is, the excess readmission ratio) to account 
for additional planned readmissions. We also are establishing 
additional readmissions measures to be used in the Hospital 
Readmissions Reduction Program for FY 2015. In addition, we are 
specifying that the readmissions payment adjustment factors for FY 2014 
can be no more than a 2-percent reduction (there is a 1-percent cap in 
FY 2013), in accordance with the statute. We are making a change in the 
methodology we use to calculate the readmissions payment adjustment 
factors to make it more consistent with the calculation of the excess 
readmissions ratio.
e. Hospital Value-Based Purchasing (VBP) Program
    Section 1886(o) of the Act requires the Secretary to establish a 
Hospital Value-Based Purchasing (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.
    In this final rule, we are outlining payment details for the FY 
2014 Hospital VBP Program. In addition, we are establishing numerous 
policies for the FY 2016 Hospital VBP Program, including measures, 
performance standards, and performance and baseline periods. We also 
are establishing a disaster/extraordinary circumstances exceptions 
process, domain reclassification and weighting based on CMS' National 
Quality Strategy for the FY 2017 Hospital VBP Program, and certain 
measures, performance and baseline periods, and performance standards 
for the FY 2017 through FY 2019 Programs.
f. Hospital-Acquired Condition (HAC) Reduction Program
    In this final rule, we are establishing measures, scoring, and risk 
adjustment methodology to implement the FY 2015 payment adjustment 
under the HAC Reduction Program. Section 1886(p) of the Act, as added 
under section 3008(a) of the Affordable Care Act, establishes an 
adjustment to hospital payments for HACs, or a HAC Reduction program, 
under which payments to applicable hospitals are adjusted to provide an 
incentive to reduce HACs, effective for discharges beginning on October 
1, 2014 and for subsequent program years. The amount of payment shall 
be equal to 99 percent of the amount of payment that would otherwise 
apply to such discharges under section 1886(d) or 1814(b)(3) of the 
Act, as applicable.
g. Counting of Inpatient Days for Medicare Payment or Eligibility 
Purposes
    In response to a comment we received on the FY 2013 IPPS/LTCH PPS 
final rule and consistent with the inpatient day counting rules for DSH 
as clarified in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we are 
providing that patient days associated with maternity patients who were 
admitted as inpatients and were receiving ancillary labor and delivery 
services at the time the inpatient routine census is taken, regardless 
of whether the patient actually occupied a routine bed prior to 
occupying an ancillary labor and delivery bed and regardless of whether 
the patient occupies a ``maternity suite'' in which labor, delivery 
recovery, and postpartum care all take place in the same room, would be 
included in the Medicare utilization calculation. We understand that 
including labor and delivery inpatient days in the Medicare utilization 
calculation invariably will reduce direct GME payments because direct 
GME payments are based, in part, on a hospital's Medicare utilization 
ratio and the denominator of that ratio, which includes the hospital's 
total inpatient days, will increase at a higher rate than the numerator 
of the ratio, which includes the hospital's Medicare inpatient days. 
However, because the Medicare utilization ratio is a comparison of a 
hospital's total Medicare inpatient days to its total inpatient days, 
we believe that revising the ratio to include labor and delivery days 
is appropriate because they are inpatient days and therefore should be 
counted as such. We are including labor and delivery days as inpatient 
days in the Medicare utilization calculation effective for cost 
reporting periods beginning on or after October 1, 2013.
h. Changes to the DSH Payment Adjustment and the Provision of 
Additional Payment for Uncompensated Care
    Section 3133 of the Affordable Care Act modified the Medicare 
disproportionate share hospital (DSH) payment methodology beginning in 
FY 2014. Currently, Medicare DSHs qualify for a DSH payment adjustment 
under a statutory formula that considers their Medicare utilization due 
to beneficiaries who also receive Supplemental Security Income benefits 
and their Medicaid utilization. Under section 1886(r) of the Act, which 
was added by section 3133 of the Affordable Care Act, starting in FY 
2014, DSHs will receive 25 percent of the amount they previously would 
have received under the current statutory formula for Medicare DSH 
payments. The remaining amount, equal to 75 percent of what otherwise 
would have been paid as Medicare DSH payments, will be paid as 
additional payments after the amount is reduced for changes in the 
percentage of individuals that are uninsured. Each Medicare DSH 
hospital will receive its additional amount based on its share of the 
total amount of uncompensated care for all Medicare DSH hospitals for a 
given time period. In this final rule, we are implementing these 
statutory changes.
i. Medicare Part B Inpatient Billing in Hospitals
    We are finalizing our proposal that when a Medicare Part A claim 
for hospital inpatient services is denied because the inpatient 
admission was determined not reasonable and necessary, or if a hospital 
determines under 42 CFR 482.30(d) or Sec.  485.641 after a beneficiary 
is discharged that his or her inpatient admission was not reasonable 
and necessary, the hospital may be paid for the Part B services that 
would have been reasonable and necessary if the beneficiary had been 
treated as a hospital outpatient rather than admitted as an inpatient, 
provided the beneficiary is enrolled in Medicare Part B. We are 
finalizing our proposal to continue applying the timely filing 
restriction to the billing of all Part B inpatient services, under 
which claims for Part B services must be filed within 1 year from the 
date of service. However, we are modifying what we stated in the 
preamble of the proposed rule regarding the applicability of the CMS 
Ruling 1455-R to certain claims. We will permit hospitals to follow the 
Part B billing timeframes established in the Ruling after the effective 
date of this rule, provided (1) the Part A claim denial was one to 
which the Ruling originally applied; or (2) the Part A inpatient claims 
has a date of admission before October 1, 2013, and is denied after 
September 30, 2013 on the grounds that although the medical care was 
reasonable and necessary, the inpatient admission was not. In this 
final rule, we

[[Page 50506]]

also describe the beneficiary liability and other impacts of our final 
policies.
j. Admission and Medical Review Criteria for Hospital Inpatient 
Services Under Medicare Part A
    To reduce uncertainty regarding the requirements for payments to 
hospitals and CAHs under Medicare Part A related to when a Medicare 
beneficiary should be admitted as a hospital inpatient, in this final 
rule, we are clarifying the rules governing physician orders of 
hospital inpatient admissions for payment under Medicare Part A. We are 
clarifying and specifying in the regulations that an individual becomes 
an inpatient of a hospital, including a CAH, when formally admitted as 
such pursuant to an order for inpatient admission by a physician or 
other qualified practitioner described in the final regulations. The 
order is required for payment of hospital inpatient services under 
Medicare Part A. We are specifying that for those hospital stays in 
which the physician expects the beneficiary to require care that 
crosses 2 midnights and admits the beneficiary based upon that 
expectation, Medicare Part A payment is generally appropriate. 
Conversely, we are specifying that hospital stays in which the 
physician expects the patient to require care less than 2 midnights, 
payment under Medicare Part A is generally inappropriate. This will 
revise our guidance to hospitals and physicians relating to when 
hospital inpatient admissions are determined reasonable and necessary 
for payment under Part A. We also are using our exceptions and 
adjustments authority under section 1886(d)(5)(I)(i) of the Act to 
offset the additional IPPS expenditures under this policy change by 
reducing the standardized amount, the hospital-specific amount, and the 
Puerto Rico-specific standardized amount by 0.2 percent.
LTCH PPS Standard Federal Rate
    In section VIII.A. of the preamble of this final rule, we present 
the LTCH PPS standard Federal rate for FY 2014, which includes an 
adjustment factor of 0.98734 for the second year of the 3-year phase-in 
of the permanent one-time adjustment to the standard Federal rate. In 
addition, under the LTCH Quality Reporting (LTCHQR) Program, the annual 
update to the standard Federal rate will be reduced by 2 percentage 
points for LTCHs that fail to submit data for FY 2014 on specific 
measures under section 3004 of the Affordable Care Act.
l. Expiration of Certain Payment Rules for LTCH Services and Research 
on the Development of a Patient Criteria-Based Payment Adjustment Under 
the LTCH PPS
    In section VIII.D. of the preamble of this final rule, we note the 
expiration of the moratorium on the full implementation of the ``25 
percent threshold'' payment adjustment to LTCHs under the LTCH PPS for 
cost reporting periods beginning on or after October 1, 2013.
    In section VIII.E. of the preamble of this final rule, we discuss 
the ongoing research being done by a CMS contractor, Kennell and 
Associates (Kennell) and its subcontractor, Research Triangle 
Institute, International (RTI), on the development of a payment 
adjustment under the LTCH PPS based on the establishment of LTCH 
patient criteria that was described in the proposed rule.
m. Hospital Inpatient Quality Reporting (IQR) Program
    Under section 1886(b)(3)(B)(viii) of the Act, hospitals are 
required to report data on measures selected by the Secretary for the 
Hospital IQR Program in order to receive the full annual percentage 
increase. In past rules, we have established measures for reporting and 
the process for submittal and validation of the data.
    In this final rule, we are making several changes to: (1) The 
measure set, including the removal of some measures, the suspension of 
one measure, the refinement of some measures, and the adoption of 
several new measures; (2) the administrative processes; and (3) the 
validation methodologies. We also are allowing hospitals the option of 
reporting up to four measure sets electronically for the FY 2016 
payment determination. These changes will improve the timeliness and 
efficiency of the Hospital IQR Program and begin the process of 
incorporating electronic reporting into the Hospital IQR Program.
n. Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program
    Section 1886(s)(4) of the Act authorizes the Secretary to implement 
a quality reporting program for inpatient psychiatric hospitals and 
psychiatric units. Section 1886(s)(4) of the Act, as added and amended 
by sections 3401(f) and 10322(a) of the Affordable Care Act, requires 
the Secretary to implement a quality reporting program for inpatient 
psychiatric hospitals and psychiatric units. Section 1886(s)(4)(A)(i) 
of the Act requires that, for rate year 2014 and each subsequent rate 
year, the Secretary shall reduce any annual update to a standard 
Federal rate for discharges occurring during such rate year by 2.0 
percentage points for any inpatient psychiatric hospital or psychiatric 
unit that does not comply with quality data submission requirements 
with respect to an applicable rate year.
    In this final rule, we are establishing new measures and related 
policies for the IPFQR Program beginning with FY 2016.
3. Summary of Costs and Benefits
     Adjustment for MS-DRG Documentation and Coding Changes. We 
are making a -0.8 percent recoupment adjustment to the standardized 
amount for FY 2014 to implement, in part, the requirement of section 
631 of the ATRA that the Secretary make an adjustment totaling $11 
billion over a 4-year period of FYs 2014, 2015, 2016, and 2017. This 
recoupment adjustment represents the amount of the increase in 
aggregate payments as a result of not completing the prospective 
adjustment authorized under section 7(b)(1)(A) of Public Law 110-90 
until FY 2013. Prior to the ATRA, this amount could not have been 
recovered under Public Law 110-90.
    While our actuaries estimate that a -9.3 percent recoupment 
adjustment to the standardized amount would be necessary if CMS were to 
fully recover the $11 billion recoupment required by section 631 of the 
ATRA in FY 2014, it is often our practice to delay or phase in rate 
adjustments over more than one year, in order to moderate the effects 
on rates in any one year. Therefore, consistent with the policies that 
we have adopted in many similar cases, we are making a -0.8 percent 
recoupment adjustment to the standardized amount in FY 2014. We 
estimate that this level of adjustment would recover $0.96 billion in 
FY 2014, with approximately $10.04 billion remaining to be addressed. 
We are not making any future adjustments at this time but note that if 
recoupment adjustments of approximately -0.8 percent are implemented in 
FYs 2014, 2015, 2016, and 2017, we estimate that the entire $11 billion 
will be recovered by the end of the statutory 4-year timeline.
     Refinement of the MS-DRG Relative Weight Calculation. We 
refer readers to section VI.C. of Appendix A of this final rule for the 
overall IPPS operating impact, which includes the impact for the 
refinement of the MS-DRG relative weight calculation. This impact 
models payments to various hospital types using relative weights 
developed from 19 CCRs as compared to 15 CCRs. As

[[Page 50507]]

with other changes to the MS-DRGs, these changes are to be implemented 
in a budget neutral manner.
     Rebasing and Revision of the Hospital Market Baskets for 
Acute Care Hospitals.
    The finalized FY 2010-based IPPS market basket update (as measured 
by percentage increase) for FY 2014 is currently forecasted to be the 
same as the market basket update based on the FY 2006-based IPPS market 
basket at 2.5 percent (currently used under the IPPS). Therefore, we 
are projecting that there will be no fiscal impact on the IPPS 
operating payment rates in FY 2014 as a result of the rebasing and 
revision of the IPPS market basket.
    The FY 2010-based IPPS capital input price index update (as 
measured by percentage increase) for FY 2014 is currently forecasted to 
be 1.2 percent, 0.2 percentage point lower than the update based on the 
FY 2006-based capital input price index. Therefore, we are projecting 
that there will be a fiscal impact of -$16 million to the IPPS capital 
payments in FY 2014 as a result of this policy (0.2 percentage point * 
annual capital IPPS payments of approximately $8 billion).
    In addition, we are updating the labor-related share under the IPPS 
for FY 2014 based on the final FY 2010-based IPPS market basket, which 
will result in a labor-related share of 69.6 percent (compared to the 
FY 2013 labor-related share of 68.8 percent) or 62 percent, depending 
on which results in higher payments to the hospital. For FY 2014, the 
labor-related share for the Puerto Rico-specific standardized amount 
will be either 63.2 percent or 62 percent, depending on which results 
in higher payments to the hospital. We are projecting that there will 
be no impact on aggregate IPPS payments as a result of this policy due 
to the statutory requirement that any changes to the IPPS area wage 
adjustment (including the labor-related share) are adopted in a budget 
neutral manner.
     Reduction to Hospital Payments for Excess Readmissions. 
The provisions of section 1886(q) of the Act which establishes the 
Hospital Readmissions Reduction Program are not budget neutral. For FY 
2014, a hospital's readmissions payment adjustment factor is the higher 
of a ratio of a hospital's aggregate payments for excess readmissions 
to its aggregate payments for all discharges, or 0.98 (that is, or a 2-
percent reduction). In this final rule, we estimate that the reduction 
to a hospital's base operating DRG payment amount to account for excess 
readmissions of selected applicable conditions under the Hospital 
Readmissions Reduction Program will result in a 0.2 percent decrease, 
or approximately -$227 million, in payments to hospitals for FY 2014.
     Value-Based Incentive Payments under the Hospital Value-
Based Purchasing (VBP) Program. We estimate that there will be no net 
financial impact to the Hospital VBP Program for FY 2014 in the 
aggregate because, by law, the amount available for value-based 
incentive payments under the program in a given fiscal year must be 
equal to the total amount of base operating DRG payment amount 
reductions for that year, as estimated by the Secretary. The estimated 
amount of base operating DRG payment amount reductions for FY 2014, and 
therefore the estimated amount available for value-based incentive 
payments for FY 2014 discharges, is approximately $1.1 billion. We 
believe that the program's benefits will be seen in improved patient 
outcomes, safety, and in the patient's experience of care. However, we 
cannot estimate these benefits in actual dollar and patient terms.
     Implementation of the HAC Reduction Program for FY 2014. 
We note that there is no payment impact for FY 2014 for implementing 
the HAC Reduction Program. For FY 2015, we are presenting the overall 
impact of the HAC Reduction Program provision along with other IPPS 
payment provision impacts in section I.G. of Appendix A of this final 
rule.
     Counting of Inpatient Days in the Medicare Utilization 
Calculation. We believe our policy change to include labor and delivery 
days as inpatient days in the Medicare utilization calculation will 
result in a savings of approximately $19 million for FY 2014.
     Changes to the Medicare DSH Payment Adjustment and 
Provision of Additional Payment for Uncompensated Care. Under section 
1886(r) of the Act (as added by section 3313 of the Affordable Care 
Act), disproportionate share payments to hospitals under section 
1886(d)(5)(F) of the Act are reduced and an additional payment to 
eligible hospitals will be made beginning in FY 2014. Hospitals that 
receive Medicare DSH payments will receive 25 percent of the amount 
they previously would have received under the current statutory formula 
for Medicare DSH payments. The remainder, equal to 75 percent of what 
otherwise would have been paid as Medicare DSH payments, will be the 
basis for additional payments after the amount is reduced for changes 
in the percentage of individuals that are uninsured and additional 
statutory adjustments. Each hospital that receives Medicare DSH 
payments will receive an additional payment based on its share of the 
total uncompensated care amount reported by Medicare DSHs. The 
reduction to Medicare DSH payments is not budget neutral.
    We are specifying that 75 percent of what otherwise would have been 
paid for Medicare DSH payments is adjusted to 94.3 percent of that 
amount for changes in the percentage of individuals that are uninsured 
and additional statutory adjustments. In other words, Medicare DSH 
payments prior to the application of section 3133 of the Affordable 
Care Act are adjusted to 70.7 percent (the product of 75 percent and 
94.3 percent) and that resulting payment amount is used to create an 
additional payment for a hospital's relative uncompensated care. As a 
result, we project that the reduction of Medicare DSH payments and the 
inclusion of the additional payments will reduce payments overall by 
0.4 percent as compared to Medicare DSH payments prior to the 
implementation of section 3133 of the Affordable Care Act. The 
additional payments have redistributive effects based on a hospital's 
uncompensated care amount relative to the uncompensated care amount for 
all hospitals that are estimated to receive Medicare DSH payments. 
These additional payments will be made through the claims processing 
system for each hospital discharge.
     Part B Hospital Inpatient Payment Policy. In this final 
rule, we are revising Medicare's policy for payment of Part B hospital 
inpatient services following the denial of a Part A hospital inpatient 
claim on the basis that the inpatient admission was not reasonable and 
necessary, but hospital outpatient services would have been reasonable 
and necessary in treating the beneficiary. We estimate that the final 
policy will result in an approximately $4.6 billion decrease in 
Medicare program expenditures over 5 years. In section XI. of the 
preamble of this final rule, we set forth a detailed analysis of the 
regulatory and Federalism impacts that the policy changes are expected 
to have on affected entities and beneficiaries.
     Admission and Medical Review Criteria for Hospital 
Inpatient Services under Medicare Part A. In this final rule, we are 
making changes relating to admission and medical review criteria for 
hospital inpatient admissions under Medicare Part A. One aspect of 
these changes is that hospital inpatient admissions spanning 2 
midnights in the hospital will generally qualify as appropriate for 
payment under Medicare Part A. Our actuaries estimate

[[Page 50508]]

that the change will increase IPPS expenditures by approximately $220 
million due to an expected net increase in inpatient encounters. We are 
using our exceptions and adjustments authority under section 
1886(d)(5)(I)(i) of the Act to make a reduction of 0.2 percent to the 
standardized amount, the Puerto Rico standardized amount, and the 
hospital-specific payment rate to offset this estimated $200 million in 
additional IPPS expenditures. We also are applying that 0.2 percent 
reduction to the capital Federal rates using our authority under 
section 1886(g) of the Act.
     Hospital Inpatient Quality Reporting (IQR) Program. We are 
providing that hospitals participating in the Hospital IQR Program will 
have the option to report a subset of measures electronically in CY 
2014 for the FY 2016 payment determination. Under this policy, 
hospitals may choose to report the measures in four measure sets 
electronically or as chart-abstracted measures in CY 2014. For the FY 
2016 payment determination, we also are removing seven measures (six 
chart-abstracted measures and one structural measure) and suspending 
one measure. We also are adopting five new claims-based measures for 
the FY 2016 payment determination and subsequent years. For the FY 2016 
payment determination and subsequent years, we will validate two 
additional chart-abstracted HAI measures: MRSA bacteremia, and C. 
difficile. We also are reducing the number of records used for HAI 
validation from 48 records per year to 36 records per year beginning 
with the FY 2015 payment determination. Finally, we are allowing 
hospitals to submit patient charts for purposes of validation either in 
paper form or by means of electronic transmission. We believe the 
changes to the measure set, processes, and validation methodologies, 
the electronic submission of records for validation, as well as 
allowing hospitals to report certain measures electronically for the FY 
2016 payment determination will result in improved program efficiency 
and begin the process of incorporating electronic reporting into the 
program. We estimate that the combination of these changes and the 
reduction in measures mentioned above will reduce burden hours by 
700,000 hours annually.
     Update to the LTCH PPS Standard Federal Rate and Other 
Payment Factors. Based on the best available data for the 425 LTCHs in 
our database, we estimate that the changes we are presenting in the 
preamble and Addendum of this final rule, including the update to the 
standard Federal rate for FY 2014, the changes to the area wage 
adjustment for FY 2014, and the changes to short-stay outliers and 
high-cost outliers, will result in an increase in estimated payments 
from FY 2013 of approximately $72 million (or 1.3 percent). Although we 
generally project an increase in payments for all LTCHs in FY 2014 as 
compared to FY 2013, we expect rural LTCHs to experience slightly lower 
increases than the national average due to decreases in their wage 
index for FY 2014 compared to FY 2013. In addition, under current law, 
our moratoria on the full implementation of the ``25-percent 
threshold'' payment adjustment policy will expire for certain LTCHs for 
cost reporting periods beginning on or after October 1, 2013. These 
regulatory moratoria extended, for an additional year, the 5-year 
statutory moratorium on the application of the ``25-percent threshold'' 
payment adjustment policy as provided by section 114(c) of the MMSEA, 
as amended by section 4302(a) of the ARRA and sections 3106(a) and 
10312(a) of the Affordable Care Act, which expired for cost reporting 
periods beginning on or after October 1, 2012 (``October LTCHs''), and 
for other LTCHs and LTCH satellite facilities for cost reporting 
periods beginning on or after July 1, 2012 (``July LTCHs'') (77 FR 
53483 through 53484, as amended by the FY 2013 IPPS/LTCH PPS correcting 
amendment (77 FR 63751 through 63753)), as explained in section VIII.D. 
of the preamble of this proposed rule. We estimate that the expiration 
of the regulatory moratoria will result in a reduction in payments of 
$90 million to LTCHs. Overall, we estimate that the effect of the 
changes we are making for FY 2014 in conjunction with the expiration of 
the regulatory moratoria would result in a decrease in aggregate LTCH 
PPS payments in FY 2014 relative to FY 2013 of approximately -$18 
million (that is, the estimated increase of $72 million plus the 
estimated reduction of $90 million, as described above).

B. 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 use a prospective payment system (PPS) to pay for the 
capital-related costs of inpatient hospital services for these 
``subsection (d) hospitals.'' Under these PPSs, Medicare payment for 
hospital inpatient operating and capital-related costs is made at 
predetermined, specific rates for each hospital discharge. Discharges 
are classified according to a list of diagnosis-related groups (DRGs).
    The base payment rate is comprised of a standardized amount that is 
divided into a labor-related share and a nonlabor-related share. The 
labor-related share is adjusted by the wage index applicable to the 
area where the hospital is located. If the hospital is located in 
Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-
living adjustment factor. This base payment rate is multiplied by the 
DRG relative weight.
    If the hospital treats a high percentage of 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. The Affordable Care Act revised 
the Medicare DSH payment methodology and provides for a new additional 
Medicare payment that considers the amount of uncompensated care 
beginning on October 1, 2013.
    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.

[[Page 50509]]

    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, 2013, 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. (We 
note that the statutory provision for payments to MDHs expires at the 
end of FY 2013, that is, on September 30, 2013.) SCHs are the sole 
source of care in their areas, and MDHs are a major source of care for 
Medicare beneficiaries in their areas. Specifically, section 
1886(d)(5)(D)(iii) of the Act defines an SCH as a hospital that is 
located more than 35 road miles from another hospital or that, by 
reason of factors such as isolated location, weather conditions, travel 
conditions, or absence of other like hospitals (as determined by the 
Secretary), is the sole source of hospital inpatient services 
reasonably available to Medicare beneficiaries. In addition, certain 
rural hospitals previously designated by the Secretary as essential 
access community hospitals are considered SCHs. Section 
1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is 
located in a rural area, has not more than 100 beds, is not an SCH, and 
has a high percentage of Medicare discharges (not less than 60 percent 
of its inpatient days or discharges in its cost reporting year 
beginning in FY 1987 or in two of its three most recently settled 
Medicare cost reporting years). Both of these categories of hospitals 
are afforded this special payment protection in order to maintain 
access to services for beneficiaries.
    Section 1886(g) of the Act requires the Secretary to pay for the 
capital-related costs of inpatient hospital services ``in accordance 
with a prospective payment system established by the Secretary.'' The 
basic methodology for determining capital prospective payments is set 
forth in our regulations at 42 CFR 412.308 and 412.312. Under the 
capital IPPS, payments are adjusted by the same DRG for the case as 
they are under the operating IPPS. Capital IPPS payments are also 
adjusted for IME and DSH, similar to the adjustments made under the 
operating IPPS. In addition, hospitals may receive outlier payments for 
those cases that have unusually high costs.
    The existing regulations governing payments to hospitals under the 
IPPS are located in 42 CFR Part 412, Subparts A through M.
2. Hospitals and Hospital Units Excluded From the IPPS
    Under section 1886(d)(1)(B) of the Act, as amended, certain 
hospitals and hospital units are excluded from the IPPS. These 
hospitals and units are: Rehabilitation hospitals and units; long-term 
care hospitals (LTCHs); psychiatric hospitals and units; children's 
hospitals; and cancer hospitals. Religious nonmedical health care 
institutions (RNHCIs) are also excluded from the IPPS. Various sections 
of the Balanced Budget Act of 1997 (BBA, Pub. L. 105-33), the Medicare, 
Medicaid and SCHIP [State Children's Health Insurance Program] Balanced 
Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the 
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 
of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs 
for rehabilitation hospitals and units (referred to as inpatient 
rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and 
units (referred to as inpatient psychiatric facilities (IPFs)). (We 
note that the annual updates to the LTCH PPS are now included as part 
of the IPPS annual update document. 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.
    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) of the Act effective 
for cost reporting periods beginning on or after October 1, 2002. The 
LTCH PPS was established under the authority of sections 123 of the 
BBRA and section 307(b) of the BIPA (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 
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 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.

C. Provisions of the Patient Protection and Affordable Care Act (Pub. 
L. 111-148), the Health Care and Education Reconciliation Act of 2010 
(Pub. L. 111-152), and the American Taxpayer Relief Act of 2012 (ATRA) 
(Pub. L. 112-240)

    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

[[Page 50510]]

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, 2011, and 2012 were implemented in the June 2, 2010 
Federal Register notice (75 FR 31118), the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50042) and the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51476).
    The American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240), 
enacted on January 2, 2013, also made a number of changes that affect 
the IPPS. We announced changes related to certain IPPS provisions for 
FY 2013 pursuant to sections 605 and 606 of Public Law 112-240 in a 
notice issued in the Federal Register on March 7, 2013 (78 FR 14689).
1. 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)
    In this final rule, we are implementing, or continuing in FY 2014 
to implement, the following provisions (or portions of the following 
provisions) of the Affordable Care Act that are applicable to the IPPS, 
the LTCH PPS, and PPS-exempt cancer hospitals:
     Section 3001(a) of Public Law 111-148, which requires the 
establishment of a hospital inpatient value-based purchasing program 
under which value-based incentive payments are made in a fiscal year to 
hospitals that meet performance standards for the performance period 
for that fiscal year.
     Section 3004 of Public Law 111-148, which provides for the 
submission of quality data by LTCHs in order for them to receive the 
full annual update to the payment rates beginning with the FY 2014 rate 
year.
     Section 3005 of Public Law 111-148, which provides for the 
establishment of a quality reporting program for PPS-exempt cancer 
hospitals beginning with FY 2014, and for subsequent program years.
     Section 3008 of Public Law 111-148, which establishes the 
Hospital-Acquired Condition (HAC) Reduction Program and requires the 
Secretary to make an adjustment to hospital payments for applicable 
hospitals, effective for discharges beginning on October 1, 2014, and 
for subsequent program years.
     Section 3025 of Public Law 111-148, which establishes a 
hospital readmissions reduction program and requires the Secretary to 
reduce payments to applicable hospitals with excess readmissions 
effective for discharges beginning on or after October 1, 2012.
     Section 3133 of Public Law 111-148, as amended by section 
10316 of Public Law 111-148 and section 1104 of Pub. L. 111-152, which 
modifies the methodologies for determining Medicare DSH payments and 
creates a new additional payment for uncompensated care.
     Section 3401 of Public Law 111-148, which provides for the 
incorporation of productivity adjustments into the market basket 
updates for IPPS hospitals and LTCHs.
     Section 10324 of Public Law 111-148, which provides 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 2014.
     Section 5506 of Public Law 111-148, which added a 
provision to the Act that instructs the Secretary to establish a 
process by regulation under which, in the event a teaching hospital 
closes, the Secretary will permanently increase the FTE resident caps 
for hospitals that meet certain criteria up to the number of the closed 
hospital's FTE resident caps. The Secretary is directed to ensure that 
the aggregate number of FTE resident cap slots distributed is equal to 
the amount of slots in the closed hospital's direct GME and IME FTE 
resident caps, respectively.
2. American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240)
    In this final rule, we are implementing or making conforming 
changes to regulation text in accordance with the following provisions 
(or portions of the following provisions) of the American Taxpayer 
Relief Act of 2012 that are applicable to the IPPS:
     Section 605, which amended sections 1886(d)(12)(B), 
(C)(i), and (D) of the Act to extend changes to the payment methodology 
for the Medicare inpatient hospital payment adjustment for low-volume 
hospitals through September 30, 2013 (FY 2013). Beginning with FY 2014, 
the preexisting low-volume hospital qualifying criteria and payment 
adjustment, as implemented in FY 2005, will resume.
     Section 606(a), which amended sections 1886(d)(5)(G)(i) 
and (ii)(II) of the Act to extend the MDH program through September 30, 
2013 (FY 2013), and section 606(b), which made conforming amendments to 
sections 1886(b)(3)(D)(i) and (iv) of the Act and amended section 
13501(e)(2) of the Omnibus Budget Reconciliation Act of 1993 to permit 
hospitals to decline reclassification through FY 2013.
     Section 631, which amended section 7(b)(1)(B) of Public 
Law 110-90 and requires a recoupment adjustment to the standardized 
amounts under section 1886(d) of the Act based upon the Secretary's 
estimates for discharges occurring in FY 2014 through FY 2017 to fully 
offset $11 billion (which represents the amount of the increase in 
aggregate payments from FYs 2008 through 2013 for which an adjustment 
was not previously applied).

D. Issuance of a Notice of Proposed Rulemaking

    On May 10, 2013, we published in the Federal Register (78 FR 27486) 
a proposed rule that set forth proposed changes to the Medicare IPPS 
for operating costs and for capital-related costs of acute care 
hospitals for FY 2014. We also set forth proposed changes relating to 
payments for IME and GME costs and payments to certain hospitals that 
continue to be excluded from the IPPS and paid on a reasonable cost 
basis. In addition, in the proposed rule, we set forth proposed changes 
to the payment rates, factors, and other payment rate policies under 
the LTCH PPS for FY 2014.
    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 2014 resulting from implementation of the MS-DRG 
system.
     A discussion of the Research Triangle Institute, 
International (RTI) reports and analyses relating to charge 
compression, including a proposal to calculate the MS-DRG relative 
weights using 19 CCRs.
     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 adjustment in MS-DRG payments 
for FY 2014.
     A discussion of the FY 2014 status of new technologies 
approved for add-on payments for FY 2013 and a presentation of our 
evaluation and

[[Page 50511]]

analysis of the FY 2014 applicants for add-on payments for high-cost 
new medical services and technologies (including public input, as 
directed by Pub. L. 108-173, obtained in a town hall meeting).
2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
    In section III. of the preamble to the proposed rule, we proposed 
revisions to the wage index for acute care hospitals and the annual 
update of the wage data. Specific issues addressed include the 
following:
     The proposed FY 2014 wage index update using wage data 
from cost reporting periods beginning in FY 2010.
     Analysis and implementation of the proposed FY 2014 
occupational mix adjustment to the wage index for acute care hospitals, 
including the proposed application of the rural floor, the imputed 
rural floor calculated under the original and alternative 
methodologies, and the frontier State floor.
     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 2014 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 2014 hospital wage index.
     Determination of the labor-related share for the proposed 
FY 2014 wage index.
3. Proposed Rebasing and Revision of the Hospital Market Baskets for 
Acute Care Hospitals
    In section IV. of the preamble of the proposed rule, we proposed to 
rebase and revise the acute care hospital operating and capital market 
baskets to be used in developing the FY 2014 update factor for the 
operating and capital prospective payment rates and the FY 2014 update 
factor for the excluded hospital rate-of-increase limits. We also set 
forth the data sources used to determine the proposed revised market 
basket costs weights.
4. Other Decisions and Proposed Changes to the IPPS for Operating Costs 
and GME Costs
    In section V. of the preamble of the proposed rule, we discussed 
proposed changes or clarifications of a number of the provisions of the 
regulations in 42 CFR Parts 412 and 413, including the following:
     Proposed changes to the inpatient hospital update for FY 
2014, including incorporation of a productivity adjustment.
     The proposed updated national and regional case-mix values 
and discharges for purposes of determining RRC status.
     Proposed payment adjustment for low-volume hospitals for 
FY 2014.
     The statutorily required IME adjustment factor for FY 
2014.
     Proposed changes to the methodologies for determining 
Medicare DSH payments and proposals to implement the new additional 
payments for uncompensated care.
     Discussion of the extension of the MDH program through FY 
2013.
     Proposed changes to the rules for payment adjustments 
under the Hospital Readmissions Reduction Program based on hospital 
readmission measures and the process for hospital review and correction 
of those rates.
     Proposed changes to the requirements and provision of 
value-based incentive payments under the Hospital Value-Based 
Purchasing Program.
     Proposed requirements for payment adjustments to hospitals 
under the HAC Reduction Program.
     Proposal for counting labor and delivery inpatient days in 
the calculation of Medicare utilization for direct GME purposes and for 
other payment and eligibility purposes.
     Announcement of an additional closed hospital and 
redistribution of resident cap slots relating to direct GME and IME 
payments.
     Proposed clarifications of policies on payments for 
residents training in approved residency programs at CAHs.
     Announcement of the expiration of the inflation update 
freeze for high per resident amounts (PRAs).
     Discussion of the Rural Community Hospital Demonstration 
Program and a proposal for making a budget neutrality adjustment for 
the demonstration program.
     Extending the effective date of policies relating to 
hospital services furnished under arrangements.
     Proposed medical review policy that hospital stays in 
which the physician expects the patient to require a stay that crosses 
2 midnights are generally appropriate for payment under Medicare Part 
A, while hospital stays in which the physician expects the patient to 
require a stay that does not cross 2 midnights are generally 
inappropriate for payment under Medicare Part A.
5. Proposed FY 2014 Policy Governing the IPPS for Capital-Related Costs
    In section VI. 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 2014 and other related proposed 
policy changes.
6. Proposed Changes to the Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages
    In section VII. of the preamble of the proposed rule, we 
discussed--
     Proposed changes to payments to certain excluded hospitals 
for FY 2014.
     Proposed changes to the conditions of participation (CoPs) 
relating to administration of pneumococcal vaccine and CAH payment for 
acute care inpatient services.
7. Proposed Changes to the LTCH PPS
    In section VIII. 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 2014. We also noted that the 
moratorium on the full implementation of the ``25-percent threshold'' 
payment adjustment will expire for certain cost reporting periods 
beginning on or after October 1, 2013. In addition, in this section, we 
discussed the research being done by Kennell and Associates (Kennell) 
and its subcontractor, Research Triangle Institute, International 
(RTI), under a contract with CMS that is intended to inform the 
development of a payment adjustment under the LTCH PPS based on the 
establishment of LTCH patient criteria which were described in the 
proposed rule at 78 FR 27668 through 27676.
8. Proposed Changes Relating to Quality Data Reporting for Specific 
Providers and Suppliers
    In section IX. of the preamble of the proposed rule, we addressed--
     Proposed requirements for the Hospital Inpatient Quality 
Reporting (IQR) Program as a condition for receiving the full 
applicable percentage increase.
     Proposed changes to the requirements for the quality 
reporting program for PPS-exempt cancer hospitals (PCHQR Program).
     Proposed changes to the requirements under the LTCH 
Quality Reporting (LTCHQR) Program.
     Proposed changes to the requirements under the Inpatient 
Psychiatric Facility Quality Reporting (IPFQR) Program.
9. Determining 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

[[Page 50512]]

the amounts and factors for determining the proposed FY 2014 
prospective payment rates for operating costs and capital-related costs 
for acute care hospitals. We 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 2014 for certain hospitals excluded 
from the IPPS.
10. Determining 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 2014 
prospective standard Federal rate. We proposed to establish the 
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.
11. 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, LTCHs, PCHs, and IPFs.
12. 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 2014 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).
     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.
13. Discussion of Medicare Payment Advisory Commission Recommendations
    Under section 1805(b) of the Act, MedPAC is required to submit a 
report to Congress, no later than March 15 of each year, in which 
MedPAC reviews and makes recommendations on Medicare payment policies. 
MedPAC's March 2013 recommendations concerning hospital inpatient 
payment policies address the update factor for hospital inpatient 
operating costs and capital-related costs for hospitals under the IPPS. 
We addressed these recommendations in Appendix B of the proposed rule. 
For further information relating specifically to the MedPAC March 2013 
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.

E. Public Comments Received in Response to the FY 2014 IPPS/LTCH PPS 
Proposed Rule

    We received approximately 721 timely pieces of correspondence 
containing multiple comments on the FY 2014 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 public comments are set forth in the various 
sections of this final rule under the appropriate heading.

F. Finalization of the Proposed Rule on Medicare Part B Inpatient 
Billing in Hospitals

    On March 18, 2013, we issued in the Federal Register (78 FR 16632) 
a proposed rule that proposed to revise Medicare's payment policies 
under Part B when a Part A hospital inpatient claim is denied because 
the inpatient admission was not reasonable and necessary, but hospital 
outpatient services would have been reasonable and necessary in 
treating the beneficiary. We received 392 timely pieces of 
correspondence in response to this proposed rule. In section XI. of 
this document, we summarize and respond to these public comments and 
discuss our final policies after taking into consideration the public 
comments we received.

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 diagnosis-related 
groups (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

    For general information about the MS-DRG system, including yearly 
reviews and changes to the MS-DRGs, we refer readers to the previous 
discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43764 through 43766), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50053 
through 50055), the FY 2012 IPPS/LTCH PPS final rule (76 FR 51485 
through 51487), and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53273).

C. Adoption of the MS-DRGs in FY 2008

    For information on the adoption of the MS-DRGs in FY 2008, we refer 
readers to the FY 2008 IPPS final rule with comment period (72 FR 47140 
through 47189).

D. FY 2014 MS-DRG Documentation and Coding Adjustment

1. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
    In the FY 2008 IPPS final rule with comment period (72 FR 47140 
through 47189), 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.) 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.

[[Page 50513]]

    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, and we finalized the FY 2008 adjustment 
through rulemaking, effective October 1, 2007 (72 FR 66886).
    For FY 2009, section 7(a) of Public Law 110-90 required a 
documentation and coding adjustment of -0.9 percent, and we finalized 
that adjustment through rulemaking (73 FR 48447). The documentation and 
coding adjustments established in the FY 2008 IPPS final rule with 
comment period, which reflected the amendments made 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. Adjustment to the Average Standardized Amounts Required by Public 
Law 110-90
a. Prospective Adjustment 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.
b. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 
Required by Section 7(b)(1)(B) 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 only make these recoupment or 
repayment adjustments for discharges occurring during FYs 2010, 2011, 
and 2012.
3. 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 performed a retrospective evaluation of the FY 2008 data for 
claims paid through December 2008 using the methodology first described 
in the FY 2009 IPPS/LTCH PPS final rule (73 FR 43768 and 43775) and 
later discussed in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43768 through 43772). We performed the same analysis for FY 2009 claims 
data using the same methodology as we did for FY 2008 claims (75 FR 
50057 through 50068). The results of the analysis for the FY 2011 
proposed and final rules, and subsequent evaluations in FY 2012, 
supported that the 5.4 percent estimate accurately reflected the FY 
2009 increases in documentation and coding under the MS-DRG system. We 
were persuaded by both MedPAC's analysis (as discussed in the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50064 through 50065)) and our own 
review of the methodologies recommended by various commenters that the 
methodology we employed to determine the required documentation and 
coding adjustments was sound.
    As in prior years, the FY 2008, FY 2009, and FY 2010 MedPAR files 
are available to the public to allow independent analysis of the FY 
2008 and FY 2009 documentation and coding effects. Interested 
individuals may still order these files through the Web site at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/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.

[[Page 50514]]

4. Prospective Adjustments for FY 2008 and FY 2009 Authorized by 
Section 7(b)(1)(A) of Public Law 110-90
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43767 
through 43777), we opted to delay the implementation of any 
documentation and coding adjustment until a full analysis of case-mix 
changes based on FY 2009 claims data could be completed. We refer 
readers to the FY 2010 IPPS/RY LTCH PPS final rule 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 percent. 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 that 
do not reflect real changes in case-mix 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 the law provided some discretion as to the manner in which we 
applied the prospective adjustment of -3.9 percent. As we discussed 
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. Therefore, we stated that we believed it was appropriate to 
not implement the -3.9 percent prospective adjustment in FY 2011 
because we finalized a -2.9 percent recoupment adjustment for that 
year. 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). We note that, as a result, payments in FY 2011 (and in 
each future year until we implemented the requisite adjustment) would 
be higher than they would have been if we had implemented an adjustment 
under section 7(b)(1)(A) of Public Law 110-90.
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51489 and 51497), we 
indicated that, because further delay of this prospective adjustment 
will result in a continued accrual of unrecoverable overpayments, it 
was imperative that we implement a prospective adjustment for FY 2012, 
while recognizing CMS' continued desire to mitigate the effects of any 
significant downward adjustments to hospitals. Therefore, we 
implemented a -2.0 percent prospective adjustment to the standardized 
amount to partially eliminate the full effect of the documentation and 
coding changes that do not reflect real changes in case-mix on future 
payments.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53274 through 
53276), we completed the prospective portion of the adjustment required 
under section 7(b)(1)(A) of Public Law 110-90 by finalizing a -1.9 
percent adjustment to the standardized amount for FY 2013. We stated 
that this adjustment would remove the remaining effect of the 
documentation and coding changes that do not reflect real changes in 
case-mix that occurred in FY 2008 and FY 2009. We believe it was 
imperative to implement the full remaining adjustment, as any further 
delay would result in an overstated standardized amount in FY 2013 and 
any future years until a full adjustment is made.
    We note again that delaying full implementation of the prospective 
portion of the adjustment required under section 7(b)(1)(A) of Public 
Law 110-90 until FY 2013 resulted in payments in FY 2010 through FY 
2012 being overstated. These overpayments could not be recovered by CMS 
as section 7(b)(1)(B) of Public Law 110-90 limited recoupments to 
overpayments made in FY 2008 and FY 2009.
5. Recoupment or Repayment Adjustment Authorized by Section 7(b)(1)(B) 
of Public Law 110-90
    As discussed in section II.D.3. of the preamble of this final rule, 
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. Our actuaries estimated that 
this 5.8 percentage point increase resulted in an increase in aggregate 
payments of approximately $6.9 billion. Therefore, as discussed in the 
FY 2011 IPPS/LTCH PPS final rule (75 FR 50062 through 50067), we 
determined that an aggregate adjustment of -5.8 percent in FYs 2011 and 
2012 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, consistent with the policies that we have adopted in many 
similar cases, in the FY 2011 IPPS/LTCH PPS final rule, we made 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 allowed 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). For FY 2012, in 
accordance with 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 completed 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 (76 FR 51489 and 51498). Because these 
adjustments, in effect, balanced out, there was no year-to-year change 
in the standardized amount due to this recoupment adjustment for FY 
2012. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53276), we made a 
final +2.9 percent adjustment to the standardized amount, completing 
the recoupment portion of section 7(b)(1)(B) of Public Law 110-90. We 
note that with this positive adjustment, according to our estimates, 
all overpayments made in FY 2008 and FY 2009 have been fully recaptured 
with appropriate interest, and the standardized amount has been 
returned to the appropriate baseline.

[[Page 50515]]

6. Recoupment or Repayment Adjustment Authorized by Section 631 of the 
American Taxpayer Relief Act of 2012 (ATRA)
    Section 631 of the ATRA amended section 7(b)(1)(B) of Public Law 
110-90 to require the Secretary to make a recoupment adjustment or 
adjustments totaling $11 billion by FY 2017. This adjustment represents 
the amount of the increase in aggregate payments as a result of not 
completing the prospective adjustment authorized under section 
7(b)(1)(A) of Public Law 110-90 until FY 2013. As discussed earlier, 
this delay in implementation resulted in overstated payment rates in 
FYs 2010, 2011, and 2012. The resulting overpayments could not have 
been recovered under Public Law 110-90.
    Similar to the adjustments authorized under section 7(b)(1)(B) of 
Public Law 110-90, the adjustment required under section 631 of the 
ATRA is a one-time recoupment of a prior overpayment, not a permanent 
reduction to payment rates. Therefore, any adjustment made to reduce 
rates in one year would eventually be offset by a positive adjustment, 
once the necessary amount of overpayment is recovered.
    As we stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27504 through 27505), our actuaries estimate that a -9.3 percent 
adjustment to the standardized amount would be necessary if CMS were to 
fully recover the $11 billion recoupment required by section 631 of the 
ATRA in FY 2014. In its March 2013 ``Report to Congress: Medicare 
Payment Policy,'' MedPAC estimates that a -2.4 percent adjustment made 
in FY 2014, and not removed until FY 2018, also would recover the 
required recoupment amount. It is often our practice to delay or 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 2014 
IPPS/LTCH PPS proposed rule (78 FR 27504 through 27505), we proposed a 
-0.8 percent recoupment adjustment to the standardized amount in FY 
2014. As we stated in the proposed rule, we estimate that this level of 
adjustment would recover up to $0.96 billion in FY 2014, with at least 
$10.04 billion remaining to be recovered by FY 2017. If adjustments of 
approximately -0.8 percent are implemented in FYs 2014, 2015, 2016, and 
2017, using standard inflation factors, we estimate that the entire $11 
billion would be accounted for by the end of the statutory 4-year 
timeline. As estimates of any future adjustments are subject to slight 
variations in total savings, we did not propose specific adjustments 
for FYs 2015, 2016, or 2017 at that time. We stated that we believe 
that this level of adjustment for FY 2014 is a reasonable and fair 
approach that satisfies the requirements of the statute while 
mitigating extreme annual fluctuations in payment rates. In addition, 
we again noted that this -0.8 percent recoupment adjustment, and future 
adjustments under this authority, will be eventually offset by an 
equivalent positive adjustment once the full $11 billion recoupment 
requirement has been realized.
    We discuss the comments we received on this proposal and our final 
policy for FY 2014 in the section below.
7. Additional Prospective Adjustments for the MS-DRG Documentation and 
Coding Effect Through FY 2010 Authorized 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 if the Secretary determines such 
adjustments to be necessary for any subsequent fiscal years in order to 
eliminate the effect of coding or classification changes that do not 
reflect real changes in case-mix. After review of comments and 
recommendations received in a FY 2012 public comment letter from MedPAC 
(available on the Internet at: http://www.medpac.gov/documents/06172011_FY12IPPS_MedPAC_COMMENT.pdf), we analyzed claims data in FY 
2010 to determine whether any additional adjustment would be 
appropriate to ensure that the introduction of MS-DRGs was implemented 
in a budget neutral manner. We analyzed FY 2010 data on claims paid 
through December 2011 using the same claims-based methodology as 
described in previous rulemaking (73 FR 43768 and 43775). We determined 
a total additional prospective documentation and coding effect of 0.8 
percent through FY 2010 and found that this effect was present for both 
IPPS hospitals paid with the standardized amount and IPPS hospitals 
paid using their hospital-specific payment rates.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27890), we 
proposed an additional -0.8 percent prospective adjustment to the 
standardized amount to account for this effect. We indicated that this 
additional prospective adjustment of -0.8 percent, when combined with 
the other prospective MS-DRG documentation and coding adjustments 
already made or proposed would eliminate the future effect of MS-DRG 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring through FY 2010. As discussed in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53278 through 53280), numerous 
commenters objected to the CMS proposal to make an adjustment to 
account for payment increases due to MS-DRG documentation and coding 
that did not reflect real changes in case-mix for discharges occurring 
through FY 2010. Many commenters continued to assert that our estimates 
of documentation and coding were overstated, and could be explained by 
other factors. These commenters also focused on part of the analysis 
provided by MedPAC in its FY 2012 public comment letter indicating that 
a slightly smaller additional prospective adjustment of -0.55 percent 
rather than -0.8 percent might be required to offset the cumulative MS-
DRG documentation and coding effect through FY 2010. Specifically, 
while MedPAC supported the overall methodology, it suggested that it 
was possible that changes in documentation and coding to optimize 
payments under the MS-DRG GROUPERs and relative weights may have 
resulted in slightly less than optimal payments under the FY 2007 
GROUPER and relative weights (the denominator of the documentation and 
coding change estimate). Many commenters requested that, given the 
MedPAC analysis, if CMS were to apply an additional prospective 
adjustment to the MS-DRG documentation and coding effect through FY 
2010, it should subtract 0.25 percentage points from its estimate, for 
an adjustment of -0.55 percent.
    After considering the public comments, we recognized that the issue 
of the estimate to use for the cumulative MS-DRG documentation and 
coding effect through FY 2010 may merit further consideration. 
Therefore, as discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53278 through 53280), we decided not to finalize the proposed -0.8 
percent adjustment to the standardized amount and the hospital-specific 
rate until more analysis could be completed.
    CMS is continuing to consider whether MedPAC's recommendation that 
an adjustment to offset the cumulative documentation and coding effects 
through FY 2010 under section 1886(d)(3)(A)(vi) of the Act is 
appropriate and supported by a review of the claims data. After further 
consideration of the MedPAC analysis and the request by many public 
commenters, if we were to apply an additional prospective adjustment 
for the cumulative MS-DRG documentation

[[Page 50516]]

and coding effect through FY 2010, we believe the most appropriate 
additional adjustment is -0.55 percent.
    As discussed in section II.D.6. of the preamble of the FY 2014 
IPPS/LTCH PPS proposed rule (78 FR 27505), because we proposed a -0.8 
percent recoupment adjustment, we did not propose a prospective 
adjustment in FY 2014 for the cumulative MS-DRG documentation and 
coding effect through FY 2010. However, we solicited public comments as 
to whether any portion of the proposed -0.8 percent recoupment 
adjustment should be reduced and instead applied to a prospective 
adjustment for the cumulative MS-DRG documentation and coding effect 
through FY 2010. For example, we could apply a -0.25 percent recoupment 
adjustment, and a -0.55 prospective adjustment, for a total FY 2014 
adjustment of -0.8 percent. Reducing the recoupment adjustment in FY 
2014 would require relatively larger adjustments for FYs 2015, 2016, 
and/or 2017, but making a prospective adjustment of -0.55 percent would 
eliminate future payment increases due to MS-DRG documentation and 
coding that did not reflect real changes in case-mix for discharges 
occurring through FY 2010. As we discuss above, because the 
documentation and coding effect through FY 2010 was found for both IPPS 
hospitals paid with the standardized amount and IPPS hospitals paid 
under their hospital-specific payment rate, if we were to apply a 
prospective adjustment to remove this effect, we also would apply such 
an adjustment to the hospital-specific payment rate, using the 
Secretary's broad authority under section 1886(d)(5)(I)(i) of the Act 
(77 FR 53276 through 53277). Therefore, if we attribute a portion of 
the -0.8 percent adjustment for FY 2014 to the prospective adjustment, 
we also would make appropriate adjustments to the hospital-specific 
payment rates. Puerto Rico-specific rates would not be affected, as we 
previously found no significant additional MS-DRG documentation and 
coding effect for FY 2010 that would warrant any additional adjustment 
to the Puerto Rico-specific rate (77 FR 53279).
    Comment: The majority of commenters were satisfied with CMS' 
proposal to phase in the $11 billion adjustment required under section 
631 of the ATRA. Commenters encouraged CMS to continue to implement the 
required adjustment gradually through FY 2017.
    Response: We concur with commenters that a gradual implementation 
of this adjustment is the most prudent course of action. We believe 
that the proposed level of adjustment for FY 2014 is a reasonable and 
fair approach that satisfies the requirements of the statute while 
mitigating extreme annual fluctuations in payment rates. Therefore, we 
are finalizing a -0.8 percent documentation and coding adjustment to 
the standardized amount for FY 2014.
    Comment: Many commenters, including a national hospital 
association, were appreciative that CMS has reduced its original 
estimate of FY 2010 documentation and coding effects from 0.8 percent 
to 0.55 percent and believed that the 0.8 estimate was overstated. 
However, some commenters contended that this overstatement was not 
limited to FY 2010 alone. These commenters, while continuing to 
fundamentally disagree with the validity of underlying methodology 
employed by CMS, as previously described in the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53274-53275), requested that a prospective adjustment 
for any documentation and coding effect determined to have occurred in 
FY 2010 be partially or wholly offset by any similar overstatement that 
occurred in the adjustments made for documentation and coding effects 
that occurred during FY 2008 and FY 2009.
    Response: In the proposed rule (78 FR 27505), we acknowledged that, 
after further consideration of the MedPAC analysis of claims data, if 
we were to apply an additional prospective adjustment for the 
cumulative MS-DRG documentation and coding effect through FY 2010, we 
believe the most appropriate additional adjustment is -0.55 percent, 
rather than the adjustment proposed in prior rulemaking of -0.8 
percent. With respect to our previously finalized recoupment 
adjustments for documentation and coding effects in FY 2008 and FY 
2009, however, we note, as discussed earlier, that section 7(b)(1)(B) 
of Public Law 110-90 required the Secretary to make the FY 2008 and FY 
2009 recoupment adjustments based on estimates and also required that 
the Secretary make these adjustments for discharges occurring only in 
FYs 2010, 2011, and/or 2012. The Secretary made the FY 2008 and FY 2009 
recoupment adjustments to the standardized amounts for discharges 
occurring in FY 2011 and FY 2012 based on the best estimates available 
at the time. We also note that section 631 of the ATRA states that the 
$11 billion recoupment figure ``represents the amount of the increase 
in aggregate payments from fiscal years 2008 through 2013 for which an 
adjustment was not previously applied.'' Any adjustment to the FY 2008 
and FY 2009 recoupment, therefore, is subsumed in the $11 billion 
recoupment figure.
    Comment: Many commenters requested that CMS not apply any of the 
proposed -0.8 percent recoupment adjustment as a prospective adjustment 
to account for any MS-DRG documentation and coding effect that occurred 
in FY 2010. In addition to overall concerns with CMS' methodology, 
commenters indicated that any prospective adjustment in addition to the 
recoupment required by section 631 of the ATRA would be too financially 
burdensome, and would be contrary to the agency's stated goal of 
mitigating extreme fluctuations in payment rates.
    MedPAC recommended that CMS implement the full -0.55 percent 
prospective adjustment for FY 2010 documentation and coding in FY 2014, 
reducing the FY 2014 recoupment adjustment to -0.25 percent. While 
MedPAC acknowledged that such an action would require relatively larger 
adjustments in FYs 2015 through 2017 to satisfy the $11 billion 
recoupment requirement, it pointed out that further delay of FY 2010 
documentation and coding adjustments would lead to overpayments in 
future fiscal years, and that, in general, prospective adjustments 
should be prioritized over retroactive adjustments.
    Response: We have considered all of the comments received. While we 
are firmly committed to ensuring that changes in documentation and 
coding do not lead to increases in payments, we have decided not to 
apply a prospective adjustment to account for any documentation and 
coding effect that occurred in FY 2010 at this time. We note that the 
$11 billion recoupment required by section 631 of the ATRA will require 
additional documentation and coding adjustments between FY 2014 and FY 
2017. If we were to apply a -0.55 percent prospective documentation and 
coding adjustment for FY 2014, we would be concerned that additional 
larger adjustments will be needed in future years to recoup the $11 
billion required by ATRA. We will continue to take into account public 
input and any future legislation on this issue.
    Comment: Several commenters opposed the implementation of any 
prospective adjustment to the hospital-specific rate. Similar to 
comments submitted in response to the FY 2013 IPPS/LTCH PPS proposed 
rule, as summarized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53277),

[[Page 50517]]

commenters stated that the broad authority granted to the Secretary in 
section 1886(d)(5)(I)(i) of the Act is not so broad as to extend the 
scope of a legislative directive that was specifically limited to 
hospitals paid under a prospective payment system. Commenters also 
contended that the plain language of section 7(b)(1) of Public Law 110-
90, as amended by the ATRA, provides clear instructions that the 
documentation and coding adjustment is only intended to apply to the 
standardized amounts.
    Response: We continue to disagree that we do not have the authority 
to make prospective documentation and coding adjustments to the 
hospital-specific rates. We do not believe that the language in section 
7(b)(1) of Public Law 110-90, as amended by the ATRA, or in section 
1886(d)(3)(A)(iv) of the Act creates a limit on the broad authority 
granted under section 1886(d)(5)(I) of the Act. We have discussed the 
basis for applying any such prospective adjustment to the hospital-
specific rate in our prior rules, beginning with the FY 2009 IPPS/LTCH 
PPS final rule (73 FR 48448). We also note that the proposed -0.8 
percent recoupment adjustment for FY 2014 pursuant to section 631 of 
ATRA, which we are finalizing in this final rule, applies only to the 
standardized amount and not to the hospital-specific rates. Section 631 
of the ATRA does not provide authority for a recoupment adjustment to 
the hospital-specific rate. However, as discussed in the FY 2010 IPPS/
LTCH final rule (74 FR 24098), the FY 2011 IPPS/LTCH PPS final rule (75 
FR 50067 through 50071), the FY 2012 IPPS/LTCH PPS (76 FR 51498 through 
51499), and the FY 2013 IPPS/LTCH PPS final rule (75 FR 53277 through 
53278), we continue to believe that any prospective documentation and 
coding adjustments applied to the standardized amount should also be 
similarly applied to the hospital-specific rate. As discussed in the 
previous response, we are not making any prospective adjustment in FY 
2014 to account for FY 2010 documentation and coding effects. 
Therefore, no documentation and coding adjustment will be applied to 
the hospital-specific rate in FY 2014.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background
    Beginning in FY 2007, we implemented relative weights for DRGs 
based on cost report data instead of charge information. We refer 
readers to the FY 2007 IPPS final rule (71 FR 47882) for a 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.
    As we implemented 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 the Research 
Triangle Institute, International (RTI) to study the effects of charge 
compression in calculating the relative weights and to consider methods 
to reduce the variation in the cost-to-charge ratios (CCRs) across 
services within cost centers. For a detailed summary of RTI's findings, 
recommendations, and public comments that we received on the report, we 
refer readers to the FY 2009 IPPS/LTCH PPS final rule (73 FR 48452 
through 48453). In addition, we refer readers to RTI's July 2008 final 
report titled ``Refining Cost to Charge Ratios for Calculating APC and 
MS-DRG Relative Payment Weights'' (http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf).
    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, we discussed our decision to pursue changes to the cost 
report to split the cost center for Medical Supplies Charged to 
Patients into one line for ``Medical Supplies Charged to Patients'' and 
another line for ``Implantable Devices Charged to Patients.'' We 
acknowledged, as RTI had found, that charge compression occurs in 
several cost centers that exist on the Medicare cost report. However, 
as we stated in the 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 
the items that should be reported in these respective cost centers, we 
adopted the commenters' recommendations that hospitals should use 
revenue codes established by the AHA's National Uniform Billing 
Committee to determine the items that should be reported in the 
``Medical Supplies Charged to Patients'' and the ``Implantable Devices 
Charged to Patients'' cost centers. Accordingly, a new subscripted line 
for ``Implantable Devices Charged to Patients'' was created in July 
2009. This new subscripted cost center has been available for use for 
cost reporting periods beginning on or after May 1, 2009.
    As we discussed in the FY 2009 IPPS final rule (73 FR 48458) and in 
the CY 2009 OPPS/ASC final rule with comment period (73 FR 68519 
through 68527), in addition to the findings regarding implantable 
devices, RTI also found that the costs and charges of computed 
tomography (CT) scans, magnetic resonance imaging (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 the OPPS relative weights would 
better estimate the costs of those services if CMS were to add standard 
cost centers for CT scans, MRIs, 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 
costs from charges on claims data. 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, MRIs, 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. (We refer readers to the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50075 through 50080) for a detailed discussion of the 
reasons for the creation of standard cost centers for CT scans, MRIs, 
and cardiac catheterization.) The new standard cost centers for CT 
scans, MRIs, and cardiac catheterization are effective for cost 
reporting periods beginning on or after May 1, 2010, on the revised 
cost report Form CMS-2552-10.
    In the FY 2009 IPPS 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. 
However, as noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 
FR

[[Page 50518]]

43782), due to delays in the issuance of the revised cost report Form 
CMS 2552-10, we determined that a new CCR for ``Implantable Devices 
Charged to Patients'' might not be available before FY 2013. Similarly, 
when we finalized the decision in the FY 2011 IPPS/LTCH PPS final rule 
to add new cost centers for CT scans, MRIs, 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). In preparation for the FY 2012 IPPS 
rulemaking, we checked the availability of data in the ``Implantable 
Devices Charged to Patients'' cost center on the FY 2009 cost reports, 
but we did not believe that there 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 for the FY 2013 IPPS/LTCH PPS rulemaking 
cycle and, if appropriate, we would propose to create a distinct CCR at 
that time.
    During the development of the FY 2013 IPPS/LTCH PPS proposed and 
final rules, hospitals were still in the process of transitioning from 
the previous cost report Form CMS-2552-96 to the new cost report Form 
CMS-2552-10. Therefore, we were able to access only those cost reports 
in the FY 2010 HCRIS with fiscal year begin dates on or after October 
1, 2009, and before May 1, 2010; that is, those cost reports on Form 
CMS-2552-96. Data from the Form CMS-2552-10 cost reports were not 
available because cost reports filed on the Form CMS-2552-10 were not 
accessible in the HCRIS. Further complicating matters was that, due to 
additional unforeseen technical difficulties, the corresponding 
information regarding charges for implantable devices on hospital 
claims was not yet available to us in the MedPAR file. Without the 
breakout in the MedPAR file of charges associated with implantable 
devices to correspond to the costs of implantable devices on the cost 
report, we believed that we had no choice but to continue computing the 
relative weights with the current CCR that combines the costs and 
charges for supplies and implantable devices. We stated in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53281 through 53283) that when we do 
have the necessary data for supplies and implantable devices on the 
claims in the MedPAR file to create distinct CCRs for the respective 
cost centers for supplies and implantable devices, we hoped that we 
would also have data for an analysis of creating distinct CCRs for CT 
scans, MRIs, and cardiac catheterization, which could then be finalized 
through rulemaking.
2. Discussion of Proposed and Final Policy for FY 2014
    As we stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27506-27507), to calculate the proposed FY 2014 MS-DRG relative 
weights, we proposed to continue our current methodology of using the 
two most recent data sources: The December 2012 update of the FY 2012 
MedPAR file as the claims data source and the December 2012 update of 
FY 2011 HCRIS as the cost data source. At the time of the development 
of the proposed rule, we had a substantial number of hospitals 
completing all, or some, of these new cost centers on the FY 2011 
Medicare cost reports, compared to prior years. Specifically, using the 
December 2012 update of FY 2011 HCRIS, we were able to calculate a 
valid implantable device CCR for 2,285 IPPS hospitals, a valid MRI CCR 
for 1,402 IPPS hospitals, a valid CT scan CCR for 1,470 IPPS hospitals, 
and a valid cardiac catheterization CCR for 1,022 IPPS hospitals. In 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53281), we stated that 
prior to proposing to create these CCRs, we would first thoroughly 
analyze and determine the impacts of the data, and that distinct CCRs 
for these new cost centers would be used in the calculation of the 
relative weights only if they were first finalized through rulemaking.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27507), we stated 
that we believe that there is a sufficient amount of data in the FY 
2011 cost reports from which to generate a meaningful analysis of using 
distinct CCRs for implantable devices, MRIs, CT scans, and cardiac 
catheterization. In addition, the corresponding charge data on hospital 
claims for implantable devices, MRIs, CT scans, and cardiac 
catheterization are available in the FY 2012 MedPAR file. Therefore, in 
the proposed rule, we provided various data analyses based on 
comparison of the FY 2014 relative weights computed using 15 CCRs, as 
we have done in the past, and the FY 2014 relative weights computed 
using 19 CCRs, with distinct CCRs for implantable devices, MRIs, CT 
scans, and cardiac catheterization. Specifically, rather than having a 
single CCR for ``Supplies and Equipment'' which includes low-cost 
supplies and high-cost implantable devices, we proposed that a distinct 
CCR would be carved out of the ``Supplies and Equipment'' CCR, leaving 
one CCR for ``Supplies'' and one CCR for ``Implantable Devices.'' 
Regarding the Radiology CCR, which currently is comprised of general 
radiology ancillary services and MRIs and CT scans, we proposed that 
the costs for MRIs and CT scans would be separated from general 
radiology, creating two distinct CCRs, one for MRIs and one for CT 
scans, respectively. Finally, by separating the costs of cardiac 
catheterization out of the CCR for general cardiology, we proposed that 
a distinct CCR would be created for cardiac catheterization. Thus, by 
breaking out these 4 additional CCRs, the number of CCRs used to 
calculate the relative weights would increase from 15 to 19.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27507), for 
comparison purposes, we included the following table to show the final 
FY 2013 CCRs, the potential FY 2014 CCRs computed with the existing 15 
cost centers, and the potential FY 2014 CCRs computed with 19 cost 
centers, with 4 new CCRs for implantable devices, MRIs, CT scans, and 
cardiac catheterization.

----------------------------------------------------------------------------------------------------------------
                                                            Final FY 2013 15    Potential FY      Potential FY
                           Group                                  CCRs          2014 15 CCRs      2014 19 CCRs
----------------------------------------------------------------------------------------------------------------
Routine days..............................................             0.514             0.502             0.502
Intensive days............................................             0.442             0.423             0.423
Drugs.....................................................             0.199             0.193             0.193
Supplies & Equipment......................................             0.335             0.327             0.293
Implantable Devices.......................................               n/a               n/a             0.361
Therapy Services..........................................             0.370             0.355             0.355
Laboratory................................................             0.143             0.133             0.133

[[Page 50519]]

 
Operating Room............................................             0.238             0.225             0.225
Cardiology................................................             0.145             0.134             0.132
Cardiac Catheterization...................................               n/a               n/a             0.135
Radiology.................................................             0.136             0.128             0.170
MRI.......................................................               n/a               n/a             0.091
CT Scans..................................................               n/a               n/a             0.045
Emergency Room............................................             0.226             0.207             0.207
Blood.....................................................             0.389             0.371             0.371
Other Services............................................             0.397             0.399             0.399
Labor & Delivery..........................................             0.450             0.445             0.445
Inhalation Therapy........................................             0.189             0.187             0.187
Anesthesia................................................             0.109             0.120             0.120
----------------------------------------------------------------------------------------------------------------

    In order to model the effects on the relative weights in medical 
MS-DRGs versus surgical MS-DRGs, in the FY 2014 IPPS/LTCH PPS proposed 
rule (78 FR 27507-8), we compared a set of relative weights calculated 
with 15 CCRs and 19 CCRs. Based on the data available at the time of 
the development of the proposed rule, overall, if the 19 CCRs would be 
used to calculate the proposed relative weights for FY 2014, relative 
weights for medical MS-DRGs would be expected to decrease by 
approximately 1.1 percent, and those for surgical MS-DRGs would be 
expected to increase by approximately 1.2 percent. In addition, as 
shown in the table below included in the FY 2014 IPPS/LTCH PPS proposed 
rule (78 FR 27508), at the MDC level, we expected payments to increase 
by approximately 0.64 percent (0.39+0.25) within orthopedic and cardiac 
MDCs, with most of the reductions in payment resulting to the medical 
MS-DRGs in the nervous system, digestive system, and respiratory system 
MDCs.

------------------------------------------------------------------------
                                                            Estimated
                                                           percentage
            MDC                     Description           change within
                                                               MDC
------------------------------------------------------------------------
08........................  Musculoskeletal System And              0.39
                             Connective Tissue.
05........................  Circulatory System........              0.25
01........................  Nervous System............             -0.16
06........................  Digestive System..........             -0.10
04........................  Respiratory System........             -0.08
------------------------------------------------------------------------

    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27508), we stated 
that the largest estimated increase in MS-DRG relative weights would 
likely occur for MS-DRGs associated with cardiac catheterization and 
implantable cardiac devices. We also stated that the largest estimated 
reductions in MS-DRG relative weights would likely occur for MS-DRGs 
associated with traumatic head injury and concussion, which are high 
users of CT scanning and MRI services. We included in the FY 2014 IPPS/
LTCH PPS proposed rule (78 FR 27508) the table below, which showed, 
based on data available at the time of the development of the proposed 
rule, the top 10 (nonlabor and delivery) MS-DRGs that we predicted 
would experience the largest increases and decreases in relative 
weights through use of the expanded 19 CCRs, as compared to previous 15 
CCRs.

----------------------------------------------------------------------------------------------------------------
                                                                     Potential       Potential
                                                                     relative        relative       Percentage
            MS-DRG                   Type             Title       weight with 15   weights with       change
                                                                       CCRs           19 CCRs
----------------------------------------------------------------------------------------------------------------
                      MS-DRGS THAT WOULD EXPERIENCE THE LARGEST DECREASE IN RELATIVE WEIGHT
----------------------------------------------------------------------------------------------------------------
090..........................  MED.............  Concussion               0.7614          0.7013            -7.9
                                                  without CC/MCC.
084..........................  MED.............  Traumatic                0.9137          0.8516            -6.8
                                                  Stupor & Coma,
                                                  Coma >1 Hour
                                                  without CC/MCC.
087..........................  MED.............  Traumatic                0.7899          0.7369            -6.7
                                                  Stupor & Coma,
                                                  Coma <1 Hour
                                                  without CC/MCC.
965..........................  MED.............  Other Multiple           1.0450           0.980            -6.1
                                                  Significant
                                                  Trauma without
                                                  CC/MCC.
185..........................  MED.............  Major Chest              0.7281          0.6845            -6.0
                                                  Trauma without
                                                  CC/MCC.
089..........................  MED.............  Concussion with          0.9959          0.9366            -6.0
                                                  CC.
123..........................  MED.............  Neurological             0.7355          0.6920            -5.9
                                                  Eye Disorder.
343..........................  SURG............  Appendectomy             0.9880          0.9517            -5.7
                                                  without
                                                  Complicated
                                                  Principal
                                                  Diagnosis
                                                  without CC/MCC.
053..........................  MED.............  Spinal                   0.9355          0.8825            -5.7
                                                  Disorders &
                                                  Injuries
                                                  without CC/MCC.
066..........................  MED.............  Intracranial             0.8034          0.7579            -5.7
                                                  Hemorrhage or
                                                  Cerebral
                                                  Infarction
                                                  without CC/MCC.
----------------------------------------------------------------------------------------------------------------

[[Page 50520]]

 
                      MS-DRGS THAT WOULD EXPERIENCE THE LARGEST INCREASE IN RELATIVE WEIGHT
----------------------------------------------------------------------------------------------------------------
454..........................  SURG............  Combined                 7.6399          8.0563             5.5
                                                  Anterior/
                                                  Posterior
                                                  Spinal Fusion
                                                  with CC.
455..........................  SURG............  Combined                 5.9862          6.3133             5.5
                                                  Anterior/
                                                  Posterior
                                                  Spinal Fusion
                                                  Without CC/MCC.
484..........................  SURG............  Major Joint &            2.1211          2.2380             5.5
                                                  Limb
                                                  Reattachment
                                                  Procedure of
                                                  Upper
                                                  Extremity
                                                  without CC/MCC.
225..........................  SURG............  Cardiac                  5.6298          5.9530             5.7
                                                  Defibrillator
                                                  Implant with
                                                  Cardiac
                                                  Catheterizatio
                                                  n without AMI/
                                                  HF/Shock
                                                  without MCC.
223..........................  SURG............  Cardiac                  6.0956          6.4482             5.8
                                                  Defibrillator
                                                  Implant with
                                                  Cardiac
                                                  Catheterizatio
                                                  n with AMI/HF/
                                                  Shock without
                                                  MCC.
458..........................  SURG............  Spinal Fusion            4.8794          5.1630             5.8
                                                  Except
                                                  Cervical with
                                                  Spinal Curve/
                                                  Malignant/
                                                  Infection OR
                                                  9+ Fusion
                                                  without CC/MCC.
245..........................  SURG............  AICD Generator           4.4627          4.7320             6.0
                                                  Procedures.
849..........................  MED.............  Radiotherapy...          1.3423          1.4258             6.2
946..........................  MED.............  Rehabilitation           1.1295          1.2024             6.5
                                                  without CC/MCC.
227..........................  SURG............  Cardiac                  5.2193          5.5714             6.7
                                                  Defibrillator
                                                  Implant
                                                  without
                                                  Cardiac
                                                  Catheterizatio
                                                  n without MCC.
----------------------------------------------------------------------------------------------------------------

    During development of the FY 2014 proposed rule, after computing 
the analyses described above by comparing both sets of MS-DRG relative 
weights computed with FY 2011 cost report data, we revisited RTI's July 
2008 final report. We noted that the impacts on relative weight and at 
the MDC level are generally consistent with those estimated by RTI in 
its modeling. RTI found that disaggregating the CCRs for medical 
supplies and devices would have the most impact on reducing charge 
compression, and that the largest impact was for MS-DRG 227. Similarly, 
as shown in the chart above, we estimated that the potential relative 
weight for MS-DRG 227 would experience the largest increase, 6.7 
percent. Cardiac implants and spinal fusion procedures accounted for 
most of the 10 MS-DRGs with the largest incremental increases. In 
addition, RTI's July 2008 final report (pages 103 through 107) 
indicates that among the largest expected reductions are the MS-DRG 
relative weights for MS-DRGs associated with traumatic head injury and 
concussion, which are high users of CT scanning and MRI services. RTI's 
analyses were highly predictive for many of the MS-DRGs most sensitive 
to the effects of charge compression.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27508), we 
indicated that as we stated in prior rulemaking (77 FR 53281 through 
53283), once we determined that cost report data were available for 
analysis, we would propose, if appropriate, to use the distinct CCRs 
described above in the calculation of the MS-DRG relative weights. We 
believed that the analytic findings described above using the FY 2011 
cost report data and FY 2012 claims data supported our original 
decision to break out and create new cost centers for implantable 
devices, MRIs, CT scans, and cardiac catheterization, and we saw no 
reason to further delay proposing to implement the CCRs of each of 
these cost centers. Therefore, beginning in FY 2014, we proposed to 
calculate the MS-DRG relative weights using 19 CCRs, creating distinct 
CCRs from cost report data for implantable devices, MRIs, CT scans, and 
cardiac catheterization. We welcomed public comments on the proposal 
and the impacts that it may have. We referred readers to section VI.C. 
of Appendix A of the proposed rule for the overall IPPS operating 
impact of our proposal, which modeled payments to various hospital 
types using relative weights developed from 19 CCRs (as compared to the 
previous 15 CCRs). In addition, as part of the FY 2014 IPPS/LTCH PPS 
proposed rule, in addition to providing Table 5, which listed the 
proposed MS-DRGs and their relative weights using 19 CCRs (available 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 2014 IPPS Proposed Rule Home Page'' or ``Acute Inpatient--Files 
for Download''), we provided a separate table that listed all MS-DRGs 
and their relative weights if computed using 15 CCRs (available at the 
same CMS Web site cited above). We believed that these two formats 
would allow readers to compare our proposal to calculate the MS-DRG 
relative weights using 19 CCRs with the relative weights of MS-DRGs if 
computed using 15 CCRs.
    Comment: Several commenters noted that CMS concluded that there is 
sufficient data in the FY 2011 cost reports to support a meaningful 
analysis of using distinct CCRs, but did not share how it arrived at 
that conclusion. In particular, the commenters were unclear if 1,022 
hospitals reporting cardiac catheterization are a representative 
sample, because they make up less than a third of the total hospitals. 
The commenters urged CMS to clarify how it determined the level of 
reporting on these new cost centers is sufficient.
    Response: In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27507), 
we stated that, as compared to previous years, we have a substantial 
number of hospitals completing all, or some, of the MRI, CT scan, and 
cardiac catheterization cost centers on the FY 2011 Medicare cost 
reports. For the FY 2014 IPPS/LTCH PPS proposed rule, we used cost 
report data from the December 2012 update of the FY 2011 HCRIS, and 
found that ``we were able to calculate a valid implantable device CCR 
for 2,285 IPPS hospitals, a valid MRI CCR for 1,402 IPPS hospitals, a 
valid CT scan CCR for 1,470 IPPS hospitals, and a valid cardiac 
catheterization CCR for 1,022 IPPS hospitals (78 FR 27507).'' As part 
of our methodology for calculating the proposed relative weights, we 
first apply various trims to the cost report data of all IPPS hospitals 
(we refer readers to the description of the calculation of the relative 
weights in the FY 2014 IPPS LTCH PPS proposed rule

[[Page 50521]]

(78 FR 27529 through 27530)). After applying these data trims, the CCRs 
in the proposed rule were based on data from 2,697 remaining IPPS 
hospitals. Therefore, our use of the term ``valid'' CCRs in the FY 2014 
proposed rule meant that these CCRs were the ones associated with the 
2,697 IPPS hospitals remaining after the usual trims were applied. 
Although the number of hospitals with valid cardiac catheterization 
CCRs is less than the number of hospitals with ``valid'' implantable 
device, MRI, or CT scan CCRs, it still represented about 38 percent of 
the available IPPS hospitals after application of our usual data trims 
(that is, 1,022/2,697 = .38). We note that many smaller hospitals do 
not separately report cardiac catheterization costs and charges. (This 
issue was raised in the FY 2011 IPPS/LTCH PPS final rule, (75 FR 
50078), where, in recognition of the fact that not all hospitals 
separately account for cardiac catheterization costs and charges, we 
stated that hospitals that do not currently maintain distinct 
departments or accounts in their internal accounting systems for CT 
scanning, MRI, or cardiac catheterization are not required to create 
distinct departments or accounts.) Given that not all hospitals would 
even have a cardiac catheterization CCR, we considered 38 percent to be 
a substantial number, albeit, not a majority, of IPPS hospitals, from 
which to base our FY 2014 proposal to calculate the relative weights 
with a distinct cardiac catheterization CCR.
    We reviewed our data analyses from previous years and note that 
typically, because the proposed CCRs for a given year are based on cost 
report data from the December update of the applicable HCRIS year, the 
proposed CCRs are based on data from less than 3,000 IPPS hospitals. 
Then, once the data for each final rule are available, which are 
derived from the subsequent March update of the applicable HCRIS year, 
the final CCRs are typically based on cost report data of more than 
3,000 IPPS hospitals. This is the case for FY 2014 as well. Although 
the proposed CCRs were based on data of 2,697 IPPS hospitals, the March 
2013 update of FY 2011 HCRIS yields: 3,207 IPPS hospitals (after 
various trims are applied--we refer readers to the description of the 
relative weight calculation in section II.H. of the preamble of this 
final rule); 2,707 IPPS hospitals with an implantable device CCR; 1,717 
IPPS hospitals with an MRI CCR; 1,785 IPPS hospitals with a CT scan 
CCR; and 1,263 IPPS hospitals with a cardiac catheterization CCR. For 
this FY 2014 final rule, although the number of hospitals with cardiac 
catheterization CCRs is less than the number of hospitals with 
``valid'' implantable device, MRI, or CT scan CCRs, it still represents 
approximately 39 percent of the available IPPS hospitals after 
application of our usual data trims (that is, 1,263/3,207 = .39). 
Accordingly, we believe it is appropriate to use the cardiac 
catheterization CCR in the calculation of the FY 2014 relative weights.
    Comment: Commenters were generally supportive of the proposals to 
implement additional CCRs for implantable devices and cardiac 
catheterization. However, many commenters requested that CMS 
``reconsider the impact of'' distinct CCRs for MRIs and CT scans 
``before adopting them.'' Various commenters representing the medical 
imaging industry opposed implementation of distinct MRI and CT scan 
CCRs at this point, expressing concern that doing so would result in 
very low CCRs for these services because of hospital cost reporting 
practices that allocate capital costs for MRIs and CT scan across the 
entire hospital, rather than to the appropriate individual radiology 
cost centers. Specifically, the commenters reported that some hospitals 
currently use an imprecise ``square footage'' allocation methodology 
for the costs of large moveable equipment like CT scan and MRI 
machines. They indicated that while CMS recommends using two 
alternative allocation methods, ``direct assignment'' or ``dollar 
value,'' as a more accurate methodology for directly assigning 
equipment costs, industry analysis suggests that approximately only 
half of the reported cost centers for CT scan and MRI rely on these 
preferred methodologies. The commenters expressed concern that ``square 
footage'' allocation results in CCRs that ``lack face validity,'' 
because the proposed CCRs for CT scans and MRIs are less than the 
proposed CCR for general radiology, inaccurately reflecting the higher 
resources used for MRIs and CT scans relative to the less expensive 
plain film x-rays. Commenters asserted that more time is needed by 
hospitals to modify their cost reporting practices, and urged CMS to 
explore how to develop more accurate data without unduly increasing the 
complexity of the cost report. Some other commenters suggested that if 
CMS were to finalize the new CCRs, CMS should only use cost report data 
that meet minimum data quality standards. For example, these commenters 
recommended that CMS adopt the following standards for assuring 
validity of CT and MRI cost data:
     Check that the hospital uses direct assignment or dollar 
value allocation of capital costs.
     Check that the hospital's CT scan and MRI cost centers 
each have total costs of at least $250,000.
     Check that there is evidence that the hospital 
reclassified overhead costs from the diagnostic radiology cost center 
to the CT scan and/or MRI cost centers.
    A different commenter's analysis used cost report data from 
hospitals that employ ``procedural accounting,'' also known as 
``activity-based costing,'' which the commenter stated is a more 
accurate way to determine costs. The commenter's analysis showed 
results that were in ``close agreement'' with CMS' proposed CCRs, 
giving ``some comfort that the new cost centers are capturing costs as 
intended.'' Nevertheless, the commenter urged caution before 
proceeding, noting large swings in certain DRG relative weights, and 
that many of the negatively affected DRGs are trauma related, and many 
of the positively affected DRGs are cardiac and orthopedic related. The 
commenter was concerned that specific types of hospitals have more to 
gain or lose under the policy based on their mix of services, and CMS 
should consider whether finalizing 19 CCRs ``would unduly incent volume 
growth'' in certain procedures. The commenter requested that CMS 
implement a ``dampening policy'' or a 70/30 transition blend for FY 
2014 to give hospitals an opportunity to budget for such shifts and 
avoid unintended consequences.
    Although many commenters expressed concern about the impact of 
implementing distinct CCRs for MRIs and CT scans under the IPPS, they 
noted that since MS-DRGs are bundled services, only a fraction of the 
negative impact would be manifested in the IPPS MS-DRGs, and that 
payment rates for the Ambulatory Patient Classifications (APCs) under 
the Hospital Outpatient Prospective Payment System (OPPS) would be 
affected more dramatically by the use of inaccurate CCRs. The 
commenters mentioned that the Deficit Reduction Act (DRA) of 2005 sets 
the technical component (TC) of advanced imaging services to the lesser 
of: (1) The Medicare Physician Fee Schedule (MPFS); or (2) the OPPS. 
The commenters stated that, as proposed, the separate cost centers for 
MRIs and CT scans would result in significant cuts to the MPFS 
technical component payments. Another commenter noted

[[Page 50522]]

that as CMS proceeds with cost center refinement, services become 
unbundled, and may cause payment swings from year to year. The 
commenters urged CMS not to use the proposed CCRs for MRIs and CT scans 
in the IPPS, the OPPS, or the MPFS until the effects on all three 
systems have been thoroughly analyzed.
    Response: We thank the commenters for their analyses and 
suggestions regarding use of distinct CCRs for implantable devices, 
MRIs, CT scans, and cardiac catheterization. We appreciate the support 
for our proposal to use distinct CCRs for implantable devices and 
cardiac catheterization, and we have carefully reviewed the comments 
objecting to implementation of distinct CCRs for MRIs and CT scans. The 
new standard cost centers for CT scans, MRIs, and cardiac 
catheterization have been in effect since cost reporting periods 
beginning on or after May 1, 2010, on the revised cost report Form CMS-
2552-10. Thus, FY 2011, which is the cost reporting year that CMS is 
using to calculate the CCRs for the FY 2014 MS-DRG relative weights, 
was either the first or the second opportunity for hospitals to submit 
cost reports with the new CT scan and MRI cost centers (lines 57 and 58 
of Worksheets A and C, Part I of the Form CMS-2552-10), depending on 
the hospital's fiscal year end (FYE). (For example, a hospital with a 
June 30 FYE would have completed these lines on its FY 2010 July 1, 
2010-June 30, 2011 cost report, and again on its FY 2011 July 1, 2011-
June 30, 2012 cost report, whereas a hospital with a December 31 FYE 
would have first completed these cost centers on its FY 2011 January 1, 
2011-December 31, 2011 cost report). However, simultaneous with first 
implementing the new CT scan and MRI cost centers in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50077), we also notified hospitals of the 
need and importance of properly reporting the capital costs of moveable 
equipment on the Medicare cost report. Specifically, in the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50078), we explained that, in 
accordance with Section 104 of CMS Pub. 15-1, Chapter 1, CT scans and 
MRIs are major moveable equipment, and the costs should be reported 
together with the rest of the hospital's major moveable equipment cost 
in the Capital-Related Costs--Moveable Equipment cost centers on 
Worksheet A (lines 2 and 4 on the Form CMS-2552-96 and line 2 on the 
Form CMS-2552-10). The costs in these cost centers are allocated to all 
the hospital's cost centers that use major moveable equipment 
(including CT and MRI), using ``dollar value'' (which is the 
``recommended'' or default statistical basis, per the cost reporting 
instructions at CMS Pub. 15-2, Section 4095 for the Form CMS 2552-10). 
Alternatively, the hospital may have obtained the contractor's approval 
under Section 2313 of CMS Pub. 15-1 to use the simplified cost 
allocation methodology, ``square feet.'' However, a hospital that 
historically has been using ``square feet'' and is concerned that this 
method of allocation may result in inaccurate CCRs (on Worksheet C, 
Part I) for the CT scan, MRI, and other ancillary cost centers may 
request contractor approval in accordance with Section 2307 of the CMS 
Pub. 15-1 to use the ``direct assignment'' allocation method, and 
directly assign the cost of moveable equipment to all of the hospital's 
cost centers that use moveable equipment, including CT and MRIs, using 
the provider's routine accounting process. This would ensure that the 
high cost of the CT scanning and MRI equipment would be reflected in 
the CCR that would be calculated for those departments and that would 
be used to estimate the cost of CT scanning and MRI services. In any 
case, hospitals should correct their cost reporting practices to come 
into compliance with CMS' longstanding policy regarding the ``Capital-
Related Costs--Moveable Equipment'' cost center, by either using the 
recommended statistical allocation method of ``dollar value'' for costs 
in Worksheet A, Column 2 for Capital-Related Costs--Moveable Equipment, 
or by requesting contractor approval in accordance with Section 2307 of 
CMS Pub. 15-1 to use the ``direct assignment'' allocation method. In 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53283), we reiterated this 
policy, and added that ``Hospitals that still need to correct their 
cost reporting practices in this regard should do so soon, so that when 
we propose distinct CCRs for MRI and CT scans, hopefully for FY 2014, 
these CCRs will represent fairly accurately the cost of these radiology 
services.'' Therefore, while the CCRs for CT scan and MRIs may appear 
to ``lack face validity,'' as the commenters asserted, these CCRs 
nevertheless reflect the cost reporting practices of many IPPS 
hospitals as of FY 2011, the cost reports used to calculate the CCRs 
for the FY 2014 MS-DRG relative weights. Furthermore, we are unsure of 
how the cost reporting practices of hospitals that employ the square 
feet allocation method result in CCRs that ``lack face validity'' when 
CCRs are calculated separately for CT scan, MRI, and radiology, but 
would result in CCRs that are more ``valid'' when aggregated into a 
single CCR for all radiology services.
    We have considered the public comments recommending that if CMS 
does finalize distinct CCRs for CT scans and MRIs for the IPPS MS-DRG 
relative weights, CMS should adopt certain minimum quality standards, 
such as using only cost report data of hospitals that use either direct 
assignment or the dollar value statistical allocation method, have at 
least $250,000 of cost in the CT scan or MRI cost center, and have 
reclassified overhead costs from the diagnostic radiology cost center 
to the CT scan and/or MRI cost centers. We do not agree with adoption 
of these minimum data standards because doing so would ignore the fact 
that many hospitals have chosen (at least up to this point) to employ 
the square feet statistical allocation methodology, perhaps for reasons 
unrelated to the costs of MRIs and CT scans, and, therefore, these data 
reflect, in large part, the best available data that we have. It also 
is not administratively feasible for CMS to determine, using HCRIS 
data, whether hospitals have reclassified overhead costs from the 
diagnostic radiology cost center to the CT scan and/or MRI cost 
centers. However, we appreciate the one commenter's analysis of cost 
reports using procedural accounting (another more precise method) that 
yielded CCRs that were close to the CCRs that CMS proposed.
    We took note of the many comments regarding the ramifications of CT 
scan and MRI CCRs under the OPPS and the MPFS. Specifically, commenters 
seemed even more concerned about an impending proposal to implement 
distinct MRI and CT scan CCRs under the OPPS, which, they asserted, 
when coupled with recent payment reductions to MRI and CT scan services 
under the Deficit Reduction Act of 2005, are detrimental to hospitals. 
(We note that at the time of the comment period for the FY 2014 IPPS/
LTCH PPS proposed rule, the CY 2014 OPPS/ASC proposed rule had not yet 
been issued.) We understand that any such change could have significant 
payment impacts under the MPFS where the technical component payment 
for many imaging services is capped at the OPPS payment. While we 
appreciate the concern regarding other Medicare payment systems, we 
wish to point out that our decision to implement additional CCRs in 
this FY 2014 IPPS/LTCH PPS final rule does not predict what CMS may 
finalize for the CY 2014 OPPS/ASC relative payment weights. We will 
separately evaluate the impacts of

[[Page 50523]]

implementing any additional CCRs under the OPPS as part of the OPPS 
rulemaking process. We note that the public comment periods for both 
the CY 2014 MPFS proposed rule and the CY 2014 OPPS/ASC proposed rule 
end on September 6, 2013.
    We appreciate the concerns expressed by the commenters related to 
the swings in the relative weights of certain MS-DRGs, and the 
importance of not providing an incentive for hospitals to furnish, or 
not furnish, certain services. However, we are not convinced that 
further delay or further trimming of CCR values is necessary in order 
to implement all of the proposed CCRs. This is consistent with our 
historical approach to use cost report data from HCRIS that is 3 years 
prior to the IPPS fiscal year that is under development (that is, for 
the FY 2014 IPPS relative weights, the CCRs are calculated from FY 2011 
HCRIS). Although hospitals have been permitted to use the alternative 
basis cost allocation (that is, ``square feet'') under Section 2313 of 
CMS Pub. 15-1, this methodology does not ensure precise CCRs for CT 
scans and MRIs. Therefore, we encouraged hospitals over the past 
several years to use the most precise cost reporting methods in 
response to the new cost report lines. Specifically, the longstanding 
cost report instructions at CMS Pub. 15-2, Section 4020 (previously at 
Section 3617), state that ``The statistical basis shown at the top of 
each column on Worksheet B-1 is the recommended basis of allocation of 
the cost center indicated which must be used by all providers 
completing this form (Form CMS-2552-10), even if a basis of allocation 
other than the recommended basis of allocation was used in the previous 
iteration of the cost report (Form CMS-2552-96).'' Under Table 1 of the 
Medicare cost report, which lists the Record Specifications for the 
cost centers on Worksheet B-1, ``dollar value'' is specified as the 
recommended statistical allocation method for Column 2, Capital-Related 
Costs--Moveable Equipment. While the ``dollar value'' statistical 
allocation method is more precise than ``square feet,'' to ensure even 
more precise CCRs for CT scans and MRIs, 90 days prior to the beginning 
of their next cost reporting period, hospitals may request permission 
from their Medicare contractors in accordance with Section 2307 of CMS 
Pub. 15-1 to use the ``direct assignment'' allocation method on 
Worksheet B, Part II, Column 0. Although ``direct assignment'' is the 
preferred and most precise allocation method, hospitals that do not 
have the resources to directly assign the costs of every cost center 
are strongly encouraged to instead use the ``dollar value'' statistical 
allocation method. (We note that, under Section 2313 of CMS Pub. 15-1, 
hospitals not currently using ``dollar value'' should notify their 
contractor of their intention to switch their statistical allocation 
basis to ``dollar value'' at least 90 days prior to the end of a cost 
reporting period.) We also intend to communicate with the Medicare 
contractors to facilitate approval of hospitals' requests to switch 
from the square feet statistical allocation method to the ``direct 
assignment'' or ``dollar value'' allocation method for the costs of 
major moveable equipment. We believe that by adopting more refined 
CCRs, we are fostering more careful cost reporting. Therefore, we do 
not believe that the concerns expressed by the commenters warrant 
further delay in implementing the proposed CCRs for CT scans and MRIs 
for the FY 2014 IPPS/LTCH PPS final rule, nor do we believe that any 
type of phase-in methodology is warranted.
    As we have stated in prior rulemaking (77 FR 53281 through 53283), 
once we determined that cost report data were available for analysis, 
we would propose, and finalize, if appropriate, the use of the distinct 
CCRs described above in the calculation of the MS-DRG relative weights. 
We believe that the analytic findings described in the proposed rule, 
and the volume of hospitals that have ``valid'' CCRs described above, 
computed using the March 2013 update of FY 2011 HCRIS and the March 
2013 update of the FY 2012 MedPAR claims data, support our original 
decision to break out and create new cost centers for implantable 
devices, MRIs, CT scans, and cardiac catheterization, and we see no 
reason to further delay implementation of the CCRs of each of these 
cost centers. Therefore, beginning in FY 2014, as we proposed, we are 
calculating the MS-DRG relative weights using 19 CCRs, creating 
distinct CCRs for implantable devices, MRIs, CT scans, and cardiac 
catheterization. We refer readers to section I.G. of Appendix A of this 
final rule for the overall IPPS operating impact of our policy, which 
models payments to various hospital types using relative weights 
developed from 19 CCRs (as compared to the previous 15 CCRs). The 
description of the calculation of the CCRs and the MS-DRG relative 
weights, including the final 19 CCRs used to calculate the relative 
weights for FY 2014, is included in section II.H. of the preamble of 
this final rule.

F. Adjustment to MS-DRGs for Preventable Hospital-Acquired Conditions 
(HACs), Including Infections

1. Background
    Section 1886(d)(4)(D) of the Act addresses certain hospital-
acquired conditions (HACs), including infections. This provision is 
part of an array of Medicare tools that we are using to promote 
increased quality and efficiency of care. 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 261 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.
    Section 1886(d)(4)(D) 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.
    Effective for discharges occurring on or after October 1, 2008, 
under the

[[Page 50524]]

authority of section 1886(d)(4)(D) of the Act, Medicare no longer 
assigns an inpatient hospital discharge to a higher paying MS-DRG if a 
selected condition is not present on admission (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. In addition, Medicare 
continues to assign a discharge to a higher paying MS-DRG if a selected 
condition is POA. When a HAC is not POA, payment can be affected in a 
manner shown in the diagram below.
[GRAPHIC] [TIFF OMITTED] TR19AU13.000

BILLING CODE 4120-01-C
2. 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, including a detailed 
discussion of the collaborative interdepartmental process and public 
input regarding selected and potential candidate HACs, we refer readers 
to the following rules: 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); the FY 2011 
IPPS/LTCH PPS proposed rule (75 FR 23880) and final rule (75 FR 50080); 
the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25810 through 25816) and 
final rule (76 FR 51504 through 51522); and the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 27892 through 27898) and final rule (77 FR 53283 
through 53303). A complete list of the 11 current categories of HACs is 
included on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html.
3. Present on Admission (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 previous rulemaking, we provided both CMS and CDC Web site resources 
that are available to hospitals for assistance in this reporting 
effort. For detailed information regarding these sites and materials, 
including the application and use of POA indicators, we refer the 
reader to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51506 through 
51507).
    Currently, as we discussed in the prior rulemaking cited above, the 
POA indicator reporting requirement only applies to IPPS hospitals 
because they are subject to this HAC provision. Non-IPPS hospitals, 
including CAHs, LTCHs, IRFs, IPFs, cancer hospitals, children's 
hospitals, hospitals in Maryland operating under waivers, RNHCIs, and 
the Department of Veterans Affairs/Department of Defense hospitals, are 
exempt from POA reporting. We note that hospitals in Maryland operating 
under their waiver are not paid under the IPPS but rather are paid 
under the provisions of section 1814(b)(3) of the Act. This waiver 
applies to the amount paid to providers of services, and does not 
extend to billing requirements and other reporting requirements. In 
fact, hospitals in Maryland are required to submit Medicare claims for 
Medicare payment and also to submit the same information on their 
Medicare claims as hospitals in other parts of the country paid under 
the IPPS. Therefore, we believe it is inappropriate to continue to 
exempt hospitals in Maryland from the POA indicator reporting 
requirement. Under current policy, hospitals in Maryland will continue 
to be exempt from the application of this HAC provision so long as they 
are not paid under the IPPS. However, we believe it is appropriate to 
require them to use POA indicator reporting on their claims so that we 
can include their data and have as complete a dataset as possible when 
we analyze trends and make further payment policy determinations, such 
as those authorized under section 1886(p) of the Act. (We refer readers 
to section V.I. of the preamble of this final rule for a discussion of 
our FY 2014 proposals and final policies to implement section 1886(p) 
of the Act.) Therefore, in the FY 2014 IPPS/LTCH

[[Page 50525]]

PPS proposed rule (78 FR 27510), we proposed that hospitals in Maryland 
operating under their waiver under section 1814(b)(3) of the Act would 
no longer be exempted from the POA indicator reporting requirement 
beginning with claims submitted on or after October 1, 2013, including 
all claims for discharges on or after October 1, 2013. We invited 
public comment regarding this proposal.
    Comment: Commenters supported the CMS proposal. One commenter noted 
that Maryland hospitals have been required to report accurate and 
complete POA information on secondary diagnoses in the quarterly 
discharge abstract data they submit to the state for discharges 
beginning on July 1, 2007.
    Response: We appreciate the commenters' support. Accordingly, we 
are finalizing our proposal to require hospitals in Maryland currently 
paid under section 1814(b)(3) to report the POA indicator on their 
claims beginning with discharges on October 1, 2013. We note that while 
this requirement will not be effective until that date, hospitals in 
Maryland may submit data with present on admission indicators before 
that time with the expectation that these data will be accepted by 
Medicare's claims processing systems.
    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. Under the HAC policy, we 
treat HACs coded with ``Y'' and ``W'' indicators as POA and allow the 
condition on its own to cause an increased payment at the CC/MCC level. 
We treat HACs coded with ``N'' and ``U'' indicators as Not Present on 
Admission (NPOA) and do not allow the condition on its own to cause an 
increased payment at the CC/MCC level. We refer readers to the 
following rules for a detailed discussion: The FY 2009 IPPS proposed 
rule (73 FR 23559) and final rule (73 FR 48486 through 48487); the FY 
2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106) and final rule 
(74 FR 43784 through 43785); the FY 2011 IPPS/LTCH PPS proposed rule 
(75 FR 23881 through 23882) and final rule (75 FR 50081 through 50082); 
the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25812 through 25813) and 
final rule (76 FR 51506 through 51507); and the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 27893 through 27894) and final rule (77 FR 53284 
through 53285).

------------------------------------------------------------------------
        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.
------------------------------------------------------------------------

    Beginning on or after January 1, 2011, hospitals were 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. 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, which can be located at the 
following link on the CMS Web site: http://www.cms.gov/manuals/downloads/Pub100_20.pdf.
    In addition, as discussed elsewhere in section III.G.10. of the 
preamble of this final rule, the 5010 format allows the reporting and 
effective January 1, 2011, the processing of up to 25 diagnoses and 25 
procedure codes. As such, it is necessary to report a valid POA 
indicator for each diagnosis code, including the principal and all 
secondary diagnoses up to 25.
4. HACs and POA Reporting in ICD-10-CM and ICD-10-PCS
    As we stated in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51506 
and 51507), in preparation for the transition to the ICD-10-CM and ICD-
10-PCS code sets, further information regarding the use of the POA 
indicator with the ICD-10-CM/ICD-10-PCS classifications as they pertain 
to the HAC policy will be discussed in future rulemaking.
    At the March 5, 2012 and the September 19, 2012 meetings of the 
ICD-9-CM Coordination and Maintenance Committee, an announcement was 
made with regard to the availability of the ICD-9-CM HAC list 
translation to ICD-10-CM and ICD-10-PCS code sets. Participants were 
informed that the list of the current ICD-9-CM selected HACs has been 
translated into codes using the ICD-10-CM and ICD-10-PCS classification 
system. It was recommended that the public review this list of ICD-10-
CM/ICD-10-PCS code translations of the current selected HACs available 
on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. The translations can be found under 
the link titled ``ICD-10-CM/PCS MS-DRG v30 Definitions Manual Table of 
Contents--Full Titles--HTML Version in Appendix I--Hospital Acquired 
Conditions (HACs).'' The above CMS Web site regarding the ICD-10-MS-DRG 
Conversion Project is also available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/icd10_hacs.html. We encourage the public to submit comments on these 
translations through the HACs Web page using the CMS ICD-10-CM/PCS HAC 
Translation Feedback Mailbox that has been set up for this purpose 
under the Related Links section titled ``CMS HAC Feedback.'' The final 
HAC list translation from ICD-9-CM to ICD-10-CM/ICD-10-PCS will be 
subject to formal rulemaking.
    In the meantime, we continue to encourage readers to review the 
educational materials and draft code sets currently available for ICD-
10-CM/ICD-10-PCS on the CMS Web site at: http://www.cms.gov/ICD10/. In 
addition, the draft ICD-10-CM/ICD-10-PCS coding guidelines can be 
viewed on the CDC Web site at: http://www.cdc.gov/nchs/icd/icd10cm.htm.
5. Current HACs and Previously Considered Candidate HACs
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27511), we did 
not propose to add or remove categories of HACs. However, we indicated 
that we continue to encourage public dialogue about refinements to the 
HAC list by written stakeholder comments about both previously selected 
and potential candidate HACs. We refer readers to section II.F.6. of 
the FY 2008 IPPS final

[[Page 50526]]

rule with comment period (72 FR 47202 through 47218) and to section 
II.F.7. of the FY 2009 IPPS final rule (73 FR 48774 through 48491) for 
detailed discussion supporting our determination regarding each of 
these conditions. We also refer readers to section III.F.5. of the FY 
2013 IPPS/LTCH PPS proposed rule (77 FR 27892 through 27898) and the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53285 through 53292) for the HAC 
policy for FY 2013, which will continue for FY 2014. In addition, 
readers may find updated information on evidence-based guidelines on 
the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html.
    Comment: Some commenters stated they were pleased that CMS did not 
propose to expand the list of categories or conditions subject to the 
Deficit Reduction Act of 2005 provisions that would reduce payment for 
hospital acquired conditions not present on admission. However, 
commenters made the following suggestions and recommendations:
     One commenter recommended CMS expand the HAC list in 
future IPPS rulemaking to include iatrogenic pneumothorax with 
paracentesis and thoracentesis.
     One commenter requested that CMS reconsider its decision 
to include ``Surgical Site Infections (SSIs) Following Cardiac 
Implantable Electronic Device (CIED)'' under this program. The 
commenter also urged CMS to explore how information learned from POA 
coding and other data sources, such as EHRs and clinical data 
registries, could be used to better understand and prevent HACs.
     One commenter suggested that CMS include ``diaper rash'' 
as a DRA HAC.
     One commenter suggested that CMS include ``Surgical Site 
Infections (SSIs) Following Hip and Knee Replacement'' as a DRA HAC.
     One commenter suggested that CMS include ``Surgical Site 
Infections (SSIs) Following Cesarean Section Births'' as a DRA HAC.
     Although existing colon and hysterectomy surgical site 
infections are not current DRA HACs, one commenter requested that 
additional consideration be given to include the following exclusions 
for existing colon and hysterectomy surgical site infections: 
Chemotherapy for cancer diagnosis, penetrating trauma, obesity, and 
transplant. The commenter also requested that additional consideration 
be given to excluding trauma (de-gloving/avulsion wounds, burns, 
penetrating trauma), chemotherapy, and transplants from the following 
HAC categories: post CABG mediastinitis, orthopedic surgery of the 
spine/neck/shoulder/elbow and the three existing gastric bypass 
surgeries. The commenter indicated that these additional exclusions 
will better meet the intent of identifying appropriate HACs, without 
unnecessary penalization.
     One commenter recommended that ``. . . Where medical 
technology can play a role in supporting the goals of improving patient 
care in a cost effective manner, such consideration should be made when 
reflecting on whether to expand upon the list of preventable HACs, 
particularly in relation to infection control prevention and 
management.''
    Response: We value and appreciate these public comments regarding 
the DRA HACs, and we will take all of the public comments and 
suggestions we received into consideration in future rulemaking.
    Comment: One commenter recommended that two titles of the current 
DRA HACs be revised: that ``Catheter-Associated Urinary Tract Infection 
(UTI)'' be revised to ``Symptomatic Urinary Tract Infection due to an 
Indwelling Urinary Catheter'' and ``Vascular Catheter-Associated 
Infection'' be revised to ``Infections due to Central Venous 
Catheter'', with the ICD-9-CM codes shown in the following table.

------------------------------------------------------------------------
                DRA HACs                     CC/MCC (ICD-9-CM Codes)
------------------------------------------------------------------------
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), 999.32 (CC),
                                          999.33 (CC).
------------------------------------------------------------------------

    Response: We appreciate the commenter's recommendations. However, 
we believe the titles correctly identify the selected HACs, as 
reflected in the chart above, particularly because we have included the 
specified codes within the HAC logic.
    Comment: One commenter recommended that CMS remove the DRA HAC 
category ``Falls and Trauma.'' The commenter stated that ``Falls, 
particularly for the vulnerable older population, can be reduced 
through interventions; however, they cannot be completely avoided.'' 
Another commenter noted that some patients, particularly high-risk, 
comorbid individuals, may still develop the conditions on the HAC list.
    Response: We refer readers to section 1886(d)(4)(D) of the Act 
which states that a DRA HAC is one that ``(c) could reasonably have 
been prevented through the application of evidence-based guidelines.'' 
We believe in the appropriate use of guidelines that we have adopted to 
support our DRA HAC policy. These evidence-based guidelines are posted 
on the DRA HAC Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Downloads/Evidence-Based-Guidelines.pdf and are reviewed regularly to ensure that if there are 
any changes in the status of these guidelines, they are reflected in 
the DRA HAC policy.
    Comment: One commenter noted that, ``In previous rulemaking cycles, 
CMS has proposed adding delirium to the list of HACs [FY 2009 IPPS 
proposed rule]. While we support reasonable steps to provide hospitals 
with incentives to recognize and treat delirium, we continue to have 
significant concerns about adding delirium to the list of `preventable' 
HACs to be excluded from the calculation of a hospital's MS-DRG 
reimbursement rate.''
    Response: We note that this comment regarding delirium is outside 
of the scope of the proposals included in the FY 2014 IPPS/LTCH PPS 
proposed rule. In the FY 2009 IPPS final rule (73 FR 48482), regarding 
delirium, we stated that ``After consideration of the public comments 
received, we have decided not to select delirium as an HAC in this 
final rule. We will continue to monitor the evidence-based guidelines 
surrounding prevention of delirium. If evidence warrants, we may 
consider proposing delirium as an HAC in the future.''
6. RTI Program Evaluation
    On September 30, 2009, a contract was awarded to RTI to evaluate 
the

[[Page 50527]]

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 was an intra-agency 
project with funding and technical support from CMS, OPHS, AHRQ, and 
CDC. The evaluation also examined the implementation of the program and 
evaluated additional conditions for future selection. The contract with 
RTI ended on November 30, 2012. Summary reports of RTI's analysis of 
the FYs 2009, 2010, and 2011 MedPAR data files for the HAC-POA program 
evaluation were included in the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50085 through 50101), the FY 2012 IPPS/LTCH PPS final rule (76 FR 51512 
through 51522), and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53292 
through 53302). Summary and detailed data also 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/.
    In addition to the evaluation of HAC and POA MedPAR claims data, 
RTI also conducted analyses on readmissions due to HACs, the 
incremental costs of HACs to the healthcare system, a study of 
spillover effects and unintended consequences, as well as an updated 
analysis of the evidence-based guidelines for selected and previously 
considered HACs. Reports on these analyses have been made publicly 
available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/index.html.
7. Current and Previously Considered Candidate HACs--RTI Report on 
Evidence-Based Guidelines
    The RTI program evaluation includes a 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 
selected conditions. In addition, evidence-based guidelines also were 
found for the previously considered candidate conditions. RTI prepared 
a final report to summarize its findings regarding evidence-based 
guidelines. This report can be found on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html. Subsequent to this final report, 
RTI has been awarded an FY 2014 Evidence-Based Guidelines Monitoring 
contract. Under the contract, RTI will provide a summary report of 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. Updates to the 
guidelines will be made available to the public.

G. Changes to Specific MS-DRG Classifications

    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27512 through 
27529), 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 also are 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 
claims data. The public comments that we received on each of the 
proposals and our response, with statements of final policies, are 
included below.
    CMS encourages input from our stakeholders concerning the annual 
IPPS updates when that input is made available to us by early December 
of the year prior to the next annual proposed rule update. For example, 
to be considered for any updates or changes in FY 2014, comments and 
suggestions should have been submitted by early December 2012. The 
comments that were submitted in a timely manner are discussed below in 
this section.
1. Pre-Major Diagnostic Categories (Pre-MDCs): Heart Transplants and 
Liver Transplants
    We received a request from an organization that represents 
transplant surgeons to eliminate the severity levels for the heart and 
liver transplants MS-DRGs. The MS-DRGs for heart transplants are: MS-
DRG 001 (Heart Transplant or Implant of Heart Assist System with MCC) 
and MS-DRG 002 (Heart Transplant or Implant of Heart Assist System 
without MCC). The MS-DRGs for liver transplants are: MS-DRG 005 (Liver 
Transplant with MCC or Intestinal Transplant) and MS-DRG 006 (Liver 
Transplant without MCC). We received this comment during the comment 
period for the FY 2013 IPPS/LTCH PPS proposed rule. We referred to this 
comment briefly in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53325), 
but we did not address the issue because we considered this comment 
outside of the scope of the proposed rule. However, we addressed this 
issue in the FY 2014 IPPS/LTCH PPS proposed rule.
    The commenter stated that there are no ``uncomplicated'' heart 
transplants or liver transplants, and indicated that all of these 
transplant procedures are highly complex, involving numerous 
complicating conditions, only some of which may be recognized by the 
MS-DRGs. The commenter expressed concern that the continued bifurcation 
of the MS-DRGs for heart and liver transplants will result in 
unsustainable payment for these cases that are assigned to the 
``without MCC'' MS-DRGs 002 and 006. According to the commenter, in 
light of the relatively small number of Medicare patients involved and 
the significant cost variation involved, it would be preferable to 
eliminate the bifurcation of these procedures, thereby increasing the 
stability of the DRG weights for these procedures.
    For the FY 2014 IPPS/LTCH PPS proposed rule, we examined claims 
data from the FY 2012 MedPAR file for heart and liver transplant cases 
assigned to MS-DRGs 001, 002, 005, and 006. The following table 
illustrates our findings:

----------------------------------------------------------------------------------------------------------------
                                                                     Number of        Average
                             MS-DRGs                                   cases      length of stay  Average  costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 001......................................................           1,247           33.27        $158,556
MS-DRG 002......................................................             284           18             97,932
MS-DRGs 001 and 002--All cases..................................           1,531           30.4          147,310
MS-DRG 005......................................................             828           19             66,746

[[Page 50528]]

 
MS-DRG 006......................................................             282            8.75          30,873
MS-DRGs 005 and 006--All cases..................................           1,110           16.3           57,632
----------------------------------------------------------------------------------------------------------------

    The data showed that the majority of the heart transplant cases, a 
total of 1,247, are assigned to MS-DRG 001, with average costs of 
approximately $158,556 and an average length of stay of approximately 
33.27 days. There were 284 cases assigned to MS-DRG 002, with average 
costs of approximately $97,932 and an average length of stay of 
approximately 18 days.
    This table shows that there are significant differences in average 
lengths of stay and average costs for the severity level for the heart 
transplant MS-DRGs that justify the existing split in MS-DRGs 001 and 
002. If we were to combine the heart transplant cases in MS-DRGs 001 
and 002 as suggested by the commenter, the payment for the majority of 
cases with an MCC would be lower.
    The majority of the liver transplant cases, 828 cases, were 
assigned to MS-DRG 005, with average costs of approximately $66,746 and 
an average length of stay of approximately 19 days. There were 282 
cases assigned to MS-DRG 006, with average costs of approximately 
$30,873 and an average length of stay of approximately 8.75 days. The 
data showed that there are significant differences in average costs and 
average lengths of stay in the severity levels for the liver transplant 
MS-DRGs. Again, if we were to combine all the liver transplant cases 
into one MS-DRG as requested by the commenter, the majority of the 
cases would receive lower payment.
    Based on these findings, we stated in the proposed rule that we 
believe that it would not be prudent to eliminate the severity levels 
for the heart and liver transplant MS-DRGs. Our clinical advisors 
concurred with this analysis that two severity levels are justified for 
the heart and liver transplant MS-DRGs. Therefore, for FY 2014, we did 
not propose to make any changes to the severity levels for heart and 
liver transplant MS-DRGs 001, 002, 005, and 006. We invited public 
comments on this issue.
    Comment: Several commenters agreed with CMS' proposal to maintain 
the current structure for heart and liver transplant MS-DRGs. The 
commenters stated that the proposal seems reasonable based on the data 
and information provided. One commenter agreed with CMS that creating 
only one MS-DRG for heart transplants or implants of heart assist 
systems, regardless of whether or not there is a major complication or 
comorbidity (MCC) present, would greatly underpay the complex cases 
which currently represent the majority of the volume and overpay for 
those less severe cases.
    Response: We appreciate the commenters' support for maintaining the 
severity levels for the heart and liver transplant MS-DRGs based on 
data and our analysis.
    After consideration of the public comments we received, we are not 
making any changes to MS-DRGs 001, 002, 005, and 006 for FY 2014.
2. MDC 1 (Diseases and Disorders of the Nervous System): Tissue 
Plasminogen Activator (tPA) (rtPA) Administration Within 24 Hours Prior 
to Admission
    During the comment period for the FY 2013 IPPS/LTCH PPS proposed 
rule, we received a public comment that we considered to be outside the 
scope of that proposed rule. We stated in the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53325) that we would consider this issue in future 
rulemaking as part of our annual review process. The commenter 
requested that CMS conduct an analysis of diagnosis code V45.88 (Status 
post administration of tPA (rtPA) in a different facility within the 
last 24 hours prior to admission to current facility). Diagnosis code 
V45.88 was created for use beginning October 1, 2008, to identify 
patients who are given tissue plasminogen activator (tPA) at one 
institution and then transferred and admitted to a comprehensive stroke 
center for further care. This situation has been referred to as the 
``drip-and-ship'' issue and was discussed at length in the FY 2009 IPPS 
proposed rule (73 FR 23563 through 23564) and final rule (73 FR 48493 
through 48495), as well as the FY 2011 IPPS/LTCH PPS proposed rule (75 
FR 23899 through 23900) and final rule (75 FR 50102 through 50106). We 
refer readers to these previous discussions for detailed background 
information regarding this topic.
    Similar to previous requests, according to the commenter, the 
concern at the receiving facilities is that the costs associated with 
[caring for] more complex stroke patients that receive tPA are much 
higher than the cost of the drug, presumably because stroke patients 
initially needing tPA have more complicated strokes and outcomes. 
However, because these patients do not receive the tPA at the second or 
transfer hospital, the receiving hospital will not be able to assign 
the case to one of the higher-weighted tPA stroke MS-DRGs when it 
admits these patients whose care requires the use of intensive 
resources. The MS-DRGs that currently include the diagnosis code for 
the use of tPA are: MS-DRG 061 (Acute Ischemic Stroke with Use of 
Thrombolytic Agent with MCC); MS-DRG 062 (Acute Ischemic Stroke with 
Use of Thrombolytic Agent with CC); and MS-DRG 063 (Acute Ischemic 
Stroke with Use of Thrombolytic Agent without CC/MCC). These MS-DRGs 
have higher relative weights than the other MS-DRGs relating to stroke 
or cerebral infarction. The commenter requested an analysis of 
diagnosis code V45.88 to determine whether new claims data warrant any 
change in the MS-DRG structure.
    For the FY 2014 IPPS/LTCH PPS proposed rule, we analyzed MedPAR 
claims data from FY 2012. We included claims for patient cases assigned 
to the following MS-DRGs:
     061 (Acute Ischemic Stroke with Use of Thrombolytic Agent 
with MCC)
     062 (Acute Ischemic Stroke with Use of Thrombolytic Agent 
with CC)
     063 (Acute Ischemic Stroke with Use of Thrombolytic Agent 
without CC/MCC)
     064 (Intracranial Hemorrhage or Cerebral Infarction with 
MCC)
     065 (Intracranial Hemorrhage or Cerebral Infarction with 
CC)
     066 (Intracranial Hemorrhage or Cerebral Infarction 
without CC/MCC).
    Our data analysis included MS-DRGs 064, 065, and 066 because claims 
involving diagnosis code V45.88 also would be properly reported in the 
data for these MS-DRGs. The following table reflects the results of our 
analysis of the MedPAR data in which diagnosis code V45.88 was reported 
as a secondary diagnosis for FY 2012.

[[Page 50529]]



----------------------------------------------------------------------------------------------------------------
                                                                                      Average
                             MS-DRG                                  Number of       length of     Average costs
                                                                       cases           stay
----------------------------------------------------------------------------------------------------------------
MS-DRG 061--All cases...........................................           3,369            7.48         $18,556
MS-DRG 061--Cases with secondary diagnosis code V45.88..........             140            7.51          19,008
MS-DRG 062--All cases...........................................           5,277            4.92          12,935
MS-DRG 062--Cases with secondary diagnosis code V45.88..........             179            5.03          13,317
MS-DRG 063--All cases...........................................           1,709            3.45          10,363
MS-DRG 063--Cases with secondary diagnosis code V45.88..........              48            3.15           9,372
MS-DRG 064--All cases...........................................          64,095            6.30          11,654
MS-DRG 064--Cases with secondary diagnosis code V45.88..........             955            7.06          14,432
MS-DRG 065--All cases...........................................         101,011            4.29           7,414
MS-DRG 065--Cases with secondary diagnosis code V45.88..........           1,259            4.91           9,471
MS-DRG 066--All cases...........................................          56,620            2.92           5,414
MS-DRG 066--Cases with secondary diagnosis code V45.88..........             493            3.28           6,682
----------------------------------------------------------------------------------------------------------------

    Based on our review of the data for all of the cases in MS-DRGs 
064, 065, and 066, compared to the subset of cases containing diagnosis 
code V45.88 as the secondary diagnosis, we again concluded that the 
movement of cases with diagnosis code V45.88 as a secondary diagnosis 
from MS-DRGs 064, 065, and 066 to MS-DRGs 061, 062, and 063 is not 
warranted. We determined that the differences in the average lengths of 
stay and the average costs are too small to warrant an assignment to 
the higher-weighted MS-DRGs.
    However, the data do reflect that the average costs for cases 
reporting diagnosis code V45.88 as a secondary diagnosis in MS-DRG 066 
are more similar to the average costs of higher severity level cases in 
MS-DRG 065. Therefore, for FY 2014, we proposed to move cases with 
diagnosis code V45.88 from MS-DRG 066 to MS-DRG 065, and to revise the 
title of MS-DRG 065 to reflect the patients status post tPA 
administration within 24 hours (78 FR 27513 through 27514). The 
proposed revised MS-DRG title was: MS-DRG 065 (Intracranial Hemorrhage 
or Cerebral Infarction with CC or tPA in 24 Hours). We invited public 
comments on our proposal.
    Comment: Several commenters supported CMS' proposal to reassign 
cases reporting ICD-9-CM diagnosis code V45.88 from MS-DRG 66 to MS-DRG 
65. The commenters stated this proposal would allow for more 
appropriate payment and recognition of the resources required to care 
for stroke patients who are transferred. Several other commenters 
stated that the proposal was reasonable considering the data and 
clinical information provided.
    Response: We appreciate the commenters' support. We agree that this 
modification to the MS-DRGs involving stroke patients will better 
reflect the increased costs of caring for these transfer cases.
    Comment: One commenter who supported the proposal to reassign cases 
reporting ICD-9-CM diagnosis code V45.88 from MS-DRG 66 to MS-DRG 65 
also urged CMS to move cases reporting ICD-9-CM diagnosis code V45.88 
from MS-DRG 64 (Intracranial Hemorrhage or Cerebral Infarction with 
MCC) to MS-DRG 62 (Acute Ischemic Stroke with Use of Thrombolytic Agent 
with CC). The commenter noted that ``It is essential that hospitals are 
fairly reimbursed for the additional resources associated with caring 
for patients treated with IV tPA even when the tPA is administered at 
another hospital before transfer. Without adequate reimbursement 
through the MS-DRG system, receiving hospitals are financially 
penalized for accepting patients and giving them advanced stroke care 
which is detrimental to stroke systems and patients suffering 
strokes.''
    Response: We also acknowledge the commenter's concern regarding 
appropriate payment for the additional resources required in caring for 
patients treated with tPA and subsequently transferred to another 
facility. As stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27513), we concluded that the movement of cases with diagnosis code 
V45.88 as a secondary diagnosis from MS-DRGs 064, 065, and 066 to MS-
DRGs 061, 062, and 063 is not warranted based on our review of the 
data. In addition, our clinical advisors did not support movement of 
these non-tPA cases into the MS-DRGs where tPA is administered as it 
violates the clinical cohesiveness of these two sets of DRGs.
    After consideration of the public comments we received, we are 
adopting as final policy for FY 2014, our proposal to move cases with 
diagnosis code V45.88 from MS-DRG 066 to MS-DRG 065 and to revise the 
title to MS-DRG 065 (Intracranial Hemorrhage or Cerebral Infarction 
with CC or tPA in 24 Hours).
3. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat)
a. Endoscopic Placement of a Bronchial Value
    In response to the FY 2013 IPPS/LTCH PPS proposed rule, we received 
a request to modify the MS-DRG assignment for bronchial valve(s) 
insertion, which we considered to be outside of the scope of that 
proposed rule (77 FR 53325 through 53326). The requestor asked that 
cases in MS-DRGs 190, 191, and 192 (Chronic Obstructive Pulmonary 
Disease with MCC, with CC, and without MCC/CC, respectively) that 
involve insertion of a bronchial valve be assigned instead to MS-DRGs 
163, 164, and 165 (Major Chest Procedures with MCC, with CC, and 
without MCC/CC, respectively). The procedures are captured by procedure 
codes 33.71 (Endoscopic insertion or replacement of bronchial valve(s), 
single lobe) and 33.73 (Endoscopic insertion or replacement of 
bronchial valve(s), multiple lobes), which are considered nonoperating 
procedures and do not affect the MS-DRG assignment. When reported 
without any other operating room (OR) procedure code, the admission 
would be assigned to a medical MS-DRG.
    The Spiration[supreg] IBV Valve System device, a bronchial valve, 
was approved for new technology add-on payments in the FY 2010 IPPS/RY 
2010 LTCH PPS final rule (74 FR 43819 through 43823) with a maximum 
payment rate of $3,437.50. In the FY 2012 IPPS/LTCH PPS final rule, the 
new technology add-on payments were discontinued for FY 2012 (76 FR 
51575 through 51576). The bronchial valve device 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, and thereby reducing the amount of air 
that enters

[[Page 50530]]

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 
Spiration[supreg], 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.
    New technology add-on payments were limited to cases involving 
prolonged air leaks following lobectomy, segmentectomy, and LVRS in MS-
DRGs 163, 164, and 165 in the FY 2010 IPPS/RY 2010 LTCH PPS final rule 
(74 FR 43823). This limitation was based on the indications for use 
approved by the FDA in the FDA Humanitarian Device Exemption (HDE) 
approval process set forth in section 520(m) of the Federal Food, Drug 
& Cosmetic Act. A humanitarian use device (HUD) is a device that is 
intended to benefit patients by treating or diagnosing a disease or 
condition that affects or is manifested in fewer than 4,000 individuals 
in the United States per year. Devices that receive HUD designation may 
be eligible for marketing approval, subject to certain restrictions, 
under an HDE application. To obtain marketing approval for an HUD, an 
HDE application must be submitted to the FDA. An HDE application is a 
premarket approval (PMA) application submitted to the FDA under 21 CFR 
814.104 that seeks exemption from the PMA requirement under 21 CFR 
814.20 demonstrating a reasonable assurance of effectiveness. A device 
that has received HUD designation may receive HDE approval if, among 
other things, the FDA determines that the device will not expose 
patients to an unreasonable or significant risk of illness or injury 
and the probable benefit to health from use of the device outweighs the 
risk of injury or illness from its use, taking into account the 
probable risks and benefits of currently available devices or 
alternative forms of treatment. In addition, the applicant must 
demonstrate that no comparable devices are available to treat or 
diagnose the disease or condition (other than another device approved 
under an HDE application or a device under an approved Investigational 
Device Exemption), and that the device would not otherwise be available 
unless an HDE is granted. An approved HDE authorizes marketing of the 
HUD. However, an HUD generally may be used in facilities only after 
prior approval by an Institutional Review Board (IRB).
    FDA's approval of the HDE application limited the use of the 
Spiration[supreg] IBV Valve System device to cases involving prolonged 
air leaks following lobectomy, segmentectomy, or LVRS.
    The requested MS-DRG change would initiate the same payment for 
chronic obstructive pulmonary disease (COPD) cases with a bronchial 
valve inserted without a major chest procedure as for cases where both 
a major chest procedure and a bronchial valve insertion were performed. 
The following table shows the COPD cases that involved the insertion of 
a bronchial valve as well as data on cases assigned to MS-DRGs 163, 
164, and 165.

----------------------------------------------------------------------------------------------------------------
                                                                                      Average
                             MS-DRGs                                 Number of       length of    Average  costs
                                                                       cases           stay
----------------------------------------------------------------------------------------------------------------
                                                   COPD Cases
----------------------------------------------------------------------------------------------------------------
MS-DRG 190--All cases...........................................         133,566            5.07          $7,815
MS-DRG 190--Cases with procedure code 33.71.....................               0               0               0
MS-DRG 190--Cases with procedure code 33.73.....................               2            14.0          47,034
MS-DRG 191--All cases...........................................         129,231            4.18           6,245
MS-DRG 191--Cases with procedure code 33.71.....................               0               0               0
MS-DRG 191--Cases with procedure code 33.73.....................               0               0               0
MS-DRG 192--All cases...........................................          93,507            3.32           4,776
MS-DRG 192--Cases with procedure code 33.71.....................               0               0               0
MS-DRG 192--Cases with procedure code 33.73.....................               0               0               0
----------------------------------------------------------------------------------------------------------------
                                             Major Chest Procedures
----------------------------------------------------------------------------------------------------------------
MS-DRG 163--All cases...........................................          11,287           13.33          32,728
MS-DRG 164--All cases...........................................          16,113            6.69          17,494
MS-DRG 165--All cases...........................................           9,280            3.94          12,209
----------------------------------------------------------------------------------------------------------------

    Based on our analysis of FY 2012 Medicare claims data, there were 
only two COPD cases that had bronchial valves inserted in MS-DRGs 190, 
191, and 192. While the charges were high, these cases were assigned to 
the highest severity level MS-DRG (MS-DRG 190 with MCC). Given the 
small number of cases, it is not possible to determine if the high 
average costs were due to the bronchial valve insertion or to other 
factors such as other secondary diagnoses. The average length of stay 
for these two cases was approximately 14 days compared to approximately 
5.07 days for all other cases within MS-DRG 190. Because the additional 
10 days cannot be clinically attributed to the bronchial valve 
insertion, our clinical advisors have determined that other factors 
must have impacted these two cases.
    Cases in MS-DRGs 163, 164, and 165 include those cases with a major 
chest procedure and those cases with both a major chest procedure as 
well as a bronchial valve insertion as discussed above. Our clinical 
advisors do not support moving COPD cases that have only a bronchial 
valve insertion and no other major chest procedure from MS-DRGs 190, 
191, and 192 to MS-DRGs 163, 164, and 165. They do not believe the 
bronchial valve procedures are clinically similar to other major chest 
procedures that require significantly more resources to perform. Our 
clinical advisors pointed out that the limited circumstances where this 
procedure would be used led the sponsor to seek HDE approval from the 
FDA rather than a standard PMA. The indications for use approved by the 
FDA are still limited to post-surgery. Our clinical advisors 
recommended that we not modify the

[[Page 50531]]

MS-DRG logic so that COPD cases with bronchial valve insertions would 
be assigned to MS-DRGs 163, 164, and 165.
    Given the limited number of cases for this procedure and the advice 
from our clinical advisors, in the FY 2014 IPPS/LTCH PPS proposed rule 
(78 FR 27514 through 27515), we did not propose any MS-DRG changes for 
bronchial valve(s) insertion for FY 2014. We also did not propose to 
change the MS-DRG assignment for procedures involving bronchial 
valve(s) insertion (procedure codes 33.71 and 33.73) within MS-DRGs 
190, 191, and 192. We invited public comment on this issue.
    Comment: A number of commenters supported CMS' proposal not to 
change the MS-DRG assignment for procedures involving bronchial 
valve(s) insertion (procedure codes 33.71 and 33.73) which are 
currently assigned to MS DRGs 190, 191, and 192 and to move them to MS-
DRGs 163, 164, and 165. Several of these commenters stated that the 
proposal not to propose any MS-DRG changes for bronchial valve(s) 
insertion was reasonable given the data and information provided. Other 
commenters agreed with the proposal not to change the MS-DRG assignment 
for bronchial valve insertions.
    Response: We appreciate the commenters' support.
    Comment: One commenter disagreed with the proposal not to change 
the MS-DRG assignment for bronchial valves. The commenter recommended 
reclassifying bronchial valve procedure codes 33.71 and 33.73 as 
operating room procedures rather than nonoperating procedures so that 
they will map to a surgical MS-DRG for inpatient hospitalizations. The 
commenter also recommended reassigning cases that currently map to 
medical MS-DRGs 190, 191, and 192 (Chronic Obstructive Pulmonary 
Disease with MCC, with CC, and without MCC/CC, respectively) that 
involve insertion of bronchial valves (ICD-9 CM procedures codes 33.71 
and 33.73) to surgical MS-DRGs 163, 164, and 165 (Major Chest 
Procedures with MCC, with CC, or without MCC/CC, respectively). The 
commenter stated that currently, bronchial valve procedures are 
performed under a Humanitarian Device Exemption (HDE) under the Food 
and Drug Administration (FDA) and indicated for patients with a 
prolonged air leak, or air leak likely to become prolonged, following 
lobectomy, segmentectomy, or lung volume reduction surgery. The 
commenter stated that bronchial valves also are being investigated for 
emphysema, but this indication has not yet been approved by the FDA. 
The commenter stated that bronchial valve cases are more clinically 
complex and costly compared to other types of cases with MS-DRGs 190-
192 and are more appropriately assigned to MS-DRGs 163, 164, and 165.
    The commenter acknowledged that there were only two cases involving 
bronchial valves within MS-DRGs 190, 191, and 192. However, the 
commenter stated that other MS-DRGs such as those for deep brain 
stimulation therapy in MS-DRGs 023 and 024 (Craniotomy with Major 
Device Implant/Acute Complex CNS PDX with MCC or Chemo Implant and 
Craniotomy with Major Device Implant/Acute Complex CNS PDX with MCC or 
Chemo Implant without MCC, respectively) and liver and intestinal 
transplantation in MS-DRG 005 and 006 (Liver Transplant and/or 
Intestinal Transplant with MCC and Liver Transplant and/or Intestinal 
Transplant without MCC) contain a small number of cases. The commenter 
believed that the two bronchial valve cases currently assigned to the 
medical MS-DRG 190 would be better aligned in terms of complexity, 
length of stay, and costs to a surgical MS-DRG set.
    Response: As stated earlier, our clinical advisors do not believe 
the bronchial valve procedures are clinically similar to other major 
chest procedures that require significantly more resources to perform. 
We once again point out the limited circumstances where the FDA has 
approved the bronchial valve are still limited to postsurgery use. The 
two cases that were assigned to MS-DRG 190 could have had higher costs 
due to a number of other factors other than the bronchial valve. Our 
clinical advisors noted the long length of stay for these two cases, 
which would not have been the result of the bronchial valve. Therefore, 
we do not believe it is appropriate to reclassify the bronchial valve 
procedure codes as operating room procedures and reassign the cases 
from MS-DRGs 190, 191, and 192 to MS-DRGs 163, 164, and 165.
    After consideration of the public comments we received, we are 
finalizing our proposal not to change the MS-DRG assignments for 
procedures involving bronchial valve(s) insertion (procedure codes 
33.71 and 33.75) within MS-DRGs 190, 191, and 192.
b. Pulmonary Thromboendarterectomy (PTE) With Full Circulatory Arrest
    We received a request from a university medical center to create a 
new MS-DRG or to reassign cases reporting a unique approach to 
pulmonary thromboendarterectomy (PTE) surgery performed with full 
cardiac arrest and hypothermia. The requestor asked that we move cases 
from MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with 
CC, and without CC/MCC, respectively) to MS-DRGs 228, 229, and 230 
(Other Cardiothoracic Procedures with MCC, with CC, and without CC/MCC, 
respectively). Currently, MS-DRGs 163, 164, and 165 are grouped within 
MDC 4 (Diseases and Disorders of the Respiratory System) while MS-DRGs 
228, 229, and 230 are grouped within MDC 5 (Diseases and Disorders of 
the Circulatory System).
    The requestor identified two conditions for which a pulmonary 
endarterectomy procedure is typically performed. These conditions are 
identified by ICD-9-CM diagnosis codes 415.19 (Other pulmonary embolism 
and infarction) and 416.2 (Chronic pulmonary embolism). However, the 
requestor noted that diagnosis code 415.19 is usually associated with 
traditional PTE for acute pulmonary embolism while diagnosis code 416.2 
is associated with the medical center's unique approach to PTE 
performed with full cardiac arrest and hypothermia.
    Currently, there is not a specific ICD-9-CM procedure code to 
accurately describe PTE surgery performed with full cardiac arrest and 
hypothermia. Rather, a subset of existing ICD-9-CM procedure codes may 
be used to identify the various components involved in this unique 
approach to PTE surgery; for example, ICD-9-CM procedure codes 38.15 
(Endarterectomy, other thoracic vessels); 39.61 (Extracorporeal 
circulation auxiliary to open heart surgery); 39.62 (Hypothermia 
(systemic) incidental to open heart surgery); and 39.63 (Cardioplegia). 
However, it is not clear if the requestor reports any of these codes or 
a combination of these codes to identify its unique approach to the 
procedure.
    According to the requestor, its approach to PTE surgery is 
significantly different from traditional pulmonary endarterectomy 
procedures in terms of complexity, resource use, and the population for 
which the procedure is performed. The requestor noted that the surgery 
is ``conducted under profound hypothermia and circulatory arrest which 
involves placing the patient on cardiopulmonary bypass and cooling the 
body to 20 degrees centigrade or lower.'' In addition, the requestor 
explained that ``during this period of cooling and cardiac arrest, the 
heart is arrested and all of the patient's blood is removed from the 
body.'' Following this, circulation is stopped completely allowing for 
``optimal and extensive dissection of the pulmonary arteries and

[[Page 50532]]

identification of an endarterectomy plane which can be delicately 
incised into the deepest pulmonary vasculature.'' The requestor further 
noted that ``due to the complexity of the surgical technique, a very 
high degree of skill is required and the procedure is currently only 
performed by a handful of surgeons world-wide.'' Lastly, the requestor 
stated the average operating time for a traditional PTE is 
approximately 3 to 4 hours compared to the university medical center's 
approach to PTE, which averages approximately 10 to 12 hours.
    For the FY 2014 IPPS/LTCH PPS proposed rule, we analyzed claims 
data from the FY 2012 MedPAR file for cases reporting a principal 
diagnosis code of 415.19 or a principal diagnosis code of 416.2 along 
with procedure codes 38.15, 39.61, 39.62, and 39.63. As displayed in 
the table below, there were a total of 11,287 cases in MS-DRG 163 with 
an average length of stay of approximately 13.33 days and average costs 
of approximately $32,728. Using the combination of diagnosis and 
procedure codes as described above, the total number of cases found in 
MS-DRG 163 was 12, with average costs ranging from approximately 
$46,959 to $53,048 and an average length of stay ranging from 
approximately 13.50 days to 16.20 days. We acknowledge that the average 
length of stay and average costs for these cases are somewhat higher in 
comparison to the average lengths of stay and average costs of all the 
other cases in MS-DRG 163. However, the volume of cases was very low. 
The data reflect similar results for MS-DRG 164. Only 4 cases were 
identified in the analysis, with average costs ranging from 
approximately $21,669 to $37,447 and average lengths of stay ranging 
from approximately 7 days to 10 days.
    In total, there were only 16 cases reflected in the data using the 
combination of diagnosis codes and proxy procedure codes. We believe 
there may be other factors contributing to the increased lengths of 
stay and costs. (We note that there were no cases found for a principal 
diagnosis code of 415.19 with procedure code 38.15 only. There also 
were no cases found in MS-DRG 165 using the combination of diagnosis 
and procedure codes.)

----------------------------------------------------------------------------------------------------------------
                                                                                      Average
                             MS-DRG                                  Number of       length of     Average costs
                                                                       cases           stay
----------------------------------------------------------------------------------------------------------------
MS-DRG 163--All cases...........................................          11,287           13.33         $32,728
MS-DRG 163--Cases with principal diagnosis code 415.19 with                    4           13.50          46,959
 procedure code 38.15 and 39.61 or 39.62 or 39.63...............
MS-DRG 163--Cases with principal diagnosis code 416.2 with                     3           14.33          53,048
 procedure code 38.15 only......................................
MS-DRG 163--Cases with principal diagnosis code 416.2 with                     5           16.20          50,393
 procedure code 38.15 and 39.61 or 39.62 or 39.63...............
MS-DRG 164--All cases...........................................          16,113            6.69          17,494
MS-DRG 164--Cases with principal diagnosis code 415.19 with                    2           10.00          37,447
 procedure code 38.15 with 39.61 or 39.62 or 39.63..............
MS-DRG 164--Cases with principal diagnosis code 416.2 with                     0               0               0
 procedure code 38.15 only......................................
MS-DRG 164--Cases with principal diagnosis code 416.2 with                     2            7.00          21,669
 procedure code 38.15 and 39.61 or 39.62 or 39.63...............
----------------------------------------------------------------------------------------------------------------

    As stated in previous rulemaking discussion, the MS-DRG 
classification system on which the IPPS is based comprises a system of 
averages. As such, it is understood that, in any particular MS-DRG, it 
is not unusual for a small number of cases to demonstrate higher than 
average costs, nor is it unusual for a small number of cases to 
demonstrate lower than average costs. Upon review of the MedPAR data, 
our clinical advisors agree that the current MS-DRG assignment for this 
unique procedure is appropriate.
    We also analyzed claims data from the FY 2012 MedPAR file for MS-
DRGs 228, 229, and 230 as illustrated below.

----------------------------------------------------------------------------------------------------------------
                                                                                      Average
                             MS-DRG                                  Number of       length of     Average costs
                                                                       cases           stay
----------------------------------------------------------------------------------------------------------------
MS-DRG 228--Other cardiothoracic procedures with MCC............           1,643           13.26         $46,758
MS-DRG 229--Other cardiothoracic procedures with CC.............           1,841            7.77          30,432
MS-DRG 230--Other cardiothoracic procedures without CC/MCC......             506            5.08          25,068
----------------------------------------------------------------------------------------------------------------

    ICD-9-CM procedure code 38.15 is designated as an operating room 
(OR) procedure code and currently groups to MS-DRGs 163, 164, and 165 
in MDC 4 when either diagnosis code 415.19 or 416.2 are reported as the 
principal diagnosis. As diagnosis codes can only be assigned to one MDC 
within the GROUPER logic, it is not possible for a patient to have 
diagnosis code 415.19 or diagnosis code 416.2 reported along with 
procedure code 38.15 and grouped to MDC 5, which is where MS-DRGs 228, 
229, and 230 are assigned.
    Therefore, another aspect of this MS-DRG request involved the 
evaluation of moving ICD-9-CM diagnosis code 416.2 from MDC 4 to MDC 5. 
Our clinical advisors do not support moving diagnosis code 416.2 from 
MDC 4 to MDC 5 in order to accommodate this rare procedure performed by 
only a small number of physicians worldwide. They pointed out that a 
basic change such as moving diagnosis code 416.2 from MDC 4 to MDC 5 
would impact a large number of patients who do not undergo this 
procedure. It also would disrupt trend data from over 30 years of DRG 
and MS-DRG reporting. Given the very small number of potential cases, 
and the advice of our clinical advisors, we determined that an MS-DRG 
modification was not warranted for FY 2014. Therefore, we did not 
propose to create a new MS-DRG or to reassign cases reporting this 
university medical center's approach to pulmonary 
thromboendarterectomy. We invited public comments on this issue.
    Comment: Several commenters supported CMS' proposal to not create a 
new MS-DRG or to reassign cases for this alternative approach to 
pulmonary

[[Page 50533]]

thromboendarterectomy. The commenters stated that the proposal was 
reasonable, given the data and information provided.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to not create a new MS-DRG or to reassign cases 
for this alternative approach to pulmonary thromboendarterectomy.
4. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Discharge/Transfer to Designated Disaster Alternative Care Site
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27516), we 
proposed to add new patient discharge status code 69 (Discharged/
transferred to a designated disaster alternative care site) to the MS-
DRG GROUPER logic for MS-DRGs 280 (Acute Myocardial Infarction 
Discharged Alive with MCC), 281 (Acute Myocardial Infarction Discharged 
Alive with CC), and 282 (Acute Myocardial Infarction Discharged Alive 
without CC/MCC) to identify patients who are discharged or transferred 
to an alternative site that will provide basic patient care during a 
disaster response. As discussed in section II.G.7. of the preamble of 
the proposed rule, we also proposed to add this new discharge status 
code to the Medicare Code Editor (MCE) software. We invited public 
comments on this proposal.
    Comment: Several commenters supported CMS' proposal to add the new 
patient discharge status code 69 to the MS-DRG GROUPER logic for MS-
DRGs 280, 281, and 282 to identify patients who are discharged or 
transferred to an alternative site that will provide basic patient care 
during a disaster response. One commenter noted that this discharge 
status code would seldom be used. However, the commenter believed that 
the code is needed.
    Response: We appreciate the commenters' support. We agree that this 
new discharge status code will be beneficial to identify patients who 
are involved in those disaster situations.
    Comment: One commenter expressed concern with the proposal and 
questioned the purpose of implementing the new patient discharge status 
code 69 to only MS-DRGs 280, 281, and 282 within MDC 5.
    Response: We take this opportunity to point out that the new 
discharge status code 69 was created and approved by the National 
Uniform Billing Committee (NUBC) for implementation on October 1, 2013. 
The purpose of adding this discharge status code 69 specifically to the 
GROUPER logic for MS-DRGs 280, 281, and 282 is to identify those 
patients diagnosed with an acute myocardial infarction (AMI) who were 
discharged/transferred to a designated disaster alternative care site 
alive. The GROUPER logic for these MS-DRGs differs from the GROUPER 
logic for MS-DRGs 283, 284, and 285 (Acute Myocardial Infarction, 
Expired with MCC, with CC, and without CC/MCC, respectively) where the 
patient has expired.
    To further clarify, as discussed in section II.G.7.b. of the 
preamble of the proposed rule (78 FR 27520), this new discharge status 
code was also proposed to be added to the GROUPER and MCE logic. 
Therefore, it may be assigned to other MS-DRGs.
    However, when the logic for an MS-DRG is defined by specific 
requirements, such as discharge status designation, the logic must be 
updated if a new discharge status is created to appropriately group a 
claim. Within MDC 5, for MS-DRGs 280, 281, and 282, the software logic 
is specifically defined by a patient who has been diagnosed with an AMI 
and is discharged alive. Assignment of the proposed new discharge 
status code 69 would not be valid for MS-DRGs 283, 284, and 285 where 
the patient has been diagnosed with an AMI and has expired. In other 
words, an AMI patient who has expired would not be discharged/
transferred to a designated disaster alternative care site. Therefore, 
the addition of discharge status code 69 to the software logic for 
those MS-DRGs (283, 284, and 285) is not applicable within MDC 5. 
Alternatively, a patient who has been diagnosed with an AMI and is 
discharged alive would clearly have the opportunity to be discharged/
transferred to a designated disaster alternative care site in a given 
disaster scenario or circumstance. Therefore, to ensure proper MS-DRG 
assignment, we proposed to add discharge status code 69 to MS-DRGs 280, 
281, and 282 within MDC 5.
    After consideration of the public comments we received, we are 
finalizing our proposal to add new patient discharge status code 69 to 
the MS-DRG GROUPER logic for MS-DRGs 280, 281, and 282.
b. Discharges/Transfers With a Planned Acute Care Hospital Inpatient 
Readmission
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27516), we also 
proposed to add 15 new discharge status codes to the MS-DRG GROUPER 
logic for MS-DRGs 280, 281, and 282 that will identify patients who are 
discharged with a planned acute care hospital inpatient readmission. As 
discussed in section II.G.7.b. of the preamble of the proposed rule, 
these new discharge status codes was proposed for addition to the MCE 
as well.
    Shown in the table below are the current discharge status codes 
that are assigned to the GROUPER logic for MS-DRGs 280, 281, and 282, 
along with the proposed new discharge status codes and their titles.

------------------------------------------------------------------------
                        New
    Current code       code           Discharge status code title
------------------------------------------------------------------------
01..................      81  Discharged to home or self-care with a
                               planned acute care hospital inpatient
                               readmission.
02..................      82  Discharged/transferred to a short term
                               general hospital for inpatient care with
                               a planned acute care hospital inpatient
                               readmission.
03..................      83  Discharged/transferred to a skilled
                               nursing facility (SNF) with Medicare
                               certification with a planned acute care
                               hospital inpatient readmission.
04..................      84  Discharged/transferred to a facility that
                               provides custodial or supportive care
                               with a planned acute care hospital
                               inpatient readmission.
05..................      85  Discharged/transferred to a designated
                               cancer center or children's hospital with
                               a planned acute care hospital inpatient
                               readmission.
06..................      86  Discharged/transferred to home under care
                               of organized home health service
                               organization with a planned acute care
                               hospital inpatient readmission.
21..................      87  Discharged/transferred to court/law
                               enforcement with a planned acute care
                               hospital inpatient readmission.
43..................      88  Discharged/transferred to a federal health
                               care facility with a planned acute care
                               hospital inpatient readmission.
61..................      89  Discharged/transferred to a hospital-based
                               Medicare approved swing bed with a
                               planned acute care hospital inpatient
                               readmission.

[[Page 50534]]

 
62..................      90  Discharged/transferred to an inpatient
                               rehabilitation facility (IRF) including
                               rehabilitation distinct part units of a
                               hospital with a planned acute care
                               hospital inpatient readmission.
63..................      91  Discharged/transferred to a Medicare
                               certified long term care hospital (LTCH)
                               with a planned acute care hospital
                               inpatient readmission.
64..................      92  Discharged/transferred to a nursing
                               facility certified under Medicaid but not
                               certified under Medicare with a planned
                               acute care hospital inpatient
                               readmission.
65..................      93  Discharged/transferred to a psychiatric
                               distinct part unit of a hospital with a
                               planned acute care hospital inpatient
                               readmission.
66..................      94  Discharged/transferred to a critical
                               access hospital (CAH) with a planned
                               acute care hospital inpatient
                               readmission.
70..................      95  Discharged/transferred to another type of
                               health care institution not defined
                               elsewhere in this code list with a
                               planned acute care hospital inpatient
                               readmission.
------------------------------------------------------------------------

    We invited public comments on our proposal to add the above listed 
new discharge status codes to the GROUPER logic for MS-DRGs 280, 281, 
and 282.
    Comment: Commenters supported CMS' proposal to add the 15 new 
discharge status codes to the MS-DRG GROUPER logic for MS-DRGs 280, 
281, and 282 that will identify patients who are discharged with a 
planned acute care hospital inpatient readmission. The commenters noted 
that these new discharge status codes will enable providers to better 
track AMI patients with planned versus unplanned readmissions.
    Response: We appreciate the commenters' support. We agree that 
these new discharge status codes will assist in tracking patients 
diagnosed with an acute myocardial infarction who are discharged alive 
and expect to be readmitted at a later date.
    Comment: One commenter stated that the addition of these 15 new 
discharge status codes to MS-DRGs 280-282 is unwarranted and believed 
that it will create a burden for providers to report and update 
systems. The commenter questioned if there is a timeframe associated 
with the use of these new discharge status codes and if this timeframe 
involves reporting a new discharge status code if the planned 
readmission is to treat the same condition as the current stay. In 
addition, the commenter questioned how CMS would verify that providers 
are applying these proposed discharge status codes appropriately. The 
commenter stated there are ``plenty of descriptive discharge status 
codes that describe where the patient is going upon discharge. To add 
more to clarify what is planned seems burdensome and unnecessary.'' 
Another commenter expressed concern with ``targeting only a small 
number of DRGs for a large increase in applicable discharge status 
codes.''
    Response: The new discharge status codes related to a planned acute 
care hospital inpatient readmission were developed and approved by the 
National Uniform Billing Committee (NUBC) in response to a request by 
the provider community. The purpose of the new codes is to allow 
providers to track these types of situations when they occur. According 
to meeting notes from the NUBC, there is not a designated timeframe (or 
limitation) in reporting these new codes.
    With respect to ensuring that providers apply these proposed new 
discharge status codes correctly, we would like to point out that the 
American Health Information Management Association (AHIMA) has 
promulgated Standards of Ethical Coding that require accurate coding 
that includes the reporting of all health care data elements (for 
example, diagnosis and procedure codes, present on admission indicator, 
discharge status) required for external reporting purposes (for 
example, reimbursement and other administrative uses, population 
health, quality and patient safety measurement, and research) 
completely and accurately, in accordance with regulatory and 
documentation standards and requirements and applicable official coding 
conventions, rules, and guidelines. In addition, Medicare program 
integrity initiatives closely monitor for inaccurate coding, as well as 
coding inconsistent with medical record documentation.
    In regard to the commenter's concern with targeting a small number 
of MS-DRGs with a large increase in discharge status codes, the 
discharge status codes were proposed to be added specifically to the 
GROUPER logic for MS-DRGs 280, 281, and 282 to identify those patients 
diagnosed with an acute myocardial infarction (AMI) who were 
discharged/transferred to another facility with a planned acute care 
hospital inpatient readmission alive. The GROUPER logic for these MS-
DRGs differs from the GROUPER logic for MS-DRGs 283, 284, and 285 
(Acute Myocardial Infarction, Expired with MCC, with CC, and without 
CC/MCC, respectively) where the patient has expired.
    Similar to the discussion of discharge status code 69 in section 
II.G.4.a. of the preamble of this final rule, the planned readmission 
discharge status codes can also be reported for other MS-DRGs. We 
reiterate that, as discussed in section II.G.7.b. of the preamble of 
the proposed rule (78 FR 27520), these new discharge status codes were 
proposed for addition to the GROUPER and MCE logic as well.
    When the logic for an MS-DRG is defined by specific requirements, 
such as a discharge status designation, the logic must be updated if a 
new discharge status is created to appropriately group a claim. Within 
MDC 5, for MS-DRGs 280, 281, and 282, the software logic is 
specifically defined by a patient who has been diagnosed with an AMI 
and is discharged alive. As such, the GROUPER logic requires that these 
discharge status codes for planned readmissions be added to the 
specific AMI DRGs where the patient has been discharged alive. An AMI 
patient who expired would not have a planned readmission. Therefore, 
these discharge status codes would not apply to MS-DRGs 283, 284, and 
285 within MDC 5. Therefore, to ensure proper MS-DRG assignment, we 
proposed to add the 15 discharge status codes describing a planned 
readmission to MS-DRGs 280, 281, and 282 within MDC 5.
    After consideration of the public comments we received, we are 
finalizing our proposal to add the above listed 15 new patient 
discharge status codes describing a planned acute care hospital 
inpatient readmission to the MS-DRG GROUPER logic for MS-DRGs 280, 281, 
and 282, effective October 1, 2013.
5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and 
Connective Tissue)
a. Reverse Shoulder Procedures
    We received a request to change the MS-DRG assignment for reverse 
shoulder replacement procedures which

[[Page 50535]]

is captured with procedure code 81.88 (Reverse total shoulder 
replacement). The requestor did not suggest a specific new MS-DRG 
assignment, but requested that reverse shoulder replacement procedures 
be reassigned from MS-DRGs 483 and 484 (Major Joint/Limb Reattachment 
Procedure of, Upper Extremities with CC/MCC and without CC/MCC, 
respectively) or that we create a new MS-DRG for reverse shoulder 
replacement procedures.
    Biomechanically, the reverse shoulder devices move the center of 
rotation of the arm laterally and change the direction of the pull of 
the deltoid muscle, allowing the deltoid muscle to elevate the arm 
without functioning rotator cuff tendons. The requestor stated that the 
use of traditional total shoulder devices in patients with a 
nonfunctioning rotator cuff frequently leads to long-term complications 
and unsatisfactory functional results. Patients with damaged rotator 
cuffs or rotator cuff syndrome have poor outcomes with traditional 
shoulder replacement devices. The reverse shoulder replacement 
procedure was created to address the clinical needs for patients who 
would have poor outcomes with a traditional shoulder replacement. The 
requestor stated that reverse shoulder replacement devices were 
designed to provide a superior functionality and outcomes for patients 
with damaged rotator cuffs.
    The requestor stated that the reverse shoulder replacement 
procedure is technically more complex and requires a higher level of 
expertise than traditional shoulder procedures and involves several 
issues that make the surgery more complex. Patients who have had prior 
rotator cuff surgery have anchors and scar tissue that must be 
surgically addressed. Often, there also are severe deformities that 
must be addressed in order to establish stability.
    The requestor acknowledged that the reverse shoulder replacement 
procedure is an upper extremity procedure like other procedures 
assigned to MS-DRGs 483 and 484. These MS-DRGs include the longstanding 
total shoulder replacement procedures as well as partial shoulder 
replacements. While the procedure is similar to other procedures in MS-
DRGs 483 and 484, the requestor stated there are significant 
differences between the technical complexity and indications for usage 
from the other procedures. The requestor stated there are significant 
differences in resource usage and clinical coherence between 
longstanding approaches to shoulder replacement and other procedures 
assigned to MS-DRGs 483 and 484 and the reverse shoulder replacement 
procedure. The requestor stated not only was the resource consumption 
significantly higher, the individual supply costs for reserve shoulder 
replacement procedures were higher than the costs of other procedures 
assigned to MS-DRGs 483 and 484.
    MS-DRGs 483 and 484 contain the following procedures:
     81.73 (Total wrist replacement)
     81.80 (Other total shoulder replacement)
     81.81 (Partial shoulder replacement)
     81.84 (Total elbow replacement)
     81.88 (Reverse total shoulder replacement)
     84.23 (Forearm, wrist, or hand reattachment)
     84.24 (Upper arm reattachment).
    As can be seen from this list, MS-DRGs 483 and 484 contain total 
and partial shoulder replacements, as well as replacement and 
attachment procedures on the wrist and upper arm. Both the newer 
shoulder replacement techniques as well as the longstanding shoulder 
replacement techniques are included in these MS-DRGs.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 483--All cases...........................................          13,113            3.33         $17,039
MS-DRG 483--Cases with procedure code 81.88.....................           5,690            3.30          19,023
MS-DRG 484--All cases...........................................          21,073            2.01          14,448
MS-DRG 484--Cases with procedure code 81.88.....................           7,505            2.08          16,890
----------------------------------------------------------------------------------------------------------------

    As the above table illustrates, the average costs for reverse total 
shoulder replacement are approximately $2,000 higher than the average 
costs for all other procedures within MS-DRGs 483 and 484 and have 
similar average lengths of stays. While the average costs were higher, 
each MS-DRG has some cases that are higher and some cases that are 
lower than the average costs for the entire MS-DRG. We believe the 
average costs for the reverse shoulder replacement procedures are not 
inappropriately high compared to other procedures grouped within MS-
DRGs 483 and 484. Therefore, the claims data do not support reassigning 
these cases or creating a new MS-DRG.
    Our clinical advisors reviewed this issue and determined that the 
cases are appropriately assigned to MS-DRGs 483 and 484. As stated 
earlier, MS-DRGs 483 and 484 contain other types of shoulder 
replacements. Our clinical advisors believe it is appropriate to have 
all total shoulder replacement procedures within the same set of MS-
DRGs. They do not believe it is appropriate to reassign those that use 
a different technique to accomplish the same goal, a total shoulder 
replacement. Therefore, our clinical advisors determined that this is 
an appropriate assignment for reverse shoulder replacement procedures 
from a clinical perspective. They also do not believe it is appropriate 
to move these cases to any other surgical, orthopedic MS-DRGs because 
of differences in the clinical makeup of the other surgical orthopedic 
MS-DRGs. Our clinical advisors recommended not creating a new MS-DRG 
for reverse shoulder replacement procedures because they believe the 
procedures are appropriately assigned to MS-DRGs 483 and 484. 
Therefore, based on claims data and clinical analysis, in the FY 2014 
IPPS/LTCH PPS proposed rule (78 FR 27517 through 27518), we did not 
propose to reassign these cases to any other MS-DRGs or to create a new 
MS-DRG.
    Based on the claims data and our clinical analysis, we did not 
propose to reassign cases reporting procedure code 81.88 from their 
current assignment to MS-DRGs 483 and 484 or to create a new MS-DRG. We 
invited public comments on this issue.
    Comment: Several commenters supported CMS' proposal not to reassign 
reverse shoulder procedure cases reporting procedure code 81.88 from 
their current assignment to MS DRGs 483 and 484 or to create a new MS-
DRG. Several commenters stated the proposal was reasonable given the 
data and information provided.
    Other commenters disagreed with our recommendation of making no MS-
DRG modifications for reverse shoulder procedures. One commenter stated 
that the procedure is unique enough in approach and cost to justify 
reassignment, or as an alternative, reassignment of all reverse 
shoulder cases to MS-DRG 483, even if the cases do not have a CC or MCC 
as a secondary

[[Page 50536]]

diagnosis. The commenter stated that it is important to take into 
consideration the high volume of reverse shoulder procedures cases that 
have occurred in a very short period of time since this code was 
created. The commenter stated that, in the first year of this new code, 
more than one-third of the cases in each MS-DRG (483 and 484) are 
reverse shoulder procedures. For a newly created code, the commenter 
believed that this was extraordinary utilization and should indicate 
the importance of this unique procedure. The commenter stated that, 
without an examination of each case and the reason why some cases 
showed lower costs, it does not seem reasonable to dismiss the 
substantially higher average costs of the procedures. The commenter 
further stated that while CMS clinical advisors stated that reverse 
shoulder is a simply a different technique to accomplish the same goal 
of a total shoulder replacement, the procedure (and the device used in 
the procedure) is meeting an unmet need, uses significantly different 
techniques to implant the device, and requires additional skill, 
experience, and time to implant. Another commenter recommended that CMS 
create a new MS-DRG for reverse shoulder procedures because the 
procedure is used to treat some of the most complex patients and use 
greater resources.
    Response: We agree with the commenters who stated that the data and 
our clinical analysis support the recommendation of making no MS-DRG 
changes for reverse shoulder procedures. Our clinical advisors continue 
to believe the procedure is a different technique to accomplish the 
same goal, a total shoulder replacement. We do not believe the data or 
a clinical analysis would support moving all reverse shoulder 
procedures into a new MS-DRG or moving all the reverse shoulder 
procedures to MS DRG 483. The difference in average costs for reverse 
shoulder procedures with a CC/MCC versus those without a CC/MCC is 
$2,133. The difference in average costs for all cases in MS-DRG 483 and 
MS-DRG 484 is $2,591. Clearly the presence of a CC or MCC has a 
consistent impact on the average costs of shoulder replacements. Our 
clinical advisors believe that it is important to maintain the clinical 
cohesion of MS-DRGs 483 and 484 to maintain severity levels for all 
shoulder replacement procedures.
    The commenter who disagreed with our proposal pointed out that this 
procedure is being adopted at a rapid rate with one-third of the 
shoulder replacements using this new technique. Any growth in this 
approach of performing total shoulder replacements will be reflected in 
our claims data and will impact relative weights. Because the data and 
clinical analysis support keeping the reverse shoulder procedure in the 
same MS-DRG as other shoulder replacements, we are not modifying the 
MS-DRGs for reverse shoulder procedures.
    After consideration of the public comments we received, we are 
finalizing our proposal to not reassign reverse shoulder cases 
reporting procedure code 81.88 from their current assignment in MS DRGs 
483 and 484 or to create a new MS-DRG.
b. Total Ankle Replacement Procedures
    In response to the FY 2013 IPPS/LTCH PPS proposed rule, we received 
a request to develop a new MS-DRG for total ankle replacements, which 
we considered to be outside the scope of that proposed rule (77 FR 
53325). We are addressing this request as part of the FY 2014 IPPS/LTCH 
PPS rulemaking. The cases are captured by procedure code 81.56 (Total 
ankle replacement) and are assigned to MS-DRGs 469 and 470 (Major Joint 
Replacement or Reattachment of Lower Extremity with MCC and without 
MCC, respectively).
    The commenter stated that total ankle procedures are much more 
clinically complex than total hip or total knee replacement procedures, 
which have their own distinct MS-DRGs. The commenter also stated that 
total ankle replacement is surgery that involves the replacement of the 
damaged parts of the three bones that make up the ankle joint, as 
compared to two bones in most other total joint procedures such as hip 
or knee replacement. The commenter stated that average costs of total 
ankle replacements are higher than those for total knee and hip 
replacements. Therefore, the commenter recommended that a new MS-DRG 
should be created for total ankle replacements. As an alternative, the 
commenter suggested that these cases be reassigned to MS-DRG 469 even 
if the cases do not have an MCC as a secondary diagnosis.
    MS-DRGs 469 and 470 include a variety of procedures of the lower 
extremities including the procedures listed below. This group of lower 
extremity joint replacement and reattachment procedures was developed 
because they were considered to be clinically cohesive and to have 
similar resource consumptions.
     00.85 (Resurfacing hip, total, acetabulum and femoral 
head)
     00.86 (Resurfacing hip, partial, femoral head)
     00.87 (Resurfacing hip, partial, acetabulum)
     81.51 (Total hip replacement)
     81.52 (Partial hip replacement)
     81.54 (Total knee replacement)
     81.56 (Total ankle replacement)
     84.26 (Foot reattachment)
     84.27 (Lower leg or ankle reattachment)
     84.28 (Thigh reattachment)
    As the table below shows, there were 1,275 cases reporting total 
ankle replacements with 21 cases in MS-DRG 469 and 1,254 cases in MS-
DRG 470. The 1,254 cases in MS-DRG 470 have higher costs than other 
cases in MS-DRG 470 (approximately $17,242 compared to approximately 
$13,984). The 21 cases in MS-DRG 469 had average costs of approximately 
$23,360 compared to approximately $21,186 in average costs for all 
cases within MS-DRG 469. While these procedures are higher in average 
costs than other procedures within the MS-DRGs, we point out that cases 
are grouped together based on similar clinical and resource criteria. 
Some cases will have average costs higher than the overall average 
costs for the MS-DRG, while other cases will have lower average costs. 
Total ankle replacements represent 0.3 percent of the total number of 
cases within MS-DRGs 469 and 470.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRGs                                   cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 469--All cases...........................................          25,618            7.33         $21,186
MS-DRG 469--Cases with procedure code 81.56.....................              21            6.81          23,360
MS-DRG 470--All cases...........................................         390,518            3.37          13,984
MS-DRG 470--Cases with procedure code 81.56.....................           1,254            2.19          17,242
    Total--All cases............................................  ..............  ..............         416,136
    Total--Cases with procedure code 81.56......................  ..............  ..............           1,275
----------------------------------------------------------------------------------------------------------------


[[Page 50537]]

    Our clinical advisors reviewed this issue and determined that the 
total ankle replacements are appropriately classified within MS-DRGs 
469 and 470. They do not support the commenter's contention that these 
cases are significantly more complex than knee and hip replacements. 
They believe that total ankle replacements are clinically consistent 
with other types of lower extremity joint replacements within MS-DRGs 
469 and 470. Our clinical advisors do not support creating a new MS-DRG 
for total ankle replacements. After considering the results of 
examination of the claims data, the recommendations from our clinical 
advisors, and the small number of total ankle replacements, in the FY 
2014 IPPS/LTCH PPS proposed rule (78 FR 27518 through 27519), we did 
not propose to create a new MS-DRG.
    We also examined the request to move all total ankle replacements 
to the highest severity level, MS-DRG 469, even when no secondary 
diagnosis on the MCC list was reported. Moving all total ankle 
replacements to MS-DRG 469 would lead to overpayments of approximately 
$3,944 per case because the average costs of total ankle replacements 
in MS-DRG 470 was approximately $17,242, while the average costs of all 
cases in MS-DRG 469 was approximately $21,186. After considering the 
claims data as well as the input from our clinical advisors, in the FY 
2014 IPPS/LTCH PPS proposed rule (78 FR 27518 through 27519), we did 
not propose that all total ankle procedures be assigned to MS-DRG 469 
even when the case does not have an MCC reported as a secondary 
diagnosis. We believe the current MS-DRGs are appropriate for total 
ankle replacements.
    In the FY 2014 IPPS/LTCH PPS proposed rule, we did not propose to 
create a new total ankle replacement MS-DRG or to reassign all total 
ankle replacements to MS DRG 469. We proposed to maintain the current 
MS-DRG assignments for total ankle replacements. We invited public 
comment on our proposals.
    Comment: Several commenters supported CMS' recommendation to 
maintain the current MS-DRG assignments for total ankle replacements. 
Several commenters stated that the proposal not to create a new total 
ankle replacement MS-DRG or to reassign all total ankle replacements to 
MS DRG 469 was reasonable given the data and information provided. 
Other commenters offered support for our recommendation to maintain the 
current MS-DRG assignments for total ankle replacements.
    Response: We appreciate the commenters' support.
    Comment: Several commenters disagreed with the proposal. One 
commenter stated that total ankle procedures are more clinically 
complex than total hip or total knee replacement procedures, and that 
the higher average cost for total ankle procedures should qualify it 
for reassignment. Another commenter stated that the proposed policy is 
detrimental to hospitals' ability to provide in a cost effective manner 
clinically-proven intervention, and thus jeopardizes beneficiary access 
to total ankle replacement procedures. The commenter pointed out that 
CMS suggests that under the MS-DRG system in general, some cases will 
have average costs higher than the overall average costs for the MS-
DRG, while other cases will have lower average costs. However, the 
commenter believed that, due to the wide variation of procedures that 
map to MS-DRGs 469 and 470, this is an insufficient rationale to 
systematically underpay for the average cost of the vast majority of 
total knee procedures by 28 percent. The commenter stated that total 
ankle replacement is a complex surgical procedure involving the 
replacement of the damaged parts of the three bones (talus, tibia and 
fibula) that make up the articulations of the ankle, as compared to two 
bones in most other total joint replacement procedures (for example, 
hip or knee). The commenter stated that establishing a separate MS-DRG 
for total ankle procedures is the best solution to ensuring that all 
joint replacement MS-DRGs are clinically coherent, and similar in 
resource use. The commenter recommended that if a separate MS-DRG could 
not be created, CMS reassign all total ankle replacements to MS-DRG 469 
even if the cases do not report a MCC. Other commenters asked that 
total ankle replacements be reassigned to higher paying MS-DRGs because 
the procedures were clinically more complex and have higher average 
costs than other procedures within the current MS-DRGs.
    Response: We disagree with the commenters who stated that the 
clinical complexity of total ankle procedures justifies reassigning the 
cases. As stated earlier, our clinical advisors reviewed this issue and 
determined that the total ankle replacements are appropriately 
classified with other lower joint procedures within MS-DRGs 469 and 
470. They do not support the commenters' contention that these cases 
are significantly more complex than knee and hip replacements. Our 
clinical advisors believe that total ankle replacements are clinically 
consistent with other types of lower extremity joint replacements 
within MS-DRGs 469 and 470. As we also mentioned earlier, moving all 
total ankle replacements to MS-DRG 469 would lead to overpayments of 
approximately $3,944 per case because the average costs of total ankle 
replacements in MS-DRG 470 was approximately $17,242, while the average 
costs of all cases in MS DRG 469 was approximately $21,186. Our 
clinical advisors do not support creating a new MS-DRG for total ankle 
procedures or moving the cases to MS-DRG 469.
    After consideration of the public comments we received, we are 
finalizing our proposal to maintain the current MS-DRG assignments for 
total ankle replacements captured by procedure code 81.56 and assigned 
to MS-DRGs 469 and 470.
6. MDC 15 (Newborns and Neonates With Conditions Originating in the 
Neonatal Period)
a. Persons Encountering Health Services for Specific Procedures, Not 
Carried Out
    We received a request to evaluate the MS-DRG assignment of ICD-9-CM 
diagnosis codes V64.00 through V64.04, and V64.06 through V64.43 in MS-
DRG 794 (Neonate with Other Significant Problems) under MDC 15. The 
requestor noted that the assignment of diagnosis code V64.05 
(Vaccination not carried out because of caregiver refusal) was 
addressed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50111 through 
50112). We removed diagnosis code V64.05 from MS-DRG 794 and added it 
to the ``only secondary diagnosis'' list for MS-DRG 795 (Normal 
Newborn). The requestor asked that we consider the reassignment of 
these diagnosis codes from MS-DRG 794 to MS-DRG 795. The codes under 
existing MS-DRG 794 include:
     V64.00 (Vaccination not carried out, unspecified reason)
     V64.01 (Vaccination not carried out because of acute 
illness)
     V64.02 (Vaccination not carried out because of chronic 
illness or condition)
     V64.03 (Vaccination not carried out because of immune 
compromised state)
     V64.04 (Vaccination not carried out because of allergy to 
vaccine or component)
     V64.06 (Vaccination not carried out because of patient 
refusal)
     V64.07 (Vaccination not carried out for religious reasons)
     V64.08 (Vaccination not carried out because patient had 
disease being vaccinated against)
     V64.09 (Vaccination not carried out for other reason)

[[Page 50538]]

     V64.1 (Surgical or other procedure not carried out because 
of contraindication)
     V64.2 (Surgical or other procedure not carried out because 
of patient's decision)
     V64.3 (Procedure not carried out for other reasons)
     V64.41 (Laparoscopic surgical procedure converted to open 
procedure)
     V64.42 (Thoracoscopic surgical procedure converted to open 
procedure)
     V64.43 (Arthroscopic surgical procedure converted to open 
procedure).
    In a newborn case with one of these diagnosis codes reported as a 
secondary diagnosis, the case would be assigned to MS-DRG 794. The 
commenter believed that these diagnosis codes, when reported as a 
secondary diagnosis for a newborn case, should be assigned to MS-DRG 
795 instead of MS-DRG 794.
    Our clinical advisors reviewed this request and concur with the 
commenter that diagnosis codes V64.00 through V64.04, and V64.06 
through V64.3 should not continue to be assigned to MS-DRG 794, as 
there is no clinically usable information reported in those codes 
identifying significant problems. However, our clinical advisors 
recommend that diagnosis codes V64.41, V64.42, and V64.43, which 
identify that a surgical procedure converted to an open procedure, 
continue to be assigned to MS-DRG 794. These diagnosis codes may 
indicate a more significant encounter that required a surgical 
intervention.
    Therefore, for FY 2014, we proposed to reassign diagnosis codes 
V64.00 through V64.04, and V64.06 through V64.3 from MS-DRG 794 to MS-
DRG 795 (78 FR 27519). Diagnosis codes V64.00 through V64.04, and 
V64.06 through V64.3 would be added to the ``only secondary diagnosis'' 
list for MS-DRG 795. Diagnosis codes V64.41, V64.42, and V64.43 would 
continue to be assigned to MS-DRG 794. We invited public comments on 
this proposal.
    Comment: Several commenters supported CMS' proposal to reassign 
diagnosis codes V64.00 through V64.04 and V64.06 through V64.3 from MS-
DRG 794 to MS-DRG 795. The commenters stated that the proposed 
reassignments were reasonable given the data and information provided.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal of reassigning diagnosis codes V64.00 through 
V64.04 and V64.06 through V64.3 from MS-DRG 794 to MS-DRG 795.
b. Discharges/Transfers of Neonates With a Planned Acute Care Hospital 
Inpatient Readmission
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27519 and 27520), 
we proposed to add the patient discharge status codes shown in the 
table below to the MS-DRG GROUPER logic for MS-DRG 789 (Neonates, Died 
or Transferred to Another Acute Care Facility) to identify neonates 
that are transferred to a designated facility with a planned acute care 
hospital inpatient readmission.

------------------------------------------------------------------------
           New code                              Title
------------------------------------------------------------------------
82...........................  Discharged/transferred to a short term
                                general hospital for inpatient care with
                                a planned acute care hospital inpatient
                                readmission.
85...........................  Discharged/transferred to a designated
                                cancer center or children's hospital
                                with a planned acute care hospital
                                inpatient readmission.
94...........................  Discharged/transferred to a critical
                                access hospital (CAH) with a planned
                                acute care hospital inpatient
                                readmission.
------------------------------------------------------------------------

    Currently, the GROUPER logic for MS-DRG 789 contains discharge 
status codes 02 (Discharged/transferred to a short term general 
hospital for inpatient care), 05 (Discharged/transferred to a 
designated cancer center or children's hospital), and 66 (Discharged/
transferred to a critical access hospital (CAH)).
    As discussed in section II.G.7. of the preamble of the proposed 
rule, these new discharge status codes were also proposed for addition 
to the Medicare Code Editor (MCE). We invited public comments on our 
proposal.
    Comment: Several commenters supported CMS' proposal to add the 
three new discharge status codes to the MS-DRG GROUPER logic for MS-DRG 
789 (Neonates, Died or Transferred to Another Acute Care Facility) to 
identify neonates that are transferred to a designated facility with a 
planned acute care hospital inpatient readmission. The commenters noted 
the proposal was reasonable given the data and information provided.
    Response: We appreciate the commenters' support.
    Comment: One commenter expressed concern that the addition of these 
new discharge status codes to MS-DRG 789 would create a burden to 
providers in updating their systems and was unnecessary.
    Response: As noted in the previous section, these new discharge 
status codes related to a planned acute care hospital inpatient 
readmission were developed and approved by the NUBC in response to a 
request by the provider community. For the commenters' benefit, we 
would like to point out how the GROUPER logic for MS-DRG 789 is 
designed. When the logic for an MS-DRG is defined by specific 
requirements, such as a discharge status designation, the logic must be 
updated if a new discharge status is created to appropriately group a 
claim.
    With regard to the burden on providers for updating their systems, 
effective October 1 of each year, providers have gone through the 
process of updating their systems based on changes that were approved 
and finalized for the upcoming IPPS fiscal year.
    After consideration of the public comments we received, we are 
finalizing our proposal to add new discharge status codes 82, 85, and 
94 to the MS-DRG GROUPER logic for MS-DRG 789 for FY 2014.
7. Medicare Code Editor (MCE) Changes
    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.
a. Age Conflict Edit
    We received a request to review three ICD-9-CM diagnosis codes 
currently listed under the age conflict edit within the MCE. The age 
conflict edit detects inconsistencies between a patient's age and any 
diagnosis on the patient's record. Specifically, the requestor 
recommended that CMS consider the removal of diagnosis codes 751.1 
(Atresia and stenosis of small intestine), 751.2 (Atresia and stenosis 
of large intestine, rectum, and anal canal), and 751.61 (Biliary 
atresia) from the

[[Page 50539]]

pediatric age conflict edit. Generally, diagnoses included in the list 
for the pediatric age conflict edit are applicable for ages 0 through 
17.
    The requestor noted that diagnosis code 751.1 was removed from the 
Integrated Outpatient Code Editor (IOCE) effective January 1, 2006. Our 
clinical advisors agree that patients described with any one of the 
above listed codes, although congenital anomalies, may require a 
revision procedure in adulthood. Therefore, we believe that the removal 
of these codes appears appropriate and also would be consistent with 
the IOCE.
    We invited public comments on our proposal to remove diagnosis 
codes 751.1, 751.2, and 751.61 from the pediatric age conflict edit 
effective October 1, 2013.
    Comment: Commenters supported the proposal to remove diagnosis 
codes 751.1, 751.2, and 751.61 from the pediatric age conflict edit 
effective October 1, 2013.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to remove diagnosis codes 751.1, 751.2, and 
751.61 from the pediatric age conflict edit effective October 1, 2013.
b. Discharge Status Code Updates
    To reflect changes in the UB-04 code set maintained by the National 
Uniform Billing Committee (NUBC), in the FY 2014 IPPS/LTCH PPS proposed 
rule (78 FR 27520), we proposed to add the following new discharge 
status codes to the CMS GROUPER and the MCE logic effective October 1, 
2013.
    One of the new discharge status codes corresponds to an alternative 
care site. This alternative care site discharge status code is intended 
to identify patients being discharged or transferred to an alternative 
site that will provide basic patient care during a disaster response. 
The new discharge status code is 69 (Discharged/transferred to a 
designated disaster alternative care site).
    In addition, 15 new discharge status codes correspond with 
identifying planned acute care hospital inpatient readmissions. Shown 
below are the existing ``base'' discharge status codes and the new 
codes that will better identify patients who are discharged with a 
planned readmission.

----------------------------------------------------------------------------------------------------------------
              Base code                        New code                               Title
----------------------------------------------------------------------------------------------------------------
01...................................  81.....................  Discharged to home or self-care with a planned
                                                                 acute care hospital inpatient readmission.
02...................................  82.....................  Discharged/transferred to a short term general
                                                                 hospital for inpatient care.
03...................................  83.....................  Discharged/transferred to a skilled nursing
                                                                 facility (SNF) with Medicare certification with
                                                                 a planned acute care hospital inpatient
                                                                 readmission.
04...................................  84.....................  Discharged/transferred to a facility that
                                                                 provides custodial or supportive care with a
                                                                 planned acute care hospital inpatient
                                                                 readmission.
05...................................  85.....................  Discharged/transferred to a designated cancer
                                                                 center or children's hospital with a planned
                                                                 acute care hospital inpatient readmission.
06...................................  86.....................  Discharged/transferred to home under care of
                                                                 organized home health service organization with
                                                                 planned acute care hospital inpatient
                                                                 readmission.
21...................................  87.....................  Discharged/transferred to court/law enforcement
                                                                 with a planned acute care hospital inpatient
                                                                 readmission.
43...................................  88.....................  Discharged/transferred to federal health care
                                                                 facility with a planned acute care hospital
                                                                 inpatient readmission.
61...................................  89.....................  Discharged/transferred to a hospital-based
                                                                 Medicare approved swing bed with a planned
                                                                 acute care hospital inpatient readmission.
62...................................  90.....................  Discharged/transferred to an inpatient
                                                                 rehabilitation facility (IRF) including
                                                                 rehabilitation distinct part units of a
                                                                 hospital with a planned acute care hospital
                                                                 inpatient readmission.
63...................................  91.....................  Discharged/transferred to a Medicare certified
                                                                 long term care hospital (LTCH) with a planned
                                                                 acute care hospital inpatient readmission.
64...................................  92.....................  Discharged/transferred to a nursing facility
                                                                 certified under Medicaid but not certified
                                                                 under Medicare with a planned acute care
                                                                 hospital inpatient readmission.
65...................................  93.....................  Discharged/transferred to a psychiatric distinct
                                                                 part unit of a hospital with a planned acute
                                                                 care hospital inpatient readmission.
66...................................  94.....................  Discharged/transferred to a critical access
                                                                 hospital (CAH) with a planned acute care
                                                                 hospital inpatient readmission.
70...................................  95.....................  Discharged/transferred to another type of health
                                                                 care institution not defined elsewhere in this
                                                                 code list with a planned acute care hospital
                                                                 inpatient readmission.
----------------------------------------------------------------------------------------------------------------

    We invited public comments on our proposal to add the above listed 
new discharge status codes to the GROUPER and the MCE logic effective 
October 1, 2013 (FY 2014).
    Comment: Several commenters supported CMS' proposal to add the 
above listed discharge status codes to the GROUPER and the MCE logic. 
However, some commenters asked CMS to clarify how it intends to use the 
new discharge status codes for planned acute care hospital inpatient 
readmissions. One commenter stated that, based on the description of a 
planned readmission algorithm in the FY 2014 IPPS/LTCH PPS proposed 
rule (78 FR 27595), it appears that CMS is planning to use an algorithm 
to identify planned readmissions for part of the Hospital Readmissions 
Reduction Program, rather than relying on the proposed new planned 
readmission discharge status codes reported on claims. This commenter 
suggested that CMS work with the NUBC to develop additional guidance on 
the proper use of the discharge status codes. The commenter noted: 
``for example, it is not clear if there is a limitation on the 
timeframe when the planned readmission is expected to occur in order to 
use these discharge status codes. It is also not clear whether these 
codes are limited to planned readmissions related to the current 
admission. For example, the plan of care might mention that the patient 
is returning in the future for scheduled treatment of a condition 
unrelated to the current hospitalization.''
    Response: We appreciate the commenters' support. The new discharge 
status codes related to a planned acute care hospital inpatient 
readmission were developed and approved by the NUBC in response to a 
request by the provider community. Currently, the purpose of the new 
codes is to allow providers to track these types of situations when 
they occur.

[[Page 50540]]

According to meeting notes from the NUBC, there is not a designated 
timeframe (or limitation) in reporting these new codes, and they define 
a readmission as ``an intentional readmission after discharge from an 
acute care hospital that is a scheduled part of a patient's plan of 
care.''
    The commenter is correct in its understanding that, under the 
Hospital Readmissions Reduction Program, CMS proposed in the FY 2014 
IPPS/LTCH PPS proposed rule, and is finalizing in this final rule, an 
algorithm to identify planned versus unplanned readmissions and will 
continue to utilize this algorithm for the program. Therefore, at this 
time, these new discharge status codes are not related in any way to 
the Hospital Readmissions Reduction Program and will not be taken into 
account in the readmissions measures for that program.
    After consideration of the public comments received, we are 
finalizing our proposal to add new discharge status code 69 
(Discharged/transferred to a designated disaster alternative care 
site), as well as the 15 new discharge status codes related to a 
planned acute care hospital inpatient readmission listed above.
8. Surgical Hierarchies
    Some inpatient stays entail multiple surgical procedures, each one 
of which, occurring by itself, could result in assignment of the case 
to a different MS-DRG within the MDC to which the principal diagnosis 
is assigned. Therefore, it is necessary to have a decision rule within 
the GROUPER by which these cases are assigned to a single MS-DRG. The 
surgical hierarchy, an ordering of surgical classes from most resource-
intensive to least resource-intensive, performs that function. 
Application of this hierarchy ensures that cases involving multiple 
surgical procedures are assigned to the MS-DRG associated with the most 
resource-intensive surgical class.
    Because the relative resource intensity of surgical classes can 
shift as a function of MS-DRG reclassification and recalibrations, for 
FY 2014, 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 001 and 002 and surgical class B includes MS-
DRGs 003, 004, and 005. Assume also that the average costs of MS-DRG 
001 are higher than that of MS-DRG 003, but the average costs of MS-
DRGs 004 and 005 are higher than the average costs of MS-DRG 002. 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 with cases assigned to the MDC 
with these diagnoses. Therefore, assignment to these surgical classes 
should only occur if no other surgical class more closely related to 
the diagnoses in the MDC is appropriate.
    A second example occurs when the difference between the average 
costs for two surgical classes is very small. We have found that small 
differences generally do not warrant reordering of the hierarchy 
because, as a result of reassigning cases on the basis of the hierarchy 
change, the average costs are likely to shift such that the higher-
ordered surgical class has lower average costs than the class ordered 
below it.
    In the FY 2014 IPPS/LTCH PPS proposed rule, we proposed limited 
changes to the MS-DRG classifications for FY 2014, as discussed in 
sections II.G.2. and 5. of the preamble of the proposed rule. In our 
review of these proposed changes, we did not identify any needed 
changes to the surgical hierarchy. Therefore, in the proposed rule (78 
FR 27521), we did not propose any changes to the surgical hierarchy for 
Pre-MDCs and MDCs for FY 2014.
    Comment: Several commenters stated that the CMS proposal to make no 
changes to the surgical hierarchy seems reasonable given the data and 
information provided.
    Response: Based on these public comments and our review of the 
proposal to make no revisions to the surgical hierarchy using the March 
2013 update of the FY 2012 MedPAR file and the revised GROUPER 
software, we found that the proposal to make no revisions is still 
supported by the data. Therefore, in this final rule, we are making no 
changes to the surgical hierarchy for FY 2104.
9. Complications or Comorbidity (CC) Exclusions List
a. Background of the CC List and the CC Exclusions List
    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. However, depending on the 
principal diagnosis of the patient, some diagnoses on the basic list of 
complications and comorbidities may be excluded if they are closely 
related to the principal diagnosis. In FY 2008, we evaluated each 
diagnosis code to determine its impact on resource use and to determine 
the most appropriate CC subclassification (non-CC, CC, or MCC) 
assignment. We refer readers to sections II.D.2. and 3. of the preamble 
of the FY

[[Page 50541]]

2008 IPPS final rule with comment period for a discussion of the 
refinement of CCs in relation to the MS-DRGs we adopted for FY 2008 (72 
FR 47152 through 47171).
b. CC Exclusions List for FY 2014
    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; and
     Closely related conditions should not be considered CCs 
for one another.
    The creation of the CC Exclusions List was a major project 
involving hundreds of codes. We have continued to review the remaining 
CCs to identify additional exclusions and to remove diagnoses from the 
master list that have been shown not to meet the definition of a CC.\1\
---------------------------------------------------------------------------

    \1\ We refer readers to 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); the 
FY 2011 final rule (75 FR 50114); the FY 2012 final rule (76 FR 
51542); and the FY 2013 final rule (77 FR 53315). 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) No Revisions Based on Changes to the ICD-9-CM Diagnosis Codes for 
FY 2014
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27522), we stated 
that, for FY 2014, there were no changes made to the ICD-9-CM coding 
system effective October 1, 2013, due to the partial code freeze. 
However, we did note that there may be ICD-9-CM coding changes 
finalized after the proposed rule (78 FR 27526). We are finalizing, for 
FY 2014, there were no changes made to the ICD-9-CM diagnosis codes. 
However, there are changes made to the ICD-9-CM procedure codes for FY 
2014 due to new technology. (We refer readers to section II.G.11. of 
the preamble of the FY 2014 IPPS/LTCH PPS proposed rule and this final 
rule for a discussion of the ICD-9-CM coding system.)
(2) Changes to the MS-DRG Diagnosis Codes for FY 2014
(A) Coronary Atherosclerosis Due to Calcified Coronary Lesion
    We received a request that we consider changing the severity levels 
for the following ICD-9-CM diagnosis code: 414.4 (Coronary 
atherosclerosis due to calcified coronary lesion). The requestor 
suggested that we change the severity level for diagnosis code 414.4 
from a non-CC to an MCC.
    The following chart shows the analysis of the MedPAR claims data 
for FY 2012 for ICD-9-CM diagnosis code 414.4.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Diagnosis
             Code                  description          CC level          Cnt 1     Cnt 1 impact      Cnt 2     Cnt 2 impact      Cnt 3     Cnt 3 impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
414.4.........................  Coronary           Non-CC...........        1,390          1.58         2,174          2.31         2,001          3.11
                                 atherosclerosis
                                 due to calcified
                                 lesion.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We ran the above data as described in the FY 2008 IPPS final rule 
with comment period (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 an 
MCC. The C3 value reflects a patient with at least one other secondary 
diagnosis that is an MCC.
    The chart above shows that the C1 finding is 1.58. A value close to 
1.0 in the C1 field suggests that the diagnosis 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 a 
non-CC.
    The C2 finding was 2.31. A C2 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 when there is at least one other secondary 
diagnosis that is a CC but none that is an MCC.
    While the C1 value of 1.58 is above the 1.0 value for a non-CC, it 
does not support reclassification to an MCC. As stated earlier, a value 
close to 3.0 suggests the condition is expected to

[[Page 50542]]

consume resources more similar to an MCC than a CC or a non-CC. The C2 
finding of 2.31 also does not support reclassifying this diagnosis code 
to an MCC. We also considered reclassifying the severity level of 
diagnosis code 414.4 to a CC; however, the C1 finding of 1.58 also does 
not support reclassifying the severity level to a CC. Our clinical 
advisors reviewed the data and evaluated this condition. They 
recommended that we not change the severity level of diagnosis code 
414.4 from a non-CC to an MCC or a CC. They did not believe that this 
diagnosis would increase the severity level of patients. They pointed 
out that a similar code, diagnosis code 414.2 (Chronic total occlusion 
of coronary artery), is a non-CC. Our clinical advisors believe that 
diagnosis code 414.4 represents patients who are less severe than 
diagnosis code 414.2. Considering the C1 and C2 ratings and the input 
from our clinical advisors, in the FY 2014 IPPS/LTCH PPS proposed rule 
(78 FR 27522), we did not propose to reclassify diagnosis code 414.4 to 
an MCC; the diagnosis code would continue to be considered a non-CC.
    Therefore, based on the data and clinical analysis, we proposed to 
maintain diagnosis code 414.4 as a non-CC. We invited public comment on 
our proposal.
    Comment: Commenters supported the CMS proposal not to change 
diagnosis code 414.4 from a non-CC to an MCC. Several commenters stated 
that the changes seem reasonable given the data and information 
provided.
    Response: We appreciate the commenters' support.
    Comment: Several commenters disagreed with the proposal, stating 
that these patients are more expensive to treat.
    Response: The claims data mentioned above do not support that 
patients with this condition require treatment with average costs at 
the MCC level. As stated above, the claims data support maintaining 
this code as a non-CC. Our clinical advisors once again reviewed this 
issue after reviewing the public comments. Based on their clinical 
review, our clinical advisors continue to support our proposal not to 
change diagnosis code 414.4 from a non-CC to an MCC.
    Comment: One commenter asked CMS to rerun the data but did not 
provide a reason why it believed the data are in error nor point out 
any errors in the methodology. The commenter purchased the FY 2012 
MedPAR data file and tried to replicate this analysis. The commenter 
found more cases in its data analysis. The commenter asked for 
clarification as to whether CMS used average costs or average charges 
in its computations, and why its findings might have been different.
    Response: Our analysis is based on average costs. As we stated 
earlier, the December 2012 update of the FY 2012 MedPAR file is the 
claims data source for our data analysis. Because the commenter used a 
later file (the March 2013 update), its data included more cases. 
However, our data and clinical analysis support maintaining diagnosis 
code 414.4 as a non-CC and not changing it to a MCC.
    After consideration of the public comments we received, we are 
finalizing our proposal to maintain diagnosis code 414.4 as a non-CC 
for FY 2014.
(B) Acute Cholecystitis Diagnosis Code
    We received a comment recommending that we add diagnosis code 575.0 
(Acute cholecystitis) to the CC Exclusion List when reported as a 
secondary diagnosis code with a principal diagnosis code 574.00 
(Calculus of gallbladder with acute cholecystitis without mention of 
obstruction). We note that there is an ``excludes note'' under 
diagnosis code 575.0 which excludes ``that with cholelithiasis 
(574.00)''. Therefore, diagnosis codes 575.0 and 574.00 should not be 
reported on the same claim. However, the commenter stated that there 
may be double reporting.
    Our clinical advisors agree with the commenter that diagnosis codes 
575.0 and 574.00 capture the same clinical context. Therefore, in the 
FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27522), we proposed to add 
diagnosis code 575.0 to the CC Exclusion List when reported as a 
secondary diagnosis code with a principal diagnosis code 574.00. We 
invited public comments on our proposal.
    Comment: Several commenters stated that the proposal to add 
diagnosis code 575.0 to the CC Exclusion List when reported as a 
secondary diagnosis code with principal diagnosis code 574.00 seems 
reasonable given the data and information provided.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to add diagnosis code 575.0 to the CC Exclusion 
List when reported as a secondary diagnosis code with principal 
diagnosis code 574.00 for FY 2014.
(C) Chronic Total Occlusion (CTO) of Artery of the Extremities 
Diagnosis Code
    We received a request to consider removing atherosclerosis and 
aneurysm codes from the CC Exclusion List for diagnosis code 440.4 
(Chronic total occlusion of artery of the extremities). For FY 2013, we 
changed the designation of diagnosis code 440.4 from a non-CC level to 
a CC level. The CC Exclusion List for diagnosis code 440.4 includes the 
following diagnosis codes:

------------------------------------------------------------------------
        Diagnosis code                      Code description
------------------------------------------------------------------------
440.20.......................  Atherosclerosis of native arteries of the
                                extremities, unspecified.
440.21.......................  Atherosclerosis of native arteries of the
                                extremities with intermittent
                                claudication.
440.22.......................  Atherosclerosis of native arteries of the
                                extremities with rest pain.
440.23.......................  Atherosclerosis of native arteries of the
                                extremities with ulceration.
440.24.......................  Atherosclerosis of native arteries of the
                                extremities with gangrene.
440.29.......................  Other atherosclerosis of native arteries
                                of the extremities.
440.30.......................  Atherosclerosis of unspecified bypass
                                graft of the extremities.
440.31.......................  Atherosclerosis of autologous vein bypass
                                graft of the extremities.
440.32.......................  Atherosclerosis of nonautologous
                                biological bypass graft of the
                                extremities.
440.4........................  Chronic total occlusion of artery of the
                                extremities.
441.00.......................  Dissection of aorta, unspecified site.
441.01.......................  Dissection of aorta, thoracic.
441.02.......................  Dissection of aorta, abdominal.
441.03.......................  Dissection of aorta, thoracoabdominal.
441.1........................  Thoracic aneurysm, ruptured.
441.2........................  Thoracic aneurysm without mention of
                                rupture.
441.3........................  Abdominal aneurysm, ruptured.
441.4........................  Abdominal aneurysm without mention of
                                rupture.

[[Page 50543]]

 
441.5........................  Aortic aneurysm of unspecified site,
                                ruptured.
441.6........................  Thoracoabdominal aneurysm, ruptured.
441.7........................  Thoracoabdominal aneurysm, without
                                mention of rupture.
441.9........................  Aortic aneurysm of unspecified site
                                without mention of rupture.
442.0........................  Aneurysm of artery of upper extremity.
442.2........................  Aneurysm of iliac artery.
442.3........................  Aneurysm of artery of lower extremity.
442.9........................  Aneurysm of unspecified site.
443.22.......................  Dissection of iliac artery.
443.29.......................  Dissection of other artery.
443.81.......................  Peripheral angiopathy in diseases
                                classified elsewhere.
443.82.......................  Erythromelalgia.
443.89.......................  Other specified peripheral vascular
                                diseases.
443.9........................  Peripheral vascular disease, unspecified.
444.01.......................  Saddle embolus of abdominal aorta.
444.09.......................  Other arterial embolism and thrombosis of
                                abdominal aorta.
444.1........................  Embolism and thrombosis of thoracic
                                aorta.
444.21.......................  Arterial embolism and thrombosis of upper
                                extremity.
444.22.......................  Arterial embolism and thrombosis of lower
                                extremity.
444.81.......................  Embolism and thrombosis of iliac artery.
444.89.......................  Embolism and thrombosis of other
                                specified artery.
444.9........................  Embolism and thrombosis of unspecified
                                artery.
445.01.......................  Atheroembolism of upper extremity.
445.02.......................  Atheroembolism of lower extremity.
445.81.......................  Atheroembolism of kidney.
445.89.......................  Atheroembolism of other site.
447.0........................  Arteriovenous fistula, acquired.
447.1........................  Stricture of artery.
447.2........................  Rupture of artery.
447.5........................  Necrosis of artery.
447.6........................  Arteritis, unspecified.
447.70.......................  Aortic ectasia, unspecified site.
447.71.......................  Thoracic aortic ectasia.
447.72.......................  Abdominal aortic ectasia.
447.73.......................  Thoracoabdominal aortic ectasia.
449..........................  Septic arterial embolism.
------------------------------------------------------------------------

    Diagnosis code 440.4 is a CC except if one of the diagnosis codes 
listed above is reported as a principal diagnosis. If one of the 
diagnosis codes listed above is reported on a claim as a principal 
diagnosis and code 440.4 is reported as a secondary diagnosis, code 
440.4 would not be counted as a CC. The commenter requested that we 
remove atherosclerosis codes 440.20 through 440.32, 443.22, 443.29, 
443.81 through 443.9, and aneurysm codes 441.00 through 441.03, 441.1 
through 441.7, 441.9, 442.0, 442.2, 442.3, and 442.9 from the CC 
Exclusion List for diagnosis code 440.4.
    According to the commenter, aneurysm diagnoses are not closely 
related clinically to peripheral CTOs. Aneurysm physiology, clinical 
symptomology, and patient risk profile are fundamentally different than 
CTOs. Aneurysms result from the weakening of an artery wall and 
manifest in an out-pouched pocket of the lumen. Conversely, patients 
with CTOs present with extended segments of diseased and narrowed 
vessels and in most cases, complex lesions containing fibro-calcified 
plaques.
    The commenter stated that CTOs represent a high severity 
complication, which is not closely related to basic atherosclerosis.
    Our clinical advisors agree with the commenter that the aneurysm 
and most of the atherosclerosis codes should be removed from the CC 
Exclusion List for diagnosis code 440.4. A case with a principal 
diagnosis of aneurysm with CTO adds substantial complexity and does not 
necessarily have the same immediate cause. A case with a principal 
diagnosis of atherosclerosis with CTO reported represents a more severe 
form of the disease and, therefore, is more complex. Our clinical 
advisors do not agree with the commenter that diagnosis codes 443.81 
through 443.9 (Other and unspecified peripheral vascular diseases) 
should be removed from the CC Exclusion List. These cases are more 
likely related to CTO and meet one of the principles for exclusion that 
we previously outlined above.
    Therefore, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27524), we proposed to remove the following diagnosis codes from the CC 
Exclusion List for diagnosis code 440.4 for FY 2014: atherosclerosis 
codes 440.20 through 440.32, 443.22, and 443.29, and aneurysm codes 
441.00 through 441.03, 441.1 through 441.7, 441.9, 442.0, 442.2, 442.3, 
and 442.9. Diagnosis codes 443.81 through 443.9 would remain on the CC 
Exclusion List for diagnosis code 440.4. We invited public comments on 
this proposal.
    Comment: Several commenters supported CMS' proposal to remove 
atherosclerosis codes 440.20 through 440.32, 443.22, and 443.29, and 
aneurysm codes 441.00 through 441.03, 441.1 through 441.7, 441.9, 
442.0, 442.2, 442.3, and 442.9 from the CC Exclusion List for diagnosis 
code 440.4. Several commenters agreed with CMS' clinical advisors' 
assessment on aneurysm and atherosclerosis cases with CTO in that a 
case with a principal diagnosis of aneurysm with CTO adds substantial 
complexity and does not necessarily have the same immediate cause, and 
a case with a principal diagnosis of atherosclerosis with CTO reported 
represents a more severe form of the disease and, therefore, is more 
complex. Several commenters stated that this proposed change will 
compensate hospitals appropriately for the high cost

[[Page 50544]]

and resource use associated with CTO treatment. Several commenters 
stated that the proposal seems reasonable given the data and 
information provided.
    Response: We appreciate the commenters' support and agree that the 
change is warranted for these cases.
    After consideration of the public comments we received, we are 
finalizing our proposal to remove atherosclerosis codes 440.20 through 
440.32, 443.22, and 443.29, and aneurysm codes 441.00 through 441.03, 
441.1 through 441.7, 441.9, 442.0, 442.2, 442.3, and 442.9 from the CC 
Exclusion List for diagnosis code 440.4. Diagnosis codes 443.81 through 
443.9 would remain on the CC Exclusion List for diagnosis code 440.4 
for FY 2014.
    For FY 2014, we proposed changes to Table 6G (Additions to the CC 
Exclusion List) and Table 6H (Deletions from the CC Exclusion List) (78 
FR 27524). As we discussed earlier, we are finalizing those changes for 
acute cholecystitis and chronic total occlusion of artery of the 
extremities diagnosis codes for FY 2014. As we discussed in the FY 2014 
IPPS/LTCH PPS proposed rule, we did not propose any changes to the 
severity level for diagnosis code 414.4. In this final rule, we are 
finalizing our decision to maintain diagnosis code 414.4 as a non-CC. 
These two tables, which contain codes that are effective for discharges 
occurring on or after October 1, 2013, were not published in the 
Addendum to the proposed rule (nor are they being published in this 
final rule) because of the length of the two tables. Instead, we are 
making them available through the Internet on the CMS Web site at: 
http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html. Each of these principal diagnosis codes 
for which there is a CC exclusion is shown in Tables 6G and 6H with an 
asterisk, and the conditions that will not count as a CC are provided 
in an indented column immediately following the affected principal 
diagnosis.
    A complete updated MCC, CC, and Non-CC Exclusions List is available 
through the Internet on the CMS Web site at: http://www.cms.hhs.gov/
Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. 
Beginning with discharges on or after October 1 of each fiscal year, 
the indented diagnoses are not recognized by the GROUPER as valid CCs 
for the asterisked principal diagnosis.
    There are no new, revised, or deleted diagnosis codes for FY 2014. 
Therefore, there are no Tables 6A, 6C, and 6E published for FY 2014.
    There are no additions or deletions to the MS-DRG MCC List for FY 
2014. There also are no additions or deletions to the MS-DRG CC List 
for FY 2014. Therefore, there are no Tables 6I.1 through 6I.2 and 6J.1 
through 6J.2 published for FY 2014.
    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 30.0, is available on a CD 
for $225.00. Version 31.0 of this manual, which includes the final FY 
2014 MS-DRG changes, is 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.
10. 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.\2\
---------------------------------------------------------------------------

    \2\ The original list of the ICD-9-CM procedure codes for the 
procedures we consider nonextensive procedures, if performed with an 
unrelated principal diagnosis, was published in Table 6C in section 
IV. of the Addendum to the FY 1989 final rule (53 FR 38591). As part 
of the FY 1991 final rule (55 FR 36135), the FY 1992 final rule (56 
FR 43212), the FY 1993 final rule (57 FR 23625), the FY 1994 final 
rule (58 FR 46279), the FY 1995 final rule (59 FR 45336), the FY 
1996 final rule (60 FR 45783), the FY 1997 final rule (61 FR 46173), 
and the FY 1998 final rule (62 FR 45981), we moved several other 
procedures from DRG 468 to DRG 477, and some procedures from DRG 477 
to DRG 468. No procedures were moved in FY 1999, as noted in the 
final rule (63 FR 40962), in the FY 2000 (64 FR 41496), in the FY 
2001 (65 FR 47064), or in the 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 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, 
2010, 2011, 2012, and 2013, no procedures were moved, as noted in 
the FY 2008 final rule with comment period (72 FR 46241), in the FY 
2009 final rule (73 FR 48513), in the FY 2010 final rule (74 FR 
43796), in the FY 2011 final rule (75 FR 50122), in the FY 2012 
final rule (76 FR 51549), and in the FY 2013 final rule (77 FR 
53321).

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

[[Page 50545]]

    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 2014, 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, MS-DRGs 984 through 986, and MS-
DRGs 987 through 989 for FY 2014.
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 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 2014, 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 MS-DRGs 987 through 989 for FY 
2014.
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 costs 
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 2014, 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, MS-DRGs 984 through 986, and MS-DRGs 987 through 989 
for FY 2014.
c. Adding Diagnosis or Procedure Codes to MDCs
    Based on the review of cases in the MDCs as described above in 
sections II.G.1. through 6. of this preamble, we did not propose to add 
any diagnosis or procedure codes to MDCs for FY 2014. 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 2014.
11. 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
    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 list of valid ICD-9-CM diagnosis and procedure codes 
can be found on the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/codes.html.
    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 2014 at a public meeting held on September 19, 
2012, and finalized the coding changes after consideration of comments 
received at the meetings and in writing by November 16, 2012. In the FY 
2014 IPPS/LTCH PPS proposed rule (78 FR 27525), we stated that there 
were no changes to the ICD-9-CM coding system for FY 2014. There were 
no new,

[[Page 50546]]

revised or deleted diagnosis or procedure codes for FY 2014 identified 
at the time of the publication of the proposed rule. However, we noted 
that there may be ICD-9-CM coding changes finalized after the proposed 
rule based on public comments that we receive after the March 5, 2013 
ICD-9-CM Coordination and Maintenance Committee meeting.
    The Committee held its 2013 meeting on March 5, 2013. Any new codes 
for which there was consensus of public support and for which complete 
tabular and indexing changes were made by May 2013 are included in the 
October 1, 2013 update to ICD-9-CM. Any code revisions that were 
discussed at the March 5, 2013 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 Table 6B, which is 
listed in section VI. of the Addendum to this final rule and available 
via the Internet on the CMS Web site, and are marked with an asterisk 
(*).
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27526), we stated 
that, for FY 2014, there were no changes to the ICD-9-CM coding system 
due to the partial code freeze or for new technology. However, at the 
March 5, 2013 ICD-9-CM Coordination and Maintenance meeting, there were 
two requests for codes for new technology. As discussed below, only 
codes for new technologies or new diagnoses are being considered during 
the partial code freeze. After discussions at the March 5, 2013 meeting 
and public comments we received after the meeting, it was decided that 
there will be four new procedure codes effective for October 1, 2014. 
There are no new, revised, or deleted diagnosis codes and no revised or 
deleted procedure codes that are usually announced in Tables 6A (New 
Diagnosis Codes), 6C (Invalid Diagnosis Codes), 6D (Invalid Procedure 
Codes), 6E (Revised Diagnosis Code Titles), and 6F (Revised Procedure 
Codes). The new procedure codes are listed in Table 6B (New Procedure 
Codes) for this final rule, which is available via the Internet on the 
CMS Web site. Therefore, there are no Tables 6A and 6C through 6F 
published as part of this final rule for FY 2014.
    Copies of the minutes of the procedure codes discussions at the 
Committee's September 19, 2012 meeting and March 5, 2013 meeting can be 
obtained from the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redirect=/icd9ProviderDiagnosticCodes/03_meetings.asp. The minutes of the 
diagnosis codes discussions at the September 19, 2012 meeting and March 
5, 2013 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 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 Email 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 Email to: [email protected].
    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.
    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 Meeting minutes. The public agreed that there was a need to 
hold the fall meetings earlier, in September or October, in order to 
meet the new implementation dates. The public provided comment that 
additional time would be needed to update hospital systems and obtain 
new code books and coding software. There was considerable concern 
expressed about the impact this new April update would have on 
providers.
    In the FY 2005 IPPS final rule, we implemented section 
1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law 
108-173, by developing a mechanism for approving, in time for

[[Page 50547]]

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, 2013 implementation of an 
ICD-9-CM code at the September 19, 2012 Committee meeting. Therefore, 
there were no new ICD-9-CM codes implemented on April 1, 2013.
    Current addendum and code title information is published on the CMS 
Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redirect=/
icd9ProviderDiagnosticCodes/01overview.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. 
Therefore, 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 was to be 
implemented on October 1, 2013, as described in the Health Insurance 
Portability and Accountability Act of 1996 (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). However, the Secretary of Health and Human Services 
issued a final rule that delays, from October 1, 2013, to October 1, 
2014, the compliance date for the International Classification of 
Diseases, 10th Edition diagnosis and procedure codes (ICD-10). The 
final rule, CMS-0040-F, was published in the Federal Register on 
September 5, 2012 (77 FR 54664) and is available for viewing on the 
Internet at: http://www.gpo.gov/fdsys/pkg/FR-2012-09-05/pdf/2012-21238.pdf.
    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.
    HHS 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, HHS 
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. The Committee also considered the delay in implementation of 
ICD-10 until October 1, 2014. There was an announcement at the 
September 19, 2012 ICD-9-CM Coordination and Maintenance Committee 
meeting that a partial freeze of both ICD-9-CM and ICD-10 codes will be 
implemented as follows:
     The last regular annual update to both ICD-9-CM and ICD-10 
code sets was made on October 1, 2011.
     On October 1, 2012 and October 1, 2013, there will be only 
limited code updates to both ICD-9-CM and ICD-10 code sets to capture 
new technology and new diseases.
     On October 1, 2014, there were to be only limited code 
updates to ICD-10 code sets to capture new technology and diagnoses as 
required by section 503(a) of Public Law 108-173. There were to be no 
updates to ICD-9-CM on October 1, 2014, as the system would no longer 
be a HIPAA standard and, therefore, no longer be used for reporting.
     On October 1, 2015, one year after the implementation of 
ICD-10, 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

[[Page 50548]]

after October 1, 2015, 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.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/meetings.html. A summary of the September 19, 2012 Committee meeting, 
along with both written and audio transcripts of this meeting, are 
posted on the Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials-Items/2012-09-19-MeetingMaterials.html.
    Comment: Several commenters supported the partial code freeze which 
is limited to the creation of new ICD-9-CM and ICD-10-CM/PCS codes to 
capture new technologies and diseases through FY 2015. The commenters 
stated that if new codes can still be introduced into ICD-10-CM/PCS in 
FY 2015, it will make the resolution of any issues more complex and 
costly. Specifically, they stated that successful implementation of 
ICD-10-CM/PCS will require significant planning, education, and systems 
modifications. The commenters stated that while the adoption of ICD-10-
CM/PCS is welcome and long overdue, implementation of the new system 
must be carefully orchestrated to minimize the administrative burden on 
providers. At a time when in the health care field, all payers and 
other stakeholders are struggling to meet deadlines to change their 
systems and test their changes with all their trading partners, the 
commenters believed it would be catastrophic to have to make additional 
changes during nationwide implementation of ICD-10.
    Response: We agree with the commenters that the partial code freeze 
has been extremely beneficial in minimizing the administrative burden 
on providers that are preparing for the implementation of ICD-10 on 
October 1, 2014. This partial code freeze has dramatically decreased 
the number of codes created each year as shown by the following 
information.

                   Total Number of Codes and Changes in Total Number of Codes per Fiscal Year
----------------------------------------------------------------------------------------------------------------
                        ICD-9-CM Codes                                   ICD-10-CM and ICD-10-PCS Codes
----------------------------------------------------------------------------------------------------------------
         Fiscal Year               Number           Change         Fiscal Year        Number          Change
----------------------------------------------------------------------------------------------------------------
FY 2009 (October 1, 2008):                                      FY 2009:
Diagnoses....................          14,025             348   ICD-10-CM.......          68,069              +5
Procedures...................           3,824              56   ICD-10-PCS......          72,589         -14,327
FY 2010 (October 1, 2009):                                      FY 2010:
Diagnoses....................          14,315             290   ICD-10-CM.......          69,099          +1,030
Procedures...................           3,838              14   ICD-10-PCS......          71,957            -632
FY 2011 (October 1, 2010):
Diagnoses....................          14,432             117   ICD-10-CM.......          69,368            +269
Procedures...................           3,859              21   ICD-10-PCS......          72,081            +124
FY 2012 (October 1, 2011):                                      FY 2012:
Diagnoses....................          14,567             135   ICD-10-CM.......          69,833            +465
Procedures...................           3,877              18   ICD-10-PCS......          71,918            -163
FY 2013 (October 1, 2012):                                      FY 2013:
Diagnoses....................          14,567               0   ICD-10-CM.......          69,832              -1
Procedures...................           3,878               1   ICD-10-PCS......          71,920              +2
FY 2014 (October 1, 2013):                                      FY 2014:
Diagnoses....................          14,567               0   ICD-10-CM.......          69,823              -9
Procedures...................           3,882               4   ICD-10-PCS......          71,924              +4
----------------------------------------------------------------------------------------------------------------

    As mentioned earlier, the public is provided the opportunity to 
comment on any requests for new diagnosis or procedure codes discussed 
at the ICD-9-CM Coordination and Maintenance Committee meeting. The 
public has supported only a limited number of new codes during this 
partial code freeze, as can be seen by data shown above. We have gone 
from creating several hundred new codes each year to creating only a 
limited number of new ICD-9-CM and ICD-10 codes. At the September 18-
19, 2013 and March 19-20, 2014 Committee meetings, we will be 
discussing any requests for new ICD-10-CM diagnosis and ICD-10-PCS 
procedure codes to be implemented on October 1, 2014. We will not be 
discussing ICD-9-CM codes because we will not be using ICD-9-CM for 
encounters occurring on or after October 1, 2014. The public will be 
given the opportunity to comment on whether or not new ICD-10-CM and 
ICD-10-PCS codes should be created effective October 1, 2014, based on 
the partial code freeze criteria as to whether they are needed to 
capture new diagnoses or new technologies, or whether the codes should 
be created after the partial code freeze ends on October 1, 2015. We 
welcome public comments on any code requests discussed at the September 
18-19, 2013 and March 19-20, 2014 Committee meetings for implementation 
on October 1, 2014.
    Comment: One commenter requested that CMS publish the list of any 
new ICD-10-CM and ICD-10-PCS codes in the IPPS final rule. The 
commenter pointed out that annual ICD-9-CM updates are currently 
included in the IPPS proposed and final rules. The commenter mentioned 
that the ICD-9-CM Coordination and Maintenance Committee is addressing 
requests for new ICD-10 codes that would be created during the code 
freeze as well as codes that would be created after the code freeze 
ends. The commenter wanted to receive interim decisions on any new ICD-
10 codes that might be created after the code freeze ends on October 1, 
2015. The commenter also requested that CMS assign ICD-9-CM codes or 
temporary Healthcare Common Procedure Coding System (HCPCS) codes to 
procedures provided in connection with newly approved ICD-10-PCS codes. 
Finally, the commenter requested that CMS establish October 1, 2014 as 
the effective date for all ICD-10 code set updates.
    Response: We will address the commenter's last request first. As 
discussed earlier, October 1, 2014 has been established as the 
implementation date for ICD-10. This date was established through 
rulemaking (77 FR 54664). We have provided this information on our ICD-
10 Web site at:

[[Page 50549]]

http://www.cms.hhs.gov/Medicare/Coding/ICD10/index.html.
    CMS currently posts updates of ICD-9-CM procedure codes in June of 
each year on its Web page at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html . CMS also includes information 
on ICD-9-CM code updates within the IPPS proposed and final rules 
because these codes are used to determine the MS-DRG assignment. Any 
new, revised, or deleted ICD-9-CM diagnoses or procedure codes are 
described in Tables 6A through 6F. We include this information along 
with the proposed and final MS-DRG assignment for new ICD-9-CM codes in 
our rules because it impacts inpatient payment. CDC posts updates of 
ICD-9-CM diagnosis codes in June of each year on its Web site at: 
http://www.cdc.gov/nchs/icd/icd9cm.html. We do not include new, 
revised, or deleted ICD-10-CM/PCS codes in the current IPPS rule 
because the ICD-10 codes are not currently used with the MS-DRGs. Once 
ICD-10 is implemented, and the MS-DRGs are based on ICD-10 codes, we 
will provide information on new, revised, or deleted ICD-10 codes in 
Tables 6A through 6F.
    CMS posts annual updates to ICD-10-CM and ICD-10-PCS codes in June 
of each year on its ICD-10 Web page at: http://www.cms.hhs.gov/Medicare/Coding/ICD10/index.html. CDC also posts annual updates to ICD-
10-CM codes in June of each year on its Web site at: http://www.cdc.gov/nchs/icd/icd10cm.htm . We believe we provide the public 
complete and regular updates on any annual updates to both ICD-9-CM and 
ICD-10 codes. Any new, revised, or deleted ICD-10-CM/PCS codes as part 
of the FY 2016 (October 1, 2015) updates will be posted on CMS' ICD-10 
Web site in June 2015. No final decisions have been made at this time 
on the October 1, 2015 ICD-10 code updates.
    On the issue of CMS assigning ICD-9-CM codes or temporary HCPCS 
codes to procedures provided in connection with newly approved ICD-10-
PCS codes, we would point out that mapping between ICD-10-PCS and ICD-
9-CM procedure codes is provided in the annual updates to the General 
Equivalence Mappings (GEMs). The GEMs are updated annually based on 
updates to ICD-10 codes and are posted on our ICD-10 Web site in 
October of each year. The ICD-10 Web site can be found at: http://www.cms.hhs.gov/Medicare/Coding/ICD10/index.html. The GEMs map between 
ICD-9-CM and ICD-10 codes because the ICD-10 codes will replace ICD-9-
CM codes. The GEMs do not map between ICD-10 and HCPCS codes because 
ICD-10 will not replace HCPCS codes. HCPCS codes will continue to be 
used for reported ambulatory and physician services.
c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on Hospital 
Inpatient Claims
    CMS is currently processing 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 diagnosis codes and 6 procedure codes. We discussed 
this change in processing claims in the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50127), in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 
25843), in a correction notice issued in the Federal Register on June 
14, 2011 (76 FR 24633), and in the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51553). As discussed in these prior rules, CMS undertook an 
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 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 at the same time as ICD-10 (75 FR 50127 and 50128). 
As we stated earlier, the Secretary of Health and Human Services has 
delayed the compliance date of ICD-10 from October 1, 2013 to October 
1, 2014 (77 FR 54664). 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 Version 26.0 (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://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. 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 on the CMS Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html.
    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-DRGs Version 28.0 also included 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.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html.
    We reviewed comments on the ICD-10 MS-DRGs Version 28.0 and made 
updates as a result of these comments. We called the updated version 
the ICD-10 MS DRGs Version 28 R1. We posted a Definitions Manual of 
ICD-10 MS-DRGs Version 28 R1 on our ICD-10 MS-DRG Conversion Project 
Web site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD10-MS-DRG-Conversion-Project.html. To make the review of Version 28 R1 updates 
easier for the public, we also made available pilot software on a CD-
ROM that could be ordered through the National Technical Information 
Service (NTIS). A link to the NTIS ordering page was provided on the 
CMS ICD-10 MS-DRG Web page. We stated that we believed that, by 
providing the ICD-10 MS-DRG Version 28 R1 Pilot Software (distributed 
on CD-ROM), the public would be able to more easily review and provide 
feedback on updates to the ICD-10 MS-DRGs. We discussed the updated 
ICD-10 MS-DRGs Version 28 R1 at the September 14, 2011 ICD-9-CM 
Coordination and Maintenance Committee meeting. We encouraged the

[[Page 50550]]

public to continue to review and provide comments on the ICD-10 MS-DRGs 
so that CMS could continue to update the system.
    In FY 2012, we prepared the ICD-10 MS-DRGs Version 29.0, based on 
the FY 2012 MS-DRGs (Version 29.0) that we finalized in the FY 2012 
IPPS/LTCH PPS final rule. We posted a Definitions Manual of ICD-10 MS-
DRGs Version 29.0 on our ICD-10 MS-DRG Conversion Project Web site. We 
also prepared a document that describes changes made from Version 28.0 
to Version 29.0 to facilitate a review. The ICD-10 MS-DRGs Version 29.0 
was discussed at the ICD-9-CM Coordination and Maintenance Committee 
meeting on March 5, 2012. Information was provided on the types of 
updates made. Once again the public was encouraged to review and 
comment on the most recent update to the ICD-10 MS-DRGs.
    CMS prepared the ICD-10 MS-DRGs Version 30.0 based on the FY 2013 
MS-DRGs (Version 30.0) that we finalized in the FY 2013 IPPS/LTCH PPS 
final rule. We posted a Definitions Manual of the ICD-10 MS-DRGs 
Version 30.0 on our ICD-10 MS-DRG Conversion Project Web site at: 
http://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We also prepared a document that describes changes made 
from Version 29.0 to Version 30.0 to facilitate a review. We produced 
mainframe and computer software for Version 30.0, which was made 
available to the public in February 2013. Information on ordering the 
mainframe and computer software through NTIS can be found on the CMS 
Web site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html under the ``Related Links'' section. This ICD-
10 MS-DRGs Version 30.0 computer software should facilitate additional 
review of the ICD-10 MS-DRGs conversion.
    We provided information on a study conducted on the impact on 
converting MS-DRGs to ICD-10. Information on this study is summarized 
in a paper entitled ``Impact of the Transition to ICD-10 on Medicare 
Inpatient Hospital Payments.'' This paper was posted on the CMS ICD-10 
MS-DRGs Conversion Project Web site and was distributed and discussed 
at the September 15, 2010 ICD-9-CM Coordination and Maintenance 
Committee meeting. The paper described CMS' approach to the conversion 
of the MS-DRGs from ICD-9-CM codes to ICD-10 codes. The study was 
undertaken using the ICD-9-CM MS-DRGs Version 27.0 (FY 2010) and 
converted to the ICD-10 MS-DRGs Version 27.0. The study estimated the 
impact on aggregate payment to hospitals and the distribution of 
payments across hospitals. The impact of the conversion from ICD-9-CM 
to ICD-10 on Medicare MS-DRG hospital payments was estimated using 2009 
Medicare data. The study found a hospital payment increase of 0.05 
percent using the ICD-10 MS-DRGs Version 27.0.
    CMS provided an overview of this hospital payment impact study at 
the March 5, 2012 ICD-9-CM Coordination and Maintenance Committee 
meeting. This presentation followed presentations on the creation of 
ICD-10 MS-DRGs Version 29.0. A summary report of this meeting can be 
found on the CMS Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html. At this March 2012 meeting, CMS 
announced that it would produce an update on this impact study based on 
an updated version of the ICD 10 MS-DRGs. This update of the impact 
study was presented at the March 5, 2013 ICD-9-CM Coordination and 
Maintenance Committee meeting. The updated paper is posted on CMS' Web 
site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html under the ``Downloads'' section. Information on 
the March 5, 2013 ICD-9-CM Coordination and Maintenance Committee 
meeting can be found on the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials.html. This update of the impact paper and the ICD-10 MS-DRG 
Version 30.0 software will provide additional information to the public 
who are evaluating the conversion of the MS-DRGs to ICD-10 MS-DRGs.
    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 will be implemented at the same time as ICD-10 and 
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.
    Comment: Several commenters complimented CMS on making available 
the Version 30.0 ICD-10 MS-DRGs software and Definitions Manual. The 
commenters found these tools to be useful as hospitals prepare for ICD-
10 implementation. The commenters stated that this information allowed 
hospitals to analyze the impact of these changes, including thorough 
financial analysis and modeling, and allowed for hands-on training of 
medical coders. The commenters stated that information from other 
payment systems, such as those for CAHs, IPFs, and IRFs would also be 
helpful as hospitals prepare for ICD-10-CM/PCS implementation.
    Response: We appreciate the positive feedback on our efforts to 
develop an ICD-10 version of the MS-DRGs and to use this approach in 
updating other ICD-9-CM based payment systems from ICD-9-CM to ICD-10-
CM/PCS codes.
12. Public Comments on Issues Not Addressed in the Proposed Rule
    We received two public comments regarding MS-DRG issues that were 
outside of the scope of the proposals included in the FY 2014 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.G. of the preamble of this final rule, 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.
a. Intracerebral Therapies
    One commenter requested that CMS create a new MS-DRG for 
intracerebral therapies, including implantation of chemotherapeutic 
agents.
b. Porphyria
    One commenter requested that a new MS-DRG be created for porphyria 
cases.

H. Recalibration of the FY 2014 MS-DRG Relative Weights

1. Data Sources for Developing the Relative Weights
    In developing the FY 2014 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 2012 MedPAR data used in this final rule include 
discharges occurring on October 1, 2011, through September 30, 2012, 
based on bills received by CMS through March 31,

[[Page 50551]]

2013, 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 2012 MedPAR file used in 
calculating the relative weights includes data for approximately 
10,363,200 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, 2013 update of the FY 2012 MedPAR file complies 
with version 5010 of the X12 HIPAA Transaction and Code Set Standards, 
and includes a variable called ``claim type.'' Claim type ``60'' 
indicates that the claim was an inpatient claim paid as fee-for-
service. Claim types ``61,'' ``62,'' ``63,'' and ``64'' relate to 
encounter claims, Medicare Advantage IME claims, and HMO no-pay claims. 
Therefore, the calculation of the relative weights for FY 2014 also 
excludes 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 Medicare cost 
report data files from the HCRIS. Normally, we use the HCRIS dataset 
that is 3 years prior to the IPPS fiscal year. Specifically, we used 
cost report data from the March 31, 2013 update of the FY 2011 HCRIS 
for calculating the FY 2014 cost-based relative weights.
2. Methodology for Calculation of the Relative Weights
    As we explain in section II.E.2. of the preamble of this final 
rule, as we proposed in the FY 2014 IPPS/LTCH PPS proposed rule, we are 
calculating the relative weights based on 19 CCRs, instead of the 15 
CCRs previously used. The methodology we used to calculate the FY 2014 
MS-DRG cost-based relative weights based on claims data in the FY 2012 
MedPAR file and data from the FY 2011 Medicare cost reports is as 
follows:
     To the extent possible, all the claims were regrouped 
using the FY 2014 MS-DRG classifications discussed in sections II.B. 
and II.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 2011 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 92.7 percent of the providers in the MedPAR file 
had charges for 14 of the 19 cost centers. All claims of providers that 
did not have charges greater than zero for at least 14 of the 19 cost 
centers were deleted. In other words, a provider must have no more than 
five blank cost centers. If a provider did not have charges greater 
than zero in more than five cost centers, the claims for the provider 
were deleted. For FY 2014, as explained in section II.E.2. of the 
preamble of this final rule, we are calculating the relative weights 
using 19 cost centers instead of the 15 cost centers previously used in 
calculating the FY 2013 relative weights. In the FY 2014 IPPS/LTCH PPS 
proposed rule, we proposed, in calculating the FY 2014 relative 
weights, to continue to remove claims of providers with more than five 
blank cost centers from the dataset used to calculate the relative 
weights. (We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 
FR 53326) for the edit threshold related to FY 2013 and prior fiscal 
years). In recent years, this trim kept approximately 96 percent of 
IPPS providers in the MedPAR file upon which we base our relative 
weight calculations. (For examples of our FYs 2012 and 2013 relative 
weight calculations, we refer readers to the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51558) and the FY 2013 IPPS/LTCH PPS final rule 77 FR 
53326).) However, under the proposal to add 4 cost centers to the 
relative weight calculations, which we are finalizing in this final 
rule, this trim kept approximately 92.7 percent of the IPPS providers 
in the MedPAR file upon which we base our final FY 2014 relative weight 
calculations.
    Although this trim is now removing a greater percentage of 
providers' claims from the relative weight calculations than were 
previously removed in prior years, we stated in the proposed rule our 
belief that it is appropriate to propose to continue to remove 
providers' claims that do not have charges greater than zero in more 
than five cost centers. We stated that we believe that this proposal is 
appropriate because we are not introducing new costs into the relative 
weight calculation; we are only making use of more refined, granular 
costs by breaking out implantable devices from the Supplies and 
Equipment CCR, MRIs and CT scans from the Radiology CCR, and cardiac 
catheterization from the Cardiology CCR. Furthermore, because we are 
making use of more refined cost report data for these cost centers, we 
believe that it is also appropriate to edit the claims with a more 
refined threshold. We invited public comments on the proposal to trim 
the data used in our relative weight calculations. However, we did not 
receive any public comments on this proposal. Therefore, for the 
reasons described above, we are finalizing this policy as proposed.
     Statistical outliers were eliminated by removing all cases 
that were beyond 3.0 standard deviations from the geometric 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

[[Page 50552]]

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. 
Therefore, 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 an ``N'' or a ``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 19 cost groups for each claim were 
standardized to remove the effects of differences in area wage levels, 
IME and DSH payments, and for hospitals located 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 19 cost groups so that each MS-DRG had 19 standardized charge 
totals. These charges were then adjusted to cost by applying the 
national average CCRs developed from the FY 2011 cost report data.
    The 19 cost centers that we used in the final 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 19 national cost center CCRs. (We note that we have made 
several changes to the table, most importantly, to remove the columns 
listing the cost centers from the CMS Form 2552-96 cost reports. 
Because we are using data from FY 2011 cost reports, which were filed 
on the CMS Form 2552-10, the columns referencing the CMS Form 2552-96 
cost report are no longer relevant. We also have updated and refined 
the table to reflect the 19 CCRs, instead of the previous 15 CCRs, and 
we have made some minor corrections to revenue codes and cost report 
cost centers that are grouped with each CCR.)
BILLING CODE 4120-01-P

[[Page 50553]]

[GRAPHIC] [TIFF OMITTED] TR19AU13.001


[[Page 50554]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.002


[[Page 50555]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.003


[[Page 50556]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.004


[[Page 50557]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.005


[[Page 50558]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.006


[[Page 50559]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.007


[[Page 50560]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.008


[[Page 50561]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.009


[[Page 50562]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.010


[[Page 50563]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.011


[[Page 50564]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.012


[[Page 50565]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.013


[[Page 50566]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.014


[[Page 50567]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.015


[[Page 50568]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.016

BILLING CODE 4120-01-C

[[Page 50569]]

    In the table above, revenue code 0274 is listed among the revenue 
codes included in the Supplies and Equipment CCR. In the actual 
calculation of the Supplies and Equipment CCR for the FY 2014 proposed 
rule, we inadvertently included charges from MedPAR associated with 
revenue 0274 in the Implantable Devices CCR. For this final rule, we 
have corrected this oversight and included the MedPAR charges 
associated with revenue code 0274 in the calculation of the Supplies 
and Equipment CCR. (We refer readers to the FY 2009 IPPS/LTCH PPS final 
rule (73 FR 48462) for a discussion on the revenue codes included in 
the Supplies and Equipment and Implantable Devices CCRs, respectively.)
3. Development of National Average CCRs
    We developed the national average CCRs as follows:
    Using the FY 2011 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-3 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-3. 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 19 cost centers by the corresponding national average CCR, we 
summed the 19 ``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 FY 2014 cost-based relative weights were then normalized by an 
adjustment factor of 1.615238977 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 19 national average CCRs for FY 2014 are as follows:

------------------------------------------------------------------------
                             Group                                 CCR
------------------------------------------------------------------------
Routine Days...................................................    0.500
Intensive Days.................................................    0.414
Drugs..........................................................    0.193
Supplies & Equipment...........................................    0.300
Implantable Devices............................................    0.356
Therapy Services...............................................    0.356
Laboratory.....................................................    0.134
Operating Room.................................................    0.221
Cardiology.....................................................    0.130
Cardiac Catheterization........................................    0.136
Radiology......................................................    0.171
MRIs...........................................................    0.090
CT Scans.......................................................    0.045
Emergency Room.................................................    0.206
Blood and Blood Products.......................................    0.365
Other Services.................................................    0.400
Labor & Delivery...............................................    0.424
Inhalation Therapy.............................................    0.186
Anesthesia.....................................................    0.119
------------------------------------------------------------------------

    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 2014 IPPS/LTCH PPS proposed 
rule, we proposed to use that same case threshold in recalibrating the 
MS-DRG weights for FY 2014. Using data from the FY 2012 MedPAR file, 
there were 7 MS-DRGs that contain fewer than 10 cases. Under the MS-
DRGs, we have fewer low-volume DRGs than under the CMS DRGs because we 
no longer have separate DRGs for patients 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 
received 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 2014, 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 2013 weights by the percentage change in the average weight of 
the cases in other MS-DRGs. The crosswalk table is shown below:

------------------------------------------------------------------------
                                                       Crosswalk to MS-
     Low[dash]volume MS-DRG          MS-DRG Title             DRG
------------------------------------------------------------------------
789.............................  Neonates, Died or   FY 2013 FR weight
                                   Transferred to      (adjusted by
                                   Another Acute       percent change in
                                   Care Facility.      average weight of
                                                       the cases in
                                                       other MS-DRGs).
790.............................  Extreme Immaturity  FY 2013 FR weight
                                   or Respiratory      (adjusted by
                                   Distress            percent change in
                                   Syndrome, Neonate.  average weight of
                                                       the cases in
                                                       other MS-DRGs).
791.............................  Prematurity with    FY 2013 FR weight
                                   Major Problems.     (adjusted by
                                                       percent change in
                                                       average weight of
                                                       the cases in
                                                       other MS-DRGs).
792.............................  Prematurity         FY 2013 FR weight
                                   without Major       (adjusted by
                                   Problems.           percent change in
                                                       average weight of
                                                       the cases in
                                                       other MS-DRGs).

[[Page 50570]]

 
793.............................  Full-Term Neonate   FY 2013 FR weight
                                   with Major          (adjusted by
                                   Problems.           percent change in
                                                       average weight of
                                                       the cases in
                                                       other MS-DRGs).
794.............................  Neonate with Other  FY 2013 FR weight
                                   Significant         (adjusted by
                                   Problems.           percent change in
                                                       average weight of
                                                       the cases in
                                                       other MS-DRGs).
795.............................  Normal Newborn....  FY 2013 FR weight
                                                       (adjusted by
                                                       percent change in
                                                       average weight of
                                                       the cases in
                                                       other MS-DRGs).
------------------------------------------------------------------------

    We did not receive any public comments on this proposal and, 
therefore, are finalizing it for FY 2014 as proposed.
4. Bundled Payments for Care Improvement (BPCI) Initiative
    The Bundled Payments for Care Improvement (BPCI) initiative, 
developed under the authority of section 3021 of the Affordable Care 
Act (codified at section 1115A of the Act), is comprised of four 
broadly defined models of care, which link payments for multiple 
services beneficiaries receive during an episode of care. Under the 
BPCI initiative, organizations enter into payment arrangements that 
include financial and performance accountability for episodes of care. 
On January 31, 2013, CMS announced the health care organizations 
selected to participate in the BPCI initiative. For additional 
information on the BPCI initiative, we refer readers to the CMS' Center 
for Medicare and Medicaid Innovation's Web site at http://innovation.cms.gov/initiatives/Bundled-Payments/index.html and to 
section IV.H.4. of the preamble of the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53341 through 53343) for a discussion on the BPCI initiative.
    In the FY 2013 IPPS/LTCH PPS final rule, for FY 2013 and subsequent 
fiscal years, we finalized a policy to treat hospitals that participate 
in the BPCI initiative the same as prior fiscal years for the IPPS 
payment modeling and ratesetting process without regard to a hospital's 
participation within these bundled payment models (that is, as if a 
hospital were not participating in those models under the BPCI 
initiative). Therefore, for FY 2014, we proposed to continue to include 
all applicable data from subsection (d) hospitals participating in BPCI 
Models 1, 2, and 4 in our IPPS payment modeling and ratesetting 
calculations. We did not receive any public comments on this proposal 
and, therefore, are finalizing it for FY 2014 as proposed. We refer 
readers to the FY 2013 IPPS/LTCH PPS final rule for a complete 
discussion on our final policy for the treatment of hospitals 
participating in the BPCI initiative in our ratesetting process.

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 at 42 CFR 412.87 implement these provisions and 
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. Below we highlight 
some of the major statutory and regulatory provisions relevant to the 
new technology add-on payment criteria as well as other information. 
For a complete discussion on the new technology add-on payment 
criteria, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51572 through 51574).
    Under the first criterion, as reflected in Sec.  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. We note 
that 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) and the FY 2010 IPPS/RY 
2010 LTCH PPS final rule (74 FR 43813 and 43814), we explained our 
policy regarding substantial similarity in detail.
    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. Table 10 
that was released with the FY 2013 IPPS/LTCH PPS final rule contains 
the final thresholds that we used to evaluate applications for new 
technology add-on payments for FY 2014. We refer readers to the CMS Web 
site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY-2013-IPPS-Final-Rule-Home-Page.html for a complete 
viewing of Table 10 from the FY 2013 IPPS/LTCH PPS final rule.
    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. We refer readers to the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51573) for complete information on this issue.

[[Page 50571]]

    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 more detailed 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, the additional Medicare 
payment is limited to the full MS-DRG payment plus 50 percent of the 
estimated costs of the new technology.
    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 Center for Clinical Standards and 
Quality (CCSQ) 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, CCSQ, 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.
    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 2015 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.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech.html. To allow interested parties to identify the new medical 
services or technologies under review before the publication of the 
proposed rule for FY 2015, the Web site also will post the tracking 
forms completed by each applicant.
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

[[Page 50572]]

technology applications requires the Secretary to--
     Provide, before publication of a proposed rule, for public 
input regarding whether a new service or technology represents an 
advance in medical technology that substantially improves the diagnosis 
or treatment of Medicare beneficiaries;
     Make public and periodically update a list of the services 
and technologies for which applications for add-on payments are 
pending;
     Accept comments, recommendations, and data from the public 
regarding whether a service or technology represents a substantial 
clinical improvement; and
     Provide, before publication of a proposed rule, for a 
meeting at which organizations representing hospitals, physicians, 
manufacturers, and any other interested party may present comments, 
recommendations, and data regarding whether a new medical service or 
technology represents a substantial clinical improvement to the 
clinical staff of CMS.
    In order to provide an opportunity for public input regarding add-
on payments for new medical services and technologies for FY 2014 prior 
to publication of the FY 2014 IPPS/LTCH PPS proposed rule, we published 
a notice in the Federal Register on November 23, 2012 (77 FR 70163 
through 70165), and held a town hall meeting at the CMS Headquarters 
Office in Baltimore, MD, on February 5, 2013. 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 2014 new medical service and 
technology add-on payment applications before the publication of the FY 
2014 proposed rule.
    Approximately 60 individuals registered to attend the town hall 
meeting in person, while additional individuals listened over an open 
telephone line. We considered each applicant's presentation made at the 
town hall meeting, as well as written comments submitted on the 
applications that were received by the due date of February 26, 2013, 
in our evaluation of the new technology add-on payment applications for 
FY 2014 in the proposed rule. In response to the published notice and 
the new technology town hall meeting, commenters submitted and 
presented public comments that were unrelated to the substantial 
clinical improvement criterion in regard to the new technology 
applications for FY 2014. We also received public comments in response 
to the proposed rule relating to topics such as marginal cost factors 
for new technology add-on payments, and the use of external data in 
determining the cost threshold and mapping new technologies to the 
appropriate MS-DRG. Because we did not request public comments nor 
propose to make any changes to any of the issues above, we are not 
summarizing these public comments nor responding to them in this final 
rule.
    We also live-streamed the town hall meeting over the Internet and 
received very positive feedback from the public on use of this option. 
In the FY 2014 IPPS/LTCH PPS proposed rule, we stated that we are 
considering no longer holding an in-person town hall meeting in 
Baltimore, MD, and instead holding a virtual town hall meeting that 
would be live-streamed on the Internet. We invited public comments on 
the possibility of holding a virtual town hall meeting instead of an 
in-person town hall meeting in Baltimore, MD.
    Comment: Some commenters expressed concern that limiting the town 
hall meeting to a virtual town hall meeting may give less of a voice to 
applicants. The commenters supported the option to observe the town 
hall meeting via live stream on line but recommended that we maintain 
the in-person option as well.
    Response: In the proposed rule, we noted that we received positive 
comments concerning the virtual town hall meeting. We expect that 
applicants would still be an integral part of the virtual town hall 
meeting as it is typical for applicants to make presentations at the 
annual town hall meeting about their technologies and why their 
technologies represent a substantial clinical improvement over existing 
technologies. However, we note that some applicants have either chosen 
not to make a presentation at the town hall meeting and/or to make all 
or part of their presentation by phone. Therefore, we do not believe a 
virtual town hall would offer less of a voice to applicants. The 
purpose of a virtual town hall meeting would be to continue to provide 
the information to the public in advance of the proposed rule while 
reducing the burden and providing greater access for all applicants and 
interested parties by eliminating the need to make special travel 
arrangements or by mitigating any other issue that would limit the 
public from attending the meeting in person. For example, in 2010, we 
postponed the town hall meeting due to inclement weather. We will 
consider the issues raised by these commenters as we consider whether 
to transition to a virtual town hall meeting. Further information 
regarding the mechanism we use to engage the public for future town 
hall meetings will be provided via public notice.
3. FY 2014 Status of Technologies Approved for FY 2013 Add-On Payments
a. 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 510(k) 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 
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. After 
evaluation of the newness, costs, and substantial clinical improvement 
criteria for new technology add-on payments for the AutoLITT\TM\ and 
consideration of the public comments we received in response to the FY 
2011 IPPS/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. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27935 through 
27936), based on the original information provided by the applicant, we 
believed that the newness date for the AutoLITT\TM\ began in December 
2009. However, as summarized in the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53345 through 53346), the applicant submitted a public

[[Page 50573]]

comment (in response to the FY 2013 proposed rule) demonstrating that 
the AutoLITT\TM\ was first available on May 11, 2010. The manufacturer 
explained that some of the sterile disposable products were not 
released from quarantine until May 11, 2010, which prevented the 
AutoLITT\TM\ from being used prior to May 11, 2010. Therefore, the 
manufacturer asserted that the first time the AutoLITT\TM\ was 
available on the market was May 11, 2010. As a result of this 
information, we continued to make new technology add-on payments for 
the AutoLITT\TM\ in FY 2013. (We refer readers to the FY 2013 IPPS/LTCH 
PPS final rule for a complete discussion on this issue).
    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 Major Complications or 
Comorbidities (MCC)), 026 (Craniotomy and Endovascular Intracranial 
Procedures with Complications or Comorbidities (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 principal diagnosis code 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.
    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 service or technology'' (Sec.  
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 AutoLITT\TM\, as stated above, we consider 
the beginning of the newness period for the device to commence when the 
AutoLITT\TM\ was first available on May 11, 2010. Because the 3-year 
anniversary date of the AutoLITT\TM\'s entry onto the market will occur 
on May 11, 2013, which is prior to the beginning of FY 2014, we 
proposed to discontinue new technology add-on payments for the 
AutoLITT\TM\ for FY 2014.
    We invited public comments on this proposal. However, we did not 
receive any public comments in response to our invitation. Therefore, 
we are finalizing our proposal to discontinue new technology add-on 
payments for the AutoLITT\TM\ for FY 2014.
b. Glucarpidase (Trade Brand Voraxaze[supreg])
    BTG International, Inc. submitted an application for new technology 
add-on payments for Glucarpidase (trade brand Voraxaze[supreg]) for FY 
2013. Glucarpidase is used in the treatment of patients who have been 
diagnosed with toxic methotrexate (MTX) concentrations as of result of 
renal impairment. The administration of Glucarpidase causes a rapid and 
sustained reduction of toxic MTX concentrations.
    Voraxaze[supreg] was approved by the FDA on January 17, 2012. 
Beginning in 1993, certain patients could obtain expanded access for 
treatment use to Voraxaze[supreg] as an investigational drug. Since 
2007, the applicant has been authorized to recover the costs of making 
Voraxaze[supreg] available through its expanded access program. We 
describe expanded access for treatment use of investigational drugs and 
authorization to recover certain costs of investigational drugs in the 
FY 2013 IPPS/LTCH PPS final rule (77 FR 53346 through 53350). 
Voraxaze[supreg] was available on the market in the United States as a 
commercial product to the larger population as of April 30, 2012. In 
the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27936 through 27939), we 
expressed concerns about whether Voraxaze[supreg] could be considered 
new for FY 2013. After consideration of all of the public comments 
received, in the FY 2013 IPPS/LTCH PPS final rule, we stated that we 
considered Voraxaze[supreg] to be ``new'' as of April 30, 2012, which 
is the date of market availability.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology payments for Voraxaze[supreg] 
and consideration of the public comments we received in response to the 
FY 2013 IPPS/LTCH PPS proposed rule, we approved Voraxaze[supreg] for 
new technology add-on payments for FY 2013. Cases of Voraxaze[supreg] 
are identified with ICD-9-CM procedure code 00.95 (Injection or 
infusion of glucarpidase). The cost of Voraxaze[supreg] is $22,500 per 
vial. The applicant stated that an average of four vials is used per 
Medicare beneficiary. Therefore, the average cost per case for 
Voraxaze[supreg] is $90,000 ($22,500 x 4). Under Sec.  412.88(a)(2), 
new technology add-on payments are limited to the lesser of 50 percent 
of the average cost of the technology or 50 percent of the costs in 
excess of the MS-DRG payment for the case. As a result, the maximum new 
technology add-on payment for Voraxaze[supreg] is $45,000 per case.
    As stated above, 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 service or 
technology'' (Sec.  412.87(b)(2)). With regard to the newness criterion 
for Voraxaze[supreg], as stated above, we consider the beginning of the 
newness period to commence when Voraxaze[supreg] was first available on 
the market on April 30, 2012. Because Voraxaze[supreg] is still within 
the 3-year newness period, we proposed to continue new technology add-
on payments for this technology for FY 2014. We invited public comments 
on this proposal.
    Comment: Several commenters supported the continuation of making 
new technology add-on payments for Voraxaze[supreg] in FY 2014.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to continue to make new technology add-on 
payments for Voraxaze[supreg] in FY 2014.

[[Page 50574]]

c. DIFICID\TM\ (Fidaxomicin) Tablets
    Optimer Pharmaceuticals, Inc. submitted an application for new 
technology add-on payments for FY 2013 for the use of DIFICID\TM\ 
tablets. As indicated on the labeling submitted to the FDA, the 
applicant noted that Fidaxomicin is taken twice a day as a daily dosage 
(200 mg tablet twice daily = 400 mg per day) as an oral antibiotic. The 
applicant asserted that Fidaxomicin provides potent bactericidal 
activity against C. Diff., and moderate bactericidal activity against 
certain other gram-positive organisms, such as enterococcus and 
staphylococcus. Unlike other antibiotics used to treat CDAD, the 
applicant noted that the effects of Fidaxomicin preserve bacteroides 
organisms in the fecal flora. These are markers of normal anaerobic 
microflora. The applicant asserted that this helps prevent pathogen 
introduction or persistence, which potentially inhibits the re-
emergence of C. Diff., and reduces the likelihood of overgrowths as a 
result of vancomycin-resistant Enterococcus (VRE). Because of this 
narrow spectrum of activity, the applicant asserted that Fidaxomicin 
does not alter this native intestinal microflora.
    In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27939 through 
27941), we expressed concern that DIFICID\TM\ may not be eligible for 
new technology add-on payments because eligibility is limited to new 
technologies associated with procedures described by ICD-9-CM codes. We 
further stated that drugs that are only taken orally (such as 
DIFICID\TM\) may not be eligible for consideration for new technology 
add-on payments because there is no procedure associated with these 
drugs and, therefore, no ICD-9-CM code(s). In the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53350 through 53358), after consideration of the 
public comments received, we revised our policy to allow the use of 
National Drug Codes (NDCs) to identify oral medications that have no 
inpatient procedure for the purposes of new technology add-on payments. 
The revised policy is effective for payments for discharges occurring 
on or after October 1, 2012. We refer readers to the FY 2013 IPPS/LTCH 
PPS final rule for a complete discussion on this issue.
    With regard to the newness criterion, Fidaxomicin was approved by 
the FDA on May 27, 2011, for the treatment of CDAD in adult patients, 
18 years of age and older. In the FY 2013 IPPS/LTCH PPS final rule, we 
established that the beginning of the newness period for this 
technology is its FDA approval date of May 27, 2011.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for DIFICID\TM\ 
and consideration of the public comments we received in response to the 
FY 2013 IPPS/LTCH PPS proposed rule, we approved DIFICID\TM\ for new 
technology add-on payments for FY 2013. Cases of DIFICID\TM\ are 
identified with ICD-9-CM diagnosis code 008.45 (Intestinal infection 
due to Clostridium difficile) in combination with NDC code 52015-0080-
01. Providers must report the NDC on the 837i Health Care Claim 
Institutional form (in combination with ICD-9-CM diagnosis code 008.45) 
in order to receive the new technology add-on payment. According to the 
applicant, the cost of DIFICID\TM\ is $2,800 for a 10-day dosage. The 
average cost per day for DIFICID\TM\ is $280 ($2,800/10). Cases of 
DIFICID\TM\ within the inpatient setting typically incur an average 
dosage of 6.2 days, which results in an average cost per case for 
DIFICID\TM\ of $1,736 ($280 x 6.2). Under Sec.  412.88(a)(2), new 
technology add-on payments are limited to the lesser of 50 percent of 
the average cost of the technology or 50 percent of the costs in excess 
of the MS-DRG payment for the case. As a result, the maximum new 
technology add-on payment for FY 2013 for DIFICID\TM\ is $868.
    As stated above, 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 service or 
technology'' (Sec.  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 DIFICID\TM\, as stated above, we consider the 
beginning of the newness period to commence when DIFICID\TM\ was first 
approved by the FDA on May 27, 2011. Because the 3-year anniversary 
date of DIFICID\TM\ will occur in the second half of the fiscal year 
(after April 1, 2014), we proposed to continue new technology add-on 
payments for DIFICID\TM\ for FY 2014. We invited public comments on 
this proposal.
    Comment: Several commenters supported the continuation of making 
new technology add-on payments for DIFICID\TM\ in FY 2014. In addition, 
the applicant submitted a comment stating that the new technology add-
on payment for DIFICID\TM\ has expanded Medicare beneficiary access for 
DIFICID\TM\ in the acute care setting. The manufacturer also provided 
supplemental data demonstrating that cases of DIFICID\TM\ within the 
inpatient setting continue to incur an average dosage of 6.2 days. 
Based on this supplemental data, the manufacturer recommended that we 
continue to consider 6.2 days of inpatient administration of 
DIFICID\TM\ in its calculations for the cost criterion and the add-on 
payment.
    Response: We appreciate the commenters' support. We agree that the 
supplemental data submitted by the manufacturer continues to support 
the use of 6.2 days for the cost criterion and the add-on payment.
    After consideration of the public comments we received, we are 
finalizing our proposal to continue to make new technology add-on 
payments for DIFICID\TM\ in FY 2014.
d. Zenith[supreg] Fenestrated Abdominal Aortic Aneurysm (AAA) 
Endovascular Graft
    Cook[supreg] Medical submitted an application for new technology 
add-on payments for the Zenith[supreg] Fenestrated Abdominal Aortic 
Aneurysm (AAA) Endovascular Graft (Zenith[supreg] F. Graft) for FY 
2013. The applicant stated that the current treatment for patients who 
have had an AAA is an endovascular graft. The applicant explained that 
the Zenith[supreg] F. Graft is an implantable device designed to treat 
patients who have an AAA and who are anatomically unsuitable for 
treatment with currently approved AAA endovascular grafts because of 
the length of the infrarenal aortic neck. The applicant noted that, 
currently, an AAA is treated through an open surgical repair or medical 
management for those patients not eligible for currently approved AAA 
endovascular grafts.
    With respect to newness, the applicant stated that FDA approval for 
the use of the Zenith[supreg] F. Graft was granted on April 4, 2012. In 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53360 through 53365), we 
stated that because the Zenith[supreg] F. Graft was approved by the FDA 
on April 4, 2012, we believed that the Zenith[supreg] F. Graft met the 
newness criterion as of that date.

[[Page 50575]]

    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for the 
Zenith[supreg] F. Graft and consideration of the public comments we 
received in response to the FY 2013 IPPS/LTCH PPS proposed rule, we 
approved the Zenith[supreg] F. Graft for new technology add-on payments 
for FY 2013. Cases involving the Zenith[supreg] F. Graft that are 
eligible for new technology add-on payments are identified by ICD-9-CM 
procedure code 39.78 (Endovascular implantation of branching or 
fenestrated graft(s) in aorta). In the application, the applicant 
provided a breakdown of the costs of the Zenith[supreg] F. Graft. The 
total cost of the Zenith[supreg] F. Graft utilizing bare metal (renal) 
alignment stents was $17,264. Of the $17,264 in costs for the 
Zenith[supreg] F. Graft, $921 are for components that are used in a 
standard Zenith AAA Endovascular Graft procedure. Because the costs for 
these components are already reflected within the MS-DRGs (and are no 
longer ``new''), in the FY 2013 IPPS/LTCH PPS final rule, we stated 
that we do not believe it is appropriate to include these costs in our 
calculation of the maximum cost to determine the maximum add-on payment 
for the Zenith[supreg] F. Graft. Therefore, the total maximum cost for 
the Zenith[supreg] F. Graft is $16,343 ($17,264-$921). Under Sec.  
412.88(a)(2), new technology add-on payments are limited to the lesser 
of 50 percent of the average cost of the device or 50 percent of the 
costs in excess of the MS-DRG payment for the case. As a result, the 
maximum add-on payment for a case involving the Zenith[supreg] F. Graft 
is $8,171.50.
    As stated above, 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 service or 
technology'' (Sec.  412.87(b)(2)). With regard to the newness criterion 
for the Zenith[supreg] F. Graft, as stated above, we consider the 
beginning of the newness period to commence when the Zenith[supreg] F. 
Graft was approved by the FDA on April 4, 2012. Because the 
Zenith[supreg] F. Graft is still within the 3-year newness period, we 
proposed to continue new technology add-on payments for this technology 
for FY 2014. We invited public comments on this proposal.
    Comment: Several commenters supported the continuation of new 
technology add-on payments for the Zenith[supreg] F. Graft in FY 2014.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to continue to make new technology add-on 
payments for the Zenith[supreg] F. Graft in FY 2014.
4. FY 2014 Applications for New Technology Add-On Payments
    We received five applications for new technology add-on payments 
for FY 2014. In accordance with the regulations under Sec.  412.87(c), 
applicants for new technology add-on payments must have FDA approval by 
July 1 of each year prior to the beginning of the fiscal year that the 
application is being considered. Two of the five technologies for which 
we received applications for new technology add-on payments, the 
NeuroPace Responsive Neurostimulator System (RNS) System and the Abbott 
Vascular MitraClip[supreg] System, did not receive FDA approval by the 
July 1 deadline. Therefore, these applications are not eligible for 
consideration for new technology add-on payments for FY 2014. In 
addition, the applicant for the NeuroPace RNS System withdrew its 
application prior to publication of this final rule. We note that we 
did receive public comments concerning these two applications. However, 
as stated above, because these two technologies did not receive FDA 
approval by the July 1 deadline and, therefore, cannot be considered 
for new technology add-on payments for FY 2014, we are not summarizing 
or responding to these comments in this final rule. We refer readers to 
the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27543 through 27545 and 
27547 through 27552) for summaries of these two applications. A 
discussion of the remaining three applications is presented below.
a. Kcentra\TM\
    CSL Behring submitted an application for new technology add-on 
payments for Kcentra\TM\ for FY 2014. Kcentra\TM\ is a replacement 
therapy for fresh frozen plasma (FFP) for patients with an acquired 
coagulation factor deficiency due to warfarin and who are experiencing 
a severe bleed. Kcentra\TM\ contains the Vitamin K dependent 
coagulation factors II, VII, IX and X, together known as the 
prothrombin complex, and antithrombotic proteins C and S. Factor IX is 
the lead factor for the potency of the preparation. The product is a 
heat-treated, non-activated, virus filtered and lyophilized plasma 
protein concentrate made from pooled human plasma. Kcentra\TM\ is 
available as a lyophilized powder that needs to be reconstituted with 
sterile water prior to administration via intravenous infusion. The 
product is dosed based on Factor IX units. Concurrent Vitamin K 
treatment is recommended to maintain blood clotting factor levels once 
the effects of Kcentra\TM\ have diminished.
    Kcentra\TM\ was approved by the FDA on April 29, 2013. The 
applicant applied for a new ICD-9-CM procedure code for consideration 
at the March 5, 2013 ICD-9-CM Coordination and Maintenance Committee 
Meeting. In this final rule, we have approved new ICD-9-CM procedure 
code 00.96 (Infusion of 4-Factor Prothrombrin Complex Concentrate) 
which uniquely identifies Kcentra\TM\. More information on this request 
and approval can be found on the CMS Web site at: http://cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials-Items/2013-03-05-MeetingMaterials.html and http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/addendum.html.
    In the FY 2014 IPPS/LTCH PPS proposed rule, we noted that we were 
concerned that Kcentra\TM\ may be substantially similar to FFP and/or 
Vitamin K therapy. If so, Kcentra\TM\ would not meet the newness 
criterion because costs associated with FFP and/or Vitamin K therapy 
are already reflected within the MS-DRGs. In the FY 2010 IPPS/RY 2010 
LTCH PPS final rule (74 FR 43813 through 43814), we established 
criteria for evaluating whether a new technology is substantial similar 
to an existing technology, specifically: (1) Whether a product uses the 
same or a similar mechanism of action to achieve a therapeutic outcome; 
(2) whether a product is assigned to the same or a different MS-DRG; 
and (3) 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. If a technology meets all three of the criteria above, it 
would be considered substantially similar to an existing technology and 
would not be considered ``new'' for purposes of new technology add-on 
payments.
    In evaluating the first criterion, we stated in the FY 2014 IPPS/
LTCH PPS proposed rule that we believe that both FFP and Kcentra\TM\ 
use the same mechanism of action of Vitamin K dependent coagulation to 
reverse the anti-coagulation effects of warfarin. With respect to the 
second criterion, we believe that cases involving both FFP and 
Kcentra\TM\ would be assigned to the same MS-DRGs. Finally, with 
respect to the third criterion, we stated that we believe that both 
technologies treat the same condition and patient population. 
Specifically, the patient population for both Kcentra\TM\ and FFP are 
patients

[[Page 50576]]

with an iatrogenically acquired coagulation factor deficiency due to 
warfarin and who are experiencing severe bleeding. Delay of treatment 
of these patients can lead to an increase in complications as well as 
an increase of the severity of the blood loss. Although FFP needs to 
thaw before it can be administered and can delay treatment compared to 
Kcentra\TM\, which can be used in a more timely manner, we stated that 
we believe that both Kcentra\TM\ and FFP treat the same patient 
population. Based on evaluation of the similarity criteria, we stated 
that it appears that Kcentra\TM\ is substantially similar to FFP with 
regard to being able to reverse the Warfarin effect of blood 
coagulation. Therefore, we stated in the proposed rule that Kcentra\TM\ 
may not be considered ``new'' for purposes of new technology add-on 
payments. We invited public comments regarding whether Kcentra\TM\ is 
substantially similar to existing technologies and whether Kcentra\TM\ 
meets the newness criterion.
    Comment: One commenter, the applicant and manufacturer, submitted a 
public comment stating that Kcentra\TM\ meets the newness criterion 
because it was approved by the FDA and no data on the product will be 
available in the DRG payment system until FY 2014. In addition, the 
applicant asserted that because a new ICD-9-CM procedure code for 
Kcentra\TM\ was created that will be effective October 1, 2013, 
Kcentra\TM\ fulfills the regulatory requirements.
    Response: As discussed in the proposed rule, because Kcentra\TM\ 
may be substantially similar to FFP, it is possible that the costs 
associated with Kcentra\TM\ may already be reflected in the MS-DRGs. 
Below we summarize the applicant's comments and our response concerning 
substantial similarity.
    With regard to considering the technology ``new'' due to the 
issuance of a new ICD-9-CM procedure code, in the FY 2005 IPPS final 
rule (69 FR 49002), we discussed how, generally, we use the FDA 
approval as the indicator of the time when a technology begins to 
become available on the market and data reflecting the costs of the 
technology begin to become available for recalibration of the DRGs. In 
some specific circumstances, we have recognized a date later than the 
FDA approval as the appropriate starting point for the 2-year to 3-year 
period. Using the ICD-9-CM code alone is not an appropriate test of 
newness because technologies that are new to the market are 
automatically placed into the closest ICD-9-CM category when they first 
become available on the market, unless the manufacturer requests the 
assignment of a new ICD-9-CM code because existing codes do not 
adequately reflect or describe the medical service or device. We refer 
readers to the FY 2005 IPPS final rule for a complete discussion 
concerning the issuance of an ICD-9-CM code and the newness criterion.
    Comment: The manufacturer submitted a public comment stating that 
Kcentra\TM\ has a different mechanism of action than FFP in the same 
way that we determined that the AutoLITT\TM\ had a different mechanism 
of action than the Visual-ase in the FY 2011 IPPS/LTCH PPS final rule 
(75 FR 50144).
    Response: The commenter did not provide any details regarding the 
perceived similarities between the AutoLITT\TM\ and the Kcentra\TM\ 
applications in correlation with the comparison presented in its 
comment. For example, in the FY 2011 IPPS/LTCH PPS final rule, we 
determined that the AutoLITT\TM\ was different than the Visual-ase due 
to its side-firing laser versus elliptical-firing. In addition, the 
AutoLITT\TM\ contained a proprietary probe cooling system that removes 
heat from tissue not directly in the path of the laser beam, while the 
Visual-ase did not contain this cooling system. Therefore, without more 
information detailing the comparable differences in mechanism of action 
and/or the perceived similarities between these two applications, we 
are unable to provide further response to the comment.
    Comment: The manufacturer submitted a public comment asserting that 
Kcentra\TM\ has a different mechanism of action than FFP. The commenter 
explained that Kcentra\TM\'s mechanism of action for Vitamin K 
antagonist (VKA) reversal is different from FFP. Kcentra\TM\ is 
purified, heat treated, nanofiltered, non-activated four factor 
prothorbin complex concentrate. It contains coagulation factors (II, 
VII, IX, X) and anti-coagulation proteins (C and S) that are 25 times 
more concentrated than plasma. Kcentra\TM\ provides a simple and rapid 
repletion within 30 minutes. Unlike FPP, it does not require ABO typing 
as it does not contain ABO antibodies, thereby reducing the risk of a 
transfusion reaction. The absence of additional proteins removes the 
risk of transfusion related acute lung injury or TRALI.
    Conversely, the manufacturer stated that FFP is isolated from the 
whole blood by the removal of cellular components (erythrocytes, 
granulocytes, lymphocytes and platelets), therefore it contains all the 
protein components in blood including coagulation proteins among others 
at a physiologic level of 1 IO/ml. In addition, FFP is a non-specific 
therapy which does not achieve the goal of repleting all coagulation 
factors to therapeutic levels. The manufacturer explained that factors 
II and X and Protein C remain below 50 percent at 3 hours. The 
manufacturer maintained that the reason for lack of correction of these 
factors is unclear and suggests that plasma cannot provide simple 
repletion or that there is another mechanism resulting in a plateau of 
some of the factors at a sub-therapeutic level. In contrast, the 
manufacturer noted that Kcentra\TM\ increases all coagulation factors 
(II, VII, IX, X) and anti-coagulation proteins (C and S). The 
manufacturer added that modest reversal of VKA is also reflected in the 
slow return to normal of the International Normalized Ratio (INR). The 
manufacturer compared FFP to Kcentra\TM\ and noted that early INR 
reduction was achieved in 62 percent of Kcentra\TM\ patients versus 
less than 10 percent of FFP patients. The manufacturer also contended 
that the different method of production of Kcentra\TM\ contributes to 
its distinct mechanism of action by providing a highly specific, highly 
concentrated product available on an urgent basis. The manufacturer 
explained that Kcentra\TM\'s blood factor constituents are 25 more 
times concentrated than those contained in a standard unit of FFP 
allowing for markedly decrease of infusion time and infusion of smaller 
volumes compared to equivalent doses of FFP; Kcentra\TM\ provides 
standardized and known concentrations of factors compared to variable 
concentrations for FFP; Kcentra\TM\ is a targeted therapy replacing 
only what is deficient in vitamin K antagonists reversal resulting in 
rapid reversal without impact of nonspecific protein content; 
Kcentra\TM\ does not require ABO typing compared to FFP; and 
Kcentra\TM\ is lyophilized powder for reconstitution and is stable for 
up to 36 months at room temperature making it ideal for emergency use 
compared to FFP.
    Response: We appreciate the details provided in the manufacturer's 
comment that reference the different reasons why Kcentra\TM\ uses a 
different mechanism of action than FFP. We appreciate the issues that 
the manufacturer raises that Kcentra\TM\ provides a simple and rapid 
repletion relative to FFP and reduces the risk of a transfusion 
reaction relative to FFP because it does not contain ABO or RH 
antibodies, which require blood typing prior to administration. 
However,

[[Page 50577]]

despite the arguments presented in the public comment, we remain 
concerned that Kcentra\TM\ still uses the same mechanism of action as 
FFP because they both use coagulation factors and proteins to improve 
blood coagulation, in the context of an acquired coagulation 
deficiency.
    Comment: The manufacturer also submitted a public comment asserting 
that Kcentra\TM\ provides a therapeutic option for new patient 
populations and patient populations not recommended for FFP. The 
manufacturer listed the following patient populations that would be 
eligible to use Kcentra\TM\ but not FFP:
     ``Jehovah's Witnesses: Certain religious groups' beliefs 
prevent patients from accepting transfusion of whole blood or its 
primary components which includes plasma. Fractionated factor 
concentrates are considered `secondary components', and thus they may 
be acceptable to some followers'' (with these beliefs who would 
otherwise not be eligible for FFP).
     Immunoglobulin A (IgA) deficient patients can have severe 
anaphylactoid reactions due to the formation of anti-IgA antibodies. 
Plasma contains immunoglobulins and plasma in amounts as small as 10 
ml, which can result in severe reaction. Kcentra\TM\ provides a 
treatment option for these patients who were not eligible for FFP.
     Rapid reversal of bleeding is important for patients with 
intracranial hemorrhaging (ICH) in order to restrict hematoma 
enlargement and allow timely neurosurgical intervention. The 
manufacturer believed that Kcentra\TM\ provides a therapy for this 
population because plasma is not ideal because Warfarin increases the 
risk of ICH, which could lead to stroke. The manufacturer cited a study 
noting that intervention for ICH within the first hour may improve 
outcomes and protocol driven treatment can facilitate timely and 
efficient care. The manufacturer also noted that for patients receiving 
VKA therapy with an INR less than 1.4, protocol recommends 
administering agents to normalize the INR within minutes; Kcentra\TM\ 
provides a readily available treatment compared to FFP which takes time 
to thaw, type the patient and then infuse.
     The manufacturer also noted that the most significant 
limitations of plasma are the volume and time required to increase 
factor levels. Because Kcentra\TM\ is concentrated, schemes can be 
designed to achieve targeted factor level for patients, especially 
those with cardiac impairment, rather than a maximum tolerated volume. 
The manufacturer further explained that plasma volume, rate of 
infusion, left ventricular dysfunction and VKA reversal have been 
identified as risk factors for the development of Transfusion 
Associated Circulatory Overload (TACO). The manufacturer cited data 
from its clinical trial that demonstrated that plasma should not be 
administered to patients with cardiac impairment or risk of cardiac 
overload. The manufacturer asserted that Kcentra\TM\ provides a therapy 
for patients with cardiac impairment for whom plasma would not be 
ideal.
     The manufacturer explained that given the logistical 
issues of managing, typing and storing supplies of plasma (fresh/
thawed) as well as the limited supply of AB universal blood plasma, 
Kcentra\TM\ provides a new treatment option for hospitals, regardless 
of size (small, rural, community) or trauma level, to handle urgent 
warfarin reversals. Plasma requires blood-type matching, thawing and is 
often located away from the point of care. The applicant cited a study 
conducted at a large, urban, tertiary care facility, where the median 
time from time of diagnosis to plasma infusion was 90 minutes 
(Goldstein STROKE 2006). This did not include time to infuse the 
plasma, which can take hours. The manufacturer further explained that 
even at leading hospitals, the logistics around obtaining units of 
plasma for urgent transfusions is difficult, making good outcomes 
difficult to obtain (Goldstein STROKE 2006). Smaller hospitals without 
the resources of a Level 1 trauma center find plasma even more 
difficult to manage resulting in under-treatment and slow treatment 
(Menzin Thromb and Hemostasis 2012). Particularly for smaller, 
community, rural, and hospitals less than Level One Trauma Centers, 
Kcentra\TM\ represents the best opportunity for providing quality care 
to patients with Warfarin-related bleeding.
    Response: We agree that Kcentra\TM\ may be used in a patient 
population that is experiencing an acquired coagulation factor 
deficiency due to Warfarin and who are experiencing a severe bleed 
currently but are ineligible for FFP, particularly for use by IgA 
deficient patients and other patient populations that have no other 
treatment option to resolve severe bleeding in the context of an 
acquired Vitamin K deficiency. In addition, as mentioned above, FFP is 
limited because it requires special storage conditions while 
Kcentra\TM\ is stable for up to 36 months at room temperature thus 
allowing hospitals that otherwise would not have access to FFP (for 
example, small rural hospitals as discussed by the applicant in its 
comments) to keep a supply of Kcentra\TM\ and treat patients who would 
possibly have no access to FFP. We note that, FFP is considered 
perishable and can be scarce by nature (due to production and other 
market limitations) thus making some hospitals unable to store FFP, 
which limits access to certain patient populations in certain 
locations. Therefore, we believe that Kcentra\TM\ provides a 
therapeutic option for a new patient population and is not 
substantially similar to FFP. Also, as stated above, we give credence 
to the information presented by the manufacturer in its comment that 
Kcentra\TM\ provides a simple and rapid repletion relative to FFP and 
reduces the risk of a transfusion reaction relative to FFP because it 
does not contain ABO antibodies and does not require ABO typing. 
Because Kcentra\TM\ is not substantially similar to FFP, we believe 
that Kcentra\TM\ meets the newness criterion.
    Comment: One commenter recommended that CMS eliminate the 
substantial similarity criterion. The commenter believed that there are 
several benefits to this proposal including eliminating the risk that 
patients would be denied access to new therapies that provide 
substantial clinical improvement, improving clarity and predictability 
of the add-on rules and conforming to the statutory and regulatory 
provisions governing add-on payments, which do not mention substantial 
similarity and allowing technologies that enter the market subsequent 
to similar products receiving the add-on payment to be eligible for the 
add-on payment as well and not giving an advantage to the first product 
on the market representing a specific technology.
    Response: We appreciate the commenter's suggestion. However, we 
note that we did not propose to eliminate the substantial similarity 
criterion in the proposed rule. In regard to the commenter's assessment 
of the benefits of eliminating the substantial similarity criterion, we 
refer readers to the FY 2006 IPPS final rule (70 FR 47351) and the FY 
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 and 43814), where we 
explain our policy and reasoning regarding substantial similarity in 
detail.
    According to the applicant, the technology is eligible to be used 
across all MS-DRGs. To demonstrate that it meets the cost criterion, 
the applicant searched the FY 2011 MedPAR file (across all MS DRGs) for 
cases reporting a primary or secondary diagnosis of E934.2 (Adverse 
events due to anticoagulants), V58.61 (Long term

[[Page 50578]]

(current) use of anticoagulants), or 964.2 (Poisoning by 
anticoagulants) in combination with procedure code 99.07 (Transfusion 
of the serum). The applicant believed that this combination identified 
cases that suggest the use of a Vitamin K antagonist therapy as well as 
a major bleed.
    The applicant found 66,749 cases across all MS-DRGs and noted that 
18 percent of all cases would map to MS-DRGs 377 (Gastrointestinal 
Hemorrhage with MCC), 378 (Gastrointestinal Hemorrhage with CC), and 
379 (Gastrointestinal Hemorrhage without CC/MCC), while the top 20 MS-
DRGs would account for 41 percent of all cases. The applicant 
standardized charges (for all 66,749 cases) and removed charges for FFP 
therapy, which equated to a case-weighted average standardized charge 
per case of $49,748. The applicant calculated a case-weighted threshold 
of $46,068 across all MS-DRGs. The applicant asserted that the average 
case-weighted standardized charge per case without including charges 
for Kcentra\TM\ exceeded the case-weighted threshold of $46,068. 
Therefore, the applicant maintained that it meets the cost criterion. 
We invited public comments regarding whether Kcentra\TM\ meets the cost 
criterion, particularly with regard to the assumptions and methodology 
used in the applicant's analysis. However, we did not receive any 
public comments concerning the cost criterion and, therefore, we 
believe that Kcentra\TM\ meets the cost criterion.
    With regard to substantial clinical improvement, according to the 
applicant, Kcentra\TM\ is the first prothrombin complex concentrate 
(PCC) that will be FDA-approved for rapid Warfarin reversal in patients 
experiencing an acute major bleed. The applicant maintained that 
Kcentra\TM\ represents a substantial clinical improvement in the 
treatment of patients with acute severe bleeding who require immediate 
reversal of their VKA therapy by (1) providing a rapid, beneficial 
resolution of the patient's blood clotting factor deficiency, (2) 
decreasing the risk of exposure to blood borne pathogens, and (3) 
reducing the rate of transfusion-associated complications.
    The applicant cited its pivotal study (a randomized clinical trial) 
\3\ and noted that Kcentra\TM\ was noninferior in its ability to 
reverse the effects of Warfarin to a target INR of less than or equal 
to 1.3 within 30 minutes in 62 percent of patients compared to less 
than 10 percent success for plasma. Also, serum levels of the key 
coagulant and anti-thrombotic proteins were normalized in less than an 
hour with Kcentra\TM\, but these levels remained depressed with plasma 
for hours after dosing with FFP.
---------------------------------------------------------------------------

    \3\ Sarode R, et al., Efficacy and Safety of a Four Factor 
Prothrombin Complex Concentrate in Patients on Vitamin K Antagonists 
Presenting with Major Bleeding: A Randomized, Plasma Controlled, 
Phase IIIb Study. Circulation. Submitted October 31, 2012. Copy to 
be provided upon acceptance.
---------------------------------------------------------------------------

    The applicant also explained that Kcentra\TM\ undergoes a dedicated 
pathogen detection and removal process as well as purification steps to 
produce its specific components and plasma does not. The applicant 
asserted that this drastically reduces the risk of transmitting both 
known and unknown blood borne pathogens. The applicant cited a 
retrospective analysis of scientific publications \4\ on the use of 
Kcentra\TM\ in the European Union (EU), including the pharmacovigilance 
database from 1996 through 2008. The applicant noted that an estimated 
350,000 patients have been treated with Kcentra\TM\ (known as Beriplex 
in the EU) with no documented cases of viral transmission.
---------------------------------------------------------------------------

    \4\ Hanke A, et al., Efficacy and Long-Term Safety of a 
Pasteurized Nanofiltrated Prothrombin Complex Concentrate 
(BERIPLEX[supreg] P/N), 2009, J Thromb Haemost, Vol. 7 (Suppl.2) PP-
WE-697.
---------------------------------------------------------------------------

    The applicant also stated that, in the United States, blood 
suppliers follow a strict set of regulations for screening and testing 
the blood supply, but these tests and donor questionnaires do not 
account for emerging pathogens that could contaminate the blood supply. 
The applicant explained that parasitic infections and bacterial 
diseases (such as babesiosis and Chaga's disease) have already been 
documented in U.S. patients as a result of FFP transfusion. However, 
there is no screening test to date for some of these parasitic 
infections and diseases. The applicant believed that the multi-step 
manufacturing process for Kcentra\TM\, including heat treatment and 
nanofiltration, reduces the risk of transmitting such infections and 
diseases.
    The applicant also noted that another benefit of Kcentra\TM\ is the 
ability to rapidly prepare and administer the product in an emergency 
situation. In addition to the benefit of room temperature storage, 
Kcentra\TM\ can be rapidly reconstituted and administered. In the 
clinical study, the applicant found that the average administration 
time for Kcentra\TM\ was less than 30 minutes. However, the applicant 
stated, other treatments such as FFP and intravenous Vitamin K 
therapies act more slowly, and FFP can be difficult to use. The 
applicant explained that FFP therapy requires blood-type matching, 
usually requires thawing, and is often located away from the point of 
care. The applicant also cited a study \5\ that demonstrated the median 
time from time of diagnosis to plasma infusion was 90 minutes, which 
did not include the time to infuse the FFP which can take hours.
---------------------------------------------------------------------------

    \5\ Goldstein, Joshua N., et al., Timing of Fresh Frozen Plasma 
Administration and Rapid Correction of Coagulopathy in Warfarin-
Related Intracerebral Hemorrhage, Stroke 37.1 (2006):151-155.
---------------------------------------------------------------------------

    The applicant further noted that essential blood coagulation 
factors in one vial of Kcentra\TM\ are approximately 25 times more 
concentrated than those in the equivalent plasma dose. According to the 
applicant, this translated to an infusion volume that was 87 percent 
greater in the FFP group of patients as seen in the pivotal study. The 
applicant explained that high transfusion volumes of treatments such as 
FFP therapy can lead to TACO. According to the applicant, when TACO 
occurs, acute left ventricular failure may occur resulting in shortness 
of breath, tachypnea (rapid breathing), and result in other harmful 
effects.
    Finally, the applicant noted that Kcentra\TM\ is recommended as the 
standard of care in the new guidelines issued by the American College 
of Chest Physicians (ACCP) for patients needing emergent Warfarin 
reversal. In addition, the applicant noted that the American 
Association of Blood Banks (AABB) stated that plasma should no longer 
be used to reverse Warfarin in bleeding patients when specific factor 
concentrates are available.
    In conclusion, the applicant maintained that Kcentra\TM\ represents 
a substantial clinical improvement over existing technologies. We 
invited public comments regarding whether Kcentra\TM\ meets the 
substantial clinical improvement criterion.
    Comment: Several commenters supported making new technology add-on 
payments for Kcentra\TM\. One commenter stated that Kcentra\TM\ is a 
new, significantly more rapid way to provide substantial improvement 
over existing technologies. The commenter noted that compared to FFP, 
Kcentra\TM\ is concentrated and includes natural anticoagulants. In 
addition, the commenter noted that Kcentra\TM\ is more targeted than 
FFP because it does not contain the full range of proteins and other 
molecules found in FFP and believed that this targeted therapy provides 
high levels of coagulation factors at a faster rate and a more rapid 
correction of deficiencies induced by Warfarin. The commenter further 
stated

[[Page 50579]]

that Kcentra\TM\ can be infused in minutes compared to the hours needed 
to infuse FFP. The commenter expressed the opinion that this saved time 
can be critical when treating patients in a trauma or intensive care 
setting, including patients requiring urgent surgical intervention. The 
commenter also noted that Vitamin K therapy requires new factor 
synthesis/modification, which is dependent on optimal organ function, 
which in the context of patient injury or disease, may occur only after 
substantial delay, while Kcentra\TM\ provides immediate functioning 
factors.
    The commenter also noted that a common use of FFP and/or Vitamin K 
is sometimes a prophylactic measure for Warfarin reversal prior to an 
invasive procedure. The commenter believes that once Kcentra\TM\ is 
widely available, it will likely be used in a broader subset of 
patients than FFP and/or Vitamin K. The commenter finally noted that 
another benefit of Kcentra\TM\ is the low transfusion volume compared 
to FFP which decreases the risk of exposure to TACO.
    Another commenter noted that FFP has not been prospectively studied 
in controlled randomized trials for urgent Warfarin reversal while 
current guidelines for Vitamin K antagonist reversal recommend the use 
of 4-factor PCC over plasma.
    Response: We agree that KcentraTM represents a 
substantial clinical improvement over existing technologies. 
Specifically, KcentraTM provides (1) a rapid, beneficial 
resolution of the patient's blood clotting factor deficiency, (2) 
decreases the risk of exposure to blood borne pathogens, and (3) 
reduces the rate of transfusion-associated complications.
    KcentraTM meets all of the new technology add-on payment 
policy criteria. Therefore, we are approving KcentraTM for 
new technology add-on payments in FY 2014. Cases involving 
KcentraTM that are eligible for new technology add-on 
payments will be identified by ICD-9-CM procedure code 00.96. In the 
application, the applicant estimated that the average Medicare 
beneficiary would require an average dosage of 2500 International Units 
(IU). Vials contain 500 IU at a cost of $635 per vial. Therefore, cases 
of KcentraTM would incur an average cost per case of $3,175 
($635 x 5). Under Sec.  412.88(a)(2), new technology add-on payments 
are limited to the lesser of 50 percent of the average cost of the 
technology 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 of 
KcentraTM is $1,587.50.
    In the FY 2014 IPPS/LTCH PPS proposed rule, we noted that, if 
KcentraTM were to be approved for new technology add-on 
payments, we did not believe such payments would be available with 
respect to discharges for which the hospital receives an add-on payment 
for blood clotting factor administered to a Medicare beneficiary with 
hemophilia who is a hospital inpatient. Under section 
1886(d)(1)(A)(iii) of the Act, the national adjusted DRG prospective 
payment rate is ``the amount of the payment with respect to the 
operating costs of inpatient hospital services (as defined in 
subsection (a)(4) of this section)'' for discharges on or after April 
1, 1988. Section 1886(a)(4) of the Act excludes from the term 
``operating costs of inpatient hospital services'' the costs with 
respect to administering blood clotting factors to individuals with 
hemophilia. The costs of administering blood clotting factor to 
Medicare beneficiaries who have hemophilia and are hospital inpatients 
are paid separately from the IPPS. (For information on how the blood 
clotting factor add-on payment is made, we refer readers to section 
20.7.3 of Chapter Three of the Medicare Claims Processing Manual, which 
can be downloaded from the CMS Web site at: http://cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c03.pdf.) In addition, we 
stated that if KcentraTM is approved by the FDA as a blood 
clotting factor, we believe that it may be eligible for blood clotting 
factor add-on payments when administered to Medicare beneficiaries with 
hemophilia. We would make an add-on payment for KcentraTM 
for such discharges in accordance with our policy for payment of blood 
clotting factor, and it would be excluded from the operating costs of 
inpatient hospital services as set forth in section 1886(a)(4) of the 
Act.
    Section 1886(d)(5)(K)(i) of the Act requires the Secretary to 
``establish a mechanism to recognize the costs of new medical services 
and technologies under the payment system established under this 
subsection'' beginning with discharges on or after October 1, 2001. We 
believe that it is reasonable to interpret this requirement to mean 
that the payment mechanism established by the Secretary recognizes only 
costs for those items that would otherwise be paid based on the 
prospective payment system (that is, ``the payment system established 
under this subsection''). As noted above, under section 
1886(d)(1)(A)(iii) of the Act, the national adjusted DRG prospective 
payment rate is the amount of payment for the operating costs of 
inpatient hospital services, as defined in section 1886(a)(4) of the 
Act, for discharges on or after April 1, 1988. We understand this to 
mean that a new medical service or technology must be an operating cost 
of inpatient hospital services paid based on the prospective payment 
system, and not excluded from such costs, in order to be eligible for 
the new technology add-on payment. We point out that new technology 
add-on payments are based on the operating costs per case relative to 
the prospective payment rate as described in Sec.  412.88. Therefore, 
we believe that new technology add-on payments are appropriate only 
when the new technology is an operating cost of inpatient hospital 
services and are not appropriate when the new technology is excluded 
from such costs.
    We stated that if KcentraTM were to be approved for new 
technology add-on payments, we believe that hospitals may only receive 
that add-on payment for discharges where KcentraTM is an 
operating cost of inpatient hospital services. In other words, we do 
not believe that a hospital could be eligible to receive the new 
technology add-on payment when it is administering KcentraTM 
in treating a Medicare beneficiary who has hemophilia. In those 
instances, KcentraTM is specifically excluded from the 
operating costs of inpatient hospital services in accordance with 
section 1886(a)(4) of the Act and paid separately from the IPPS. 
However, when a hospital administers KcentraTM to a Medicare 
beneficiary who does not have hemophilia, the hospital could be 
eligible for a new technology add-on payment because 
KcentraTM would not be excluded from the operating costs of 
inpatient hospital services. Therefore, we do not believe that 
discharges where the hospital receives a blood clotting factor add-on 
payment are eligible for a new technology add-on payment for the blood 
clotting factor.
    To summarize, we believe that it would be inappropriate to make an 
add-on payment for new technology for a blood clotting factor when a 
blood clotting factor add-on payment has been made. We invited public 
comments on our proposal to only make new technology add-on payments 
for KcentraTM in cases when it is included in the operating 
costs of inpatient hospital services (that is, when no add-on payment 
is made for blood clotting factor). We did not receive any public 
comments concerning this proposal. Because we are approving new 
technology add-on payments for KcentraTM, we are finalizing 
our

[[Page 50580]]

proposal not to make a new technology add-on payment for cases of 
KcentrawTM in treating a Medicare beneficiary who has 
hemophilia. We refer readers to Chapter three, section 20.7.3 of the 
Medicare Claims Processing Manual for a complete discussion on when a 
blood clotting factor add-on payment is made. The manual can be 
downloaded from the CMS Web site at: http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c03.pdf.
b. Argus[supreg] II Retinal Prosthesis System
    Second Sight Medical Products, Inc. submitted an application for 
new technology add-on payments for the Argus[supreg] II Retinal 
Prosthesis System (Argus[supreg] II System) for FY 2014. The 
Argus[supreg] II System is an active implantable medical device that is 
intended to provide electrical stimulation of the retina to induce 
visual perception in patients who are profoundly blind due to retinitis 
pigmentosa (RP). These patients have bare or no light perception in 
both eyes. The system employs electrical signals to bypass dead photo-
receptor cells and stimulate the overlying neurons according to a real-
time video signal that is wirelessly transmitted from an externally 
worn video camera. The Argus[supreg] II implant is intended to be 
implanted in a single eye, typically the worse-seeing eye. Currently, 
bilateral implants are not intended for this technology. According to 
the applicant, the surgical implant procedure takes approximately 4 
hours and is performed under general anesthesia.
    The Argus[supreg] II System consists of three primary components: 
(1) An implant which is an epiretinal prosthesis that is fully 
implanted on and in the eye (that is, there are no percutaneous leads); 
(2) external components worn by the user; and (3) a ``fitting'' system 
for the clinician that is periodically used to perform diagnostic tests 
with the system and to custom-program the external unit for use by the 
patient. We describe these components more fully below.
     Implant: The retinal prosthesis implant is responsible for 
receiving information from the external components of the system and 
electrically stimulating the retina to induce visual perception. The 
retinal implant consists of: (a) A receiving coil for receiving 
information and power from the external components of the Argus[supreg] 
II System; (b) electronics to drive stimulation of the electrodes; and 
(c) an electrode array. The receiving coil and electronics are secured 
to the outside of the eye using a standard scleral band and sutures, 
while the electrode array is secured to the surface of the retina 
inside the eye by a retinal tack. A cable, which passes through the eye 
wall, connects the electronics to the electrode array. A pericardial 
graft is placed over the extra-ocular portion on the outside of the 
eye.
     External Components: The implant receives power and data 
commands wirelessly from an external unit of components, which include 
the Argus II Glasses and Video Processing Unit (VPU). A small 
lightweight video camera and transmitting coil are mounted on the 
glasses. The telemetry coils and radio-frequency system are mounted on 
the temple arm of the glasses for transmitting data from the VPU to the 
implant. The glasses are connected to the VPU by a cable. This VPU is 
worn by the patient, typically on a belt or a strap, and is used to 
process the images from the video camera and convert the images into 
electrical stimulation commands, which are transmitted wirelessly to 
the implant.
     ``Fitting System'': To be able to use the Argus[supreg] II 
System, a patient's VPU needs to be custom-programmed. This process, 
which the applicant called ``fitting'', occurs in the hospital/clinic 
shortly after the implant surgery and then periodically thereafter as 
needed. The clinician/physician also uses the ``Fitting System'' to run 
diagnostic tests (for example, to obtain electrode and impedance 
waveform measurements or to check the radio-frequency link between the 
implant and external unit). This ``Fitting System'' can also be 
connected to a ``Psychophysical Test System'' to evaluate patients' 
performance with the Argus[supreg] II System on an ongoing basis.
    These three components work together to stimulate the retina and 
allow a patient to perceive phosphenes (spots of light), which they 
then need to learn to interpret. While using the Argus[supreg] II 
System, the video camera on the patient-worn glasses captures a video 
image. The video camera signal is sent to the VPU, which processes the 
video camera image and transforms it into electrical stimulation 
patterns. The electrical stimulation data are then sent to a 
transmitter coil mounted on the glasses. The transmitter coil sends 
both data and power via radio-frequency (RF) telemetry to the implanted 
retinal prosthesis. The implant receives the RF commands and delivers 
stimulation to the retina via an array of electrodes that is secured to 
the retina with a retinal tack.
    In patients with RP, the photoreceptor cells in the retina, which 
normally transduce incoming light into an electro-chemical signal, have 
lost most of their function. The stimulation pulses delivered to the 
retina via the electrode array of the Argus[supreg] II Retinal 
Prosthesis System are intended to mimic the function of these 
degenerated photoreceptors cells. These pulses induce cellular 
responses in the remaining, viable retinal nerve cells that travel 
through the optic nerve to the visual cortex where they are perceived 
as phosphenes (spots of light). Patients learn to interpret the visual 
patterns produced by these phosphenes.
    With respect to the newness criterion, according to the applicant, 
the FDA designated the Argus[supreg] II System a Humanitarian Use 
Device in May 2009 (HUD designation 09-0216). The applicant 
submitted a Humanitarian Device Exemption (HDE) application 
(H110002) to the FDA in May 2011 to obtain market approval for 
the Argus[supreg] II System. The HDE was referred to the Ophthalmic 
Devices Panel of the FDA's Medical Devices Advisory Committee for 
review and recommendation. At the Panel's meeting held on September 28, 
2012, the Panel voted 19 to 0 that the probable benefits of the 
Argus[supreg] II System outweigh the risks of the system for the 
proposed indication for use. The applicant received the HDE approval 
from the FDA on February 14, 2013. Currently there are no other 
approved treatments for patients with severe to profound RP. The 
Argus[supreg] II System has an IDE number of G050001 and is a Class III 
device. The applicant applied for three new ICD-9-CM procedure codes 
for consideration at the March 5, 2013 ICD-9-CM Coordination and 
Maintenance Committee meeting. For this final rule, we have approved 
new ICD-9-CM procedure code 14.81 (Implantation of Epiretinal Visual 
Prosthesis) which uniquely identifies the Argus [supreg]II System. The 
other two codes approved by CMS are for removal, revision or 
replacement of the device. More information on these codes can be found 
on the CMS Web site at: http://cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials-Items/2013-03-05-MeetingMaterials.html. We invited public comments on whether 
the Argus[supreg] II System meets the newness criterion.
    Comment: Many commenters expressed their opinion that the 
Argus[supreg] II System meets the newness criterion. The commenters 
noted that this technology is the first available treatment approved by 
the FDA for profoundly blind RP patients, pointing out that it 
``enables patients to interpret the visual patterns and gain 
independence and mobility,'' which has not been possible previously for 
these

[[Page 50581]]

patients with any other treatment modality. The commenters also noted 
that the Argus[supreg] II System has not been sold in the United States 
at this time.
    Response: We appreciate the commenters' support. We agree that the 
Argus[supreg]II System meets the newness criterion based on its FDA 
approval date and due to the fact that we are unaware of any other 
existing technologies that are substantially similar to it that would 
allow Medicare beneficiaries with severe to profound Retinitis 
Pigmentosa (RP) who have no vision to have some functional vision.
    With regard to the cost criterion, the applicant identified all 
discharges from claims in the FY 2011 MedPAR file for MS-DRGs 116 
(Intraocular Procedures with CC/MCC) and 117 (Intraocular Procedures 
without CC/MCC) with the presence of ICD-9-CM procedure code 14.73 
(Anterior vitrectomy), or 14.74 (Posterior vitrectomy). (We note that 
because no procedure code previously existed for this technology, these 
cases would include patients that are not eligible for or would not 
otherwise receive this technology.) The applicant found 199 cases (47.6 
percent of all cases) in MS-DRG 116 and 219 cases (52.3 percent of all 
cases) in MS-DRG 117. This resulted in an average charge per case of 
$40,957 for MS-DRG 116 and $20,621 for MS-DRG 117, equating to a case-
weighted average charge per case of $24,011.
    The applicant then standardized the charges using the FY 2011 final 
rule impact file and converted the cost of the device to a charge by 
dividing the operating costs by a CCR of 0.50 (which equates to a 100 
percent markup). Although the applicant submitted data related to the 
estimated cost of the Argus[supreg] II System, the applicant noted that 
the cost of the technology was proprietary information. The applicant 
then added the charges related to the device to the case-weighted 
average standardized charge per case and determined a final case-
weighted average standardized charge per case of $311,180. Using the FY 
2014 Table 10 thresholds, the case-weighted threshold for MS-DRGs 116 
and 117 was $30,328 (all calculations above were performed using 
unrounded numbers). Because the final case-weighted average 
standardized charge per case for the applicable MS-DRGs exceed the 
case-weighted threshold amount, the applicant maintained that the 
Argus[supreg] II System would meet the cost criterion. We invited 
public comments on whether the Argus[supreg] II System meets the cost 
criterion, particularly based on the assumptions and methodology used 
in the applicant's analysis. We did not receive any public comments 
concerning the cost criterion and, therefore, we believe that the 
Argus[supreg] II System meets the cost criterion.
    In the FY 2014 IPPS/LTCH PPS proposed rule, we noted that, although 
we could not disclose the cost of the technology, the device is very 
costly. Because of its high costs, the technology would easily exceed 
the case-weighted threshold. In addition, because of the high cost of 
the device it is likely that claims with the device would receive an 
outlier payment. The applicant anticipates that approximately 65 
Argus[supreg] II Systems will be sold in FY 2014, of which 
approximately 50 systems would be provided to Medicare patients. The 
target disease population is extremely limited as required and 
supported by the HDE application. Most patients for whom this 
technology is indicated may be eligible for Medicare based on their 
age, blindness, or a disability that is associated with profound 
blindness.
    We also noted that these types of procedures are often performed in 
the outpatient setting. We expressed concern that if new technology 
add-on payments were to be approved, this would serve as a financial 
incentive to inappropriately shift utilization from an outpatient to an 
inpatient setting, although medical review may result in very few of 
these cases being paid as inpatient hospital services if the patient 
can be appropriately treated as an outpatient. We emphasized that it is 
critical that physicians use their clinical judgment in determining the 
medical necessity of an inpatient admission and stress that care should 
be provided in the appropriate setting. We invited public comments on 
whether the Argus[supreg] II System meets the cost criterion, 
particularly based on the assumptions and methodology used in the 
applicant's analysis. We also expressed general concerns relating to 
the descriptions of the medical necessity of performing this procedure 
on an inpatient basis. Therefore, we invited public comments to further 
our understanding regarding whether approving new technology add-on 
payments for the Argus[supreg] II System would create a financial 
incentive that would shift utilization inappropriately from an 
outpatient to an inpatient setting.
    Comment: Some commenters stated that approving new technology add-
on payments for the Argus[supreg] II System would not create a 
financial incentive for inappropriate inpatient utilization because 
these patients are treated in both inpatient and outpatient settings. 
These commenters stated that the complex clinical judgment of the 
physician must be the basis for determining inpatient status and/or the 
site of care. The commenters added that ``decisions on the appropriate 
site of service must be based on the individual patient's health status 
and expected treatment. . . .''
    Response: We appreciate the commenters' input, feedback, and 
opinions that the appropriate setting and appropriate patients should 
be based on a complex clinical judgment of the physician and note that 
this would need to be supported by clinical documentation in the 
medical record to maintain appropriate use of inpatient and outpatient 
care settings.
    With regard to the substantial clinical improvement criterion, the 
Argus[supreg] II System is intended to provide electrical stimulation 
of the retina to induce visual perception in blind patients with the 
indication of severe to profound RP with bare or no light perception in 
both eyes. According to the applicant, an estimated 1 in 3,037 
Americans suffers from RP, and the incidence of people with severe to 
profound RP is significantly lower. According to the applicant, the 
need for treatments for RP is high, given the impact of loss of vision.
    According to the applicant, numerous experimental research programs 
are currently underway to slow, stop, or reverse the progress of RP, 
including gene therapy, tissue and cell transplants, and some 
pharmacologic neuroprotection therapies. However, these approaches so 
far have had fairly limited success in treating RP patients, and some 
approaches are intended for an extremely small segment of the RP 
population. Currently there are no other approved treatments for 
patients with severe to profound RP. Therefore, the Argus[supreg] II 
device treats a patient population that has no other treatment options.
    The applicant submitted the results of a clinical trial to 
demonstrate substantial clinical improvement. This clinical trial 
enrolled 30 patients. The median age of patients was 57.9 years at the 
time of implantation and the range was 28 to 77 years of age. Thirty 
percent of the patients were female, and 70 percent were male. All of 
the patients had bare or no light perception in both eyes. Fourteen of 
the patients were Medicare eligible. As part of the methods for the 
study, the applicant stated that while working within the framework of 
clinical trials for other ophthalmic devices, the manufacturer and its 
team of scientific advisors selected or designed several tests that 
would address the main elements of the

[[Page 50582]]

system that should be assessed for these types of devices--visual 
function (that is, how the eye as an organ works [for example, visual 
acuity]), functional vision (that is, how the patient performs in 
vision-related activities of daily living), and quality of life. The 
endpoints that were selected provided a mixture of objective and 
subjective data. The study design was strengthened by the fact that 
controlled observations could be obtained by performing assessments 
with the Argus[supreg] II System ``on'' and ``off'' (that is, control 
was available at each time point).
    According to the applicant, there were no unexpected adverse 
events. Non-serious adverse events represented the majority of events. 
The safety review concluded that the Argus[supreg] II System has a 
reasonable safety profile for an ophthalmic device that requires 
vitreoretinal surgery to implant. In addition, the applicant noted that 
the device can be extracted and is reversible. The Argus[supreg] II 
System provided all 30 patients with benefit as measured by high-
contrast visual function tests. The applicant stated that the degree of 
benefit varied from patient to patient and provided the following 
results:
     All subjects were able to see visual percepts when the 
Argus[supreg] II System was electrically activated.
     On the Square Localization Test (that is, object 
localization), patients (on average) performed better with the system 
``on'' rather than ``off'' at all follow-up time points. At 24 months, 
on average, patients missed the target by approximately 50 pixels with 
the system ``on'' versus approximately 250 pixels with the system 
``off.''
     On the Direction of Motion Test, which tested the 
patients' ability to determine the direction of a moving bar, patients 
had higher mean accuracy with the system ``on'' than they did with the 
system ``off'' at all follow-up time points, indicating that the 
Argus[supreg] II System improved their performance on a spatial vision 
task. At 24 months, the mean response error was approximately 60[deg] 
with the system ``on'' versus more than 80[deg] with the system 
``off.'' According to the applicant, this is nearly the error expected 
by chance.
     On the Grating Visual Acuity Test, which assessed the 
patients' visual acuity using the principles of acuity charts designed 
for extremely low vision patients, 27 percent of the patients were able 
to score on the scale (between 1.6 and 2.9 log MAR) at least once with 
the system ``on,'' while none of the Argus[supreg] II patients were 
able to score on the scale with the system ``off.''
     A large number of patients were able to recognize large 
letters and numbers with the system ``on'' (but not with the system 
``off''), and some of the patients were able to read short words. The 
median percent correct with the system ``on'' was approximately 50 
percent higher than with the system ``off.''
     The trial also measured objectively-scored functional 
vision tests. The patients performed better with the Argus[supreg] II 
System ``on'' versus ``off'' on orientation and mobility tests (finding 
a door and following a line) and on functional vision tasks (sorting 
white, black, and gray socks, following an outdoor sidewalk, and 
determining the direction of a person walking by).
     Analysis of the Functional Low-vision Observer Rated 
Assessment (FLORA) results showed that three-quarters of the patients 
received a positive benefit in terms of well-being and/or functional 
vision, while none of the patients experienced a negative effect.
    We also noted that we were concerned that the study did not have 
pre-specified endpoints and changed measurements mid-trial. In 
addition, we expressed concern about the reliability of the measures 
used for the tests and the inconsistency of the results across 
different patients, which lead us to question the long-term benefits 
associated with this device. We received two comments on the 
Argus[supreg]II System during the town hall meeting's public comment 
period. These comments were summarized and responded to in the FY 2014 
IPPS/LTCH PPS proposed rule. We refer readers to the proposed rule for 
a summary of these comments and our detailed responses (78 FR 27542 
through 27543). In addition, we invited public comments on whether the 
Argus[supreg] II System meets the substantial clinical improvement 
criterion, specifically in regard to the measures used in the study and 
the lack of pre-specified endpoints.
    Comment: One commenter, the applicant, submitted a public comment 
in response to CMS' concern about the lack of pre-specified end points 
and evolving measures in their studies, noting that at the beginning of 
its studies, ``it was clear that there was an absence of measures that 
were validated for the intended treatment population (e.g., no 
functional vision).'' The commenter noted that as the trial progressed, 
new measures were introduced to address the applicability of clinical 
results to everyday life, and measurements changed to make the testing 
more challenging for the subjects (for example, with both the system 
``off'' and ``on'') and to reduce the likelihood of success based on 
chance. The applicant further stated that the selection and 
modification of endpoint measures was done with a ``tremendous amount 
of input from independent third party experts (ophthalmologists, 
surgeons, optometrists, retinal degeneration specialists, and low 
vision experts) and the FDA (and many times at the request of the 
FDA).'' The applicant believed that ``the resulting trial design and 
execution was the best possible trial for this target population given 
the novelty of the Argus II Retinal Prosthesis System.'' The commenter 
asserted that, ``Furthermore, the results of this study clearly 
indicate a beneficial effect for the Argus[supreg]II.'' Another 
commenter noted that because the target population for this technology 
had not previously been studied, there were no pre-existing endpoints. 
This commenter opined that the new instruments and methods added during 
the study strengthened the results because they each added difficulty 
to the tests. Another commenter supported the study design and 
responded to our concerns that having no fixed endpoints or lack of 
validation for some of the clinical trial measures is an inevitable 
consequence of applying this new technology to a population that has 
had no other options. This commenter expressed its opinion that the 
measures needed to be designed, and refined, because very few tests 
existed that could assess such limited vision in quantitative terms.
    Response: We appreciate the commenters' views and explanation of 
the study design, measures, and endpoints in light of the small and 
rare population of patients with severe to profound Retinitis 
Pigmentosa being studied for this Argus[supreg]II System. We agree with 
the commenters that, in view of these difficulties that very few tests 
existed that could assess such limited vision in quantitative terms for 
this population of blind patients with the indication of severe to 
profound RP with bare or no light perception in both eyes, the 
applicant presented data that demonstrated that the Argus[supreg]II 
System represents a substantial clinical improvement over existing 
technologies.
    The Argus[supreg]II System meets all of the new technology add-on 
payment policy criteria. Therefore, we are approving the 
Argus[supreg]II System for new technology add-on payments in FY 2014. 
Cases involving the Argus[supreg]II System that are eligible for new 
technology add-on payments will be identified by ICD-9-CM procedure 
code 14.81. We note that section 1886(d)(5)(K)(i) of the Act requires 
that the Secretary establish a

[[Page 50583]]

mechanism to recognize the costs of new medical services or 
technologies under the payment system established under that 
subsection, which establishes the system for paying for the operating 
costs of inpatient hospital services. The system of payment for capital 
costs is established under section 1886(g) of the Act, which makes no 
mention of any add-on payments for a new medical service or technology. 
Therefore, it is not appropriate to include capital costs in the add-on 
payments for a new medical service or technology. In the application, 
the applicant provided a breakdown of the costs of the Argus[supreg]II 
System. The total operating cost of the Argus[supreg]II System is 
$144,057.50. Under Sec.  412.88(a)(2), new technology add-on payments 
are limited to the lesser of 50 percent of the average cost of the 
device or 50 percent of the costs in excess of the MS-DRG payment for 
the case. As a result, the maximum add-on payment for a case involving 
the Argus[supreg]II System is $72,028.75.
c. Zilver[supreg] PTX[supreg] Drug Eluting Peripheral Stent
    Cook[supreg] Medical submitted an application for new technology 
add-on payments for the Zilver[supreg] PTX[supreg] Drug Eluting 
Peripheral Stent (Zilver[supreg] PTX[supreg]) for FY 2014. The 
Zilver[supreg] PTX[supreg] is intended for use in the treatment of 
peripheral artery disease (PAD) of the above-the-knee femoropopliteal 
arteries (superficial femoral arteries). According to the applicant, 
the stent is percutaneously inserted into the artery(s), usually by 
accessing the common femoral artery in the groin. The applicant stated 
that an introducer catheter is inserted over the wire guide and into 
the target vessel where the lesion will first be treated with an 
angioplasty balloon to prepare the vessel for stenting. The applicant 
indicated that the stent is self-expanding, made of nitinol (nickel 
titanium), and is coated with the drug Paclitaxel. Paclitaxel is a drug 
approved for use as an anticancer agent and for use with coronary 
stents to reduce the risk of renarrowing of the coronary arteries after 
stenting procedures.
    The applicant received FDA approval on November 15, 2012, for the 
Zilver[supreg] PTX[supreg]. The applicant maintains that the 
Zilver[supreg] PTX[supreg] is the first drug-eluting stent used for 
superficial femoral arteries. The technology is currently described by 
ICD-9-CM procedure code 00.60 (Insertion of drug-eluting stent(s) of 
the superficial femoral artery). We invited public comments regarding 
how the Zilver[supreg] PTX[supreg] meets the newness criterion. 
However, we did not receive any public comments concerning the newness 
criterion and, therefore, we believe that the Zilver[supreg] 
PTX[supreg] meets the newness criterion.
    With regard to the cost criterion, the applicant believed that 
cases of superficial femoral arteries typically map to MS-DRGs 252 
(Other Vascular Procedures with MCC), 253 (Other Vascular Procedures 
with CC), and 254 (Other Vascular Procedures without CC/MCC). The 
applicant searched the FY 2010 MedPAR file for cases reporting 
procedure code 39.90 (Insertion of non-drug-eluting peripheral vessel 
stents) in combination with a diagnosis code of 440.20 (Atherosclerosis 
of the extremities, unspecified), 440.21 (Atherosclerosis of the 
extremities, with intermittent claudication), 440.22 (Atherosclerosis 
of the extremities with rest pain), 440.23 (Atherosclerosis of the 
extremities with ulceration), or 440.24 (Atherosclerosis of the 
extremities with gangrene). The applicant noted that the Zilver[supreg] 
PTX[supreg] is available in an 80 mm size and is approved for lesions 
in native vascular disease of the above-the-knee femoropopliteal 
arteries having reference vessel diameter from 4 mm to 9 mm and total 
lesion lengths up to 140 mm per limb. The applicant further noted that 
bare metal stents typically are available up to lengths of 200 mm. 
Therefore, in order to target cases eligible for the Zilver[supreg] 
PTX[supreg], the applicant believed that it was only appropriate to 
target those cases with one or two bare metal stents. The applicant was 
able to identify the amount of stents used per claim by searching for 
ICD-9-CM procedure codes 00.45 (Insertion of one vascular stent) and 
00.46 (Insertion of two vascular stents). The applicant submitted two 
methodologies: one with cases that received one bare metal stent and 
the other with cases that received one or two bare metal stents.
    Under the first methodology (one bare metal stent), the applicant 
found 2,062 cases (or 19.7 percent of all cases) in MS-DRG 252, 3,385 
cases (or 32.3 percent of all cases) in MS-DRG 253, and 5,019 cases (or 
48 percent of all cases) in MS-DRG 254. The average charge per case was 
$89,194 for MS-DRG 252, $67,965 for MS-DRG 253, and $46,539 for MS-DRG 
254, equating to a case-weighted average charge per case of $60,855.
    The case-weighted average charge per case above does not include 
charges related to the Zilver[supreg] PTX[supreg]. Therefore, it was 
first necessary to remove the amount of charges related to the non-
drug-eluting peripheral vessel stent and replace them with charges 
related to the Zilver[supreg] PTX[supreg]. The applicant multiplied the 
use of the single stent used per case by the average market price for 
non-drug-eluting peripheral vessel stents and then converted the cost 
of the stents used per case to a charge by dividing the results by the 
hospital-specific CCR (from the FY 2010 IPPS impact file). The 
applicant removed the appropriate amount of charges per case and then 
standardized the charges per case.
    Because the applicant used FY 2010 MedPAR data, it was necessary to 
inflate the charges from FY 2010 to FY 2013. Using data from the Bureau 
of Labor Statistics Consumer Price Index, the applicant inflated the 
average standardized charge per case with an inflation factor of 7 
percent. To determine the amount of Zilver[supreg] PTX[supreg] stents 
per case, instead of using the amount of stents used per case based on 
the ICD-9-CM codes above, the applicant used an average of 1.9 stents 
per case based on the Zilver[supreg] PTX[supreg] Global Registry 
Clinical Study.\6\ The applicant believed that it is appropriate to use 
data from the clinical study (to determine the average amount of stents 
used per case) rather than the actual data from the claims because the 
length of a non-drug-eluting peripheral vessel stent typically ranges 
from 80 mm to 120 mm, while the length of the Zilver[supreg] 
PTX[supreg] is 80 mm (which could cause a variance in the actual amount 
of stents used per case when using the Zilver[supreg] PTX[supreg]). The 
applicant then multiplied the average of 1.9 stents used per case by 
the future market price for the Zilver[supreg] PTX[supreg] and then 
converted the cost of the stents used per claim to a charge by dividing 
the results by the hospital-specific CCR (from the FY 2010 IPPS impact 
file). The applicant then added the amount of charges related to the 
Zilver[supreg] PTX[supreg] to the inflated average standardized charge 
per case and determined a final inflated case-weighted average 
standardized charge per case of $58,419. Although the applicant 
submitted data that related to the estimated cost of the Zilver[supreg] 
PTX[supreg], the applicant noted that the cost of the technology was 
proprietary information. Using the FY 2014 Table 10 thresholds, the 
case-weighted threshold for MS-DRGs 252, 253, and 254 was $54,547 (all 
calculations above were performed using unrounded numbers). Because the 
final inflated case-weighted average

[[Page 50584]]

standardized charge per case for the applicable MS-DRGs exceeded the 
case-weighted threshold amount, the applicant maintained that the 
Zilver[supreg] PTX[supreg] would meet the cost criterion.
---------------------------------------------------------------------------

    \6\ Dake, M.D., Ansel, G.M., Jaff, M.R., Ohki, T., Saxon, R.R., 
Smouse, H.B., Zeller, T., Roubin, G.S., Burket, M.W., Khatib, Y., 
Snyder, S.A., Ragheb, A.O., White, J.K., Machan, L.S. (2011), 
Paclitaxel-eluting stents show superiority to balloon angioplasty 
and bare metal stents in femoropopliteal disease: twelve-month 
zilver PTX randomized study results. Circulation Cardiovascular 
Interventions, published online September 27, 2011, 495-504.
---------------------------------------------------------------------------

    The applicant used the same methodology above to demonstrate that 
it meets the cost criterion with the only difference being that it 
included cases that used one or two bare metal stents instead of just 
one bare metal stent. Using this methodology, the applicant determined 
a final inflated case-weighted average standardized charge per case of 
$62,455. Using the FY 2014 Table 10 thresholds, the case-weighted 
threshold for MS-DRGs 252, 253, and 254 was $54,474 (all calculations 
above were performed using unrounded numbers). Because the final 
inflated case-weighted average standardized charge per case for the 
applicable MS-DRGs exceeded the case-weighted threshold amount, the 
applicant maintained that the Zilver[supreg] PTX[supreg] would meet the 
cost criterion.
    We invited public comments on whether or not the Zilver[supreg] 
PTX[supreg] meets the cost criterion. In addition, we invited public 
comments on the methodologies used by the applicant in its analysis, 
including its assumptions regarding the types of cases in which this 
technology could potentially be used and the number of stents required 
for each case. However, we did not receive any public comments 
concerning the cost criterion and, therefore, we believe that the 
Zilver[supreg] PTX[supreg] meets the cost criterion.
    In an effort to demonstrate that the technology meets the 
substantial clinical improvement criterion, the applicant shared 
several findings from the clinical trial data. The applicant stated 
that current treatment options for patients who have been diagnosed 
with PAD includes angioplasty, bare metal stenting, bypass graft, and 
endarterectomy. The applicant asserted that the Zilver[supreg] 
PTX[supreg] meets the substantial clinical improvement criterion 
because it decreases the recurrence of symptoms arising from restenotic 
SFA lesions, the rate of subsequent diagnostic or therapeutic 
interventions required to address restenotic lesions, and the number of 
future hospitalizations.
    The applicant cited a 479-patient, multicenter, multinational 
randomized controlled trial that compared the Zilver[supreg] 
PTX[supreg] to balloon angioplasty \7\; an additional component of the 
study allowed a direct comparison of the Zilver[supreg] PTX[supreg] to 
a bare (uncoated) metal Zilver[supreg] stent. Patients were randomized 
to treatment with the Zilver[supreg] PTX[supreg] stent (treatment 
group) or with a percutaneous transluminal balloon angioplasty (PTA, 
control group). Recognizing that balloon angioplasty may not be 
successful acutely, the trial design mandated provisional stent 
placement immediately after failure of balloon angioplasty in instances 
of acute PTA failure. Therefore, patients with suboptimal (failed) PTA 
underwent a secondary randomization to stenting with either 
Zilver[supreg] PTX[supreg] or bare Zilver[supreg] stents. This 
secondary randomization allows evaluation of the Zilver[supreg] 
PTX[supreg] stent compared to a bare metal stent. The primary safety 
endpoint of the randomized controlled study was ``Event-Free Survival'' 
(EFS), defined as ``freedom from the major adverse events of death, 
target lesion revascularization, target limb ischemia requiring 
surgical intervention or surgical repair of the target vessel, and 
freedom of worsening systems as described by the Rutherford 
classification by 2 classes or to class 5 or 6.'' The primary 
effectiveness endpoint was primary patency (defined as a less than 50 
percent re-narrowing). In the FY 2014 IPPS/LTCH PPS proposed rule, we 
noted that we were concerned that other endpoints such as walking, 
walking speed, and climbing were not considered as primary endpoints to 
demonstrate the effectiveness of the Zilver[supreg] PTX[supreg].
---------------------------------------------------------------------------

    \7\ Dake, M.D., Ansel, G.M., Jaff, M.R., Ohki, T., Saxon, R.R., 
Smouse, H.B., Zeller, T., Roubin, G.S.,Burket, M.W., Khatib, Y., 
Snyder, S.A., Ragheb, A.O., White, J.K., Machan, L.S.(2011), 
Paclitaxeleluting stents show superiority to balloon angioplasty and 
bare metal stents in femoropopliteal disease: twelve-month zilver 
PTX randomized study results. Circulation Cardiovascular 
Interventions, published online September 27, 2011, 495-504.
---------------------------------------------------------------------------

    According to the applicant, the Zilver[supreg] PTX[supreg] had an 
EFS of 90.4 percent compared to balloon angioplasty, which had an EFS 
of 83.9 percent, at 12 months demonstrating that the Zilver[supreg] 
PTX[supreg] is as safe or safer than balloon angioplasty. The applicant 
further stated that this benefit was maintained at 24 months. In 
addition, the applicant noted that the Zilver[supreg] PTX[supreg] 
demonstrated a 50-percent reduction in restenosis rates compared to 
angioplasty and a 20-percent reduction compared to bare metal stents. 
The 12-month patency rate for the Zilver[supreg] PTX[supreg] was 82.7 
percent, which compared favorably to the balloon angioplasty patency 
rate of 32.7 percent. In the provisional stenting arm of the study, 
which allowed a direct comparison of the Zilver[supreg] PTX[supreg] and 
a bare metal stent, the Zilver[supreg] PTX[supreg] primary patency 
exceeded the bare metal stent patency by nearly 20 percent (87.3 
percent versus 72.3 percent at 12 months). The applicant stated that 
these differences are significant, as they result in a substantial 
clinical improvement compared to angioplasty and bare metal stenting, 
with patients being spared a recurrence of their leg pain and the need 
to be admitted to the hospital for repeat procedures on these treated 
lesions. The applicant also submitted 3 years of follow-up data, which 
the applicant maintained support that the Zilver[supreg] PTX[supreg] is 
more effective in maintaining primary patency.\8\
---------------------------------------------------------------------------

    \8\ Dake, MD., VIVA 2012, October 10, 2012; Las Vegas, Nevada.
---------------------------------------------------------------------------

    The applicant also cited a prospective, multicenter, multinational, 
787-patient single arm study on the Zilver[supreg] PTX[supreg] that 
demonstrated similar safety and effectiveness results consistent with 
those from the pivotal randomized controlled study above. The applicant 
cited an EFS for the Zilver[supreg] PTX[supreg] of 89.0 percent and an 
86.2 percent primary patency rate. According to the applicant, these 
results confirm the safety and effectiveness of the Zilver[supreg] 
PTX[supreg], and compare favorably to current results for angioplasty 
and bare metal stenting. The applicant further stated that these 
results also demonstrate a 67 to 81 percent relative reduction in 
Target Lesion Revascularization (the need to retreat an already treated 
lesion that has restenosed, resulting in a recurrence of symptoms) 
rates compared to recently published results of contemporary bare metal 
stents.\9\
---------------------------------------------------------------------------

    \9\ Dake, M. D., Scheinert, D., Tepe, G., Tessarek, J., Fanelli, 
F., Bosiers, M., et al., (2011). Nitinol stents with polymer-free 
paclitaxel coating for lesions in the superficial femoral and 
popliteal arteries above the knee: Twelve-month safety and 
effectiveness results from the Zilver PTX single-arm clinical study. 
Journal of Endovascular Therapy, 18(5), 613-623.
---------------------------------------------------------------------------

    In the FY 2014 IPPS/LTCH PPS proposed rule, we also expressed 
concern that on April 24, 2013, the FDA announced that, based on its 
investigation into a small number of complaints that the delivery 
system of the device had separated at the tip of the inner catheter, 
Cook Medical has initiated a nationwide/global voluntary recall of its 
Zilver[supreg] PTX[supreg] Drug Eluting Peripheral Stent. We refer 
readers to http://www.fda.gov/Safety/Recalls/ucm349421.htm?source=govdelivery for more information regarding this 
announcement.
    We note that we did not receive any public comments on the 
Zilver[supreg] PTX[supreg] during the new technology town hall 
meeting's public comment period. However, we invited public comments

[[Page 50585]]

regarding whether the Zilver[supreg] PTX[supreg] meets the substantial 
clinical improvement criterion.
    Comment: One commenter, the manufacturer and applicant, submitted a 
public comment responding to our concerns presented in the proposed 
rule. With regard to our first concern that other endpoints such as 
walking, walking speed, and climbing were not considered as primary 
endpoints, the manufacturer noted that in addition to the primary 
endpoint of primary patency at 12 months, the study investigators (for 
the Zilver[supreg] PTX[supreg] Global Registry Clinical Study) 
understood the importance of including other effective endpoints in the 
study. Specifically, the commenter noted that the study included 
Rutherford classification, walking ability, and quality of life. Also, 
a composite clinical endpoint defined as ``freedom from symptoms of 
ischemia'' was calculated based on freedom from worsening claudication, 
worsening Rutherford class, tissue loss, and other symptoms indicating 
the need for reintervention.
    The commenter added that similar improvements in the Rutherford 
score, and walking and quality of life scores were observed in both the 
PTA control and Zilver[supreg] PTX[supreg] treatment groups of the 
Zilver[supreg] PTX[supreg] Global Registry Clinical Study. The 
commenter noted that the study was designed to allow ongoing, 
clinically indicated care to optimize each patient's health status and 
quality of life throughout the course of the study, which would result 
in improved clinical outcomes. The commenter asserted that while 
allowing for ongoing care within the clinical trial, the study design 
confounded the comparison of clinical benefit between the PTA control 
and Zilver[supreg] PTX[supreg] treatment groups due to the additional 
study and/or non-study related procedures that were performed during 
the study and subsequent to the index procedure(s). The commenter 
concluded that this confounding aspect of the study design, though in 
the patient's best interest, argued against using these clinical 
effectiveness endpoints as primary endpoints.
    The commenter also explained that because these standard clinical 
effectiveness outcomes were not ideally suited to discriminate 
differences between treatment arms in clinical trial, a secondary 
clinical benefit index of freedom from symptoms of ischemia was 
calculated (as described above). The commenter believed that measuring 
freedom from symptoms of ischemia provides an important measure of 
clinical benefit of the Zilver[supreg] PTX[supreg]. The commenter noted 
that freedom from symptoms of ischemia was maintained in 88.5 percent 
of the Zilver[supreg] PTX[supreg] treatment group at 12 month versus 
75.3 percent of PTA control group patients. The commenter also pointed 
out that at the time of submission of the application, only 12-month 
data had been published in the peer review literature. Since that time, 
the 2-year safety and effectiveness outcomes have been published \10\ 
and can be accessed on the Internet at: http://www.sciencedirect.com/science/article/pii/S0735109713014149.
---------------------------------------------------------------------------

    \10\ Dake, M. D., Ansel, G. M., Jaff, M. R., Takao, O., Saxon, 
R. R., Smouse, H. B., Snyder, S. A., O'leary, E. E., Tepe, G., 
Scheinert, D., Zeller, T., (June 18, 2013) Sustained Safety and 
Effectiveness of Paclitaxel-Eluting Stents for Femoropopliteal 
Leasions: 2 Year-Follow-Up from the Zilver PTX Randomized and 
Single-Arm Clinical Studies. Journal of American College of 
Cardiology, Vol. 61, Issue 24.
---------------------------------------------------------------------------

    With regard to our concerns concerning the recall of the device, 
the commenter stated that it has ``identified the root cause of the 
underlying failure mode to the delivery device and corrective action 
has been implemented'' with the anticipated return of the 
Zilver[supreg] PTX[supreg] to the market in early August 2013. The 
commenter noted that there are no issues with the Zilver[supreg] 
PTX[supreg] itself, only the delivery system to implant the 
Zilver[supreg] PTX[supreg].
    Response: After consideration of the public comments received in 
response to our concerns and proposals presented in the proposed rule, 
we agree that the Zilver[supreg] PTX[supreg] represents a substantial 
clinical improvement over existing technologies because it decreases 
the recurrence of symptoms arising from restenotic SFA lesions, the 
rate of subsequent diagnostic or therapeutic interventions required to 
address restenotic lesions, and the number of future hospitalizations. 
We also believe that the commenter has sufficiently responded to our 
concerns presented in the proposed rule. However, we will continue to 
monitor the long-term clinical trial data concerning the primary and 
secondary endpoints as it becomes available.
    Comment: Several commenters supported making new technology add-on 
payments for the Zilver[supreg] PTX[supreg] in FY 2014.
    Response: We appreciate the commenters' support. The Zilver[supreg] 
PTX[supreg] meets all of the new technology add-on payment policy 
criteria. Therefore, we are approving the Zilver[supreg] PTX[supreg] 
for new technology add-on payments in FY 2014. Cases involving the 
Zilver[supreg] PTX[supreg] that are eligible for new technology add-on 
payments will be identified by ICD-9-CM procedure code 00.60. As stated 
above, to determine the amount of Zilver[supreg] PTX[supreg] stents per 
case, instead of using the amount of stents used per case based on the 
ICD-9-CM codes, the applicant used an average of 1.9 stents per case 
based on the Zilver[supreg] PTX[supreg] Global Registry Clinical Study. 
The applicant stated in its application that the anticipated cost per 
stent is approximately $1,795. Therefore, cases of the Zilver[supreg] 
PTX[supreg] would incur an average cost per case of $3,410.50 ($1,795 x 
1.9). Under Sec.  412.88(a)(2), new technology add-on payments are 
limited to the lesser of 50 percent of the average cost of the device 
or 50 percent of the costs in excess of the MS-DRG payment for the 
case. As a result, the maximum add-on payment for a case of the 
Zilver[supreg] PTX[supreg] is $1,705.25.

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 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.'' 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 2014 hospital wage index based on the 
statistical areas appears under section III.B. of the preamble of this 
final rule.
    Section 1886(d)(3)(E) of the Act requires the Secretary to update 
the wage index annually and to base the update on a survey of wages and 
wage-related costs of short-term, acute care hospitals. This provision 
also requires that any updates or adjustments to the wage index be made 
in a manner that ensures that aggregate payments to hospitals are not 
affected by the change in the wage index. The adjustment for FY 2014 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),

[[Page 50586]]

1886(d)(8)(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 2014 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, 2013 (the FY 2014 wage index) appears under 
section III.F. of the preamble of this final rule.

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. 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. The current statistical areas are based on 
OMB standards published on December 27, 2000 (65 FR 82228) and Census 
2000 data and Census Bureau population estimates for 2007 and 2008 (OMB 
Bulletin No. 10-02). For a discussion of OMB's delineations of CBSAs 
and our implementation of the CBSA definitions, we refer readers to the 
preamble of the FY 2005 IPPS final rule (69 FR 49026 through 49032). We 
also discussed in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51582) 
and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53365) that, in 2013, 
OMB planned to announce new area delineations based on new standards 
adopted in 2010 (75 FR 37246) and the 2010 Census of Population and 
Housing data. As stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 
FR 27552), on February 28, 2013, OMB issued OMB Bulletin No. 13-01, 
which established revised delineations for Metropolitan Statistical 
Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, 
and provided guidance on the use of the delineations of these 
statistical areas. A copy of this bulletin may be obtained at http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. 
According to OMB, ``[t]his bulletin provides the delineations of all 
Metropolitan Statistical Areas, Metropolitan Divisions, Micropolitan 
Statistical Areas, Combined Statistical Areas, and New England City and 
Town Areas in the United States and Puerto Rico based on the standards 
published on June 28, 2010, in the Federal Register (75 FR 37246-37252) 
and Census Bureau data.''
    In order to implement these changes for the IPPS, it is necessary 
to identify the new area designation for each county and hospital in 
the country. While the revisions OMB published on February 28, 2013 are 
not as sweeping as the changes OMB announced in 2003, the February 28, 
2013 bulletin does contain a number of significant changes. For 
example, there are new CBSAs, urban counties that become rural, rural 
counties that become urban, and existing CBSAs that have been split 
apart. In addition, the effect of the new designations on various 
hospital reclassifications, the out-migration adjustment (established 
by section 505 of Pub. L. 108-173), and treatment of hospitals located 
in certain rural counties (that is, ``Lugar'' hospitals) provided for 
under section 1886(d)(8)(B) of the Act must be considered. These are 
just a few of the many issues that need to be considered regarding the 
effects of the new designations prior to proposing and establishing 
policies.
    However, because the bulletin was not issued until February 28, 
2013, with supporting data not available until later, and because the 
changes made by the bulletin and their ramifications must be 
extensively reviewed and verified, we were unable to undertake such a 
lengthy process before publication of the FY 2014 IPPS/LTCH PPS 
proposed rule. By the time the bulletin was issued, the FY 2014 IPPS/
LTCH PPS proposed rule was in the advanced stages of development. We 
had already developed the FY 2014 proposed wage index based on the 
previous OMB definitions. We note that, in June 2003, OMB announced 
changes resulting from the 2000 Census, and at that time, CMS proposed 
and implemented the changes during the following year's rulemaking 
cycle for FY 2005. Although OMB published the data earlier than June 
this year, we still are in essentially the same situation as we were in 
2003 because the data are not available in time to be incorporated into 
this year's rulemaking cycle. To allow for sufficient time to assess 
the new changes and their ramifications, we intend to propose changes 
to the wage index based on the newest CBSA changes in the FY 2015 
proposed rule. We refer readers to the FY 2005 IPPS final rule (69 FR 
49026 through 49034) for those interested in learning about the issues 
we may need to address next year in proposing to implement the latest 
OMB update for FY 2015, and some of the policy decisions that we may 
consider making.
    Comment: Several commenters recommended that, if CMS were to 
implement OMB's MSAs in the FY 2015 final rule, the newly adopted 
definitions should not be effective until FY 2016, and even then, CMS 
should phase in the new MSAs. Other commenters specifically stated that 
CMS should provide a 3-year ``hold harmless'' period for those 
hospitals that maintain a specific status under the Medicare program 
that is jeopardized by changes to the MSAs. For example, two commenters 
suggested that rural hospitals that currently qualify for MDH and SCH 
status should be protected from the negative financial consequences of 
a change to urban status. Several other commenters urged CMS to hold an 
open-door call to review the CMSA changes and outline for hospitals 
what may or may not be the next steps for CMS as it plans to proceed, 
similar to the 2003 process. One commenter suggested that the Secretary 
allow rural teaching hospitals that will be redesignated to urban to 
start a new residency training program, and under the GME rules 
specific to rural hospitals, allow the hospital to count the FTEs for 
an additional time period of 2 years.
    Response: We appreciate the comments made by the commenters. As we 
indicated in the proposed rule, we intend to assess these new 
definitions, which require extensive review and verification to 
identify the new area designation for each county and hospital in the 
county, before adopting them. Any changes would be made through notice-
and-comment rulemaking. We will address the concerns raised in these 
comments and other issues at part of the FY 2015 rulemaking process.

C. Worksheet S-3 Wage Data for the FY 2014 Wage Index

    The FY 2014 wage index values are based on the data collected from 
the Medicare cost reports submitted by hospitals for cost reporting 
periods beginning in FY 2010 (the FY 2013 wage indices were based on 
data from cost reporting periods beginning during FY 2009).
1. Included Categories of Costs
    The FY 2014 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);

[[Page 50587]]

     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 through 47318)); and
     Wage-related costs, including pension costs (based on 
policies adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51586 
through 51590)) and other deferred compensation costs.
2. Excluded Categories of Costs
    Consistent with the wage index methodology for FY 2013, the wage 
index for FY 2014 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 
2014 wage index also excludes the salaries, hours, and wage-related 
costs of hospital-based rural health clinics (RHCs), and Federally 
qualified health centers (FQHCs) because Medicare pays for these costs 
outside of the IPPS (68 FR 45395). In addition, salaries, hours, and 
wage-related costs of CAHs are excluded from the wage index, for the 
reasons explained in the FY 2004 IPPS final rule (68 FR 45397 through 
45398).
3. Use of Wage Index Data by Providers Other Than Acute Care Hospitals 
under the IPPS
    Data collected for the IPPS wage index are also currently used to 
calculate wage indices applicable to other providers, such as SNFs, 
home health agencies (HHAs), and hospices. In addition, they are used 
for prospective payments to IRFs, IPFs, and LTCHs, and for hospital 
outpatient services. We note that, in the IPPS rules, we do not address 
comments pertaining to the wage indices for non-IPPS providers, other 
than for LTCHs. Such comments should be made in response to separate 
proposed rules for those providers.

D. Verification of Worksheet S-3 Wage Data

    The wage data for the FY 2014 wage index were obtained from 
Worksheet S-3 of the Medicare cost report for cost reporting periods 
beginning on or after October 1, 2009, and before October 1, 2010. For 
wage index purposes, we refer to cost reports during this period as the 
``FY 2010 cost report,'' the ``FY 2010 wage data,'' or the ``FY 2010 
data.'' Instructions for completing the wage index sections of 
Worksheet S-3 are included in the Provider Reimbursement Manual (PRM), 
Part 2 (Pub. No. 15-2), Chapter 36, Sections 3605.2 and 3605.3 for Form 
CMS-2552-96 and Chapter 40, Sections 4005.2 through 4005.4 for Form 
CMS-2552-10. Hospitals with cost reporting periods beginning on or 
after October 1, 2009 and before May 1, 2010 reported FY 2010 data on 
Form CMS-2552-96. Hospitals with cost reporting periods beginning on or 
after May 1, 2010 and before October 1, 2010 reported FY 2010 data on 
the new Form CMS-2552-10. The data file used to construct the final FY 
2014 wage index includes FY 2010 data submitted to us as of June 26, 
2013. As in past years, we performed an extensive 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 
2014 wage index, we identified and excluded 43 providers with data that 
were too aberrant to include in the proposed wage index, although we 
stated that if data elements for some of these providers are corrected, 
we intended to include some of these providers in the final FY 2014 
wage index. (We note that in the FY 2014 IPPS/LTCH PPS proposed rule, 
we inadvertently stated that we excluded 44 providers.) We have 
received corrected data for 11 providers, and therefore, we are 
including the data for these 11 providers in the final FY 2014 wage 
index. Therefore, in total, we are excluding the data of 32 providers 
from the final FY 2014 wage index.
    In constructing the proposed FY 2014 wage index, we included the 
wage data for facilities that were IPPS hospitals in FY 2010, 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 through 45398). For the proposed 
rule, we removed 4 hospitals that converted to CAH status on or after 
February 14, 2012, the cut-off date for CAH exclusion from the FY 2013 
wage index, and through and including February 14, 2013, the cut-off 
date for CAH exclusion from the FY 2014 wage index. After removing 
hospitals with aberrant data and hospitals that converted to CAH 
status, the final FY 2014 wage index is calculated based on 3,440 
hospitals.
    For the final FY 2014 wage index, we allotted the wages and hours 
data for a multicampus hospital among the different labor market areas 
where its campuses are located in the same manner that we allotted such 
hospitals' data in the FY 2013 wage index (77 FR 53366). Table 2 
containing the FY 2014 wage index associated with this final rule 
(available on the CMS Web site) includes separate wage data for the 
campuses of six multicampus hospitals (two additional multicampus 
hospitals have been added to the wage index calculation for FY 2014).

E. Method for Computing the FY 2014 Unadjusted Wage Index

    The method used to compute the FY 2014 wage index without an 
occupational mix adjustment follows the same methodology that we used 
to compute the FY 2012 final wage index without an occupational mix 
adjustment (76 FR 51591 through 51593) and which we discussed and used 
for the FY 2013 final wage index without an occupational mix adjustment 
(77 FR 53366 through 53367).
    As discussed in the FY 2012 final rule, in ``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, 2009, through April 15, 2011, for private 
industry hospital workers from the BLS' Compensation and Working 
Conditions. We have consistently used the ECI as the data source for 
our wages and salaries and other price proxies in the IPPS market 
basket, and as we proposed, we are not making any changes to the usage 
for FY 2014. 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
------------------------------------------------------------------------
10/14/2009....................................   11/15/2009      1.02682
11/14/2009....................................   12/15/2009      1.02490
12/14/2009....................................   01/15/2010      1.02299

[[Page 50588]]

 
01/14/2010....................................   02/15/2010      1.02116
02/14/2010....................................   03/15/2010      1.01941
03/14/2010....................................   04/15/2010      1.01768
04/14/2010....................................   05/15/2010      1.01591
05/14/2010....................................   06/15/2010      1.01412
06/14/2010....................................   07/15/2010      1.01235
07/14/2010....................................   08/15/2010      1.01064
08/14/2010....................................   09/15/2010      1.00898
09/14/2010....................................   10/15/2010      1.00738
10/14/2010....................................   11/15/2010      1.00584
11/14/2010....................................   12/15/2010      1.00434
12/14/2010....................................   01/15/2011      1.00288
01/14/2011....................................   02/15/2011      1.00143
02/14/2011....................................   03/15/2011      1.00000
03/14/2011....................................   04/15/2011      0.99860
------------------------------------------------------------------------

    For example, the midpoint of a cost reporting period beginning 
January 1, 2010, and ending December 31, 2010, is June 30, 2010. An 
adjustment factor of 1.01235 would be applied to the wages of a 
hospital with such a cost reporting period.
    Using the data as described above and in the FY 2013 IPPS/LTCH PPS 
final rule, the FY 2014 national average hourly wage (unadjusted for 
occupational mix) is $38.3998. The FY 2014 Puerto Rico overall average 
hourly wage (unadjusted for occupational mix) is $16.4890.

F. Occupational Mix Adjustment to the FY 2014 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 2014 Occupational Mix Adjustment 
Based on the 2010 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.
    As discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53367 
through 53368), the occupational mix adjustment to the FY 2013 wage 
index was based on data collected on the 2010 Medicare Wage Index 
Occupational Mix Survey (Form CMS-10079 (2010)). For the FY 2014 wage 
index, as we proposed, we are again using occupational mix data 
collected on the 2010 survey to compute the occupational mix adjustment 
for FY 2014. We are including data for 3,201 hospitals that also have 
wage data included in the FY 2014 wage index.
2. New 2013 Occupational Mix Survey for the FY 2016 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 2010 survey to compute the 
occupational mix adjustment for FY 2013 and the FY 2014 wage index 
associated with this final rule. We also plan to use the 2010 survey 
data for the FY 2015 wage index. Therefore, a new measurement of 
occupational mix will be required for FY 2016.
    On December 7, 2012, we published in the Federal Register a notice 
soliciting comments on the proposed 2013 Medicare Wage Index 
Occupational Mix Survey (77 FR 73032 through 73033). The new 2013 
survey, which will be applied to the FY 2016 wage index, includes the 
same data elements and definitions as the 2010 survey and provides for 
the collection of hospital-specific wages and hours data for nursing 
employees for calendar year 2013 (that is, payroll periods ending 
between January 1, 2013 and December 31, 2013). The comment period for 
the notice ended on February 5, 2013. After considering the public 
comments that we received on the December 2012 notice, we made a few 
minor editorial changes and published the 2013 survey in the Federal 
Register on February 28, 2013 (78 FR 13679). This survey was approved 
by OMB on May 14, 2013, and is available on the CMS Web site at: http://www.cms.hhs.gov/PaperworkReductionActof1995 by clicking on ``PRA 
Listings.'' (The OMB control number for this collection of information 
is 0938-0907.) Hospitals are required to submit their completed 2013 
surveys to their fiscal intermediaries/MACs by July 1, 2014. The 
preliminary, unaudited 2013 survey data will be released afterward, 
along with the FY 2012 Worksheet S-3 wage data, for the FY 2016 wage 
index review and correction process. The 2013 Occupational Mix Survey 
Hospital Form and Instructions and Definitions are available on the CMS 
Web site at: http://cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/Medicare-Wage-Index-Occupational-Mix-Survey2013.html.
3. Calculation of the Occupational Mix Adjustment for FY 2014
    For FY 2014, we calculated the occupational mix adjustment factor 
using the same methodology that we used for the FY 2012 and FY 2013 
wage indices (76 FR 51582 through 51586, and 77 FR 53367 through 53368, 
respectively). As a result of applying this methodology, the FY 2014 
occupational mix adjusted national average hourly wage is $38.3698. The 
FY 2014 occupational mix adjusted Puerto Rico-specific average hourly 
wage is $16.5319.
    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 2014 wage 
index. For the FY 2010 survey, the response rate was 91.7 percent. In 
the FY 2014 wage index established in this final rule, we applied proxy 
data for noncompliant hospitals, new hospitals, or hospitals that 
submitted erroneous or aberrant data in the same manner that we applied 
proxy data for such hospitals in the FY 2012 wage index occupational 
mix adjustment (76 FR 51586).
    In the FY 2011 IPPS/LTCH PPS proposed rule and final rule (75 FR 
23943 and 75 FR 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 was effective beginning with the 2010 occupational mix 
survey. We instructed fiscal intermediaries/MACs to continue gathering 
this information as part of the FY 2014 wage index desk review process. 
We will review these data for future analysis and consideration of 
potential penalties for noncompliant hospitals.

[[Page 50589]]

G. Analysis and Implementation of the Occupational Mix Adjustment and 
the FY 2014 Occupational Mix Adjusted Wage Index

1. Analysis of the Occupational Mix Adjustment and the Occupational Mix 
Adjusted Wage Index
    As discussed in section III.F. of this preamble, for FY 2014, we 
apply the occupational mix adjustment to 100 percent of the FY 2014 
wage index. We calculated the final occupational mix adjustment using 
data from the 2010 occupational mix survey data, using the methodology 
described in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51582 through 
51586).
    Using the occupational mix survey data and applying the 
occupational mix adjustment to 100 percent of the FY 2014 wage index 
results in a national average hourly wage of $38.3698 and a Puerto-Rico 
specific average hourly wage of $16.5319. After excluding data of 
hospitals that either submitted aberrant data that failed critical 
edits, or that do not have FY 2010 Worksheet S-3, Parts II and III, 
cost report data for use in calculating the FY 2014 wage index, we 
calculated the FY 2014 wage index using the occupational mix survey 
data from 3,201 hospitals. Using the Worksheet S-3, Parts II and III, 
cost report data of 3,440 hospitals and occupational mix survey data 
from 3,201 hospitals represents a 93.1 percent survey response rate. 
The FY 2014 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.............................................    37.430602011
National LPN and Surgical Technician....................    21.771626577
National Nurse Aide, Orderly, and Attendant.............    15.323325633
National Medical Assistant..............................      17.2056709
National Nurse Category.................................     31.80354668
------------------------------------------------------------------------

    The national average hourly wage for the entire nurse category as 
computed in Step 5 of the occupational mix calculation is $31.80354668. 
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 2010 occupational mix survey data, we determined (in 
Step 7 of the occupational mix calculation) that the national 
percentage of hospital employees in the nurse category is 43.45 
percent, and the national percentage of hospital employees in the all 
other occupations category is 56.55 percent. At the CBSA level, the 
percentage of hospital employees in the nurse category ranged from a 
low of 21.9 percent in one CBSA, to a high of 62.0 percent in another 
CBSA.
    We compared the FY 2014 occupational mix adjusted wage indices for 
each CBSA to the unadjusted wage indices for each CBSA. As a result of 
applying the occupational mix adjustment to the wage data, the wage 
index values for 205 (52.4 percent) urban areas and 32 (66.7 percent) 
rural areas will increase. One hundred and twenty (30.7 percent) urban 
areas will increase by 1 percent or more, and 4 (1.02 percent) urban 
areas will increase by 5 percent or more. Thirteen (27.1 percent) rural 
areas will increase by 1 percent or more, and no rural areas will 
increase by 5 percent or more. However, the wage index values for 182 
(46.5 percent) urban areas and 16 (33.3 percent) rural areas will 
decrease. Eighty (20.5 percent) urban areas will decrease by 1 percent 
or more, and 1 urban area will decrease by 5 percent or more (0.26 
percent). Seven (14.6 percent) rural areas will decrease by 1 percent 
or more, and no rural areas will decrease by 5 percent or more. The 
largest positive impacts are 6.61 percent for an urban area and 2.64 
percent for a rural area. The largest negative impacts are 5.28 percent 
for an urban area and 3.17 percent for a rural area. Four urban areas' 
wage indices, but no rural area wage indices, will remain unchanged by 
application of the occupational mix adjustment. These results indicate 
that a larger percentage of rural areas (66.7 percent) will benefit 
from the occupational mix adjustment than will urban areas (52.4 
percent). However, approximately one-third (33.3 percent) of rural 
CBSAs will still experience a decrease in their wage indices as a 
result of the occupational mix adjustment.
2. Application of the Rural, Imputed, and Frontier Floors
a. Rural Floor
    Section 4410(a) 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. This provision is referred to as the ``rural floor.'' 
Section 3141 of Public Law 111-148 also requires that a national budget 
neutrality adjustment be applied in implementing the rural floor. In 
the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27556), we estimated 
that 434 hospitals would receive an increase in their FY 2014 proposed 
wage index due to the application of the rural floor. Based on the 
final FY 2014 wage indices associated with this final rule and 
available on the CMS Web site, 424 hospitals are receiving an increase 
in their FY 2014 wage index due to the application of the rural floor. 
We received some comments concerning the application of the rural floor 
and additional tables. We respond to these public comments in Appendix 
A of this final rule.
b. Imputed Floor
    In the FY 2005 IPPS final rule (69 FR 49109 through 49111), we 
adopted the ``imputed floor'' policy as a temporary 3-year regulatory 
measure to address concerns from hospitals in all-urban States that 
have argued that they are disadvantaged by the absence of rural 
hospitals to set a wage index floor for those States. Since its initial 
implementation, we have extended the imputed floor policy three times, 
the last of which was adopted in the FY 2013 IPPS/LTCH PPS final rule 
and is set to expire on September 30, 2013 (we refer readers to the 
discussion in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53368 through 
53369) and to our regulations at 42 CFR 412.64(h)(4)). There are 
currently two all-urban States, New Jersey and Rhode Island, that have 
a range of wage indices assigned to hospitals in the State, including 
through reclassification or redesignation (we refer readers to 
discussions of geographic reclassifications and redesignations in 
section III.H. of the preamble of this final rule). However, as we 
explain below, the method as of FY 2012 for computing the imputed 
floor, which we will refer to as the original methodology, benefitted 
only New Jersey, and not Rhode Island.
    In computing the imputed floor for an all-urban State under the 
original methodology, we calculated the ratio of the lowest-to-highest 
CBSA wage index for each all-urban State (that is, New Jersey and Rhode 
Island) as well as the average of the ratios of lowest-to-highest CBSA 
wage indices of those all-urban States. We compared the State's own 
ratio to the average ratio for all-urban States and whichever is higher 
was

[[Page 50590]]

multiplied by the highest CBSA wage index value in the State--the 
product of which established the imputed floor for the State. Rhode 
Island has only one CBSA (Providence-New Bedford-Fall River, RI-MA); 
therefore, Rhode Island's own ratio equals 1.0, and its imputed floor 
was equal to its original CBSA wage index value. Conversely, New Jersey 
has 10 CBSAs. Because the average ratio of New Jersey and Rhode Island 
was higher than New Jersey's own ratio, the original methodology 
provided a benefit for New Jersey, but not for Rhode Island.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53368 through 
53369), for the FY 2013 wage index, the final year of the extension of 
the imputed floor policy under Sec.  412.64(h)(4), we did not make any 
changes to the original methodology and we finalized a proposed 
alternative, temporary methodology for computing the imputed floor wage 
index to address the concern that the then-current imputed floor 
methodology guaranteed a benefit for one all-urban State with multiple 
wage indices but could not benefit the other. The alternative 
methodology for calculating the imputed floor was established using 
data from the application of the rural floor policy for FY 2013. We 
first determined the average percentage difference between the post-
reclassified, pre-floor area wage index and the post-reclassified, 
rural floor wage index (without rural floor budget neutrality applied) 
for all CBSAs receiving the rural floor. (Table 4D associated with the 
FY 2013 final rule, which is available on the CMS Web site, included 
the CBSAs receiving a State's rural floor wage index.) The lowest post-
reclassified wage index assigned to a hospital in an all-urban State 
having a range of such values would then be increased by this factor, 
the result of which established the State's alternative imputed floor. 
We refer to this methodology as the alternative methodology. We also 
adopted a policy that, for discharges on or after October 1, 2012, and 
before October 1, 2013, the minimum wage index value for the State is 
the higher of the value determined under the original methodology or 
the value computed using the alternative methodology. We amended Sec.  
412.64(h)(4) of the regulations to add new paragraph (vi) to 
incorporate the finalized alternative methodology policies, and to make 
conforming changes.
    We stated that we intended to further evaluate the need, 
applicability, and methodology for the imputed floor before the 
September 30, 2013 expiration of the imputed floor policy and address 
these issues in the FY 2014 proposed rule. In the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27556), we proposed to extend the imputed floor 
policy (both the original methodology and the alternative methodology) 
for one additional year, through September 30, 2014, while we continue 
to explore potential wage index reforms. We proposed to revise the 
regulations at Sec.  412.64(h)(4) to reflect the proposed 1-year 
extension. We invited public comments on this extension.
    Comment: Many of the commenters supported the CMS proposal, stating 
that it provides a remedy to the financial and competitive 
disadvantages suffered by hospitals in all-urban States, and that 
preserving the current imputed floor policy is the sound course of 
action as CMS continues to explore potential wage index reforms. One 
commenter who supported the proposal advised CMS that the American 
Hospital Association's (AHA's) Medicare Area Wage Index Task Force has 
issued draft recommendations (including the imputed floor policy) and 
has requested comments from hospitals prior to finalizing the report. 
The commenter suggested that the industry have a chance to provide 
input to CMS prior to finalizing any decisions regarding the imputed 
floor policy. The commenter also suggested that, if CMS decides to 
finalize a policy that would result in the expiration of the imputed 
floor, CMS afford hospitals a multiyear phase out in order to offset 
their lost revenue.
    One commenter objected to the proposal and stated that it did not 
support the policy behind the imputed floor. The commenter stated that 
it agreed with the rationale that CMS previously provided in the FY 
2012 IPPS/LTCH PPS proposed rule (76 FR 25878 and 25879) for not 
proposing to extend the imputed floor policy, and urged CMS to let the 
policy expire. Another commenter opposed the proposal, stating that it 
supported CMS' position in the FY 2008 IPPS proposed rule (72 FR 24786) 
that the imputed floor policy should apply only when required by 
statute.
    Response: We appreciate the commenters' support. For those 
commenters who objected to the proposed policy and made further 
recommendations, we will further consider these comments while we 
continue to explore potential wage index reforms. In response to the 
commenter who advised that the AHA's Medicare Area Wage Index Task 
Force has requested comments from hospitals prior to finalizing its 
report and also suggested that the industry have a change to provide 
input to CMS prior to finalizing any decisions regarding the imputed 
floor policy, we are unclear on exactly what the commenter is 
requesting. We have allowed the industry to comment on the proposals 
regarding the imputed floor policy; specifically in the FY 2014 IPPS/
LTCH PPS proposed rule (78 FR 27556), we invited public comment on the 
proposed 1-year extension. With regard to the comment that requested 
that CMS afford hospitals a multiyear phase-out of the imputed floor 
policy, we did not propose to let the imputed floor policy expire for 
FY 2014. We will consider the commenter's suggestion in future 
rulemaking.
    After consideration of the public comments we received, in this 
final rule, as we proposed, we are providing an extension of the 
imputed floor policy (both the original methodology and the alternative 
methodology) for one additional year, through September 30, 2014, while 
we continue to explore potential wage index reform. We also are 
adopting as final the proposed conforming changes at Sec.  412.64(h)(4) 
to reflect the 1-year extension.
    The wage index and impact tables associated with this final rule 
that are available on the CMS Web site include the application of the 
imputed floor policy at Sec.  412.64(h)(4) and a national budget 
neutrality adjustment for the rural floor (which includes the imputed 
floor). There are 25 hospitals in New Jersey that will receive an 
increase in their FY 2014 wage index due to the imputed floor 
calculated under the original methodology. The wage index and impact 
tables for this final rule also reflect the application of the 
alternative methodology for computing the imputed floor, which will 
benefit 4 hospitals in Rhode Island.
c. Frontier Floor
    Section 10324 of Public Law 111-148 requires that hospitals in 
frontier States cannot be assigned a wage index of less than 1.0000 (we 
refer readers to regulations at 42 CFR 412.64(m) and to a discussion of 
the implementation of this provision in the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50160 through 50161)). Forty-six hospitals are receiving 
the frontier floor value of 1.0000 for their FY 2014 wage index. These 
hospitals are located in Montana, North Dakota, South Dakota, and 
Wyoming. Although Nevada is also defined as a frontier State, its FY 
2014 rural floor value of 1.1454 was greater than 1.0000, and 
therefore, no Nevada hospitals will receive a frontier floor value for 
their FY 2014 wage index. We

[[Page 50591]]

did not receive any public comments concerning the frontier floor.
    The areas affected by the rural, imputed, and frontier floor 
policies for the FY 2014 wage index are identified in Table 4D 
associated with this final rule, which is available on the CMS Web 
site.
3. FY 2014 Wage Index Tables
    The wage index values for FY 2014 (except those for hospitals 
receiving wage index adjustments under section 1886(d)(13) of the Act), 
included in Tables 4A, 4B, 4C, and 4F, available on the CMS Web site, 
include the occupational mix adjustment, geographic reclassification or 
redesignation as discussed in section III.H. of the preamble of this 
final rule, and the application of the rural, imputed, and frontier 
State floors as discussed in section III.G.2. of the preamble of this 
final rule.
    Tables 3A and 3B, available on the CMS Web site, list the 3-year 
average hourly wage for each labor market area before the redesignation 
or reclassification of hospitals based on FYs 2008, 2009, and 2010 cost 
reporting periods. Table 3A lists these data for urban areas, and Table 
3B lists these data for rural areas. In addition, Table 2, which is 
available on the CMS Web site, includes the adjusted average hourly 
wage for each hospital from the FY 2008 and FY 2009 cost reporting 
periods, as well as the FY 2010 period used to calculate the FY 2014 
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 in Step 5 in section III.G. of the preamble of this final 
rule) 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 
available on the CMS Web site, include the occupational mix adjustment. 
The wage index values in Tables 4A, 4B, 4C, and 4D also include the 
national rural floor budget neutrality adjustment (which includes the 
imputed floor). The wage index values in Table 2 also include the out-
migration adjustment for eligible hospitals.

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

1. General Policies and Effects of Reclassification and Redesignation
    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 not later than 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 in the FY 2002 IPPS final rule (66 FR 39874 and 39875) 
regarding how the MGCRB defines mileage for purposes of the proximity 
requirements.) The general policies for reclassifications and 
redesignations that we are adopting for FY 2014, and the policies for 
the effects of hospitals' reclassifications and redesignations on the 
wage index, are the same as those discussed in the FY 2012 IPPS/LTCH 
PPS final rule for the FY 2012 final wage index (76 FR 51595 and 
51596). Also, in the FY 2012 IPPS/LTCH PPS final rule, we discussed the 
effects on the wage index of urban hospitals reclassifying to rural 
areas under 42 CFR 412.103. Hospitals that are geographically located 
in States without any rural areas are ineligible to apply for rural 
reclassification in accordance with the provisions of 42 CFR 412.103.
    Comment: One commenter noted that CMS did not propose any 
amendments to Sec.  412.103, but requested that CMS retract the 
statement that hospitals that are geographically located in States 
without any rural areas are ineligible to apply for rural 
reclassification pursuant to 42 CFR 412.103; the commenter believed 
that this statement is a change in policy. The commenter believed that 
the statute and regulations permit a hospital in an all-urban State to 
be treated as if it were located in a rural area, and that no actual 
rural area in the State is necessary for such reclassification.
    Response: We disagree with commenter's request, and maintain our 
position that hospitals that are geographically located in States 
without any rural areas are ineligible for Sec.  412.103 
reclassification. This is consistent with the statute and CMS' 
longstanding policy, and we did not propose any changes to this policy.
    Comment: One commenter questioned the reclassification process 
concerning urban hospitals that redesignate from urban status to rural 
status under Sec.  412.103, then cancel their rural status and 
subsequently seek reclassification to another urban area through the 
MGCRB. The commenter also had questions concerning the process of MGCRB 
reclassification in the case of hospitals that currently have acquired 
rural status under Sec.  412.103.
    Response: We thank the commenter for the comments. We did not make 
any proposals to change any of the reclassification processes or 
criteria. The processes for Sec.  412.103 urban to rural redesignation 
and MGCRB reclassification are specified in 42 CFR 412.103 and 412.230 
et. seq. The regulations in the sections above clearly define the 
process and describe the criteria and conditions for these 
reclassifications. We refer the commenter to the regulations for 
complete details on wage index reclassifications.
2. FY 2014 MGCRB Reclassifications
a. FY 2014 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 regulations 
under 42 CFR 412.230 through 412.280.
    At the time this final rule was constructed, the MGCRB had 
completed its review of FY 2014 reclassification requests. Based on 
such reviews, there were 296 hospitals approved for wage index 
reclassifications by the MGCRB for FY 2014. Because MGCRB wage index 
reclassifications are effective for 3 years, for FY 2014, hospitals 
reclassified during FY 2012 or FY 2013 are eligible to continue to be 
reclassified to a particular labor market area based on such prior 
reclassifications. There were 214 hospitals approved for wage index 
reclassifications in FY 2012, and 196 hospitals approved for wage index 
reclassifications in FY 2013. Of all the hospitals approved for 
reclassification for FY 2012, FY 2013, and FY 2014, based upon the 
review at the time of this final rule, 679 hospitals are in a 
reclassification status for FY 2014.
    Under the regulations at 42 CFR 412.273, hospitals that have been

[[Page 50592]]

reclassified by the MGCRB are permitted to withdraw their applications 
within 45 days of the publication of a proposed rule. For information 
about withdrawing, terminating, or canceling a previous withdrawal or 
termination of a 3-year reclassification for wage index purposes, we 
refer readers to 42 CFR 412.273, as well as the FY 2002 IPPS final rule 
(66 FR 39887 through 39888) and the FY 2003 IPPS final rule (67 FR 
50065 through 50066). 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 2014 are incorporated 
into the wage index values published in this FY 2014 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 2015
    Applications for FY 2015 reclassifications are due to the MGCRB by 
September 3, 2013 (the first working day of September 2013). We note 
that this is also the deadline for canceling a previous wage index 
reclassification withdrawal or termination under 42 CFR 412.273(d). As 
mentioned in section III.B. of the preamble of this final rule, 
although OMB issued revisions on February 28, 2013 to its area 
delineations, we did not propose to adopt those revisions for the FY 
2014 wage index, and we will not be adopting the revisions before the 
September 3, 2013 deadline for applications for the FY 2015 wage index. 
Therefore, hospitals must apply for reclassifications based on the 
delineations we are using for FY 2014. Applications and other 
information about MGCRB reclassifications may be obtained via the 
Internet on the CMS Web site at: http://www.cms.gov/Regulations-and-Guidance/Review-Boards/MGCRB/index.html, 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.
3. 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. 
(We note that, as mentioned in section III.B. of the preamble of this 
final rule, although OMB issued revisions on February 28, 2013, to its 
area delineations based on 2010 census data, we did not propose to 
adopt these revisions for the FY 2014 wage index.) Hospitals located in 
these counties have been known as ``Lugar'' hospitals and the counties 
themselves are often referred to as ``Lugar'' counties. The FY 2014 
chart with the listing of the rural counties containing the hospitals 
designated as urban under section 1886(d)(8)(B) of the Act is available 
via the Internet on the CMS Web site.
4. Hospitals Redesignated under Section 1886(d)(8)(B) of the Act 
Seeking Reclassification by the MGCRB
    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. Using Table 4C associated with the proposed rule (which is 
available via the Internet on the CMS Web site), affected hospitals 
were permitted to compare the reclassified wage index for the labor 
market area into which they would be reclassified by the MGCRB to the 
reclassified 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 2014 proposed rule. (We refer readers to the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51598 through 51599) for the procedural rules and 
requirements for a hospital that is redesignated under section 
1886(d)(8)(B) of the Act and seeking reclassification under the MGCRB, 
as well as our policy of measuring the urban area, exclusive of the 
Lugar County, for purposes of meeting proximity requirements.) We treat 
New England deemed counties in a manner consistent with how we treat 
Lugar counties. (We refer readers to the FY 2008 IPPS final rule with 
comment period (72 FR 47337 through 47338) for a discussion of this 
policy.)
5. Waiving Lugar Redesignation for the Out-Migration Adjustment
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 
51600), we adopted the policy that, beginning with FY 2012, 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 V.E. of the preamble of this final rule.)
    In addition, we adopted 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 \11\) 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. Thus, under the 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.
---------------------------------------------------------------------------

    \11\ 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.
---------------------------------------------------------------------------

    We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51599 through 51600) for a detailed discussion of the policy and 
process for waiving Lugar status for the out-migration adjustment.

[[Page 50593]]

I. FY 2014 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. For FY 2014, we are adopting the out-migration 
adjustment based on the same policies, procedures, and computation that 
were used for the FY 2012 out-migration adjustment. (We refer readers 
to a full discussion of the adjustment, including rules on deeming 
hospitals reclassified under section 1886(d)(8) or section 1886(d)(10) 
of the Act to have waived the out-migration adjustment, in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51601 through 51602).) Table 4J, which 
is available via the Internet on the CMS Web site, lists the out-
migration adjustments for the FY 2014 wage index.
    We did not receive any public comments with regard to the out-
migration adjustment for FY 2014.

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 2014 wage index were made 
available on October 3, 2012, through the Internet on the CMS Web site 
at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY_2014_Wage_Index_Home_Page.html.
    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 notify the 
hospital community of the availability of these data as we do with the 
current public use wage data files through our Hospital Open Door 
forum. We encourage hospitals to sign up for automatic notifications of 
information about hospital issues and the scheduling of the Hospital 
Open Door forums at the CMS Web site at: http://www.cms.gov/Outreach-and-Education/Outreach/OpenDoorForums/index.html.
    In a memorandum dated October 19, 2012, 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 3, 2012 wage and occupational mix data files, the hospital 
was to submit corrections along with complete, detailed supporting 
documentation to its fiscal intermediary/MAC by December 10, 2012. (We 
note that this date was originally December 3, 2012. However, in a 
memorandum dated October 25, 2012, we instructed all fiscal 
intermediaries/MACs to inform the IPPS hospitals they service that we 
extended the deadline to December 10, 2012.) Hospitals were notified of 
this deadline and of all other deadlines and requirements, including 
the requirement to review and verify their data as posted in the 
preliminary wage index data files on the Internet, through the October 
19, 2012 memorandum referenced above.
    In the October 19, 2012 memorandum, we also specified that a 
hospital requesting revisions to its occupational mix survey data was 
to copy its record(s) from the CY 2010 occupational mix preliminary 
files posted to the CMS Web site in October, highlight the revised 
cells on its spreadsheet, and submit its spreadsheet(s) and complete 
documentation to its fiscal intermediary/MAC no later than December 10, 
2012.
    The fiscal intermediaries/MACs notified the hospitals by mid-
February 2013 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 2013. CMS published the proposed 
wage index public use files that included hospitals' revised wage index 
data on February 21, 2013. Hospitals had until March 4, 2013, 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 to CMS any additional 
revisions resulting from the hospitals' reconsideration requests by 
April 10, 2013. The deadline for a hospital to request CMS intervention 
in cases where the hospital disagreed with the fiscal intermediary's 
(or, if applicable, the MAC's) policy interpretations was April 17, 
2013.
    Hospitals were given the opportunity to examine Table 2, which was 
listed in section VI. of the Addendum to the proposed rule and 
available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY_2014_Wage_Index_Home_Page.html. 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 2010 data used to 
construct the proposed FY 2014 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 4, 2013.
    We released the final wage index data public use files in early May 
2013 on the Internet at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY_2014_Wage_Index_Home_Page.html. The May 2013 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 10, 2013). If, after reviewing the May 
2013 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 
was required to send a letter to both its fiscal intermediary/MAC and 
CMS that outlined why the hospital believed an error existed and 
provide all supporting information, including relevant dates (for 
example, when it first became aware of the error). The hospital was 
required to send the letter to CMS and its fiscal

[[Page 50594]]

intermediaries/MACs no later than June 3, 2013.
    After the release of the May 2013 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 10, 2013.
     Requests for correction of errors that were not, but could 
have been, identified during the hospital's review of the February 21, 
2013 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 3, 2013) 
were incorporated into the final wage index in this FY 2014 IPPS/LTCH 
PPS final rule, which will be effective October 1, 2013.
    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 2014 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. 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 have 
access to the final wage index data by early May 2013, they have the 
opportunity to detect any data entry or tabulation errors made by the 
fiscal intermediary or the MAC or CMS before the development and 
publication of the final FY 2014 wage index by August 2013, and the 
implementation of the FY 2014 wage index on October 1, 2013. If 
hospitals avail 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 3, 2013, we retain the right to make midyear changes to the 
wage index under very limited circumstances.
    Specifically, in accordance with 42 CFR 412.64(k)(1) of our 
existing regulations, we make midyear corrections to the wage index for 
an area only if a hospital can show that: (1) The fiscal intermediary 
or the MAC or CMS made an error in tabulating its data; and (2) the 
requesting hospital could not have known about the error or did not 
have an opportunity to correct the error, before the beginning of the 
fiscal year. For purposes of this provision, ``before the beginning of 
the fiscal year'' means by the June deadline for making corrections to 
the wage data for the following fiscal year's wage index (for example, 
June 3, 2013 for the FY 2014 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, 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 through 47387 and 
47485), 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 CMS determines all of the following: 
(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 3, 
2013 deadline for the FY 2014 wage index); and (3) CMS agreed before 
October 1 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 3, 2013 deadline for the FY 2014 wage index), 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 situations where our policies would allow midyear corrections 
other than those specified in 42 CFR 412.64(k)(2)(ii), 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 final judicial decision reverses a CMS denial 
of a hospital's wage index data revision request.

K. Labor-Related Share for the FY 2014 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

[[Page 50595]]

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 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 ``would result 
in lower payments to a hospital than would otherwise be made.'' 
However, these provisions 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.'' Thus, 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 results in a higher payment.
    Comment: Several commenters stated that CMS has not kept pace by 
adjusting the labor-related share of the standard rate to which the 
wage index is applied. The commenters explained that CMS has provided 
incentives for hospitals to reduce costs through a declining wage index 
while hospitals have responded and made strides in labor efficiency. 
The commenters recommended that CMS adjust the labor-related share of 
the standard rate to 42 percent from the current 62 percent for 
hospitals with a wage index of less than 1.0. The commenters believed 
that a 42-percent labor component is more reflective of hospitals 
seeking cost efficiencies in wages.
    Response: As stated above, 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. Therefore, any changes to the application of the 62 percent 
labor-related share would require a change to current law by Congress.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850 
through 43857), we rebased and revised the IPPS market basket and the 
labor-related share, using FY 2006 as the base year. The labor-related 
share for FY 2010 through FY 2013 is 68.8 percent.
    For FY 2014, as proposed in the FY 2014 IPPS/LTCH PPS proposed rule 
(78 FR 27561 through 27572), and as described in section IV. of the 
preamble of this final rule, we are rebasing and revising the IPPS 
market basket using FY 2010 as the base year. Using the FY 2010-based 
IPPS market basket, we also recalculated the labor-related share and 
are finalizing a labor-related share of 69.6 percent for discharges 
occurring on or after October 1, 2013, as discussed in section IV.B.4. 
of the preamble of this final rule. As discussed in Appendix A of this 
final rule, we are implementing this revised and rebased labor-related 
share in a budget neutral manner. However, consistent with section 
1886(d)(3)(E) of the Act, we are not taking 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. For FY 2014, as proposed in the FY 2014 IPPS/LTCH PPS proposed 
rule (78 FR 27561 through 27572) and as described in section IV. of the 
preamble of this final rule, we are including in the labor-related 
share the national average proportion of operating costs that are 
attributable to wages and salaries, employee benefits, contract labor, 
the labor-related portion of professional fees, administrative and 
facilities support services, and all other labor-related services as 
measured in the FY 2010-based IPPS market basket.
    Therefore, for FY 2014, as discussed in section IV.B.4. of the 
preamble of this final rule, we are finalizing our proposals without 
modification and adopting a labor-related share of 69.6 percent for 
discharges occurring on or after October 1, 2013. Tables 1A and 1B, 
which are published in section VI. of the Addendum to this final rule 
and are available via the Internet, reflect this labor-related share. 
For FY 2014, for all IPPS hospitals whose wage indices are less than 
1.0000, we are applying 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, for FY 2014, we are 
applying the wage index to a labor-related share of 69.6 percent of the 
national standardized amount. We note that, for Puerto Rico hospitals, 
the national labor-related share is 62 percent because the national 
wage index for all Puerto Rico hospitals is less than 1.0.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850 
through 43856), we also rebased and revised the labor-related share for 
the Puerto Rico-specific standardized amounts using FY 2006 as a base 
year. We finalized a labor-related share for the Puerto Rico-specific 
standardized amounts for FY 2010 through FY 2013 of 62.1 percent. As 
proposed in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27566 
through 27568) and as described in section IV.B.4. of the preamble of 
this final rule, for FY 2014, we also are rebasing and revising the 
labor-related share for the Puerto Rico-specific standardized amounts 
using FY 2010 as a base year. In the FY 2014 IPPS/LTCH PPS proposed 
rule (78 FR 27566 through 27568), we proposed a labor-related share for 
the Puerto Rico-specific standardized amounts of 63.2 percent for 
discharges occurring on or after October 1, 2013. For FY 2014, we are 
finalizing our proposal and adopting a labor-related share for the 
Puerto Rico-specific standardized amounts of 63.2 percent for 
discharges occurring on or after October 1, 2013, as discussed in 
section IV.B.4. of the preamble of this final rule. Consistent with our 
methodology for determining the national labor-related share, we added 
the Puerto Rico-specific relative weights for wages and salaries, 
employee benefits, and contract labor, with the national proportion of 
costs for the labor-related portion of professional fees, 
administrative and facilities support services, and all other labor-
related services to determine the labor-related share. Puerto Rico 
hospitals are paid based on 75 percent of the national standardized 
amounts and 25 percent of the Puerto Rico-specific standardized 
amounts. For FY 2014, we are adopting that the labor-related share of a 
hospital's Puerto Rico-specific rate will be either the Puerto Rico-
specific labor-related share of 63.2 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 for FY 2014, 
we will set the hospital's rates using a labor-related share of 63.2 
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 for FY 2014 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 63.2 percent 
for FY 2014 is reflected in Table 1C, which is published in section VI. 
of the Addendum to this final rule and available via the Internet.
    Comment: Several commenters supported the proposed increase in the

[[Page 50596]]

labor-related share. We did not receive any public comments on the 
proposed Puerto Rico labor-related share.
    Response: We appreciate the commenters' support.
    As discussed in section IV.B.4. of the preamble of this final rule, 
we are finalizing the labor-related share of 69.6 percent as proposed 
for all IPPS hospitals whose wage indices are greater than 1.0000. We 
also are finalizing the Puerto Rico labor-related share of the labor-
related share of 63.2 percent as proposed. Further discussion of the FY 
2014 labor-related share for the national standardized amount and the 
Puerto Rico-specific standardized amount can be found in section 
IV.B.4. of the preamble of this final rule.

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

A. Background

    Effective for cost reporting periods beginning on or after July 1, 
1979, we developed and adopted a hospital input price index (that is, 
the hospital market basket for operating costs). Although ``market 
basket'' technically describes the mix of goods and services used in 
providing hospital care, this term is also commonly used to denote the 
input price index (that is, cost category weights and price proxies 
combined) derived from that market basket. Accordingly, the term 
``market basket'' as used in this document refers to the hospital input 
price index.
    The percentage change in the market basket reflects the average 
change in the price of goods and services hospitals purchase in order 
to provide inpatient care. We first used the market basket to adjust 
hospital cost limits by an amount that reflected the average increase 
in the prices of the goods and services used to provide hospital 
inpatient care. This approach linked the increase in the cost limits to 
the efficient utilization of resources.
    Since the inception of the IPPS, the projected change in the 
hospital market basket has been the integral component of the update 
factor by which the prospective payment rates are updated every year. 
An explanation of the hospital market basket used to develop the 
prospective payment rates was published in the Federal Register on 
September 1, 1983 (48 FR 39764). We also refer readers to the FY 2010 
IPPS/RY 2010 LTCH PPS final rule (74 FR 43843) in which we discussed 
the most recent previous rebasing of the hospital input price index.
    The hospital market basket is a fixed-weight, Laspeyres-type price 
index. A Laspeyres-type 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 (as we proposed, in this final rule, we are using FY 
2010 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 
weights'' or ``expenditure weights.'' Second, each expenditure category 
is matched to an appropriate price or wage variable, referred to as a 
``price proxy.'' In almost 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 index 
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 provide 
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 be captured, with those changes being reflected 
in the cost weights. Therefore, we rebase the market basket 
periodically so that the cost weights reflect recent changes in the mix 
of goods and services that hospitals purchase (hospital inputs) to 
furnish inpatient care between base periods.
    We last rebased the hospital market basket cost weights effective 
for FY 2010 (74 FR 43843), with FY 2006 data used as the base period 
for the construction of the market basket cost weights. In the FY 2014 
IPPS/LTCH PPS proposed rule (78 FR 27561 through 27572), we proposed to 
rebase the cost structure for the IPPS hospital index from FY 2006 to 
FY 2010, as discussed below.

B. Rebasing and Revising the IPPS Market Basket

    The terms ``rebasing'' and ``revising,'' while often used 
interchangeably, actually denote different activities. ``Rebasing'' 
means moving the base year for the structure of costs of an input price 
index (for example, in this final rule, we are shifting the base year 
cost structure for the IPPS hospital index from FY 2006 to FY 2010). 
``Revising'' means changing data sources, or price proxies, used in the 
input price index. As published in the FY 2006 IPPS final rule (70 FR 
47387), in accordance with section 404 of Public Law 108-173, CMS 
determined a new frequency for rebasing the hospital market basket. We 
established a rebasing frequency of every 4 years and, therefore, for 
the FY 2014 IPPS update, as we proposed, we are rebasing and revising 
the IPPS market basket from FY 2006 to FY 2010. We invited public 
comments on our proposed methodology. A summary of the public comments 
we received and our responses are included under the appropriate 
subject area.
1. Development of Cost Categories and Weights
a. Medicare Cost Reports
    The major source of expenditure data for developing the rebased and 
revised hospital market basket cost weights is the FY 2010 Medicare 
cost reports. These FY 2010 Medicare cost reports are for cost 
reporting periods beginning on and after October 1, 2009 and before 
October 1, 2010. In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27562), we proposed to use FY 2010 as the base year because we believe 
that the FY 2010 Medicare cost reports represent the most recent, 
complete set of Medicare cost report data available for IPPS hospitals. 
As was done in previous rebasings, these cost reports are from IPPS 
hospitals only (hospitals excluded from the IPPS and CAHs are not 
included) and are based on IPPS Medicare-allowable operating costs. 
IPPS Medicare-allowable operating costs are costs that are eligible to 
be paid for under the IPPS. For example, the IPPS market basket 
excludes home health agency (HHA) costs as these costs would

[[Page 50597]]

be paid under the HHA PPS and, therefore, these costs are not IPPS 
Medicare-allowable costs.
    We proposed to obtain seven major expenditures or cost categories 
for the FY 2010 IPPS market basket from the Medicare cost reports--the 
same as in the FY 2006-based hospital market basket: Wages and 
salaries, employee benefits, contract labor, pharmaceuticals, 
professional liability insurance (malpractice), blood and blood 
products, and a residual ``all other.'' The proposed cost weights that 
were obtained directly from the Medicare cost reports were reported in 
Table IV01 of the proposed rule. We proposed to then supplement these 
Medicare cost report cost weights with information obtained from other 
data sources to derive the proposed IPPS market basket cost weights.
    Comment: One commenter supported the proposal to move to an FY 
2010-based market basket.
    Response: We appreciate the commenter's support. In this final 
rule, we are finalizing our calculation of the FY 2010-based IPPS cost 
weights using the Medicare cost reports as proposed and describe our 
methods in more detail below.
    Table IV01 below shows the major cost categories and their 
respective cost weights as calculated directly from the Medicare Cost 
Reports for this final rule.

 Table IV01--Major Cost Categories and Their Respective Cost Weights as
           Calculated Directly From the Medicare Cost Reports
------------------------------------------------------------------------
                                                           Proposed and
                                           FY 2006-based  final FY 2010-
          Major cost categories            market basket   based market
                                                              basket
------------------------------------------------------------------------
Wages and salaries......................          45.156          45.819
Employee benefits.......................          11.873          12.713
Contract labor..........................           2.598           1.806
Professional Liability Insurance                   1.661           1.330
 (Malpractice)..........................
Pharmaceuticals.........................           5.380           5.402
Blood and blood products................           1.078           1.069
All other...............................          32.254          31.861
------------------------------------------------------------------------

    From FY 2006 to FY 2010, the wages and salaries and employee 
benefits cost weights as calculated directly from the Medicare cost 
reports increased by approximately 0.7 and 0.8 percentage point, 
respectively, while the contract labor cost weight decreased by 0.8 
percentage point. As we did for the FY 2006-based IPPS market basket 
(74 FR 43847), we proposed to allocate contract labor costs to the 
wages and salaries and employee benefits cost weights based on their 
relative proportions for employed labor under the assumption that 
contract labor costs are comprised of both wages and salaries and 
employee benefits. The contract labor allocation proportion for wages 
and salaries is equal to the wages and salaries cost weight as a 
percent of the sum of the wages and salaries cost weight and the 
employee benefits cost weight. Using the FY 2010 Medicare cost report 
data, this percentage is 78.3 percent; therefore, we proposed to 
allocate approximately 78.3 percent of the contract labor cost weight 
to the wages and salaries cost weight. Table IV02 in the proposed rule 
showed the wages and salaries and employee benefit cost weights after 
contract labor allocation for both the FY 2006-based IPPS market basket 
and the proposed FY 2010-based IPPS market basket.
    We did not receive any specific public comment regarding the 
allocation of contract labor cost weight to the wages and salaries and 
employee benefits cost weights. In this final rule, we are finalizing 
our methodology of allocating the contract labor cost weight as we 
proposed. Table IV02 below shows the wages and salaries and employee 
benefit cost weights after contract labor allocation for the FY 2006-
based IPPS market basket and the proposed and final FY 2010-based IPPS 
market basket.

 Table IV02--Wages and Salaries and Employee Benefits Cost Weights After
                        Contract Labor Allocation
------------------------------------------------------------------------
                                                           Proposed and
                                           FY 2006-based  final FY 2010-
          Major cost categories            market basket   based market
                                                              basket
------------------------------------------------------------------------
Wages and salaries......................          47.213          47.233
Employee benefits.......................          12.414          13.105
------------------------------------------------------------------------

    After the allocation of contract labor, the final FY 2010-based 
wages and salaries cost weight is relatively similar to the FY 2006-
based wages and salaries cost weight while the final FY 2010-based 
employee benefits cost weight increased 0.7 percentage point. This is 
primarily a result of an increase in benefits costs relative to wages 
and salaries costs from the Medicare cost report data for employed 
workers; in 2006, the ratio of the employee benefits cost weight to the 
wages and salaries cost weight was 26.3 percent, while in 2010 this 
ratio increased to 27.8 percent.
b. Other Data Sources
    In addition to the data from the Medicare cost reports, the other 
data source we proposed to use to develop the FY 2010-based IPPS market 
basket cost weights is the 2002 Benchmark Input-Output (I-O) Tables 
created by the Bureau of Economic Analysis (BEA), U.S. Department of 
Commerce. We proposed to use the 2002 BEA Benchmark I-O data to 
disaggregate the ``all other'' (residual) cost category (31.861 
percent) into more detailed hospital expenditure category shares. The 
BEA Benchmark I-O accounts provide the most detailed information on the 
goods and services purchased by an industry, which allows for a more

[[Page 50598]]

detailed disaggregation of expenses in the market basket for which we 
can then proxy the appropriate price inflation.
    The BEA Benchmark I-O data are generally scheduled for publication 
every 5 years. At the time of development of the FY 2014 IPPS/LTCH PPS 
proposed rule, the most recent data available were for 2002. BEA also 
produces Annual I-O estimates; however, the 2002 Benchmark I-O data 
represent a much more comprehensive and detailed set of data that are 
derived from the 2002 Economic Census. In the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (74 FR 43845), we used the 2002 Benchmark I-O data (aged 
to FY 2006) for the FY 2006-based IPPS market basket, to be effective 
for FY 2010. Because BEA had not yet released new Benchmark I-O data at 
the time we prepared our analysis for the proposed rule, and we believe 
the data to be comprehensive and complete as indicated above, we 
proposed to use the 2002 Benchmark I-O data in the FY 2010-based IPPS 
market basket for the FY 2014 IPPS/LTCH PPS proposed rule.
    Therefore, instead of using the less detailed, less accurate Annual 
I-O data, we proposed to age the 2002 Benchmark I-O data forward to FY 
2010. The methodology we proposed to use 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. In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27563), we 
proposed that, if more recent BEA benchmark I-O data for 2007 was 
released between the proposed and final rule with sufficient time to 
incorporate such data into the final rule, we would incorporate these 
data into the FY 2010-based IPPS market basket for the final rule. The 
2007 BEA I-O data was expected to be released in the summer of 2013. 
However, at the time we prepared our analysis for this final rule, BEA 
had not published the 2007 Benchmark I-O data. Therefore, we were 
unable to incorporate any revised I-O data in the final FY 2010-based 
IPPS market basket.
    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, telephone 
services would represent 10 percent of the ``all other'' cost category 
of the IPPS market basket.
    Following publication of the FY 2010 IPPS/RY 2010 LTCH PPS proposed 
rule, and in an effort to provide greater transparency, we posted on 
the CMS market basket Web page at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html an illustrative 
spreadsheet that shows how the detailed cost weights in the proposed 
rule (that is, those not calculated using Medicare cost reports) were 
determined using the 2002 Benchmark I-O data.
2. Cost Category Computation
    As stated previously, for the proposed FY 2010-based market basket, 
we proposed to use data from the Medicare cost reports to derive seven 
major cost categories that were the same detailed cost categories as 
used in the FY 2006-based IPPS market basket. Also, we did not propose 
to change our definition of the labor-related share. As discussed in 
more detail below and similar to the previous rebasings, we classify a 
cost category as labor-related and include it in the labor-related 
share if the cost category is defined as being labor-intensive and its 
cost varies with the local labor market.
    Comment: One commenter supported the use of 2002 BEA data if it is 
not possible to move to 2007 data in the final rule. We did not receive 
any public comments on the specific methodology for calculating the 
final cost weights.
    Response: Since the 2007 BEA I-O data has not been published, we 
are unable to incorporate the data into the FY 2010-based IPPS market 
basket. We appreciate the commenter's support to use the 2002 BEA I-O 
data, given these data limitations.
    In this final rule, we are finalizing the use of the 2002 I-O data 
as we proposed in the FY 2014 proposed rule. We also are finalizing our 
calculation of the final cost category weights as we proposed.
3. Selection of Price Proxies
    After computing the FY 2010 cost weights for the IPPS market 
basket, it was necessary to select appropriate wage and price proxies 
to reflect the rate of price change for each expenditure category. We 
proposed to use the same price proxies that were used in the FY 2006-
based IPPS market basket. A discussion of our rationale for selecting 
these price proxies can be found in the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule (74 FR 43845).
    With the exception of the proxy for professional liability 
insurance (PLI), all the proxies we proposed were 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 PPIs better reflect the actual 
price changes encountered by hospitals. For example, we proposed to use 
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 proposed to use 
measure price changes at the final stage of production.
     Consumer Price Indexes--Consumer Price Indexes (CPIs) 
measure change in the prices of final goods and services bought by the 
typical consumer. Because they may not represent the price faced by a 
producer, we proposed to use CPIs only if an appropriate PPI is not 
available, or if the expenditures are more like 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 
was proposed to be 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. We stated in the proposed rule that we believed the 
proposed PPIs, CPIs, and ECIs selected meet these criteria.
    Table IV03 below sets forth the final FY 2010-based IPPS market 
basket, including the cost categories and their respective weights and 
price proxies. For comparison purposes, the corresponding FY 2006-based 
IPPS market basket cost weights also are listed. A summary outlining 
the choice of the various proxies follows the table.

[[Page 50599]]



 Table IV03--FY 2010-Based IPPS Hospital Market Basket Cost Categories, Cost Weights, and Price Proxies Compared
                                to FY 2006-Based IPPS Market Basket Cost Weights
----------------------------------------------------------------------------------------------------------------
                                              FY 2006-based   FY 2010-based
                                                hospital        hospital        FY 2010-based hospital market
              Cost categories                 market basket   market basket          basket price proxies
                                              cost weights    cost weights
----------------------------------------------------------------------------------------------------------------
1. Compensation............................          59.627          60.338  ...................................
    A. Wages and Salaries \1\..............          47.213          47.233  ECI for Wages and Salaries,
                                                                              Civilian Hospital Workers.
    B. Employee Benefits \1\...............          12.414          13.105  ECI for Benefits, Civilian Hospital
                                                                              Workers.
2. Utilities...............................           2.180           2.246  ...................................
    A. Fuel, Oil, and Gasoline.............           0.418           0.447  PPI for Petroleum Refineries.
    B. Electricity.........................           1.645           1.666  PPI for Commercial Electric Power.
    C. Water and Sewage....................           0.117           0.133  CPI-U for Water and Sewerage
                                                                              Maintenance.
3. Professional Liability Insurance........           1.661           1.330  CMS Professional Liability
                                                                              Insurance Premium Index.
4. All Other...............................          36.533          36.086  ...................................
    A. All Other Products..................          19.473          19.458  ...................................
    (1.) Pharmaceuticals...................           5.380           5.402  PPI for Pharmaceuticals for Human
                                                                              Use, Prescription.
    (2.) Food: Direct Purchases............           3.982           4.206  PPI for Processed Foods & Feeds.
    (3.) Food: Contract Services...........           0.575           0.578  CPI-U for Food Away From Home.
    (4.) Chemicals \2\.....................           1.538           1.529  Blend of Chemical PPIs.
    (5.) Blood and Blood Products..........           1.078           1.069  PPI for Blood and Organ Banks.
    (6.) Medical Instruments...............           2.762           2.577  PPI for Medical, Surgical, and
                                                                              Personal Aid Devices.
    (7.) Rubber and Plastics...............           1.659           1.637  PPI for Rubber & Plastic Products.
    (8.) Paper and Printing Products.......           1.492           1.507  PPI for Converted Paper &
                                                                              Paperboard Products.
    (9.) Apparel...........................           0.325           0.299  PPI for Apparel.
    (10.) Machinery and Equipment..........           0.163           0.151  PPI for Machinery and Equipment.
    (11.) Miscellaneous Products...........           0.519           0.503  PPI for Finished Goods less Food
                                                                              and Energy.
    B. Labor-related Services..............           9.175           9.249  ...................................
    (1.) Professional Fees: Labor-related..           5.356           5.500  ECI for Compensation for
                                                                              Professional and Related
                                                                              Occupations.
    (2.) Administrative and Facilities                0.626           0.619  ECI for Compensation for Office and
     Support Services \3\.                                                    Administrative Services.
    (3.) All Other: Labor-Related Services.           3.193           3.130  ECI for Compensation for Private
                                                                              Service Occupations.
    C. Nonlabor-Related Services...........           7.885           7.379  ...................................
    (1.) Professional Fees: Nonlabor-                 4.074           3.687  ECI for Compensation for
     Related.                                                                 Professional and Related
                                                                              Occupations.
    (2.) Financial Services................           1.281           1.239  ECI for Compensation for Financial
                                                                              Activities.
    (3.) Telephone Services................           0.627           0.597  CPI-U for Telephone Services.
    (4.) Postage...........................           0.963           0.956  CPI-U for Postage.
    (5.) All Other: Nonlabor-Related                  0.940           0.900  CPI-U for All Items less Food and
     Services.                                                                Energy.
                                            --------------------------------
        Total..............................         100.000         100.000  ...................................
----------------------------------------------------------------------------------------------------------------
Note: Detail may not add to total due to rounding.
\1\ Contract labor is distributed to wages and salaries and employee benefits based on the share of total
  compensation that each category represents.
\2\ To proxy the ``chemicals'' cost category, we used a blended PPI composed of the PPI for industrial gas
  manufacturing, the PPI for other basic inorganic chemical manufacturing, the PPI for other basic organic
  chemical manufacturing, and the PPI for soap and cleaning compound manufacturing. For more detail about this
  proxy, see the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43845).
\3\ We note that this cost category in the FY 2006-based IPPS market basket was ``Administrative and Business
  Support Services.'' We changed the name slightly to be more clear what type of costs are included in this cost
  category, but we did not change the classification of which costs are included in the category.

    As stated above, we proposed to use the same price proxies used in 
the FY 2006-based IPPS market basket. A rationale for selecting these 
price proxies can be found in the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule (74 FR 43845). The price proxies were selected to most closely 
match the costs included in each of the cost categories of the FY 2010-
based IPPS market basket. We did not receive any public comments on the 
price proxies we proposed to use in the FY 2010-based IPPS market 
basket. In this final rule, we are finalizing the use of the price 
proxies that we proposed. Below is a list of the price proxies we 
proposed, and are finalizing to use, for the FY 2010-based IPPS market 
basket.
a. Wages and Salaries
    We use the ECI for Wages and Salaries for Hospital Workers (All 
Civilian) (BLS series code CIU1026220000000I) to measure the price 
growth of this cost category.
b. Employee Benefits
    We use the ECI for Employee Benefits for Hospital Workers (All 
Civilian) to measure the price growth of this cost category.
 c. Fuel, Oil, and Gasoline
    We use the PPI for Petroleum Refineries (BLS series code 
PCU324110324110) to measure the price growth of this cost category.
d. Electricity
    We use the PPI for Commercial Electric Power (BLS series code 
WPU0542) to measure the price growth of this cost category.
e. Water and Sewage
    We use the CPI for Water and Sewerage Maintenance (All Urban 
Consumers) (BLS series code

[[Page 50600]]

CUUR0000SEHG01) to measure the price growth of this cost category.
f. Professional Liability Insurance
    We proxy price changes in hospital professional liability insurance 
premiums (PLI) using percentage changes as estimated by the CMS 
Hospital Professional Liability Insurance Premium 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).
g. Pharmaceuticals
    We use the PPI for Pharmaceuticals for Human Use, Prescription (BLS 
series code WPUSI07003) to measure the price growth of this cost 
category. This is the same proxy that was used in the FY 2006-based 
IPPS market basket, although BLS since changed the naming convention 
for this series.
h. Food: Direct Purchases
    We use the PPI for Processed Foods and Feeds (BLS series code 
WPU02) to measure the price growth of this cost category.
i. Food: Contract Services
    We use the CPI for Food Away From Home (All Urban Consumers) (BLS 
series code CUUR0000SEFV) to measure the price growth of this cost 
category.
j. Chemicals
    We use 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-).
k. Blood and Blood Products
    We use the PPI for Blood and Organ Banks (BLS series code 
PCU621991621991) to measure the price growth of this cost category.
l. Medical Instruments
    We use the PPI for Medical, Surgical, and Personal Aid Devices (BLS 
series code WPU156) to measure the price growth of this cost category.
m. Rubber and Plastics
    We use the PPI for Rubber and Plastic Products (BLS series code 
WPU07) to measure price growth of this cost category.
n. Paper and Printing Products
    We use the PPI for Converted Paper and Paperboard Products (BLS 
series code WPU0915) to measure the price growth of this cost category.
o. Apparel
    We use the PPI for Apparel (BLS series code WPU0381) to measure the 
price growth of this cost category.
p. Machinery and Equipment
    We use the PPI for Machinery and Equipment (BLS series code WPU11) 
to measure the price growth of this cost category.
q. Miscellaneous Products
    We use the PPI for Finished Goods Less Food and Energy (BLS series 
code WPUSOP3500) to measure the price growth of this cost category.
r. Professional Fees: Labor-Related and Professional Fees: Nonlabor-
Related
    We use the ECI for Compensation for Professional and Related 
Occupations (Private Industry) (BLS series code CIU2010000120000I) to 
measure the price growth of these cost categories.
s. Administrative and Facilities Support Services
    We use the ECI for Compensation for Office and Administrative 
Support Services (Private Industry) (BLS series code CIU2010000220000I) 
to measure the price growth of this category.
t. All Other: Labor-Related Services
    We use the ECI for Compensation for Service Occupations (Private 
Industry) (BLS series code CIU2010000300000I) to measure the price 
growth of this cost category.
u. Financial Services
    We use the ECI for Compensation for Financial Activities (Private 
Industry) (BLS series code CIU201520A000000I) to measure the price 
growth of this cost category.
v. Telephone Services
    We use the CPI for Telephone Services (BLS series code 
CUUR0000SEED) to measure the price growth of this cost category.
w. Postage
    We use the CPI for Postage (BLS series code CUUR0000SEEC01) to 
measure the price growth of this cost category.
x. All Other: Nonlabor-Related Services
    We use the CPI for All Items Less Food and Energy (BLS series code 
CUUR0000SA0L1E) to measure the price growth of this cost category.
    Table IV04 in the proposed rule compared both the historical and 
forecasted percent changes in the FY 2006-based IPPS market basket and 
the proposed FY 2010 based IPPS market basket.
    Table IV04 below compares both the historical and forecasted 
percent changes in the FY 2006-based IPPS market basket and the final 
FY 2010-based IPPS market basket. As stated in the FY 2014 IPPS/LTCH 
PPS proposed rule (78 FR 27572), we are incorporating a more recent 
forecast of the market basket to determine the FY 2014 market basket 
updates and MFP adjustment in the final rule. Therefore, the forecasted 
growth rates in Table IV04 are based on IHS Global Insight, Inc.'s 
(IGI) most recent second quarter 2013 forecast with historical data 
through first quarter 2013. The proposed rule presented IGI's first 
quarter 2013 forecast with historical data through fourth quarter of 
2012.

Table IV04--FY 2006-Based and FY 2010-Based Prospective Payment Hospital
         Operating Index Percent Change, FY 2008 Through FY 2016
------------------------------------------------------------------------
                                          FY 2006- based  FY 2010- based
                                           IPPS  market    IPPS  market
                                              basket          basket
            Fiscal year (FY)                 operating       operating
                                           index percent   index percent
                                              change          change
------------------------------------------------------------------------
Historical data:
    FY 2008.............................             4.0             4.0
    FY 2009.............................             2.6             2.6
    FY 2010.............................             2.1             2.1

[[Page 50601]]

 
    FY 2011.............................             2.7             2.7
    FY 2012.............................             2.2             2.2
                                         -------------------------------
        Average FYs 2008-2012...........             2.7             2.7
Forecast:
    FY 2013.............................             2.2             2.1
    FY 2014.............................             2.5             2.5
    FY 2015.............................             2.7             2.7
    FY 2016.............................             3.0             3.0
                                         -------------------------------
        Average FYs 2013-2016...........             2.6             2.6
------------------------------------------------------------------------
Source: IHS Global Insight, Inc., 2nd Quarter 2013 forecast.

    There is no difference between the FY 2006-based and the FY 2010-
based IPPS market basket increases for 2008-2012. For FY 2014, the 
increase is 2.5 percent for both the FY 2006-based and FY 2010-based 
IPPS market baskets.
4. Labor-Related Share
    Under section 1886(d)(3)(E) of the Act, the Secretary estimates 
from time to time the proportion of payments that are labor-related. 
``The Secretary shall adjust the proportion, (as estimated by the 
Secretary from time to time) of hospitals' costs which are attributable 
to wages and wage-related costs, of the DRG prospective payment rates . 
. . .'' We refer to the proportion of hospitals' costs that are 
attributable to wages and wage-related costs as the ``labor-related 
share.''
    The labor-related share is used to determine the proportion of the 
national PPS base payment rate to which the area wage index is applied. 
We include a cost category in the labor-related share if the costs are 
labor intensive and vary with the local labor market. Because of this 
approach, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27566), we 
proposed to include in the labor-related share the national average 
proportion of operating costs that are attributable to wages and 
salaries, employee benefits, contract labor, the labor-related portion 
of professional fees, administrative and facilities support services, 
and all other: Labor-related services, as we did in the FY 2010 IPPS/RY 
2010 LTCH PPS final rule (74 FR 43850). 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.
    Similar to the FY 2006-based IPPS market basket, we proposed that 
the professional fees: Labor-related cost category includes expenses 
associated with advertising and a proportion of legal services, 
accounting and auditing, engineering, management consulting, and 
management of companies and enterprises expenses. As was done in the FY 
2006-based IPPS market basket rebasing, we proposed to determine the 
proportion of legal, accounting and auditing, engineering, and 
management consulting services that meet our definition of labor-
related services based on a survey of hospitals conducted by CMS in 
2008. We notified the public of our intent to conduct this survey on 
December 9, 2005 (70 FR 73250) and received no comments (71 FR 8588).
    With approval from the OMB, we contacted the industry and received 
responses to our survey from 108 hospitals. Using data on FTEs to 
allocate responding hospitals across strata (region of the country and 
urban/rural status), we calculated poststratification weights. A more 
thorough discussion of the composition of the survey and 
poststratification can be found in the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule (74 FR 43850 through 43856). Based on the weighted results 
of the survey, we determined that hospitals purchase, on average, the 
following portions of contracted professional services outside of their 
local labor market:
     34 percent of accounting and auditing services;
     30 percent of engineering services;
     33 percent of legal services; and
     42 percent of management consulting services.
    We proposed to apply each of these percentages to its respective 
Benchmark I-O cost category underlying the professional fees cost 
category. This is the methodology that we used to separate the FY 2006-
based IPPS market basket professional fees category into professional 
fees: Labor-related and professional fees: nonlabor-related cost 
categories. We proposed to use the same methodology and survey results 
to separate the FY 2010-based IPPS market basket professional fees 
category into professional fees: Labor-related and professional fees: 
nonlabor-related cost categories. We believe these survey results are 
appropriate to use for the FY 2010-based IPPS market basket rebasing as 
they empirically determine the proportion of contracted professional 
services purchased by the industry that is attributable to local firms 
and the proportion that is purchased from national firms.
    We did not receive any specific public comments on the use of the 
professional fees survey. Therefore, we are finalizing our methodology 
for allocating contracted professional services for FY 2014 as 
proposed. In the FY 2010-based IPPS market basket, nonmedical 
professional fees that were subject to allocation based on the survey 
results represent 2.059 percent of total costs (and are limited to 
those fees related to Accounting & Auditing, Legal, Engineering, and 
Management Consulting services). Based on our survey results, we are 
apportioning 1.301 percentage points of the 2.059 percentage point 
figure into the labor-

[[Page 50602]]

related share and designating the remaining 0.758 percentage point as 
nonlabor-related.
    In addition to the professional services listed above, we also 
classify a proportion of the expenses under NAICS 55, Management of 
Companies and Enterprises, into the professional fees: Labor-related 
cost category as was done in the previous rebasing. The NAICS 55 data 
are mostly comprised of corporate, subsidiary, and regional managing 
offices, or otherwise referred to as home offices. As was done for the 
FY 2006-based IPPS market basket and as we proposed for the FY 2010-
based IPPS market basket, for this final rule, we are including only a 
portion of the home office costs in the labor related share as not all 
hospitals are located in the same geographic area as their home office.
    We did not receive any specific public comments on our proposed 
methodology for allocating home office costs to the labor-related 
share. Therefore, we are finalizing this methodology as described in 
the proposed rule and provided below for FY 2014. Our methodology is 
based on data from the Medicare cost reports, as well as a CMS database 
of Home Office Medicare Records (HOMER) (a database that provides city 
and State information (addresses) for home offices). The Medicare cost 
report requires hospitals to report their home office provider numbers 
and locations. Using the data reported on the Medicare Cost Report as 
well as the HOMER database to determine the home office location for 
each home office provider number, we compared the location of the 
hospital with the location of the hospital's home office. We determined 
the proportion of costs that should be allocated to the labor-related 
share based on the percent of total hospital home office compensation 
costs for those hospitals that had home offices located in their 
respective local labor markets--defined as being in the same 
Metropolitan Statistical Area (MSA). We primarily determined a 
hospital's and home office's MSAs using their zip code information from 
the Medicare cost report. For any home offices for which we could not 
identify a MSA from the Medicare cost report, we used the Medicare 
HOMER database to identify the home office's city and State.
    As proposed, we determined the proportion of costs that should be 
allocated to the labor-related share based on the percent of hospital 
home office compensation as reported in Worksheet S-3, Part II. Using 
this methodology, we determined that 62 percent of hospitals' home 
office compensation costs were for home offices located in their 
respective local labor markets. Therefore, we are allocating 62 percent 
of NAICS 55 expenses to the labor-related share.
    In the FY 2010-based IPPS market basket, NAICS 55 expenses that 
were subject to allocation based on the home office allocation 
methodology represent 5.650 percent of the total operating costs. Based 
on the home office results, we are apportioning 3.503 percentage points 
of the 5.650 percentage points figure into the labor-related share and 
designating the remaining 2.147 percentage points as nonlabor-related. 
In sum, based on the two allocations mentioned above, we apportioned 
4.804 percentage points into the labor-related share. This amount is 
added to the 0.696 percentage point of professional fees that we 
already identified as labor-related, resulting in a professional fees: 
Labor-related cost weight of 5.500 percent.
    Below is a table comparing the FY 2010-based labor-related share 
and the FY 2006-based labor-related share. As discussed in section 
IV.B.3. of the preamble of this final rule, the wages and salaries and 
employee benefits cost weight reflect contract labor costs.

 Table IV05--Comparison of the FY 2010-Based Labor-Related Share and the
                    FY 2006-Based Labor-Related Share
------------------------------------------------------------------------
                                          FY 2006- based  FY 2010- based
                                           market basket   market basket
                                            cost weights    cost weights
------------------------------------------------------------------------
Wages and Salaries......................          47.213          47.233
Employee Benefits.......................          12.414          13.105
Professional Fees: Labor-Related........           5.356           5.500
Administrative and Facilities...........           0.626           0.619
Support Services........................
All Other: Labor-Related Services.......           3.193           3.130
                                         -------------------------------
    Total Labor-Related Share...........          68.802          69.587
------------------------------------------------------------------------

    Using the cost category weights from the FY 2010-based IPPS market 
basket, we calculated a labor-related share of 69.587 percent, 
approximately 0.8 percentage point higher than the current labor-
related share of 68.802. We continue to believe, as we have stated in 
the past, that these operating cost categories are related to, 
influenced by, or vary with the local markets. Therefore, our 
definition of the labor-related share continues to be consistent with 
section 1886(d)(3) of the Act. 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 62 percent ``would result in lower payments to a 
hospital than would otherwise be made.''
    Comment: Several commenters supported the proposed increase in the 
labor-related share.
    Response: We appreciate the commenters' support.
    In this final rule, we are finalizing the labor-related share of 
69.6 percent for FY 2014 as proposed.
    As we proposed, we also updated the labor-related share for Puerto 
Rico. Consistent with our methodology for determining the national 
labor-related share, we calculated the Puerto Rico-specific relative 
weights for wages and salaries, employee benefits, and contract labor 
using FY 2010 Medicare cost report data for IPPS hospitals located in 
Puerto Rico. Because there are no Puerto Rico-specific relative weights 
for professional fees and labor intensive services, we use the national 
weights as shown in Table IV05. This is the same methodology we used to 
determine the FY 2006-based Puerto Rico-specific labor-related share 
derived during the FY 2006-based IPPS market basket rebasing (74 FR 
43856).
    Below is a table comparing the FY 2010-based Puerto Rico-specific 
labor-

[[Page 50603]]

related share and the FY 2006-based Puerto Rico-specific labor-related 
share.

 Table IV06--Comparison of the FY 2010-Based Puerto Rico-Specific Labor-
Related Share and FY 2006-Based Puerto Rico-Specific Labor-Related Share
------------------------------------------------------------------------
                                          FY 2006- based  FY 2010- based
                                           market basket   market basket
                                            cost weights    cost weights
------------------------------------------------------------------------
Wages and Salaries......................          44.221          44.918
Benefits................................           8.691           8.990
Professional Fees: Labor-Related........           5.356           5.500
Administrative and Facilities: Support             0.626           0.619
 Services...............................
All Other: Labor-Related Services.......           3.193           3.130
                                         -------------------------------
    Total Labor-Related Share...........          62.087          63.157
------------------------------------------------------------------------

    Using the FY 2010-based Puerto Rico cost category weights, we 
calculated a labor-related share of 63.157 percent, approximately 1.1 
percentage points higher than the current Puerto-Rico specific labor-
related share of 62.087.
    We did not receive any public comments on the proposal to update 
the Puerto Rico labor-related share. Therefore, we are finalizing the 
Puerto Rico labor-related share of 63.2 percent for FY 2014 as 
proposed.

C. Market Basket for Certain Hospitals Presently Excluded From the IPPS

    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43857), we 
adopted the use of the FY 2006-based IPPS operating market basket 
percentage increase to update the target amounts for children's 
hospitals, PPS-excluded cancer hospitals and religious nonmedical 
health care institutions (RNHCIs). Children's hospitals and PPS-
excluded cancer hospitals and RNHCIs are still reimbursed solely under 
the reasonable cost-based system, subject to the rate-of-increase 
limits. Under these limits, an annual target amount (expressed in terms 
of the inpatient operating cost per discharge) is set for each hospital 
based on the hospital's own historical cost experience trended forward 
by the applicable rate-of-increase percentages.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27568), under the 
broad authority in sections 1886(b)(3)(A) and (B), 1886(b)(3)(E), and 
1871 of the Act and section 4454 of the BBA, consistent with our use of 
the IPPS operating market basket percentage increase to update target 
amounts, we proposed to use the FY 2010-based IPPS operating market 
basket percentage increase to update the target amounts for children's 
hospitals, 11 PPS-excluded cancer hospitals, and RNHCIs that are paid 
on the basis of reasonable cost subject to the rate-of-increase limits 
under Sec.  413.40.
    We did not receive any public comments on this proposal. In this 
final rule, we are finalizing the use of the FY 2010-based IPPS 
operating market basket percentage increase to update the target 
amounts for children's hospitals, 11 PPS-excluded cancer hospitals, and 
RNHCIs that are paid on the basis of reasonable cost as we proposed.
    Due to the small number of children's and cancer hospitals and 
RNHCIs that receive, in total, less than 1 percent of all Medicare 
payments to hospitals and because these hospitals provide limited 
Medicare cost report data, we are unable to create a separate market 
basket specifically for these hospitals. Due to the limited cost report 
data available, we believe that the FY 2010-based IPPS operating market 
basket most closely represents the cost structure of children's 
hospitals, PPS-excluded cancer hospitals, and RNHCIs. We believe this 
is appropriate as the IPPS operating market basket would reflect the 
input price growth for providing inpatient hospital services (similar 
to the services provided by the above excluded hospitals) based on the 
specific mix of goods and services required. Therefore, we believe that 
the percentage change in the FY 2010-based IPPS operating market basket 
is the best available measure of the average increase in the prices of 
the goods and services purchased by children hospitals, the 11 cancer 
hospitals, and RNHCIs in order to provide care.

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

    The CIPI was originally described in the FY 1993 IPPS final rule 
(57 FR 40016). There have been subsequent discussions of the CIPI 
presented in the IPPS proposed and final payment rules. The FY 2010 
IPPS/RY 2010 LTCH PPS final rule (74 FR 43857) discussed the most 
recent rebasing and revision of the CIPI to a FY 2006 base year, which 
reflected the capital cost structure of the hospital industry in that 
year.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27568), for the 
FY 2014 IPPS update, we proposed to rebase and revise the CIPI to a FY 
2010 base year to reflect the more current structure of capital costs 
in hospitals. As with the FY 2006-based index, we developed two sets of 
weights in order to calculate the FY 2010-based CIPI. The first set of 
weights identifies the proportion of hospital capital expenditures 
attributable to each expenditure category, while the second set of 
weights is a set of relative vintage weights for depreciation and 
interest. The set of vintage weights is used to identify the proportion 
of capital expenditures within a cost category that is attributable to 
each year over the useful life of the capital assets in that category. 
A more thorough discussion of vintage weights is provided later in this 
section.
    Both sets of weights were developed using the best data sources 
available. In reviewing source data, we determined that the Medicare 
cost reports provided accurate data for all capital expenditure cost 
categories. We used the FY 2010 Medicare cost reports for IPPS 
hospitals to determine weights for all three cost categories: 
depreciation, interest, and other capital expenses.
    Lease expenses are unique in that they are not broken out as a 
separate cost category in the CIPI, but rather are proportionally 
distributed among the cost categories of Depreciation, Interest, and 
Other, reflecting the assumption that the underlying cost structure and 
price movement of leases is similar to that of capital costs in 
general. As was done in previous rebasings of the CIPI, we first 
assumed 10 percent of lease expenses represents overhead and assigned 
those costs to the Other

[[Page 50604]]

category accordingly. The remaining lease expenses were distributed 
across the three cost categories based on the respective weights of 
Depreciation, Interest, and Other not including lease expenses.
    Depreciation contains two subcategories: (1) Building and Fixed 
equipment; and (2) Movable Equipment. The apportionment between 
building and fixed equipment and movable equipment was determined using 
the Medicare cost reports. This methodology was also used to compute 
the apportionment used in the FY 2006-based index.
    The total Interest cost category is split between government/
nonprofit interest and for-profit interest. The FY 2006-based CIPI 
allocated 85 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 15 percent of the interest cost 
weight was allocated to for-profit interest and was proxied by the 
average yield on Moody's Aaa bonds (74 FR 43857).
    For the FY 2010-based CIPI, as we proposed, we derived the split 
using the relative FY 2010 Medicare cost report data on interest 
expenses for government/nonprofit and for-profit hospitals. Based on 
these data, we calculated an 89/11 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.
    We did not receive any public comments on our proposed methodology 
for calculating the FY 2010-based CIPI cost weights.
    In this final rule, we are finalizing the FY 2010-based CIPI cost 
weights as proposed. Table IV07 presents a comparison of the FY 2010-
based CIPI cost weights and the FY 2006-based CIPI cost weights.

 Table IV07--FY 2010-Based CIPI Cost Categories, Weights, and Price Proxies With FY 2006-Based CIPI Included for
                                                   Comparison
----------------------------------------------------------------------------------------------------------------
                                                 FY 2006         FY 2010
              Cost categories                    weights         weights                 Price proxy
----------------------------------------------------------------------------------------------------------------
Total......................................          100.00          100.00  ...................................
Total depreciation.........................          75.154          74.011  ...................................
Building and fixed equipment depreciation..          35.789          36.153  BEA chained price index for
                                                                              nonresidential construction for
                                                                              hospitals and special care
                                                                              facilities--vintage-weighted (26
                                                                              years).
Movable equipment depreciation.............          39.365          37.858  PPI for machinery and equipment--
                                                                              vintage-weighted (12 years).
Total interest.............................          17.651          19.157  ...................................
Government/nonprofit interest..............          15.076          17.051  Average yield on domestic municipal
                                                                              bonds (Bond Buyer 20 bonds)--
                                                                              vintage-weighted (26 years).
For-profit interest........................           2.575           2.106  Average yield on Moody's Aaa bonds--
                                                                              vintage-weighted (26 years).
Other......................................           7.195           6.832  CPI-U for residential rent.
----------------------------------------------------------------------------------------------------------------

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

[[Page 50605]]

assuming straight-line depreciation. From the FY 2010 Medicare cost 
reports, the expected life of building and fixed equipment was 
determined to be 26 years, and the expected life of movable equipment 
was determined to be 12 years. The FY 2006-based CIPI was based on an 
expected life of building and fixed equipment of 25 years and 12 years 
as the expected life for movable equipment.
    As we proposed, we used the building and fixed equipment and 
movable equipment weights derived from FY 2010 Medicare cost reports to 
separate the depreciation expenses into annual amounts of building and 
fixed equipment depreciation and movable equipment depreciation. Year-
end asset costs for building and fixed equipment and movable equipment 
were determined by multiplying the annual depreciation amounts by the 
expected life calculations from the FY 2010 Medicare cost reports. We 
then calculated a time series back to 1963 of annual capital purchases 
by subtracting the previous year asset costs from the current year 
asset costs. From this capital purchase time series, we were able to 
calculate the vintage weights for building and fixed equipment and for 
movable equipment. Each of these sets of vintage weights is explained 
in more detail below.
    For building and fixed equipment vintage weights, we used the real 
annual capital purchase amounts for building and fixed equipment to 
capture the actual amount of the physical acquisition, net of the 
effect of price inflation. This real annual purchase amount for 
building and fixed equipment was produced by deflating the nominal 
annual purchase amount by 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 back to 1963, we 
averaged twenty-two 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-two 26-year periods. We used the average of each year across the 
twenty-two 26-year periods to determine the average building and fixed 
equipment vintage weights for the FY 2010-based CIPI.
    For movable equipment vintage weights, the real annual capital 
purchase amounts for movable equipment were used to capture the actual 
amount of the physical acquisition, net of price inflation. This real 
annual purchase amount for movable equipment was calculated by 
deflating the nominal annual purchase amounts by the movable equipment 
price proxy, the PPI for machinery and equipment. Based on our 
determination that movable equipment has an expected life of 12 years, 
the vintage weights for movable equipment represent the average 
expenditure for movable equipment over a 12-year period. With real 
movable equipment purchase estimates available back to 1963, thirty-six 
12-year periods were averaged to determine the average vintage weights 
for movable equipment that are representative of average movable 
equipment purchase patterns over time. Vintage weights for each 12-year 
period are calculated by dividing the real movable capital purchase 
amount for any given year by the total amount of purchases in the 12-
year period. This calculation was done for each year in the 12-year 
period and for each of the thirty-six 12-year periods. We used the 
average of each year across the thirty-six 12-year periods to determine 
the average movable equipment vintage weights for the FY 2010-based 
CIPI.
    For interest vintage weights, the nominal annual capital purchase 
amounts for total equipment (building and fixed, and movable) were used 
to capture the value of the debt instrument. Because we have determined 
that hospital debt instruments have an expected life of 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 back to 1963, twenty-two 
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-two 26-year periods. We used the average of each 
year across the twenty-two 26-year periods to determine the average 
interest vintage weights for the proposed FY 2010-based CIPI.
    We did not receive any public comments on our proposed methodology 
for calculating the FY 2010-based CIPI vintage weights. In this final 
rule, we are finalizing the CIPI vintage weights as proposed. The 
vintage weights for the FY 2006-based CIPI and the FY 2010-based CIPI 
are presented in Table IV08.

                            Table IV08--FY 2006 Vintage Weights and FY 2010 Vintage Weights for Capital-Related Price Proxies
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Building and fixed equipment          Movable equipment                   Interest
                                                         -----------------------------------------------------------------------------------------------
                        Year \1\                            FY 2006  25     FY 2010  26     FY 2006  12     FY 2010  12     FY 2006  25     FY 2010  26
                                                               Years           Years           Years           Years           Years           Years
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................           0.021           0.023           0.063           0.064           0.010           0.012
2.......................................................           0.023           0.024           0.067           0.068           0.012           0.013
3.......................................................           0.025           0.026           0.071           0.071           0.014           0.015
4.......................................................           0.027           0.028           0.075           0.073           0.016           0.017
5.......................................................           0.029           0.029           0.079           0.076           0.018           0.018
6.......................................................           0.031           0.031           0.082           0.078           0.020           0.021
7.......................................................           0.032           0.032           0.085           0.084           0.023           0.023
8.......................................................           0.033           0.034           0.086           0.088           0.025           0.025
9.......................................................           0.036           0.036           0.090           0.092           0.028           0.028
10......................................................           0.038           0.038           0.093           0.098           0.031           0.030
11......................................................           0.040           0.040           0.102           0.103           0.034           0.033
12......................................................           0.042           0.041           0.106           0.106           0.038           0.036

[[Page 50606]]

 
13......................................................           0.044           0.042  ..............  ..............           0.041           0.038
14......................................................           0.045           0.042  ..............  ..............           0.044           0.040
15......................................................           0.046           0.043  ..............  ..............           0.047           0.043
16......................................................           0.047           0.044  ..............  ..............           0.050           0.045
17......................................................           0.048           0.044  ..............  ..............           0.053           0.047
18......................................................           0.050           0.044  ..............  ..............           0.057           0.048
19......................................................           0.050           0.044  ..............  ..............           0.059           0.051
20......................................................           0.050           0.044  ..............  ..............           0.060           0.052
21......................................................           0.048           0.045  ..............  ..............           0.060           0.056
22......................................................           0.048           0.045  ..............  ..............           0.062           0.057
23......................................................           0.047           0.045  ..............  ..............           0.063           0.060
24......................................................           0.049           0.046  ..............  ..............           0.068           0.062
25......................................................           0.048           0.045  ..............  ..............           0.069           0.064
26......................................................  ..............           0.045  ..............  ..............  ..............           0.066
                                                         -----------------------------------------------------------------------------------------------
Total...................................................           1.000           1.000           1.000           1.000           1.000          1.000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Detail may not add to total due to rounding.
\1\ Year 1 represents the vintage weight applied to the farthest year while the vintage weight for year 26, for example, would apply to the most recent
  year.

    After the capital cost category weights were computed, it was 
necessary to select appropriate price proxies to reflect the rate-of-
increase for each expenditure category. As we proposed, in this final 
rule, we used the same price proxies for the FY 2010-based CIPI that 
were used in the FY 2006-based CIPI. The rationale for selecting the 
price proxies was explained more fully in the FY 1997 IPPS final rule 
(61 FR 46196) and the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43857). These price proxies are presented in Table IV07.
    Table IV09 below compares both the historical and forecasted 
percent changes in the FY 2006-based CIPI and the FY 2010-based CIPI. 
As stated in the FY 2014 IPPS/LTCH proposed rule (78 FR 27572), we are 
incorporating a more recent forecast of the market baskets in the final 
rule. Therefore, the forecasted growth rates in Table IV09 are based on 
IHS Global Insight Inc.'s (IGI) most recent second quarter 2013 
forecast with historical data through first quarter 2013. The proposed 
rule presented IGI's first quarter 2013 forecast with historical data 
through fourth quarter of 2012.

 Table IV09--Comparison of FY 2006-Based and FY 2010-Based Capital Input
          Price Index, Percent Change, FY 2008 through FY 2016
------------------------------------------------------------------------
                                          CIPI,  FY 2006- CIPI,  FY 2010-
               Fiscal year                     Based           Based
------------------------------------------------------------------------
FY 2008.................................             1.5             1.1
FY 2009.................................             1.5             1.2
FY 2010.................................             1.0             0.7
FY 2011.................................             1.2             0.9
FY 2012.................................             1.2             1.0
Forecast:...............................  ..............  ..............
FY 2013.................................             1.3             1.1
FY 2014.................................             1.4             1.2
FY 2015.................................             1.5             1.4
FY 2016.................................             1.7             1.6
Average:                                  ..............  ..............
    FYs 2008-2012.......................             1.3             1.0
    FYs 2013-2016.......................             1.5            1.3
------------------------------------------------------------------------
Source: IHS Global Insight, Inc., 2nd Quarter 2013 forecast.

    IHS Global Insight, Inc. forecasts a 1.2 percent increase in the FY 
2010-based CIPI for FY 2014, as shown in Table IV09. The underlying 
vintage-weighted price increases for depreciation (including building 
and fixed equipment and movable equipment) and interest (including 
government/nonprofit and for-profit) are included in Table IV10.

[[Page 50607]]



 Table IV10--CMS Capital Input Price Index Percent Changes, Total and Depreciation and Interest Components-- FYs
                                                2008 Through 2016
----------------------------------------------------------------------------------------------------------------
                           Fiscal year                                 Total       Depreciation      Interest
----------------------------------------------------------------------------------------------------------------
FY 2008.........................................................             1.1             2.0            -3.1
FY 2009.........................................................             1.2             2.0            -2.0
FY 2010.........................................................             0.7             1.7            -2.8
FY 2011.........................................................             0.9             1.7            -2.3
FY 2012.........................................................             1.0             1.7            -2.7
Forecast:.......................................................  ..............  ..............  ..............
FY 2013.........................................................             1.1             1.8            -2.7
FY 2014.........................................................             1.2             1.9            -2.3
FY 2015.........................................................             1.4             2.0            -1.8
FY 2016.........................................................             1.6             2.0           -0.8
----------------------------------------------------------------------------------------------------------------
Source: IHS Global Insight, Inc., 2nd Quarter 2013 forecast.

    Rebasing the CIPI from FY 2006 to FY 2010 decreased the percent 
change in the forecasted update for FY 2014 by 0.2 percentage point, 
from 1.4 percent to 1.2 percent, as shown in Table IV09. The difference 
in the forecasted market basket update for FY 2014 is primarily due to 
the rebasing of the index to FY 2010 and revising the base year cost 
weights to incorporate the FY 2010 Medicare cost report data.

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

A. Changes in the Inpatient Hospital Update for FY 2014 (Sec. Sec.  
412.64(d) and 412.211(c))

1. FY 2014 Inpatient Hospital Update
    In accordance with section 1886(b)(3)(B)(i) of the Act, each year 
we update the national standardized amount for inpatient operating 
costs by a factor called the ``applicable percentage increase.'' 
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 2014 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 
(the multifactor productivity (MFP) adjustment), and an additional 
reduction of 0.3 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 2014 adjustment of 0.3 percentage point may result in 
the applicable percentage increase being less than zero.
    We note, in compliance with section 404 of the MMA, in this final 
rule, as we proposed, we are replacing the FY 2006-based IPPS operating 
and capital market baskets with the revised and rebased FY 2010-based 
IPPS operating and capital market baskets for FY 2014. We also are 
rebasing the labor-related share to reflect the more recent base year. 
For FY 2014, we are adopting a labor-related share of 69.6 percent, 
which is based on the rebased and revised FY 2010-based IPPS market 
basket (as compared to the FY 2013 labor-related share of 68.8 percent, 
which is based on the FY 2006-based IPPS market basket). For a complete 
discussion on the rebasing of the market basket and labor-related 
share, we refer readers to section IV. of the preamble of this final 
rule.
    Based on the most recent data available for the FY 2014 proposed 
rule, in accordance with section 1886(b)(3)(B) of the Act, we proposed 
to base the proposed FY 2014 market basket update used to determine the 
applicable percentage increase for the IPPS on the IHS Global Insight, 
Inc. (IGI's) first quarter 2013 forecast of the FY 2010-based IPPS 
market basket rate-of-increase with historical data through fourth 
quarter 2012, which was estimated to be 2.5 percent. We also proposed 
that if more recent data become subsequently available (for example, a 
more recent estimate of the market basket and the MFP adjustment), we 
would use such data, if appropriate, to determine the FY 2014 market 
basket update and the MFP adjustment in the final rule. We did not 
receive any public comments on our proposal. Therefore, for this final 
rule, we based the final FY 2014 market basket update used to determine 
the applicable percentage increase for the IPPS on more recently 
available data, the IGI's second quarter 2013 forecast of the FY 2010-
based IPPS market basket rate-of-increase, which is estimated to be 2.5 
percent.
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through 
51692), we finalized our methodology for calculating and applying the 
MFP adjustment. We also stated in the FY 2014 IPPS/LTCH PPS proposed 
rule that, for FY 2014, we were not proposing to make any change in our 
methodology for calculating and applying the MFP adjustment. In the 
proposed rule, we proposed a MFP adjustment of 0.4 percent. Similar to 
the market basket adjustment, for this final rule, we are using the 
most recent data available to compute the MFP adjustment. We did not 
receive any public comments on our proposal. Therefore, for this final 
rule, using the most recent data available, we computed a MFP 
adjustment of 0.5 percent for FY 2014.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27572-27573), 
consistent with current law, and based on IGI's first quarter 2013 
forecast of the FY 2014 market basket increase, we proposed an 
applicable percentage increase to the FY 2014 operating standardized 
amount of 1.8 percent (that is, the FY 2014 estimate of the market 
basket rate-of-increase of 2.5 percent less an adjustment of 0.4 
percentage point for economy-wide productivity (that is, the MFP 
adjustment) and less 0.3 percentage point) for hospitals in all areas, 
provided the hospital submits quality data under rules established in 
accordance with section 1886(b)(3)(B)(viii) of the Act. For hospitals 
that do not submit these quality data, we proposed an applicable 
percentage increase to the operating standardized amount of -0.2 
percent (that is, the FY 2014 estimate of the market basket rate-of-
increase of 2.5 percent, less 2.0 percentage points for failure to 
submit quality data, less an adjustment of 0.4 percentage point for the 
MFP adjustment, and less an additional adjustment of 0.3 percentage 
point). Lastly, as noted above, in the

[[Page 50608]]

proposed rule, we stated that if more recent data become subsequently 
available (for example, a more recent estimate of the market basket and 
the MFP adjustment), we would use such data, if appropriate, to 
determine the FY 2014 market basket update and MFP adjustment in the 
final rule. We did not receive any public comments on our proposal.
    For this final rule, using the most recent data available, 
consistent with current law, and based on IGI's second quarter 2013 
forecast of the FY 2014 market basket increase, we are finalizing an 
applicable percentage increase to the FY 2014 operating standardized 
amount of 1.7 percent (that is, the FY 2014 estimate of the market 
basket rate-of-increase of 2.5 percent less an adjustment of 0.5 
percentage point for economy-wide productivity (that is, the MFP 
adjustment) and less 0.3 percentage point) for hospitals in all areas, 
provided the hospital submits quality data under rules established in 
accordance with section 1886(b)(3)(B)(viii) of the Act. For hospitals 
that do not submit these quality data, we are finalizing an applicable 
percentage increase to the operating standardized amount of -0.3 
percent (that is, the FY 2014 estimate of the market basket rate-of-
increase of 2.5 percent, less 2.0 percentage points for failure to 
submit quality data, less an adjustment of 0.5 percentage point for the 
MFP adjustment, and less an additional adjustment of 0.3 percentage 
point).
    In the proposed rule, we proposed to revise the existing 
regulations at 42 CFR 412.64(d) to reflect the current law for the FY 
2014 update. Specifically, in accordance with section 1886(b)(3)(B) of 
the Act, we proposed to add a new paragraph (v) to Sec.  412.64(d)(1) 
to reflect the applicable percentage increase to the FY 2014 operating 
standardized amount as the percentage increase in the market basket 
index less an MFP adjustment and less an additional reduction of 0.3 
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)(1)(v) to 
reflect the current law.
    Section 1886(b)(3)(B)(iv) of the Act provides that the applicable 
percentage increase to the hospital-specific rates for SCHs 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 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 2014 IPPS/LTCH PPS proposed rule (78 FR 27572-
27573), we proposed an update to the hospital-specific rates applicable 
to SCHs of 1.8 percent for hospitals that submit quality data or -0.2 
percent for hospitals that fail to submit quality data. For FY 2014, 
the existing regulations in Sec. Sec.  412.73(c)(16), 412.75(d), 
412.77(e) and 412.78(e) contain provisions that set the update factor 
for SCHs equal to the update factor applied to the national 
standardized amount for all IPPS hospitals. Therefore, we did not 
propose to make any further changes to these four regulatory provisions 
to reflect the FY 2014 update factor for the hospital-specific rates of 
SCHs. 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 of 1.7 percent for hospitals 
that submit quality data or -0.3 percent for hospitals that fail to 
submit quality data. As we noted above, for the proposed rule, we used 
the first quarter 2013 forecast of the FY 2010-based IPPS market basket 
with historical data through fourth quarter 2012. For this final rule, 
we used the most recent data available, which was the second quarter 
2013 forecast of the FY 2010-based IPPS market basket with historical 
data through first quarter 2013. Similarly, for the proposed rule, we 
used IGI's first quarter 2013 forecast of MFP. For this final rule, we 
used the most recent data available, which was IGI's second quarter 
2013 forecast of MFP.
    We note that, as discussed in section V.F. of this preamble, 
section 606 of the American Taxpayer Relief Act of 2012 extended the 
MDH program from the end of FY 2012 (that is, for discharges occurring 
before October 1, 2012) to the end of FY 2013 (that is, for discharges 
occurring before October 1, 2013). Under prior law, the MDH program was 
to be in effect through the end of FY 2012 only. Absent congressional 
action further extending the MDH program, the MDH program will expire 
for discharges beginning in FY 2014. Accordingly, we are not including 
MDHs in our update of the hospital-specific rates for FY 2014.
2. FY 2014 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 2014 IPS/LTCH PPS proposed rule (78 FR 27572 through 27573), we 
proposed an applicable percentage increase to the Puerto Rico-specific 
operating standardized amount of 1.8 percent for FY 2014. The 
regulations at Sec.  412.211(c) currently 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. Therefore, it is not necessary to make any changes to the 
existing regulatory text.
    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 
1.7 percent for FY 2014. As we noted above, for the proposed rule, we 
used the first quarter 2013 forecast of the FY 2010-based IPPS market 
basket with historical data through fourth quarter 2012. For this final 
rule, we used the most recent data available, which was the second 
quarter 2013 forecast of the FY 2010-based IPPS market basket with 
historical data through first quarter 2013. Similarly, for the proposed 
rule, we used IGI's first quarter 2013 forecast of MFP. For this final 
rule, we used the most recent data available, which was IGI's second 
quarter 2013 forecast of MFP.

B. Rural Referral Centers (RRCs): Annual Updates to Case-Mix Index and 
Discharge Criteria (Sec.  412.96)

    Under the authority of section 1886(d)(5)(C)(i) of the Act, the

[[Page 50609]]

regulations at Sec.  412.96 set forth the criteria that a hospital must 
meet in order to qualify under the IPPS as a rural referral center 
(RRC). RRCs receive some 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 2014 includes data from all urban hospitals nationwide, 
and the regional values for FY 2014 are the median CMI values of urban 
hospitals within each census region, excluding those hospitals with 
approved teaching programs (that is, those hospitals that train 
residents in an approved GME program as provided in Sec.  413.75). 
These values are based on discharges occurring during FY 2012 (October 
1, 2011 through September 30, 2012), and include bills posted to CMS' 
records through March 2013.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27573), 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, 
2013, they must have a CMI value for FY 2012 that is at least--
     1.5526; 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 2014 IPPS/LTCH PPS proposed rule at 78 FR 27574.)
    The final CMI values for FY 2014 are based on the latest available 
data (FY 2012 bills received through March 2013). 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, 2013, they must have a CMI value for FY 2012 
that is at least--
     1.5560; 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 index
                         Region                                value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................          1.3319
2. Middle Atlantic (PA, NJ, NY).........................          1.4015
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..          1.4808
4. East North Central (IL, IN, MI, OH, WI)..............          1.4618
5. East South Central (AL, KY, MS, TN)..................          1.4281
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......          1.5355
7. West South Central (AR, LA, OK, TX)..................          1.5814
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............          1.6438
9. Pacific (AK, CA, HI, OR, WA).........................          1.5605
------------------------------------------------------------------------

    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. We would normally propose to 
update the regional standards based on discharges for urban hospitals' 
cost reporting periods that began during FY 2011 (that is, October 1, 
2010 through September 30, 2011), which would normally be the latest 
cost report data available at the time of the development of the 
proposed rule. However, in the FY 2014 IPPS/LTCH PPS proposed rule (78 
FR 27574), due to a transition in our data system, in lieu of a full 
year of FY 2011 cost report data, we proposed to use a combination of 
FY 2010 and FY 2011 cost report data in order to create a full fiscal 
year of cost report data for this

[[Page 50610]]

analysis. Due to CMS' transition to a new cost reporting form effective 
for cost reporting periods beginning on or after May 1, 2010, some FY 
2011 cost reports were not yet in our system for analysis at the time 
of the development of the proposed rule. Therefore, in order to have a 
complete fiscal year of cost report data, we utilized FY 2011 cost 
report data if available, and for those providers whose FY 2011 cost 
report data were not yet in our system, we utilized their FY 2010 cost 
report data. This is similar to the process we used to establish the 
median number of discharges for urban hospitals in the census region 
for FY 2013, where we utilized FY 2009 and 2010 cost report data (77 FR 
53406).
    At the time of the development of this final rule, a full year of 
FY 2011 cost report data became available in our system for analysis. 
Therefore, the final FY 2014 discharges criteria is based on only FY 
2011 cost reports, that is, data from cost reporting periods that began 
in FY 2011.
    In the FY 2014 PPS/LTCH PPS proposed rule, we proposed that, in 
addition to meeting other criteria, a hospital, if it is to qualify for 
initial RRC status for cost reporting periods beginning on or after 
October 1, 2013, must have, as the number of discharges for its cost 
reporting period that began during FY 2011 (based on a combination of 
FY 2010 and FY 2011 cost report data as explained in the preceding 
paragraph), 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 2014 IPPS/LTCH PPS proposed rule at 78 FR 
27574.)
    Based on the latest discharge data available at this time (that is, 
based on FY 2011 cost report data as explained earlier in this 
section), the final median number of discharges for urban hospitals by 
census region are set forth in the following table:

------------------------------------------------------------------------
                                                             Number of
                         Region                             discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................           7,830
2. Middle Atlantic (PA, NJ, NY).........................          10,968
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..          11,535
4. East North Central (IL, IN, MI, OH, WI)..............           8,507
5. East South Central (AL, KY, MS, TN)..................           7,397
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......           7,792
7. West South Central (AR, LA, OK, TX)..................           5,374
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............           9,024
9. Pacific (AK, CA, HI, OR, WA).........................           8.857
------------------------------------------------------------------------

    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, 
2013, the hospital would be required to have at least 3,000 discharges 
for its cost reporting period that began during FY 2011 (based on FY 
2011 cost report data as explained earlier in this section).

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

1. Background
    Section 1886(d)(12) of the Act provides for an additional payment 
to each qualifying low-volume hospital under the IPPS beginning in FY 
2005. Section 1886(d)(12) of the Act sets forth the qualifying criteria 
for a qualifying low-volume hospital and the methodology for 
determining the low-volume hospital payment adjustment.
    Sections 3125 and 10314 of the Affordable Care Act provided for a 
temporary change in the low-volume hospital payment policy for FYs 2011 
and 2012 by expanding the definition of a low-volume hospital and 
modifying the methodology for determining the payment adjustment for 
hospitals meeting the definition. Therefore, prior to the enactment of 
the American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240) on 
January 2, 2013, beginning with FY 2013, the low-volume hospital 
qualifying criteria and payment adjustment requirements would have 
reverted to the statutory requirements under section 1886(d)(12) of the 
Act that were in effect prior to FY 2011. Section 605 of the ATRA 
extended for an additional year, through FY 2013, the temporary changes 
in the low-volume hospital definition and methodology for determining 
the payment adjustment made by the Affordable Care Act for FYs 2011 and 
2012. Beginning with FY 2014, the low-volume hospital qualifying 
criteria and payment adjustment will revert to the statutory 
requirements that were in effect prior to the amendments made by the 
Affordable Care Act and the ATRA. In section V.D.3. of this preamble, 
we discuss the low-volume hospital payment adjustment policies for FY 
2014.
a. Original Implementation of the Low-Volume Hospital Payment 
Adjustment
    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 ``[i]n 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 hospital payment adjustment is 
based on total per discharge payments made under section 1886 of the 
Act, including capital, DSH, IME, and outlier payments. For SCHs and 
MDHs, the low-volume hospital payment adjustment is based in part on 
either the Federal rate or the hospital-specific rate, whichever 
results in a greater operating IPPS payment.
    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 located more than 25 road miles from 
another subsection (d) hospital and 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, regardless of payer (that is, not only 
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

[[Page 50611]]

adjustment based on the relationship between costs and discharges for 
these low-volume hospitals. Section 1886(d)(12)(B)(iii) of the Act 
limits the applicable percentage increase 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 hospital payment 
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 multivariate analyses supported the 
existing low-volume hospital payment adjustment implemented in FY 2005. 
Therefore, the low-volume hospital payment adjustment of an additional 
25 percent continued to be provided for qualifying hospitals with less 
than 200 discharges.
b. Affordable Care Act Provisions for FYs 2011 and 2012
    For FYs 2011 and 2012, sections 3125 and 10314 of the Affordable 
Care Act expanded the definition of low-volume hospital and modified 
the methodology for determining the payment adjustment for hospitals 
meeting that definition. Specifically, those provisions of the 
Affordable Care Act amended the qualifying criteria for low-volume 
hospitals under section 1886(d)(12)(C)(i) of the Act to specify that, 
for FYs 2011 and 2012, a subsection (d) 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 the Affordable Care Act, provides that the low-volume hospital 
payment adjustment (that is, the 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 zero percent for low-volume hospitals with greater than 
1,600 discharges of such individuals in the fiscal year.''
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 
and 50414), we revised the regulations at 42 CFR 412.101 to reflect the 
changes to the qualifying criteria and the payment adjustment for low-
volume hospitals made by sections 3125 and 10314 of the Affordable Care 
Act. In addition, we defined, at Sec.  412.101(a), the term ``road 
miles''' to mean ``miles'' as defined at Sec.  412.92(c)(1), and 
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, in that same final rule, we discussed the 
process for requesting and obtaining the low-volume hospital payment 
adjustment for FY 2011 (75 FR 50240). For the second year of the 
changes to the low-volume hospital payment adjustment provided for by 
section 3125 and 10314 of the Affordable Care Act (that is, FY 2012), 
consistent with the regulations at Sec.  412.101(b)(2)(ii), in the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51677 through 51680), we updated 
the discharge data source used to identify qualifying low-volume 
hospitals and calculate the payment adjustment (percentage increase). 
Under Sec.  412.101(b)(2)(ii), for FYs 2011 and 2012, a 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 hospital payment 
adjustment in the current year. In that same final rule, we established 
that, for FY 2012, qualifying low-volume hospitals and their payment 
adjustment are determined using Medicare discharge data from the March 
2011 update of the FY 2010 MedPAR file, as these data were the most 
recent data available at that time. In addition, we noted that 
eligibility for the low-volume hospital payment adjustment for FY 2012 
was also dependent upon meeting (if the hospital was qualifying for the 
low-volume hospital payment adjustment for the first time in FY 2012), 
or continuing to meet (if the hospital qualified in FY 2011), the 
mileage criterion specified at Sec.  412.101(b)(2)(ii). Furthermore, we 
established a procedure for a hospital to request low-volume hospital 
status for FY 2012 (which was consistent with the process we employed 
for the low-volume hospital payment adjustment for FY 2011).
2. Provisions of the ATRA for FY 2013
a. Background
    Section 605 of the ATRA amended sections 1886(d)(12)(B), (C)(i), 
and (D) of the Act to extend, for FY 2013, the temporary changes in the 
low-volume hospital payment adjustment policy provided for in FYs 2011 
and 2012 by the Affordable Care Act. As we have noted previously, prior 
to the enactment of section 605 of the ATRA, beginning with FY 2013, 
the low-volume hospital definition and payment adjustment methodology 
would have reverted to the policy established under statutory 
requirements that were in effect prior to the amendments made by the 
Affordable Care Act.
    Prior to the enactment of the ATRA, in the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53406 through 53409), we discussed the low-volume 
hospital payment adjustment for FY 2013 and subsequent fiscal years. 
Specifically, we discussed that, in accordance with section 1886(d)(12) 
of the Act, beginning with FY 2013, the low-volume hospital definition 
and payment adjustment methodology would revert back to the statutory 
requirements that were in effect prior to the amendments made by the 
Affordable Care Act. Therefore, we explained, as specified under the 
existing regulations at Sec.  412.101, effective for FY 2013 and 
subsequent years, that in order to qualify as a low-volume hospital, a 
subsection (d) hospital must be more than 25 road miles from another 
subsection (d) hospital and have less than 200 discharges (that is, 
less than 200 total discharges, including both Medicare and non-
Medicare discharges) during the fiscal year. We also established a 
procedure for hospitals to request low-volume hospital status for FY 
2013 (which was consistent with our previously established procedures 
for FYs 2011 and 2012).
    In a Federal Register notice published on March 7, 2013 (78 FR 
14689) (hereinafter referred to as the FY 2013 IPPS notice), we 
announced the extension of the Affordable Care Act amendments to the 
low-volume hospital payment adjustment requirements under section 
1886(d)(12) of the Act for FY 2013 pursuant to section 605 of the ATRA. 
The applicable low-volume hospital percentage increase provided for by 
the provisions of the Affordable Care Act and the ATRA is determined 
using a continuous linear sliding scale equation that results in a low-
volume hospital payment adjustment ranging from an additional 25 
percent for hospitals with 200 or fewer Medicare discharges to a zero 
percent additional payment adjustment for hospitals with 1,600 or more 
Medicare discharges.
    In the FY 2013 IPPS notice (78 FR 14689 through 14694), to 
implement the extension of the temporary change in the low-volume 
hospital payment adjustment policy for FY 2013 provided for by the 
ATRA, we updated the discharge data source used to identify

[[Page 50612]]

qualifying low-volume hospitals and calculate the payment adjustment 
(percentage increase). Consistent with our implementation of the low-
volume hospital payment adjustment policy for FYs 2011 and 2012 as set 
forth at existing Sec.  412.101(b)(2)(ii), we established that, for FY 
2013, qualifying low-volume hospitals and their payment adjustments are 
determined using Medicare discharge data from the March 2012 update of 
the FY 2011 MedPAR file, as these data were the most recent data 
available at the time of the development of the FY 2013 payment rates 
and factors established in the FY 2013 IPPS/LTCH PPS final rule. In 
addition, we noted that eligibility for the low-volume hospital payment 
adjustment for FY 2013 is also dependent upon meeting (in the case of a 
hospital that did not qualify for the low-volume hospital payment 
adjustment in FY 2012), or continuing to meet (in the case of a 
hospital that did qualify for the low-volume hospital payment 
adjustment in FY 2012), the mileage criterion specified at existing 
Sec.  412.101(b)(2)(ii). We also established a procedure for a hospital 
to request low-volume hospital status for FY 2013 (which is consistent 
with the process for the low-volume hospital payment adjustment for FYs 
2011 and 2012). Furthermore, we noted our intent to make conforming 
changes to the regulations text at Sec.  412.101 to reflect the changes 
to the qualifying criteria and the payment adjustment for low-volume 
hospitals in accordance with the amendments made by section 605 of the 
ATRA in future rulemaking. (We refer readers to the FY 2013 IPPS notice 
(78 FR 14689 through 14694) for additional information on the extension 
of the Affordable Care Act amendments to the low-volume hospital 
payment adjustment requirements under section 1886(d)(12) of the Act 
through FY 2013 in accordance with section 605 of the ATRA.)
b. Conforming Regulatory Changes
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 
and 50414), we amended the regulations at Sec.  412.101 to specify 
that, beginning with FY 2013, the low-volume hospital definition and 
payment adjustment methodology reverted to the policy established under 
statutory requirements that were in effect prior to the amendments made 
by the Affordable Care Act. In the FY 2014 IPPS/LTCH PPS proposed rule 
(78 FR 27576), we proposed to make conforming changes to the existing 
regulations text at Sec.  412.101 to reflect the extension of the 
changes to the qualifying criteria and the payment adjustment 
methodology for low-volume hospitals through FY 2013 in accordance with 
section 605 of the ATRA, as announced in the FY 2013 IPPS notice (as 
discussed above). Specifically, we proposed to revise paragraphs 
(b)(2)(i), (b)(2)(ii), (c)(1), (c)(2), and (d). Under these proposed 
changes to Sec.  412.101, beginning with FY 2014, consistent with 
section 1886(d)(12) of the Act, as amended, the low-volume hospital 
qualifying criteria and payment adjustment methodology would revert to 
that which was in effect prior to the amendments made by the Affordable 
Care Act and the ATRA (that is, the low-volume hospital payment 
adjustment policy in effect for FYs 2005 through 2010).
    We did not receive any public comments on the proposed conforming 
changes to the existing regulations text at Sec.  412.101 to reflect 
the extension of the changes to the qualifying criteria and the payment 
adjustment methodology for low-volume hospitals through FY 2013 in 
accordance with section 605 of the ATRA. Therefore, in this final rule, 
we are adopting as final the proposed revisions to paragraphs 
(b)(2)(i), (b)(2)(ii), (c)(1), (c)(2), and (d) of Sec.  412.101 without 
modification.
3. Low-Volume Hospital Definition and Payment Adjustment for FY 2014 
and Subsequent Fiscal Years
    In accordance with section 1886(d)(12) of the Act, as amended, 
beginning with FY 2014, the low-volume hospital definition and payment 
adjustment methodology will revert back to the statutory requirements 
that were in effect prior to the amendments made by the Affordable Care 
Act and the ATRA. Therefore, as discussed in the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27576 through 27577), consistent with section 
1886(d)(12) of the Act, as amended, under the proposed conforming 
changes to Sec.  412.101(b)(2), effective for FY 2014 and subsequent 
years, in order to qualify as a low-volume hospital, a subsection (d) 
hospital must be more than 25 road miles from another subsection (d) 
hospital and have less than 200 discharges (that is, less than 200 
discharges total, including both Medicare and non-Medicare discharges) 
during the fiscal year. Under our existing policy, effective for FY 
2014 and subsequent years, qualifying hospitals would receive the low-
volume hospital payment adjustment of an additional 25 percent for 
discharges occurring during the fiscal year.
    Comment: A few commenters expressed concern about the financial 
impact of the expiration of the temporary expansion of the low-volume 
hospital payment adjustment provided for by the provisions of 
Affordable Care Act and the ATRA, which were similar to the comments we 
received on the FY 2013 IPPS/LTCH PPS proposed rule, prior to the 1-
year expansion of the low-volume hospital payment adjustment for FY 
2013 provided for by the ATRA. Some commenters supported legislative 
action that would continue the temporary expansion of the low-volume 
hospital payment adjustment. Other commenters requested that CMS use 
the existing statutory authority to make the low-volume adjustment to 
qualifying hospitals that have less than 800 total discharges rather 
than only to qualifying hospitals that have less than 200 total 
discharges. The commenters did not provide any data analysis in support 
of their comments to expand the low-volume hospital adjustment to 
qualifying hospitals that have less than 800 total discharges.
    Response: As noted previously in section V.I.C.a. of the preamble 
of this final rule and as discussed in response to public comments in 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53408 through 53409), to 
implement the original low-volume hospital payment adjustment 
provision, and as mandated by statute, we developed an empirically 
justified adjustment based on the relationship between costs and total 
discharges of hospitals with less than 800 total (Medicare and non-
Medicare) discharges. Specifically, we performed several regression 
analyses to evaluate the relationship between hospitals' costs per case 
and discharges, and found that an adjustment for hospitals with less 
than 200 total discharges is most consistent with the statutory 
requirement to provide for additional payments to low-volume hospitals 
where there is empirical evidence that higher incremental costs are 
associated with lower numbers of discharges (69 FR 49101 through 
49102). Based on these analyses, we established a low-volume hospital 
policy where qualifying hospitals with less than 200 total discharges 
receive a payment adjustment of an additional 25 percent. (Section 
1886(d)(12)(B)(iii) of the Act limits the applicable percentage 
increase adjustment to no more than 25 percent.) In the future, we may 
reevaluate the low-volume hospital adjustment policy; that is, the 
definition of a low-volume hospital and the payment adjustment. 
However, because we are not aware of any analysis or empirical evidence 
that would support expanding the originally established a low-volume 
hospital adjustment policy

[[Page 50613]]

and we did not make any proposals regarding the low-volume hospital 
payment adjustment for FY 2014, we are not making any changes to the 
low-volume hospital payment adjustment policy in this final rule. Thus, 
the low-volume hospital definition and payment adjustment methodology 
will revert back to the policy established under statutory requirements 
that were in effect prior to the amendments made by the Affordable Care 
Act and the ATRA.
    As described above, for FYs 2005 through 2010 and FY 2014 and 
subsequent fiscal years, the discharge determination will be made based 
on the hospital's number of total discharges, that is, Medicare and 
non-Medicare discharges. The hospital's most recently submitted cost 
report is used to determine if the hospital meets the discharge 
criterion to receive the low-volume hospital payment adjustment in the 
current year (Sec.  412.101(b)(2)(i)). We use cost report data to 
determine if a hospital meets the discharge criterion because this is 
the best available data source that includes information on both 
Medicare and non-Medicare discharges. As we noted in the proposed rule, 
for FYs 2011, 2012, and 2013, we used the most recently available 
MedPAR data to determine the hospital's Medicare discharges because 
only Medicare discharges were used to determine if a hospital met the 
discharge criterion for those years. In addition to a discharge 
criterion, the eligibility for the low-volume hospital payment 
adjustment also will be dependent upon the hospital meeting the mileage 
criterion specified at Sec.  412.101(b)(2)(i). Specifically, to meet 
the mileage criterion to qualify for the low-volume hospital payment 
adjustment for FY 2014 and subsequent fiscal years, a hospital must be 
located more than 25 road miles from the nearest subsection (d) 
hospital.
    For FY 2014, as we stated in the proposed rule, we will continue to 
use the established process for requesting and obtaining the low-volume 
hospital payment adjustment. That is, 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 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. 
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. (For additional details on our 
established process for the low-volume hospital payment adjustment, we 
refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53408).)
    Consistent with our previously established procedure, for FY 2014, 
a hospital must make its request for low-volume hospital status in 
writing to its fiscal intermediary or MAC by September 1, 2013, in 
order for the 25-percent low-volume hospital payment adjustment to be 
applied to payments for its discharges beginning on or after October 1, 
2013 (through September 30, 2014). If a hospital's request for low-
volume hospital status for FY 2014 is received after September 1, 2013, 
and if the fiscal intermediary or MAC determines the hospital meets the 
criteria to qualify as a low-volume hospital, the fiscal intermediary 
or MAC will apply the 25-percent low-volume hospital payment adjustment 
to determine the payment for the hospital's FY 2014 discharges, 
effective prospectively within 30 days of the date of the fiscal 
intermediary's or MAC's low-volume hospital status determination.
    As we discussed previously in section V.C.2.b. of the preamble of 
this final rule, we are adopting as final our proposed conforming 
changes to the regulatory text at Sec.  412.101 to reflect the 
extension of the changes to the qualifying criteria and the payment 
adjustment methodology for low-volume hospitals through FY 2013 made by 
section 605 of the ATRA (78 FR 27576). Specifically, we are revising 
Sec.  412.101 to conform the regulations to the statutory requirements 
that, beginning with FY 2014, the low-volume hospital qualifying 
criteria and payment adjustment methodology revert to that which was in 
effect prior to the amendments made by the Affordable Care Act and the 
ATRA (that is, the low-volume hospital payment adjustment policy in 
effect for FYs 2005 through 2010). Under this revision, the low-volume 
hospital payment adjustment policy in effect prior for FYs 2005 through 
2010 will apply for FY 2014 and subsequent years. Thus, as noted above, 
the low-volume hospital definition and payment adjustment methodology 
will revert back to the policy established under statutory requirements 
that were in effect prior to the amendments made by the Affordable Care 
Act and the ATRA.

D. Indirect Medical Education (IME) Payment Adjustment (Sec.  412.105)

1. IME Adjustment Factor for FY 2014
    Under the IPPS, an additional payment amount is made to hospitals 
with 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 payment amount is 
determined by use of a statutorily specified adjustment factor. The 
regulations regarding the calculation of this additional payment, known 
as the IME adjustment, are located at Sec.  412.105. We refer readers 
to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51680) for a full 
discussion of the IME adjustment and IME adjustment factor. Section 
1886(d)(5)(B) of the Act states that, for discharges occurring during 
FY 2008 and fiscal years thereafter, the IME formula multiplier is 
1.35. Accordingly, for discharges occurring during FY 2014, the formula 
multiplier is 1.35. We estimate that application of this formula 
multiplier for the FY 2014 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: Two commenters supported the continuation of the IME 
adjustment factor. Both commenters stated that IME payments are vital 
to guaranteeing a strong surgery workforce in which there is currently 
a growing shortage. One commenter noted that this shortage is 
especially prevalent within the cardiothoracic surgery workforce.
    Response: We appreciate the commenters' support. We note that the 
IME formula multiplier is set by Congress. We are specifying in this 
final rule that the IME formula multiplier for FY 2014 is 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.
2. Other Policy Changes Affecting GME
    In section V.J. of the preamble of this final rule, we present 
other proposed and final policy changes relating to GME payment. We 
refer readers to that section of the preamble of this final rule where 
we present the proposed and final policies.

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

1. Background
    Section 1886(d)(5)(F) of the Act provides for additional Medicare

[[Page 50614]]

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 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. 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).
2. Counting of Patient Days Associated With Patients Enrolled in 
Medicare Advantage Plans in the Medicare and Medicaid Fractions of the 
Disproportionate Patient Percentage (DPP) Calculation
    The regulation at 42 CFR 422.2 defines Medicare Advantage (MA) plan 
to mean ``health benefits coverage offered under a policy or contract 
by an MA organization that includes a specific set of health benefits 
offered at a uniform premium and uniform level of cost-sharing to all 
Medicare beneficiaries residing in the service area of the MA plan. . . 
.'' Generally, each MA plan must at least provide coverage of all 
services that are covered by Medicare Part A and Part B, but also may 
provide for Medicare Part D benefits and/or additional supplemental 
benefits. However, certain items and services, such as hospice 
benefits, continue to be covered under Medicare fee-for-service (FFS). 
Under Sec.  422.50 of the regulations, an individual is eligible to 
elect an MA plan if he or she is entitled to Medicare Part A and 
enrolled in Medicare Part B. Dual eligible beneficiaries (individuals 
entitled to Medicare and eligible for Medicaid) also may choose to 
enroll in a MA plan, and, as an additional supplemental benefit, the MA 
plan may pay for Medicare cost-sharing not covered by Medicaid.
    In the FY 2004 IPPS proposed rule (68 FR 27208), in response to 
questions about whether the patient days associated with patients 
enrolled in an MA plan (then called a Medicare + Choice (M+C) plan) 
should be counted in the Medicare fraction or the Medicaid fraction of 
the disproportionate patient percentage (DPP) calculation, we proposed 
that once a beneficiary enrolls in an MA plan, those patient days 
attributable to the beneficiary would not be included in the Medicare 
fraction of the DPP. Instead, those patient days would be included in 
the numerator of the Medicaid fraction, if the patient also were 
eligible for Medicaid. In the FY 2004 IPPS final rule (68 FR 45422), we 
did not respond to public comments on this proposal, due to the volume 
and nature of the public comments we received, and we indicated that we 
would address those comments later in a separate document. In the FY 
2005 IPPS proposed rule (69 FR 28286), we stated that we planned to 
address the FY 2004 comments regarding MA days in the IPPS final rule 
for FY 2005. In the FY 2005 IPPS final rule (69 FR 49099), we 
determined that, under Sec.  412.106(b)(2)(i) of the regulations, MA 
patient days should be counted in the Medicare fraction of the DPP 
calculation. We explained that, even where Medicare beneficiaries elect 
Medicare Part C coverage, they are still entitled to benefits under 
Medicare Part A. Therefore, we noted that if a MA beneficiary is also 
an SSI recipient, the patient days for that beneficiary will be 
included in the numerator of the Medicare fraction (as well as in the 
denominator) and not in the numerator of the Medicaid fraction. We note 
that, despite our explicit statement in the final rule that the 
regulations also would be revised, due to a clerical error, the 
corresponding regulation at Sec.  412.106(b)(2)(i) was not amended to 
explicitly reflect this policy until 2007 (72 FR 47384).
    On November 15, 2012, in a ruling in the case of Allina Health 
Services v. Sebelius (Allina), the Federal District Court for the 
District of Columbia (the court) held that the final policy of putting 
MA patient days in the Medicare fraction adopted in the FY 2005 IPPS 
final rule was not a logical outgrowth of the FY 2004 IPPS proposed 
rule (904 F. Supp. 2d 75 (D.D.C. 2012), appeal docketed, No. 13-5011 
(D.C. Cir. Jan. 11, 2013). The court held that interested parties had 
not been put on notice that the Secretary might adopt a final policy of 
counting the days in the Medicare fraction and were not provided an 
adequate further opportunity for public comment.
    We continue to believe that individuals enrolled in MA plans are 
``entitled to benefits under part A'' as the phrase is used in the DSH 
provisions at section 1886(d)(5)(F)(vi)(I) of the Act. Section 226(a) 
of the Act provides that an individual is automatically ``entitled'' to 
Medicare Part A when the person reaches age 65 or becomes disabled, 
provided that the individual is entitled to Social Security benefits 
under section 202 of the Act. Beneficiaries who are enrolled in MA 
plans provided under Medicare Part C continue to meet all of the 
statutory criteria for entitlement to Medicare Part A benefits under 
section 226 of the Act. Moreover, in order to enroll in Medicare Part 
C, or to change from one MA plan to another MA plan offered under Part 
C, a beneficiary must be ``entitled to benefits under Part A and 
enrolled under Part B'' (section 1852(a)(1)(B)(i) of the Act). Thus, by 
definition, a beneficiary must be entitled to Part A to be enrolled in 
Part C. There is nothing in the Act that suggests that beneficiaries 
who enroll in a Medicare Part C plan forfeit their entitlement to 
Medicare Part A benefits. To the contrary, a beneficiary who enrolls in 
Medicare Part C is entitled to receive benefits under Medicare Part A 
through

[[Page 50615]]

the MA plan in which he or she is enrolled, and the MA organization's 
costs in providing such Part A benefits are paid for by CMS with money 
from the Medicare Part A Trust Fund. In addition, under certain 
circumstances, Medicare Part A pays directly for care furnished to 
patients enrolled in Medicare Part C plans, rather than indirectly 
through Medicare Part A Trust Fund payments to MA organizations. For 
example, if, during the course of the year, the scope of benefits 
provided under Medicare Part A expands beyond a certain cost threshold 
due to Congressional action or a national coverage determination, 
Medicare Part A will pay the provider directly for the cost of those 
services (section 1852(a)(5) of the Act). Similarly, Medicare Part A 
also pays directly for federally qualified health center services and 
hospice care furnished to MA patients (section 1853(a)(4) and section 
1853(h)(2) of the Act, respectively). Thus, we continue to believe that 
a patient enrolled in an MA plan remains entitled to benefits under 
Medicare Part A, and should be counted in the Medicare fraction of the 
DPP, and not the Medicaid fraction.
    We also believe that our policy of counting patients enrolled in MA 
plans in the Medicare fraction was a logical outgrowth of the FY 2004 
IPPS proposed rule, and, accordingly, have appealed the decision in 
Allina. However, in an abundance of caution and for the reasons 
discussed above, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27578), we proposed to readopt the policy of counting the days of 
patients enrolled in MA plans in the Medicare fraction of the DPP. We 
sought public comments from interested parties that may support or 
oppose the proposal to include the MA patient days in the Medicare 
fraction of the DPP calculation for FY 2014 and subsequent years. We 
indicated in the proposed rule that we would evaluate these public 
comments and consider whether a further change in policy is warranted, 
and would include our final determination in the FY 2014 IPPS/LTCH PPS 
final rule. We did not propose any change to the regulation text 
because the current text reflects the policy being proposed.
    Comment: A few commenters supported CMS' proposal to readopt the 
policy of including MA patient days in the numerator and denominator of 
the Medicare fraction of the DPP calculation. One commenter 
recommended, for consistency purposes, that MA days continue to be 
included in the Medicare fraction. Another commenter stated that the 
proposal makes logical sense because these patients remain entitled to, 
and receive, Medicare Part A benefits, and have simply chosen to 
receive them through an MA plan offered under Medicare Part C. The 
commenter also opined that the effect on the Medicare fraction would 
likely be minimal because the commenter believed that the majority of 
patients who enroll in Medicare Part C would not be likely to meet the 
income eligibility requirement for SSI benefits. Other commenters 
supported CMS' proposal to readopt the policy, stating that CMS will 
have provided all interested parties with adequate time and information 
to meaningfully participate in the rulemaking process.
    Response: We appreciate the commenters' support. We agree with 
commenters that a patient enrolled in a MA plan remains entitled to 
benefits under Part A and should be included in the Medicare fraction 
of the DPP and not the Medicaid fraction. We also agree with commenters 
that we have provided adequate notice and opportunity for the public to 
comment on our proposal to readopt our policy of counting the days of 
patients enrolled in MA plans in the Medicare fraction for FY 2014 and 
subsequent years. Furthermore, as discussed in more detail below, we 
continue to believe that we also provided adequate notice and 
opportunity for review and comment prior to the original adoption of 
the policy in the FY 2005 IPPS rule; and, therefore, we have appealed 
the court's decision in Allina which concluded that we did not. In 
addition, with regard to the commenter's assertion that the majority of 
patients who enroll in Medicare Part C would not be likely to meet the 
income eligibility requirement for SSI benefits, we disagree and note 
that research, such as the findings from the Medicare Current 
Beneficiary Survey as listed in the table below, has shown that Part C 
enrollees tend to have lower incomes at similar rates as Medicare 
beneficiaries who are not enrolled in Part C.

                                     Percentage of Medicare Beneficiaries by Income Level, Fee for Service and Risk
                                                                   HMO: 2009-2011 \12\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  2011 Fee-                        2010 Fee-                        2009 Fee-
                  Beneficiaries (%)                       2011       for-    2011 Risk     2010       for-    2010 Risk     2009       for-    2009 Risk
                                                         Total     service      HMO       Total     service      HMO       Total     service      HMO
--------------------------------------------------------------------------------------------------------------------------------------------------------
Less than $5,000.....................................       3.47       3.69       2.84       4.17       4.29       3.82       3.86       4.07       3.19
$5,000-$9,999........................................      10.92      11.03      10.61      10.94      11.00      10.78      11.75      12.01      10.92
$10,000-$14,999......................................      13.76      13.50      14.50      13.94      13.63      14.86      14.00      13.35      16.03
$15,000-$19,999......................................       9.51       8.48      12.34      10.13       9.01      13.46       9.97       9.20      12.38
$20,000-$24,999......................................       9.17       8.52      10.97       8.67       8.15      10.21       9.00       8.33      11.11
$25,000-$29,999......................................       7.88       7.65       8.53       8.02       7.85       8.53       8.80       8.40      10.03
$30,000-$39,999......................................      13.18      12.88      14.00      13.44      13.17      14.23      13.30      13.19      13.63
$40,000-$49,999......................................       9.92       9.96       9.82       9.83      10.21       8.70       9.65      10.02       8.49
$50,000 or more......................................      22.18      24.28      16.39      20.87      22.71      15.41      19.67      21.43      14.21
--------------------------------------------------------------------------------------------------------------------------------------------------------
\12\ Sources: Medicare Current Beneficiary Survey. 2011 Characteristics and Perceptions of the Medicare Population. 2010 Characteristics and Perceptions
  of the Medicare Population. 2009 Characteristics and Perceptions of the Medicare Population. Available at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Research/MCBS/Data-Tables.html.
Note: As described in the sources, income estimates are derived from imputed income data. Standard errors of income estimates may be underestimated as
  they have not been adjusted to reflect the imputation of missing data.

    Comment: A few commenters stated that the policy proposal promotes 
the integrity of the 340B program. The commenters stated that the size 
of the 340B program has far exceeded Congress' intent to help safety-
net providers cover the costs of uncompensated pharmaceutical care; and 
including MA patient days in the Medicare fraction helps to ensure that 
a hospital's DPP is not artificially inflated, thereby helping to curb 
some of the recent abuse and promote the program's original goals. In 
addition, the commenters stated that, given that section 3133 of the 
Affordable Care Act reduces aggregate DSH funding beginning in FY 2014, 
providing oversight of the 340B program will be critical. The 
commenters stated that, with less DSH funds available, ensuring

[[Page 50616]]

that entities with inflated DPPs do not divert funds from truly DSH 
eligible providers is critical to maintain that the support is provided 
where it will be the most beneficial, as intended by Congress. In 
addition, one commenter stated that CMS has an opportunity to provide 
protection for DPP values for hospitals located in States where 
Medicaid was not expanded under the intent of the Affordable Care Act. 
The commenter recommended that CMS issue rules that grandfather current 
providers who qualify for 340B prescription drug discounting until 
further impacts of the Affordable Care Act can be reviewed and a new 
standard be determined for hospitals located in States that are not 
expanding the Medicaid program to levels prescribed under the 
Affordable Care Act.
    Response: Although we appreciate receiving the commenters' views on 
the 340B program, we note that this program is administered by HRSA and 
is not within the scope of this rulemaking. Additionally, we note that 
we believe the commenter that made the recommendation about issuing 
rules that would grandfather current providers who qualify for 340B 
prescription drug discounting until further impacts of the Affordable 
Care Act can be assessed for hospitals located in States that are not 
expanding the Medicaid program, may be confused about how the statute, 
specifically the Affordable Care Act, ``protects'' DPP values.
    Comment: Many commenters opposed CMS' proposal and urged CMS to 
exclude MA patient days from the Medicare fraction of the DPP 
calculation. These commenters disagreed that individuals enrolled in 
Medicare Advantage are ``entitled'' to benefits under Part A, and 
asserted that the policy proposal is not dictated by the statute and is 
inconsistent with their view of the intent of Congress. The commenters 
argued that, in examining the statute and CMS' regulations, it is clear 
to them that MA enrollees are not entitled to benefits under Part A 
and, therefore, should be excluded from the Medicare fraction. These 
commenters cited three provisions of the statute in support of this 
argument:
     Section 226(c)(1) of the Act, which states ``entitlement 
of an individual to hospital insurance benefits for a month [under Part 
A] shall consist of entitlement to have payment made under, and subject 
to the limitations in, [P]art A . . . .''
     Section 1851(a)(1) of the Act, which states that the 
persons eligible for Medicare Advantage are ``entitled to elect to 
receive benefits'' either ``through the original [M]edicare fee-for-
service program under [P]arts A and B, or through enrollment in a 
[Medicare Advantage] plan under [Part C].''
     Section 1851(i)(1) of the Act, which states that 
``payments under a contract with a [Medicare Advantage] organization . 
. . with respect to an individual electing a [Medicare Advantage] plan 
. . . shall be instead of the amounts which (in the absence of the 
contract) would otherwise be payable under [P]arts A and B . . . .''
    The commenters contended that because individuals who enroll in an 
MA plan receive benefits under Part C and not Part A, they cannot be 
``entitled'' to benefits under Part A because, in the commenters' view, 
they no longer receive benefits under Part A. They argued that 
beneficiaries are not ``entitled'' to benefits that the commenters 
believe the law denies them, and therefore, CMS' interpretation is 
unreasonable.
    Response: We disagree that Medicare beneficiaries enrolled in Part 
C no longer receive benefits under Part A and that, because the payment 
structure of Part C applies (that is, CMS pays the MA plans so that the 
plans may make payment to hospitals for the care of the beneficiaries), 
those beneficiaries are not entitled to Part A benefits. As we stated 
above, section 226(A) of the Act provides that an individual is 
automatically ``entitled'' to Medicare Part A when the person reaches 
age 65 or becomes disabled, provided that the individual is entitled to 
Social Security benefits under section 202 of the Act.
    This interpretation is consistent with our conclusion that Congress 
uses the phrase ``entitled to benefits under part A'' to consistently 
refer to an individual's status as a Medicare beneficiary. We agree 
with the United States Court of Appeals for the Sixth Circuit when it 
recently explained, ``the phrase `entitled to benefits under [Medicare] 
part A' appears in more than 30 other sections of the Medicare statute, 
indicating that the phrase has a specific, consistent meaning 
throughout the statutory scheme, rather than a varying, context-
specific meaning in each section and subsection. (We refer readers to 
Ali v. Fed. Bureau of Prisons, 552 U.S. 214, 222 (2008) (noting that 
statutory construction ``must, to the extent possible, ensure that the 
statutory scheme is coherent and consistent'') and Metro. Hosp. v. U.S. 
Dep't of Health & Human Servs., 712 F.3d 248, 260 (6th Cir. 2013) 
(holding that including patients who have exhausted inpatient benefits 
in the Medicare fraction is consistent with how ``entitled to benefits 
under part A'' is used throughout the Medicare statute).) Enrolling in 
Part C does not change an enrollee's status as a Medicare beneficiary 
and does not remove or reduce any benefits the beneficiary would 
otherwise have received; indeed, the MA plan must provide the benefits 
to which the beneficiary is entitled under Part A and may provide 
additional benefits as described by section 1852(a)(1)(A) of the Act. 
We agree with the Court of Appeals for the District of Columbia Circuit 
that ``Congress has not clearly foreclosed the Secretary's 
interpretation that [Part C] enrollees are entitled to benefits under 
Part A. Rather, it has left a statutory gap, and it is for the 
Secretary . . . to fill that gap'' (Northeast Hosp. Corp. v. Sebelius; 
657 F.3d 1, 13 (D.C. Cir. 2011)). We further note that the D.C. Circuit 
has already rejected many of the commenters' view that the agency's 
interpretation is inconsistent with the plain language of the statute 
(Id. at 6-13).
    Thus, for purposes of section 226(c)(1) of the Act, beneficiaries 
enrolled in Part C are having payment made under Part A for the month 
in question, via the Part A component of the monthly payment made to 
the MA organization, and are receiving Part A benefits subject to the 
limitations on such benefits provided for in Part A.
    For purposes of section 1851(a)(1) of the Act, the ``benefits'' 
referenced in the phrase quoted by the commenters (``entitled to elect 
to receive benefits'') are the benefits provided for in Part A and Part 
B. Thus, this language confirms that beneficiaries enrolled in Part C 
remain ``entitled to'' benefits under Part A, and thus supports our 
interpretation of the statute. It is only the vehicle ``through'' which 
such Part A benefits are received that changes, from the ``fee-for-
service'' method spelled out under Part A, to the capitation payment 
method spelled out in Part C.
    Section 1851(i)(1) of the Act similarly refers only to whether Part 
A benefits are provided via payments to, and by, the MA organization, 
or direct payments made under the ``fee-for-service'' payment 
procedures provided for in Part A and Part B. It is only the process 
for furnishing these benefits that is at issue, not entitlement to such 
benefits.
    Comment: Another commenter objecting to our proposal noted that 
section 1886(d)(5)(F) of the Act, which defines the Medicare and 
Medicaid fractions of the DPP calculation, has not undergone any 
significant amendments since its enactment, and was never amended to 
explicitly address the creation of Medicare Part C. As such, the 
commenter asserted that Part C days

[[Page 50617]]

should clearly be excluded from the Medicare fraction because the 
commenter believed that services paid for under Part C cannot also 
result in a patient being entitled to benefits for those services under 
Part A. However, the commenter asserted that Part C days are clearly 
not excluded from the Medicaid fraction because ``the numerator of the 
Medicaid fraction includes all hospital patient days (regardless of 
under which `Part' of Medicare) for which the patient was `eligible' 
for Medicaid as well as Medicare, but for which the patient was not 
entitled to receive benefits under Part A of Medicare . . . .''
    Response: The enactment of the current provisions in Medicare Part 
C authorizing an alternative way of receiving Part A benefits did not 
alter the criteria for entitlement to such benefits, any more than did 
earlier, similar provisions in section 1876 of the Act that were 
enacted in 1982. Indeed, language in section 1876 made clear that a 
beneficiary was still ``entitled to benefits under Part A'' while 
receiving Part A benefits through a private health plan paid by CMS to 
provide them because section 1876 provided for two classes of 
enrollees, one only enrolled in Part B, and another ``entitled to 
benefits under Part A'' and enrolled in Part B, and provided for Part A 
Trust Fund payments in the latter case, and only Part B payments in the 
former. There is no indication that Part C enrollees are not similarly 
``entitled to benefits under Part A'' on an ongoing basis.
    With regard to the Medicaid fraction, as stated in section 
1886(d)(5)(F) of the Act, the number of patient days for patients who, 
for those days, were eligible for medical assistance under a State plan 
approved under Title XIX (Medicaid) but who were not entitled to 
benefits under Medicare Part A is divided by the total number of 
patient days for that same period. MA enrollees are entitled to 
benefits under Medicare Part A, and therefore, these patient days 
should not be included in the Medicaid portion of the calculation. It 
is CMS' interpretation that the statute provides support to include MA 
days in the Medicare fraction. The statute requires that the inpatient 
days be attributable to inpatients entitled to benefits under Part A. 
Section 1851(a)(3) of the Act defines an individual that is eligible to 
enroll in an MA plan as an individual who is entitled to benefits under 
Part A and enrolled under Part B. We have concluded that, based on 
section 1886(d)(5)(F) of the Act, MA enrollee patient days should be 
included in calculating the DSH adjustment by finding that such 
enrollees are otherwise entitled to benefits under Part A. In other 
words, MA patients are entitled to Medicare Part A prior to and after 
selecting Part C, and because they do not lose that entitlement when 
they choose to enroll in a Part C plan, our position is that the 
Medicare Part C days should be included in the Medicare fraction, 
regardless of whether the beneficiary opts for Part C coverage.
    Comment: Another commenter argued that, while it is true that a 
patient must at some point be entitled to benefits under Part A in 
order to be eligible to enroll in Part C, once an enrollee has chosen 
Part C, he or she is no longer entitled to Part A benefits and instead, 
the payment structure in Part C applies, and CMS pays MA organizations 
for those beneficiaries, while the MA organizations pay the providers. 
The commenter also asserted that this was evidence that Congress did 
not intend to include Part C days in the Medicare fraction because if 
it had, Congress could have easily revised the DSH statute to indicate 
as such.
    Response: Again, this commenter confuses the method for covering 
Part A benefits with whether an individual is entitled to receive such 
benefits. We refer readers to the previous response for a fuller 
discussion.
    Comment: One commenter stated that the proposed policy would be 
inconsistent with prior practice and CMS' longstanding operational 
treatment of Part C days in Medicare Part A calculations because 
services furnished to Part C enrollees historically were recorded as 
non-Medicare days. The commenter further stated that, similarly, CMS 
has historically interpreted entitled to benefits under Part A to mean 
entitlement to payment for inpatient hospital care under the IPPS. The 
commenter also asserted that the proposed policy is inconsistent with 
CMS' interpretation of entitled to SSI benefits in the DSH statute 
because CMS construes this to mean including only those days for 
patients who were entitled to have SSI benefits actually paid to them 
on such days. Therefore, the commenter argued, even when an individual 
is entitled to payment of SSI benefits, CMS does not count the day as 
an SSI patient day if there is some other reason why the Social 
Security Administration does not make the payment owed to the 
individual.
    Response: While we acknowledge that in the past CMS has not always 
captured MA patient days as Medicare days, this was an operational 
issue, not the result of an authoritative agency legal interpretation 
or Medicare payment policy decision not to include MA days in the 
Medicare fraction. We note that these operational issues persisted for 
a time after we expressly concluded that MA days should be counted in 
the Medicare fraction in the FY 2005 IPPS rule. Contrary to the 
commenter's assertion, we have not, as a matter of either legal 
interpretation or policy, considered the days of patients enrolled in 
MA plans to be non-Medicare days. Patients enrolled in Medicare Part C 
must be entitled to Medicare Part A and enrolled in Part B. Moreover, 
the days of patients enrolled in Medicare HMOs are considered to be 
paid or covered days even though the payment may be made indirectly 
through a section 1876 HMO or through an MA plan. We note that the 
original Medicare DSH regulations indicated that patients receiving 
their Part A benefits under section 1876 of the Act were to count as 
Medicare patient days.
    We further disagree with the commenter that CMS' interpretation is 
unreasonable and inconsistently interprets the term ``entitled to 
benefits.'' To the contrary, we adopted this interpretation of 
``entitled to benefits under part A'' in large part in order to be 
consistent with how that phrase is used elsewhere in the Act. Section 
1886(d)(5)(F)(vi)(I) of the Act specifically notes that the numerator 
of the Medicare fraction must reflect patient days for patients 
``entitled to benefits under part A'' who are also ``entitled to 
supplementary security income benefits (excluding any State 
supplementation) under title XVI of this Act.'' Regarding entitlement 
to SSI benefits, we note that section 1602 of the Act states that 
``Every aged, blind, or disabled individual who is determined under 
part A to be eligible on the basis of his income and resources shall, 
in accordance with and subject to the provisions of this title, be paid 
benefits by the Commissioner of Social Security.'' Therefore, because 
SSI is a cash benefit, only a person who is actually paid these 
benefits can be considered entitled to these benefits. This differs 
from entitlement to Medicare benefits under Part A, which are a 
distinct set of health insurance benefits described under section 1812 
of the Act, including coverage of inpatient hospital, inpatient 
critical access hospital, and post-acute care services as well as post-
institutional home health and hospice services under certain 
conditions. We note that the agency has undertaken extensive effort and 
notice-and-comment rulemaking to establish a process to identify 
appropriately Medicare patient days for which a beneficiary was 
simultaneously eligible for SSI benefits in the FY 2011 IPPS/

[[Page 50618]]

LTCH PPS final rule (75 FR 50275 through 50286).
    Comment: One commenter noted that the Medicare fraction does not 
include patient days for Medicare beneficiaries enrolled in Medicare 
Part B only. The commenter further argued that, similarly, the Medicare 
fraction does not include all patient days for some individuals who are 
eligible for and enrolled in Part A because Part A patient days in 
hospital units excluded from the IPPS are not included in the Medicare 
fraction, even if actually paid under Part A. The commenter asserted 
that as the DPP calculation is limited to patient days in areas of the 
hospital that provide services that are paid for under the IPPS, in the 
same way, the Medicare fraction should exclude patient days for 
Medicare beneficiaries who have elected to receive benefits under Part 
C--because these days are not paid under the IPPS, they should not be 
included in the Medicare fraction.
    Response: In the case of a Medicare beneficiary enrolled only in 
Part B, we agree that such an individual is not ``entitled to benefits 
under Part A,'' and thus is clearly distinguishable from a beneficiary 
who is entitled to benefits under Part A, but has elected to enroll in 
a Part C plan.
    We note that commenters may be misunderstanding our policy when 
they asserted that the days of patients enrolled in Part C should not 
be included in the Medicare/SSI fraction because the DSH calculation 
does not include patient days in hospital units excluded from the IPPS 
but paid under Part A. The regulation at 42 CFR 412.106(a)(1)(ii) 
limits the patient days used in determining a hospital's DPPs to 
patient days ``attributable to units or wards of the hospital providing 
acute care services generally payable under the [inpatient] prospective 
payment system.'' Patient days associated with beds in excluded 
distinct part hospital units are explicitly excluded from the DPP 
calculation in accordance with 42 CFR 412.105(a)(1)(ii)(A). In 
contrast, the days for MA beneficiaries that are counted in the 
Medicare/SSI fraction are days on which those beneficiaries received 
care that would be (and in some cases actually was) payable under IPPS. 
Accordingly, CMS' policies regarding patient days in excluded distinct 
part units provide no reason to treat Part C enrollees differently than 
other patients also entitled to benefits under Part A.
    Comment: One commenter argued that the instances where a Part C 
beneficiary can have services paid under Part A are extremely limited, 
both in scope and duration, and asserted that CMS' descriptions of the 
exceptions overstate the extent to which Part A payments actually can 
be obtained by Part C beneficiaries. The commenter also contended that 
this illustrates that when Congress has wanted to explain how Part C 
and Part A benefits relate to one another, Congress has done so 
explicitly, and without ambiguity. Another commenter added that when 
Congress added Part C to the Medicare statute, it did not amend the DSH 
statute to require CMS to treat Part C days differently for DSH payment 
purposes, and that intent should be given effect by continuing to 
exclude Part C days from the Medicare fraction and including Medicaid 
eligible Part C days in the numerator of the Medicaid fraction.
    Response: While we appreciate the comments noting that instances 
where a Part C beneficiary can have services paid under Part A are 
limited, we disagree that our description of these exceptions 
overstates the extent to which Part A payments can be obtained by Part 
C beneficiaries. Under the commenters' view of the statute, 
beneficiaries enrolled in MA plans are not ``entitled to benefits under 
Part A,'' which would suggest that Medicare Part A should not make any 
payments on their behalf. However, as discussed above, there are 
instances where Part A is required to do just that. The hospice 
benefit, for instance, is a significant part of the benefits available 
under Part A that is always paid for on a fee-for-service basis, even 
if the beneficiary is enrolled in an MA plan. We find these 
circumstances impossible to reconcile with the commenter's assertion 
that beneficiaries enrolled in MA plans are not ``entitled to benefits 
under Part A.'' Rather, these payments make clear that beneficiaries 
enrolled in MA plans are ``entitled to benefits under Part A,'' 
regardless of the frequency or magnitude of these claims for payment.
    Comment: Commenters stated that CMS still does not discuss that 
including MA days in the Medicare fraction would be a reversal of its 
prior position and, therefore, is both substantively and procedurally 
flawed. Some commenters argued that CMS did not include a reasoned 
explanation for what they characterize as a reversal of policy.
    Some commenters contended that CMS, in both the FY 2004 proposed 
rule and the FY 2005 final rule, acknowledged that the statute is 
susceptible to multiple interpretations, including the agency's own 
previous position that individuals enrolled in the MA plans should not 
be included in the Medicare fraction, and that the FY 2014 proposed 
rule only slightly elaborates on the assertion in the FY 2005 final 
rule that individuals enrolled in MA plans ``are still, in some sense 
entitled to benefits under Medicare Part A.'' Commenters stated that, 
in Allina, the court found the FY 2005 final rule was flawed because 
CMS did not acknowledge that the policy was a reversal of the agency's 
prior interpretation, and did not give a sufficient explanation for 
that reversal in interpretation, and that the FY 2014 proposed rule 
does not correct those deficiencies, but instead just states that CMS 
``continues'' to believe that MA patient days should be included in the 
Medicare fraction.
    Response: We disagree that including the MA days in the Medicare 
fraction is a reversal of prior policy. No final regulation, 
administrative decision, or subregulatory guidance issued by the 
Secretary has ever taken the position that MA days were to be excluded 
from the Medicare fraction. Similarly, no final regulation, 
administrative decision, or subregulatory guidance issued by the 
Secretary has ever taken the position that MA days should be included 
in the numerator of the Medicaid fraction. Accordingly, commenters are 
incorrect insofar as they suggest that including MA days in the 
Medicare fraction represents a reversal of a prior policy. However, we 
acknowledge that, although the DC Circuit held in Northeast that the 
agency had a practice of excluding MA days from the Medicare fraction 
prior to the FY 2005 rule (657 F.3d at 17), the court did not hold that 
the Secretary had adopted a legal interpretation of the phrase 
``entitled to benefits under part A'' or an authoritative agency 
Medicare payment policy that would require excluding MA days from the 
Medicare fraction (Id. at 14-17).
    In fact, in the FY 1990 IPPS final rule (55 FR 35994), CMS made 
clear that its policy was to include the days of patients enrolled in 
managed care plans in the Medicare fraction:
    ``Based on the language of section 1886(d)(5)(F)(vi) of the Act, 
which states that the disproportionate share adjustment computations 
should include `patients who were entitled benefits under Part A', we 
believe it is appropriate to include the days associated with Medicare 
patients who receive care at a qualified [health maintenance 
organization (HMO)]. Prior to December 1, 1987, we were not able to 
isolate the days of care associated with Medicare patients in HMOs and, 
therefore, were unable to fold this number into the calculation. 
However, as of December 1, 1987, a field was

[[Page 50619]]

included on the Medicare Provider Analysis and Review (MedPAR) file 
that allows us to isolate those HMO days that are associated with 
Medicare patients. Therefore, since that time, we have been including 
HMO days in SSI/Medicare percentage.''
    We note that a recent review of our records from the years 
immediately before the implementation of Part C demonstrates that the 
MedPAR data used to calculate Medicare fractions for those years 
includes the days of patients enrolled in section 1876 HMOs.
    Prior to the FY 2004 proposed rule, this was the only authoritative 
agency interpretation relating to the treatment of patient days of 
individuals enrolled in managed care plans. When Congress created Part 
C in the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33, 111 Stat. 
251 (Aug. 5, 1997)), section 1876 HMO days were being counted in the 
Medicare fraction, and were correspondingly being excluded from the 
Medicaid fraction. On January 1, 1999, patients enrolled in risk HMOs 
under section 1876 of the Act were automatically enrolled in M+C plans. 
We issued no guidance discussing how the change in the type of HMO, 
from section 1876 to M+C, would have affected the DSH calculation. We 
see no reason why the reorganization in the managed care structure, 
from section 1876 HMOs into Part C, should have any bearing on how a 
day counts in the DSH calculation. The BBA does not specifically 
address DSH, and we thus believe it was appropriate that MA patients 
should have continued to be counted in the Medicare fraction after its 
enactment. Indeed, the BBA provided that to enroll in an MA plan, an 
individual must be ``entitled to benefits under part A''--the same 
language used in the DSH provision. Individuals enrolled in MA plans 
continue to meet the age and disability requirements for entitlement to 
benefits under Medicare Part A, and thus should be included in the 
Medicare fraction.
    Our contractors, having received no instructions to the contrary, 
continued to exclude the days of patients enrolled in Medicare HMOs 
(now mostly M+C) from the numerator of the Medicaid fraction. However, 
at this same time, and for reasons that are not clear to us now, the 
agency generally stopped collecting no-pay bills from hospitals and 
therefore lacked the data necessary to include Part C days in the 
Medicare fraction. We are aware of nothing to suggest that the failure 
to include Part C days in the Medicare fraction was the result of any 
reasoned decision making or even, in fact, that the relevant policy 
makers were aware the Part C days were not being counted in the 
Medicare fraction. Consequently, Medicare Part C days were largely not 
included in the DSH calculation at all, except for the denominator of 
the Medicaid fraction which includes all patient days.
    We further note that even when the agency promulgated the FY 2005 
IPPS final rule, which expressly stated that MA days should be included 
in Medicare fraction, the agency did not begin collecting the data that 
would have allowed for their inclusion. We believe that this suggests 
that relevant policymakers thought that MA days were being included in 
the Medicare fraction. However, as discussed in detail above, CMS has 
since taken action to ensure that we are collecting the data necessary 
to include these days in the Medicare fraction.
    In short, we disagree that the decision in the FY 2005 IPPS rule to 
include MA days in the Medicare fraction, and to exclude them from the 
numerator of the Medicaid fraction, was a reversal of prior policy. We 
had not (in rulemaking or through subregulatory guidance) specifically 
addressed the treatment of MA days prior to the FY 2004 proposed rule, 
although we acknowledge that, as a matter of practice, MA days 
generally had not been counted in either fraction. Accordingly, 
commenters are incorrect insofar as they suggested that including MA 
days in the Medicare fraction, and excluding them from the Medicaid 
fraction, represents a reversal of prior policy.
    In the FY 2005 IPPS final rule, CMS determined that M+C days should 
be included in the Medicare fraction because M+C beneficiaries ``. . . 
are still, in some sense, entitled to benefits under Medicare Part A'' 
(69 FR 49099). CMS acknowledged that, in the FY 2004 proposed rule, it 
had noted that although a beneficiary must be entitled to Medicare Part 
A to enroll in an M+C plan, when an individual enrolls in an M+C plan, 
his or her benefits are ``no longer administered under Part A,'' and 
had proposed to exclude M+C days from the Medicare fraction and to 
include them in the Medicaid fraction numerator if the M+C days 
enrollee was also eligible for Medicaid (69 FR 49099.) CMS further 
noted that the proposed rule recognized that whether MA days should be 
included in the Medicare or the Medicaid fraction ``stems from whether 
M+C plan enrollees are entitled to benefits under Medicare Part A'' (69 
FR 49099). CMS thus made clear its view that MA days should be counted 
in one fraction or the other. CMS explained that after considering 
comments received to its proposal--including the comment that M+C 
enrollees ``are just as much Medicare beneficiaries as those 
beneficiaries in the traditional fee-for-service program''--it 
ultimately agreed with those that opposed its proposal on the ground 
that M+C enrollees remain ``entitled to benefits under part A'' in the 
relevant sense for determining whether they should be included in the 
Medicare or Medicaid fraction.
    CMS thus responded to the comments that were most relevant to the 
question before the agency: how to interpret the phrase ``entitled to 
benefits under part A'' in the DSH provision and provided a reasoned 
explanation for including MA days in the Medicare fraction. As set 
forth above, CMS continues to believe that its interpretation reflects 
the statutory language and congressional intent. Indeed, when it 
enacted the DSH provision, Congress intended that the Medicare fraction 
serve as a proxy for the percentage of low-income Medicare patients and 
the Medicaid fraction serve as a proxy for the percentage of low-income 
non-Medicare patients. When Congress subsequently created Part C, it 
provided that to enroll in part C, an individual must be ``entitled to 
benefits under part A''--the same language that it used in the DSH 
provision. Thus, Part C enrollees are a subset of individuals 
``entitled to benefits under part A,'' and therefore should be included 
in the Medicare fraction.
    Comment: Some commenters added that it is unclear what CMS is 
actually proposing because the proposal to readopt the policy of 
counting MA patient days in the Medicare fraction is for FY 2014 and 
subsequent years, but CMS also stated that it believes the policy 
adopted in the FY 2005 final rule was a logical outgrowth of the FY 
2004 proposed rule. The commenters asserted that CMS' statements 
suggest that CMS is also planning to apply the policy to correct 
retroactively invalid past rulemaking. Some commenters stated that CMS 
cannot retroactively validate invalid rulemakings by restating the 
positions it adopted in FY 2005, through notice-and-comment rulemaking 
for FY 2014, and in the absence of a Congressional grant of retroactive 
rulemaking authority, an attempt to cure prior deficient proceedings is 
similarly invalid.
    Response: We disagree that the FY 2014 IPPS/LTCH PPS proposed rule 
seeks to validate retroactively an invalid rulemaking as the commenter 
asserted. We proposed to readopt the policy of counting the days of 
patients enrolled in MA plans in the Medicare fraction of the DPP for 
FY 2014 and subsequent years in an abundance of caution and have 
considered the public comments

[[Page 50620]]

received in support of and in opposition to our proposal in making our 
final determination.
    Comment: Commenters stated that CMS cannot finalize its new 
proposed policy for FY 2014 because CMS has not corrected the 
deficiencies cited by the court in Allina, and by doing so, CMS would 
be acting in an arbitrary and capricious manner in violation of the 
Administrative Procedure Act. The commenters added that, while they 
urge CMS not to finalize its proposal, if it does choose to move 
forward, the agency must provide a thorough discussion and allow 
stakeholder comment on it before deciding whether to finalize its 
proposal. Some commenters also stated that the ambiguity in CMS' 
proposal does not provide affected parties adequate notice to properly 
comment on the proposal. Commenters stated that a complete and thorough 
discussion is critical because, citing the decision in FCC v. Fox 
Television Stations (556 U.S. 502 (2009), when stakeholders come to 
rely on a certain policy, an agency must give a more detailed 
explanation for changing its policy than would be necessary for a 
policy created on a blank slate.
    Response: Our proposed rule did not propose a change in policy, but 
rather to readopt a policy that we finalized in the FY 2005 IPPS final 
rule. We believe that commenters favoring our proposal and those 
opposed have had a fair opportunity to comment both in response to the 
FY 2004 proposed rule and the present proposed rule. We also believe 
that we have fully explained why our proposal is an appropriate and 
consistent interpretation of the DSH statute.
    Comment: Commenters stated that the court in Northeast Hospital v. 
Sebelius (657 F.3d at 5) opined that the fiscal impact of this policy 
change was a number in the hundreds of millions of dollars, and they 
requested that CMS release data as to whether this estimate is correct 
and, if not, provide the dollar impact so that hospitals can 
meaningfully assess this policy change in advance of issuing the final 
rule.
    Response: We note that we proposed to readopt this policy for FY 
2014 and subsequent years. Because this proposal is consistent with our 
longstanding policy, it is not considered a change in our policy. 
Accordingly, we do not believe that there will be additional savings or 
costs to the Medicare program, and by inference, to hospitals, as a 
result of this policy.
    Comment: One commenter stated that the issue is further confused by 
the fact that, as discussed in the proposed budget presented by the 
President on April 10, 2013, the agency intends to ask Congress to 
``clarify that individuals who have exhausted inpatient benefits under 
Part A or who have elected to enroll in part C plans should be included 
in the calculation of the Medicare fraction of hospitals' [DPP 
calculation].'' The commenter stated that the agency's position 
regarding where such days should be counted has been rejected by the 
courts in several cases such as Northeast v. Sebelius and Allina v. 
Sebelius. The commenter asserted that asking Congress to clarify how 
these days should be treated in the DSH calculation is an attempt to 
reverse unfavorable court decisions. The commenter also asserted that 
from the beginning of the DSH program until the FY 2005 final rule, CMS 
administered the program exactly as the commenter asserted that it 
should have been administered then and today stating that: ``1. CMS did 
not count Medicare managed care days in the SSI fraction; 2. From the 
outset of the Medicare + Choice program CMS instructed hospitals not 
receiving IME/GME reimbursement to not shadow bill M+C claims, which is 
the very data CMS needed to include the days in the SSI fraction; 3. 
CMS' practice from the beginning of the program was to count all 
Medicaid paid days in the Medicaid fraction, which included Part A 
exhausted days.''
    Response: Although we appreciate receiving the commenter's views, 
proposals in the President's budget and/or pending legislation are 
outside the scope of this rulemaking. As we have previously stated, it 
has never been CMS policy that MA days were to be included in the 
Medicaid fraction. We remind commenters that CMS issued Change Request 
6329 on March 6, 2009, and Change Request 5647 on July 20, 2007, to 
instruct hospitals to submit informational claims for MA patients for 
FY 2006 and FY 2007 and subsequent periods when it was brought to our 
attention that hospitals were not submitting these claims, and contrary 
to our regulations, we were administratively unable to include these MA 
days in the Medicare fraction. Furthermore, we note that CMS issued 
Change Request 5647 to provide hospitals additional time to submit FY 
2007 claims when it was brought to our attention that compliance with 
our policy was uneven, partly due to the fact that teaching hospitals 
have a financial incentive to submit these claims because they receive 
IME payments for MA discharges while nonteaching hospitals receive no 
additional IME payment.
    Comment: One commenter stated that if CMS maintains its view that 
MA days properly belong in the Medicare fraction, then IPPS hospitals 
should receive a DSH add-on payment for every MA beneficiary discharge 
in the same manner that IPPS hospitals receive an IME payment add-on 
for every MA beneficiary discharge.
    Response: We appreciate receiving the commenters' views. However, 
we note that while section 1886(d)(11) of the Act explicitly provides 
for an IME payment add-on for each MA beneficiary discharge, section 
1886(d)(5)(F) of the Act does not provide for a similar DSH payment 
add-on for each MA beneficiary discharge. A legislative change would be 
necessary to authorize such DSH payments to IPPS hospitals that treat 
MA beneficiaries.
    After consideration of the public comments we received, we are 
finalizing our proposal to readopt the policy of counting the days of 
patients enrolled in MA plans in the Medicare fraction of the DPP for 
FY 2014 and subsequent years. We continue to believe this policy is 
most consistent with the language of the statute, congressional intent, 
and the structure of the DSH calculation.
3. New Payment Adjustment Methodology for Medicare Disproportionate 
Share Hospitals (DSHs) Under Section 3133 of the Affordable Care Act 
(Sec.  412.106)
a. General Discussion and Legislative Change
    Section 3133 of the Patient Protection and Affordable Care Act 
(PPACA), as amended by section 10316 of PPACA and section 1104 of the 
Health Care and Education Reconciliation Act (Pub. L. 111-152), added a 
new section 1886(r) to the Act that modifies the methodology for 
computing the Medicare DSH payment adjustment beginning in FY 2014. For 
purposes of this rule, we refer to these provisions collectively as 
section 3133 of the Affordable Care Act.
    Currently, Medicare DSH adjustment payments are calculated under a 
statutory formula that considers the hospital's Medicare utilization 
attributable to beneficiaries who also receive Supplemental Security 
Income (SSI) benefits and the hospital's Medicaid utilization. 
Beginning for discharges in FY 2014, hospitals that qualify for 
Medicare DSH payments under section 1886(d)(5)(F) will receive 25 
percent of the amount they previously would have received under the 
current statutory formula for Medicare DSH payments. This provision

[[Page 50621]]

applies equally to all hospitals that qualify for DSH payments under 
section 1886(d)(5)(F)(i)(II) of the Act. Section 1886(d)(5)(F)(i)(II) 
of the Act provides for a method known as the ``Pickle'' adjustment 
under which a hospital that is located in an urban area and has 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. Pursuant to new section 1886(r) of the Act, hospitals that 
qualify for the Pickle method of the DSH payment adjustment would 
receive 25 percent of the 35-percent add-on adjustment for which they 
would otherwise qualify under section 1886(d)(5)(F)(i)(II) of the Act. 
The remaining amount, equal to an estimate of 75 percent of what 
otherwise would have been paid as Medicare DSH payments, reduced to 
reflect changes in the percentage of individuals under age 65 who are 
uninsured, will become available to make additional payments to each 
hospital that qualifies for Medicare DSH payments and that has 
uncompensated care. The payments to each hospital for a fiscal year 
will be based on the hospital's amount of uncompensated care for a 
given time period relative to the total amount of uncompensated care 
for that same time period reported by all hospitals that receive 
Medicare DSH payments for that fiscal year.
    As provided by section 3133 of the Affordable Care Act, section 
1886(r) of the Act requires that, for ``fiscal year 2014 and each 
subsequent fiscal year,'' a ``subsection (d) hospital'' that would 
otherwise receive a ``disproportionate share hospital payment . . . 
made under subsection (d)(5)(F)'' will receive two separately 
calculated payments. Specifically, section 1886(r)(1) of the Act 
provides that the Secretary shall pay to such a subsection (d) hospital 
(including a Pickle hospital) 25 percent of the amount the hospital 
would have received under section 1886(d)(5)(F) of the Act for 
disproportionate share payments, which represents ``the empirically 
justified amount for such payment, as determined by the Medicare 
Payment Advisory Commission in its March 2007 Report to the Congress.'' 
We refer to this payment as the ``empirically justified Medicare DSH 
payment.''
    In addition to this payment, section 1886(r)(2) of the Act provides 
that, for fiscal year 2014 and each subsequent fiscal year, the 
Secretary shall pay to ``such subsection (d) hospital an additional 
amount equal to the product of'' three factors. The first factor is the 
difference between ``the aggregate amount of payments that would be 
made to subsection (d) hospitals under subsection (d)(5)(F) if this 
subsection did not apply'' and ``the aggregate amount of payments that 
are made to subsection (d) hospitals under paragraph (1)'' for each 
fiscal year. Therefore, this factor amounts to 75 percent of the 
payments that would otherwise be made under section 1886(d)(5)(F) of 
the Act.
    The second factor is, for FYs 2014 through 2017, 1 minus the 
percent change in the percent of individuals under the age of 65 who 
are uninsured, determined by comparing the percent of such individuals 
who are uninsured in 2013, the last year before coverage expansion 
under the Affordable Care Act (as calculated by the Secretary based on 
the most recent estimates available from the Director of the 
Congressional Budget Office before a vote in either House on the Health 
Care and Education Reconciliation Act of 2010 that, if determined in 
the affirmative, would clear such Act for enrollment), minus 0.1 
percentage point for FY 2014, and minus 0.2 percentage point for FYs 
2015 through 2017. For FYs 2014 through 2017, the baseline for the 
estimate of the change in uninsurance is fixed by the most recent 
estimate of the Congressional Budget Office before the final vote on 
the Health Care and Education Reconciliation Act of 2010, which is 
contained in a March 20, 2010 letter from the then Director of the 
Congressional Budget Office to the Speaker of the House. A link to this 
letter is included in section V.E.3.d.2. of the preamble of the 
proposed rule (and this final rule).
    For FY 2018 and subsequent years, the second factor is 1 minus the 
percent change in the percent of individuals who are uninsured, as 
determined by comparing the percent of individuals ``who are uninsured 
in 2013 (as estimated by the Secretary, based on data from the Census 
Bureau or other sources the Secretary determines appropriate, and 
certified by the Chief Actuary'' of CMS, and ``who are uninsured in the 
most recent period for which data is available (as so estimated and 
certified) minus 0.2 percentage points for FYs 2018 and 2019.'' Thus, 
for FY 2018 and subsequent years, the statute provides some greater 
flexibility in the choice of the data sources to be used in the 
estimate of the change in the percent of uninsured individuals.
    The third factor is a percent that, for each subsection (d) 
hospital, ``represents the quotient of . . . the amount of 
uncompensated care for such hospital for a period selected by the 
Secretary (as estimated by the Secretary, based on appropriate data . . 
.),'' including the use of alternative data ``where the Secretary 
determines that alternative data is available which is a better proxy 
for the costs of subsection (d) hospitals for . . . treating the 
uninsured,'' and ``the aggregate amount of uncompensated care for all 
subsection (d) hospitals that receive a payment under this 
subsection.'' Therefore, this third factor represents a hospital's 
uncompensated care amount for a given time period relative to the 
uncompensated care amount for that same time period for all hospitals 
that receive Medicare DSH payments in that fiscal year, expressed as a 
percent. For each hospital, the product of these three factors 
represents its additional payment for uncompensated care for the 
applicable fiscal year. We refer to the additional payment determined 
by these factors as the ``uncompensated care payment.''
    Section 1886(r) of the Act states that this provision is effective 
for ``fiscal year 2014 and each subsequent fiscal year.'' In the FY 
2014 IPPS/LTCH PPS proposed rule (78 FR 27578 through 27592), we set 
forth our proposals for implementing the required changes to the DSH 
payment methodology. We noted that, because section 1886(r) modifies 
the payment required under section 1886(d)(5)(F) of the Act, it affects 
only the DSH payment under the operating IPPS. It does not revise or 
replace the capital IPPS DSH payment provided under the regulations at 
42 CFR Part 412, Subpart M, which were established through the exercise 
of the Secretary's discretion in implementing the capital IPPS under 
section 1886(g)(1)(A) of the Act.
    Finally, section 1886(r)(3) of the Act provides that there shall be 
``no administrative or judicial review under section 1869, section 
1878, or otherwise'' of ``any estimate of the Secretary for purposes of 
determining the factors described in paragraph (2),'' or of ``any 
period selected by the Secretary'' for the purpose of determining those 
factors. Therefore, there can be no administrative or judicial review 
of the estimates developed for purposes of applying the three factors 
used to determine uncompensated care payments, or the periods selected 
in order to develop such estimates.
    Comment: Several commenters expressed concerns about the change in 
the payment methodology used to calculate Medicare DSH payments as a

[[Page 50622]]

result of the implementation of section 3133 of the Affordable Care 
Act, which limits the Medicare DSH payment to 25 percent of what would 
have otherwise been paid prior to the enactment of section 3133 and 
establishes an uncompensated care payment calculated under a different 
payment methodology. The commenters were concerned about large 
redistributions in payments and hospitals experiencing large increases 
or decreases in payment with little notice. Some commenters requested 
that CMS implement a stop-loss and stop-gain policy that would limit 
the amount by which a hospital's Medicare DSH payments could change in 
a single year in order to minimize the effects of annual Medicare DSH 
payment adjustment changes. Some of these commenters suggested a stop-
loss and stop-gain policy that would limit the amount by which a 
hospital's Medicare DSH payments could change in a single year by no 
more than 2 percent. Other commenters suggested that CMS institute a 
cap on the annual payment adjustments, or phase in the transition from 
Medicare DSH payments calculated prior to the enactment of section 3133 
of the Affordable Care Act and Medicare DSH payments calculated under 
the new payment methodology mandated by section 3133 of the Affordable 
Care Act to mitigate drastic decreases in payments to eligible 
hospitals. The commenters noted that CMS has historically implemented 
transitions for policies that may cause significant changes in 
payments. The commenters recognized CMS' policy position regarding data 
finality, but expressed concern that significant increases or decreases 
in payments may suggest that the data are inaccurate. The commenters 
further stated that a stop-loss and stop-gain policy would protect 
against such problems. The commenters believed that the authority to 
implement a stop-loss and stop-gain policy is a logical extension of 
CMS' proxy authority granted under section 1886(r)(2)(C) of the Act to 
ensure data integrity.
    Response: We appreciate the commenters' input. We do not believe 
that we have the statutory authority to phase in the transition from 
Medicare DSH payments calculated prior to the enactment of section 3133 
of the Affordable Care Act to Medicare DSH payments calculated under 
the new payment methodology established by section 3133 of the 
Affordable Care Act, or to apply a cap on the change in Medicare DSH 
payments to eligible hospitals. Rather, we believe that we are required 
to reduce Medicare DSH payments to 25 percent of the amount that would 
otherwise be paid under section 1886(d)(5)(F) of the Act, effective for 
discharges occurring on or after October 1, 2013. In addition, we 
believe that we are required to make the additional payment for 
uncompensated care under the new payment methodology prescribed in 
section 1886(r)(2) of the Act effective for FY 2014. The change to the 
payment methodology for Medicare DSH payments for FY 2014 was designed 
to have redistributive effects in order to provide payments to eligible 
hospitals based upon their amount of uncompensated care relative to the 
total amount of uncompensated care furnished by all eligible hospitals. 
We also do not believe that the statute provides authority for adopting 
a stop-loss and stop-gain policy, or any other transitional 
methodology. Rather, the statute designates an effective date of 
October 1, 2013, for implementing both empirically justified Medicare 
DSH payments and uncompensated care payments.
    Comment: Some commenters requested that CMS delay the 
implementation of this provision. These commenters cited factors such 
as uncertainties over the rate of reduction in uninsurance due to the 
decisions of some States not to adopt Medicaid expansion as reasons for 
recommending a delay. Some of these commenters indicated that a delay 
until FY 2016 would allow time to assess the effect of health care 
reform on the rates of insured and uninsured Americans and, therefore, 
would allow implementation of this provision in a manner that would be 
least disruptive to hospitals, especially those vulnerable hospitals 
that provide large amounts of uncompensated care.
    Response: The statute provides that this provision will be 
effective ``for fiscal year 2014 and each subsequent fiscal year'' and, 
therefore, does not provide us with the flexibility to delay 
implementation.
b. Eligibility
    As indicated above, the new payment methodology applies to 
``subsection (d) hospitals'' that would otherwise receive a 
``disproportionate share payment . . . made under subsection 
(d)(5)(F).'' Therefore, eligibility for empirically justified Medicare 
DSH payments is unchanged under this new provision. Consistent with the 
law, hospitals must receive empirically justified Medicare DSH payments 
in FY 2014 or a subsequent year to receive an additional Medicare 
uncompensated care payment for that year. Specifically, section 
1886(r)(2) of the Act states that, ``[i]n addition to the payment made 
to a subsection (d) hospital under paragraph (1) . . . the Secretary 
shall pay to such subsection (d) hospital an additional amount . . .'' 
(Emphasis supplied.) Because paragraph (1) refers to empirically 
justified Medicare DSH payments, the additional payment under section 
1886(r)(2) of the Act is, therefore, limited to hospitals that receive 
empirically justified Medicare DSH payments pursuant to section 
1886(r)(1) of the Act for FY 2014 and subsequent years.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27580), we 
proposed that hospitals that are not eligible to receive empirically 
justified Medicare DSH payments in FY 2014 and subsequent years would 
not receive uncompensated care payments for those respective years. We 
also proposed to make a determination concerning eligibility for 
interim uncompensated care payments based on each hospital's estimated 
DSH status for FY 2014 or the applicable year (using the most recent 
data that are available). We indicated that our final determination on 
the hospital's eligibility for uncompensated care payments would be 
based on the hospital's actual DSH status on the cost report for that 
payment year. (We discuss these proposals and our final policies in 
more detail below.)
    In the course of developing the proposed policies for implementing 
section 1886(r) of the Act, we considered whether several specific 
classes of hospitals are included within the scope of the statutory 
provision. In particular, we considered whether the provision applies 
to (1) hospitals in the Commonwealth of Puerto Rico, (2) hospitals in 
the State of Maryland paid under a waiver as provided in section 
1814(b) of the Act, (3) sole community hospitals (SCHs), (4) hospitals 
participating in the Bundled Payments for Care Improvement Initiative 
developed by the Center for Medicare and Medicaid Innovation 
(Innovation Center), and (5) hospitals participating in the Rural 
Community Hospital demonstration. We discuss each of these specific 
classes of hospitals below.
(1) Puerto Rico Hospitals
    Under section 1886(d)(9)(A) of the Act, Puerto Rico hospitals 
subject to the IPPS are not ``subsection (d) hospitals,'' but rather 
constitute a distinct class of ``subsection (d) Puerto Rico 
hospitals.'' However, section 1886(d)(9)(D)(iii) of the Act specifies 
that subparagraph (d)(5)(F) (the provision governing the current DSH 
payment methodology) ``shall apply to subsection (d) Puerto

[[Page 50623]]

Rico hospitals . . . in the same manner and to the extent as [it 
applies] to subsection (d) hospitals.'' While the new section 1886(r) 
of the Act does not specifically address whether the methodology 
established there applies to ``subsection (d) Puerto Rico hospitals,'' 
section 3133 of the Affordable Care Act does make a revision to section 
1886(d)(5)(F)(i) of the Act that is crucial for determining the 
eligibility of Puerto Rico hospitals for empirically justified Medicare 
DSH payments and uncompensated care payments under the new provision. 
Specifically, section 3133 of the Affordable Care Act amended section 
1886(d)(5)(F)(i) of the Act to provide that this section is ``[s]ubject 
to subsection (r).'' One effect of this amendment is to provide that 
all hospitals subject to section 1886(d)(5)(F)(i) of the Act, including 
``subsection (d) Puerto Rico hospitals,'' also are subject to the new 
payment methodology established in section 1886(r) of the Act.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27580), we 
proposed that subsection (d) Puerto Rico hospitals that are eligible 
for DSH payments also would be eligible to receive empirically 
justified Medicare DSH payments and uncompensated care payments under 
the new payment methodology. We invited public comments on this 
proposal.
    Comment: Several commenters supported the proposal to include 
subsection (d) Puerto Rico hospitals that are eligible for Medicare DSH 
payments as hospitals eligible to receive empirically justified 
Medicare DSH payments and uncompensated care payments under the new 
payment methodology. However, some commenters, including hospitals from 
Puerto Rico and associations representing Puerto Rico hospitals, 
maintained that Puerto Rico hospitals have been unfairly deprived of 
''DSH money'' due to Puerto Rico's exclusion from the national SSI 
program. These commenters noted that because of the proposed 
methodologies for determining the empirically justified DSH payments 
and Factor 3 of the uncompensated care payment, Puerto Rico will 
continue to be unfairly deprived of DSH dollars despite having 
significant uncompensated care expenses.
    Response: We are finalizing our proposal to include subsection (d) 
Puerto Rico hospitals that are eligible for Medicare DSH payments as 
hospitals eligible to receive empirically justified Medicare DSH 
payments and uncompensated care payments under the new payment 
methodology. With respect to the comment that Puerto Rico hospitals 
will continue to be unfairly deprived of Medicare DSH payments because 
the new methodology continues to rely on SSI days, we acknowledge the 
commenters' concerns and note that it is our view that section 
1886(r)(1) of the Act requires us to use Medicare SSI days to determine 
the empirically justified Medicare DSH payments. We further note that, 
for the reasons discussed below, low-income insured days (which include 
Medicare SSI days) are currently the best data available that CMS can 
use as a proxy for the treatment costs of the uninsured and CMS intends 
to continue to develop an appropriate data source from which to 
determine the amount of uncompensated care provided by hospitals. 
However, we note that for FY 2014 the 51 hospitals in Puerto Rico are 
expected to experience a 41.3 percent increase in Medicare DSH payments 
(from approximately $8 million to $82 million, or a $74 million 
increase) due to the implementation of the changes to the DSH payment 
methodology under section 3133 of the Affordable Care Act, which 
represents a 41.8 percent increase in overall payments to these 
hospitals. Generally, Puerto Rico hospitals had a relatively low, less 
than 10 percent, Medicare utilization (as measured by a percentage of 
Medicare patient days to total patient days), therefore the changes in 
section 1886(r)(2) of the Act result in the significant increase for 
Puerto Rico. We refer readers to the appendix of this rule for a more 
detailed impact analysis.
(2) Hospitals Paid Under a Waiver Under Section 1814(b) of the Act
    Under section 1814(b) of the Act, hospitals in the State of 
Maryland are subject to a waiver from the Medicare payment 
methodologies under which they would otherwise be paid. We have taken 
the position in other contexts, for example, for purposes of EHR 
incentive payments (75 FR 44448), that Maryland acute care hospitals 
remain subsection (d) hospitals. This is because these hospitals are 
``located in one of the fifty States or the District of Columbia'' (as 
provided in the definition of subsection (d) hospitals) and do not meet 
the definitions of the hospitals that are specifically excluded from 
that category, such as cancer hospitals and psychiatric hospitals. 
However, section 1886(r) of the Act applies to hospitals that are both 
subsection (d) hospitals and hospitals that would otherwise receive a 
disproportionate share payment made under the previous DSH payment 
methodology. Because Maryland waiver hospitals are paid under section 
1814(b)(3) of the Act and not under section 1886(d)(5)(F) of the Act, 
they are not eligible to receive empirically justified Medicare DSH 
payments and uncompensated care payments under the new payment 
methodology of section 1886(r) of the Act.
    Comment: Several commenters supported the proposal to exclude 
Maryland hospitals, which are paid under section 1814(b)(3) of the Act 
and not under section 1886(d)(5)(F) of the Act, from hospitals eligible 
to receive empirically justified Medicare DSH payments and 
uncompensated care payments under the new payment methodology 
established under section 1886(r) of the Act.
    Response: We appreciate the commenters' support and are finalizing 
this policy, as proposed.
(3) Sole Community Hospitals (SCHs)
    SCHs are paid based on their hospital-specific rate from certain 
specified base years or the IPPS Federal rate, whichever yields the 
greatest aggregate payment for the hospital's cost reporting period. 
Payments based on the Federal rate are based on the IPPS standardized 
amount and include all applicable IPPS add-on payments, such as 
outliers, DSH, and IME, while payments based on the hospital-specific 
rate have no add-on payments. For each cost reporting period, the 
fiscal intermediary/MAC determines which of the payment options will 
yield the highest aggregate payment. Interim payments are automatically 
made on a claim-by-claim basis at the highest rate using the best data 
available at the time the fiscal intermediary/MAC makes the payment 
determination for each discharge. However, it may not be possible for 
the fiscal intermediary/MAC to determine in advance precisely which of 
the rates will yield the highest aggregate payment by year's end. In 
many instances, it is not possible to forecast outlier payments or the 
final amount of the DSH payment adjustment or the IME adjustment until 
cost report settlement. As noted above, these adjustment amounts are 
applicable only to payments based on the Federal rate and not to 
payments based on the hospital-specific rate. The fiscal intermediary/
MAC makes a final adjustment at cost report settlement after it 
determines precisely which of the payment rates would yield the highest 
aggregate payment to the hospital for its cost reporting period. This 
payment methodology makes SCHs unique as they can change on a yearly 
basis from receiving hospital-specific rate payments to receiving 
Federal rate payments, or vice versa.

[[Page 50624]]

    In order to implement the provisions of section 1886(r) of the Act, 
in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27580), we proposed 
to continue to determine interim payments for SCHs based on what we 
estimate and project their DSH status to be prior to the beginning of 
the Federal fiscal year (based on the best available data at that 
time), subject to settlement through the cost report. We also proposed 
that SCHs that receive interim empirically justified Medicare DSH 
payments in a fiscal year would receive interim uncompensated care 
payments that fiscal year, subject as well to settlement through the 
cost report. Final eligibility determinations would be made at the end 
of the cost reporting period at settlement, and both interim 
empirically justified Medicare DSH payments and uncompensated care 
payments would be adjusted accordingly. Therefore, we proposed to 
follow the same processes of interim and final payments for SCHs that 
we proposed to follow for eligible IPPS DSH hospitals generally. (We 
discuss these processes in more detail below.)
    Comment: Many commenters supported the proposal to allow SCHs that 
receive interim empirically justified Medicare DSH payments in a fiscal 
year to receive interim uncompensated care payments that fiscal year, 
subject to settlement through the cost report. However, one commenter 
stated that even an SCH paid under the hospital-specific rate during a 
fiscal year that, therefore, would not receive empirically justified 
Medicare DSH payments in that year should still receive uncompensated 
care payments, provided that the SCH otherwise qualifies for 
empirically justified Medicare DSH payments under Sec.  412.106(c). The 
commenter stated that, ``Since such payments are not discharge-related 
payments, uncompensated care payments should be paid in addition to any 
discharge-related payments for an SCH, whether such discharge-related 
payments are calculated on the basis of the federal standardized 
amount, plus DSH payments, or on the basis of the HSP, without DSH 
payments. In other words, if an SCH has aggregate HSP payments that 
exceed the sum of federal standardized amount and DSH payments, the SCH 
should still receive uncompensated care payments under 42 CFR 
412.106(g)-(h), as long as it is DSH-eligible under 42 CFR 
412.106(c).''
    Response: We do not agree with the commenter who stated that SCHs 
paid under the hospital-specific rate during a fiscal year should still 
receive uncompensated care payments provided that the SCH otherwise 
qualifies for empirically justified Medicare DSH payments under Sec.  
412.106(c). As we have noted above, section 1886(r)(2) of the Act 
specifically states that, ``[i]n addition to the payment made to a 
subsection (d) hospital under paragraph (1) . . . the Secretary shall 
pay to such subsection (d) hospital an additional amount . . .'' 
(Emphases supplied.) Because paragraph (2) provides that the 
uncompensated care payment is to be made ``in addition to'' the 
empirically justified Medicare DSH payments made under paragraph (1), a 
hospital must receive empirically justified Medicare DSH payments under 
section 1886(r)(1) in order to receive the additional payment under 
section 1886(r)(2) of the Act for FY 2014 and subsequent years.
    As previously noted, under the SCH payment methodology, SCHs are 
paid the higher of the Federal rate or a hospital-specific payment 
rate. This payment methodology is defined under sections 
1886(d)(5)(D)(i) and 1886(d)(1)(A)(iii) of the Act. Section 1886(d)(3) 
of the Act specifically provides that SCH payments are to be made on a 
per-discharge basis. Accordingly, as we also note below, in the FY 2014 
IPPS/LTCH PPS proposed rule (78 FR 27581), we proposed that the 
uncompensated care payments would not be accounted for in determining 
whether an SCH is paid the higher of the Federal rate or the hospital-
specific rate. This is because we proposed that the uncompensated care 
payments would not be discharge-driven payments, but rather payments 
made on the basis of a hospital's overall share of uncompensated care 
during a payment year. The amount of a hospital's uncompensated care 
payments for a year is not directly affected by the number of the 
hospital's discharges for the year. Therefore, we did not believe that 
uncompensated care payments should be taken into account in a 
comparison based on discharge driven hospital-specific and Federal rate 
payments. Furthermore, as we proposed later in the proposed rule, we 
intended to make interim uncompensated care payments on a periodic 
basis rather than a per discharge basis in order to create more 
predictability for hospitals and to increase administrative efficiency. 
To the extent the payments are intended to reflect the relative amount 
of uncompensated care furnished by the hospital, we considered it both 
reasonable and appropriate to view this payment as an amount for the 
year, which in the interests of predictability and consistency is made 
periodically through interim payments.
    We invited public comments on all of these proposals affecting 
SCHs.
    Comment: Several commenters objected to the proposal not to take 
uncompensated care payments into account in the comparison of payments 
under the hospital-specific rate and the Federal rate that occurs on a 
discharge basis and at cost report settlement for SCHs. These 
commenters contended that the proposed policy amounted to imposing a 
payment cut on many SCHs. This is because the proposed policy would 
have the result that more SCHs would be paid under their hospital-
specific rate rather than the higher Federal rate because the 
equivalent of 75 percent of the former DSH payment amounts would no 
longer be included in the Federal rate side of the comparison. The 
commenters maintained that it was not the intention of the new payment 
adjustment methodology for disproportionate share hospitals to impose 
reductions in payments indirectly on hospitals paid under different 
provisions of the statute.
    Response: We agree with these commenters that it is not the 
intention of the new payment adjustment methodology for 
disproportionate share hospitals to impose reductions in payments 
indirectly on hospitals paid under different provisions of the statute. 
We continue to believe that the periodic biweekly payments approach 
would be consistent with the statute, and that it would be, in 
isolation, the most administratively efficient means to distribute the 
fixed amount of a hospital's uncompensated care payment in a manner 
that would avoid the potential for large over- and/or under- payments 
during the year and, therefore, limit the need for reconciliation at 
cost report settlement. However, after a thorough review of the above 
policy considerations reflected in the numerous public comments we 
received, we believe that distributing these payments on a per-
discharge basis would allow these payments to be considered in the 
comparison of payments under the Federal rate and the hospital-specific 
rate for SCHs. We believe that this is an appropriate policy because 
this approach provides all SCHs an opportunity to be eligible for 
uncompensated care payments. To the extent that their payments under 
their hospital-specific rate are higher, we believe that it is 
appropriate that they do not receive uncompensated care payments 
because they are no longer eligible for DSH payments, as we describe 
above. However, after consideration of the public comments we received, 
we believe that it is appropriate for the uncompensated care payment to 
be considered as part of an

[[Page 50625]]

SCH's payment under the Federal rate. For this and other reasons which 
we discuss later in this preamble, we have decided not to finalize our 
proposed policy to make interim uncompensated care payments on a 
periodic basis rather than a per-discharge basis for FY 2014. We 
discuss the operational details of including the uncompensated care 
amount in the payment for each IPPS hospital discharge in greater 
detail below in section V.E.3.f. of the preamble of this final rule. 
However, one result of including the uncompensated care payments in the 
payment for each hospital discharge is that such payments can now also 
be included in the comparison of the hospital-specific and Federal rate 
payments for SCHs. That is, we will now be able to employ the claims 
processing system to compare each SCH's payment under the hospital-
specific rate to its Federal rate, including uncompensated care 
payments.
(4) Hospitals Participating in the Bundled Payments for Care 
Improvement Initiative
    IPPS hospitals that have elected to participate in the Bundled 
Payments for Care Improvement initiative receive a payment that links 
multiple services furnished to a patient during an episode of care. We 
have stated in previous rulemaking that those hospitals continue to be 
paid under the IPPS (77 FR 53342). Hospitals that elect to participate 
in the initiative can still receive DSH payments while participating in 
the initiative, if they otherwise meet the requirements for receiving 
such payments.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27581), we 
proposed to apply the new DSH payment methodology to the hospitals in 
this initiative, so that eligible hospitals would receive empirically 
justified Medicare DSH payments and uncompensated care payments. We 
invited public comments on this proposal.
    Comment: Several commenters supported the proposal to apply the new 
Medicare DSH payment adjustment methodology to the hospitals in the 
Bundled Payments for Care Improvement initiative so that eligible 
hospitals would receive empirically justified Medicare DSH payments and 
uncompensated care payments.
    Response: We appreciate the commenters' support and are finalizing 
this policy, as proposed.
(5) Hospitals Participating in the Rural Community Hospital 
Demonstration
    Section 410A of the Medicare Modernization Act established the 
Rural Community Hospital Demonstration Program. After the initial 5-
year period, the demonstration was extended for an additional 5-year 
period by sections 3123 and 10313 of the Affordable Care Act. There are 
23 hospitals currently participating in the demonstration. Under the 
payment methodology provided in section 410A, participating hospitals 
receive payment for Medicare inpatient services on the basis of a cost 
methodology. Specifically, for discharges occurring in the hospitals' 
first cost reporting period of the initial 5-year demonstration or the 
first cost reporting period of the 5-year extension, they receive 
payments for the reasonable cost of providing such services. For 
discharges occurring in subsequent cost reporting periods during the 
applicable 5-year demonstration period, hospitals receive the lesser of 
the current year's reasonable cost amount, or the previous year's 
amount updated by the percentage increase in the IPPS market basket 
(the target amount). (We refer readers to section V.K. of the preamble 
of this final rule for further information on the demonstration.) The 
instructions (CR 5020 (April 14, 2006) and CR 7505 (July 22, 2011)) for 
the demonstration require that the fiscal intermediary/MAC not pay 
Medicare DSH payments in addition to the amount received under the 
cost-based payment methodology. Although the amounts that would 
otherwise be paid for Medicare DSH payments (absent the demonstration) 
are calculated and identified on the hospital cost report for 
statistical and research purposes, as in the case of Maryland waiver 
hospitals, hospitals in this demonstration do not receive a separate or 
identifiable DSH payment.
    Because hospitals participating in the Rural Community Hospital 
Demonstration do not receive DSH payments, these hospitals also are 
excluded from receiving empirically justified Medicare DSH payments and 
uncompensated care payments under the new payment methodology.
    Comment: Several commenters supported the proposal to exclude 
hospitals participating in the Rural Community Hospital Demonstration 
program from receiving empirically justified Medicare DSH payments and 
uncompensated care payments under the new payment methodology.
    Response: We appreciate the commenters' support and are finalizing 
this policy, as proposed.
c. Empirically Justified Medicare DSH Payments
    As we have discussed above, section 1886(r)(1) of the Act requires 
CMS to pay 25 percent of the ``amount of disproportionate share 
hospital payment that would otherwise be made under subsection 
(d)(5)(F) to a subsection (d) hospital.'' Currently, we have a system 
for interim payment and final settlement of DSH payments made under 
section 1886(d)(5)(F). Specifically, interim payments are made for each 
claim based on the best available data concerning each hospital's 
eligibility for DSH payments and the appropriate level of such 
payments. Final eligibility for Medicare DSH payments and the final 
amount of such payments for eligible hospitals are determined at the 
time of cost report settlement. Because section 1886(r)(1) of the Act 
merely requires the program to pay a designated percentage of these 
payments, without revising the criteria governing eligibility for DSH 
payments or the underlying payment methodology, we stated in the 
proposed rule that we did not believe that it is necessary to develop 
and propose any new operational mechanisms for making such payments.
    Therefore, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27581), we proposed to implement this provision simply by revising the 
claims payment methodologies to adjust the interim claim payments to 
the requisite 25 percent of what would have otherwise been paid. We 
also indicated that we would make corresponding changes to the hospital 
cost report so that these empirically justified Medicare DSH payments 
can be settled at the appropriate level at the time of cost report 
settlement. We stated that we would provide more detailed operational 
instructions and cost report instructions following display of the 
final rule in the Federal Register.
    We proposed to implement this provision by adding a new paragraph 
(f) under the regulations at Sec.  412.106. This proposed new paragraph 
provides for reducing Medicare DSH payments by 75 percent beginning in 
FY 2014.
    We invited public comments on this proposal.
    Comment: Several commenters supported the proposal to implement 
this provision by revising the claims payment methodologies to adjust 
the interim claim payments to the requisite 25 percent of what would 
have otherwise been paid. The commenters also supported the proposal to 
make

[[Page 50626]]

corresponding changes to the hospital cost report so that these 
empirically justified Medicare DSH payment adjustments can be settled 
at the appropriate level at the time of cost report settlement.
    Response: We appreciate the commenters' support and are finalizing 
these policies, as proposed, by adding a new paragraph (f) under Sec.  
412.106 to reflect the policies.
    Comment: Several commenters requested that CMS undertake additional 
audits to verify the data used to compute the 25-percent empirically 
justified Medicare DSH payment adjustments. Other commenters requested 
that CMS grant additional time for hospitals to verify the data and 
adjust their cost reports to ensure that the data used to compute the 
adjustment are accurate and up to date. Some commenters requested that 
CMS establish procedures to allow a hospital initially determined not 
to be eligible for Medicare DSH payments to begin receiving empirically 
justified Medicare DSH payments if data become available that indicate 
that the hospital would be eligible.
    Response: As we have emphasized, we are maintaining the well-
established methodology and payment processes used under the current 
Medicare DSH payment adjustment methodology for purposes of making the 
empirically justified Medicare DSH payment adjustments. Hospitals are 
quite familiar with the cost reporting requirements and auditing 
procedures employed under the current Medicare DSH payment adjustment 
methodology. Hospitals are also familiar with the current process of 
determining interim eligibility for Medicare DSH payments with final 
determination at cost report settlement. Therefore, we do not believe 
that it would be warranted to add additional complexity to these 
procedures by adopting any of these recommendations.
    Comment: Several commenters noted that, under the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003, a 12-
percent cap was placed on DSH payment adjustment percentages for 
certain rural hospitals, including those with SCH status. These 
commenters also noted that CMS' proposal was silent about how this cap 
provision will apply to calculations under the revised Medicare DSH 
payment adjustment methodology. The commenters agreed that the cap 
should apply to the calculation of the empirically justified Medicare 
DSH payment adjustment amounts and the Factor 1 computation in the 
uncompensated care payment determination. However, the commenters 
expressed concern that the cap could be applied again when formulating 
the overall Medicare DSH payment adjustment amount that a hospital 
receives. If the cap were to apply to the overall Medicare DSH payment 
adjustment amount, the commenters asserted that hospitals would in 
effect be penalized twice, once when calculating the empirically 
justified Medicare DSH payment adjustment amount and the amount of 
Factor 1, which is equal to 75 percent of the DSH payments that would 
otherwise have been made under section 1886(d)(5)(F), and again when 
formulating the overall Medicare DSH payment adjustment amount that the 
hospital receives. Therefore, the commenters asked CMS to clarify and 
confirm that the cap provision will not be applied to the overall 
Medicare DSH payment adjustment amount that each hospital receives.
    Response: Under the Medicare DSH statute, certain hospitals are 
subject to a 12-percent cap on their DSH payment adjustment percentage. 
For these hospitals, the maximum DSH payment adjustment factor has 
historically been 12 percent, regardless of how high the DPP for these 
hospitals was. We note that the 12-percent cap only applies to the 
following hospital types: hospitals located in urban areas with less 
than 100 beds, and hospitals located in rural areas with less than 500 
beds (however, we note that the 12-percent cap does not apply to Rural 
Referral Centers or to Medicare Dependent Hospitals, regardless of bed 
size). We agree with the commenters that the cap should not be applied 
to payments under section 1886(r)(2) of the Act. Although we did not 
state so specifically, the commenters were correct to infer, from our 
proposal to continue employing the current Medicare DSH payment 
adjustment methodology in determining the empirically justified 
Medicare DSH payment amount, that the cap should and would be applied 
when calculating payments under section 1886(r)(1) of the Act (which is 
25 percent of the amount otherwise payable under section 1886(d)(5)(F). 
This is because the cap under section 1886(d)(5)(F)(xiv)(II) limits the 
amount of the payment adjustment under section 1886(d)(5)(F), and 
payments under section 1886(r)(1) are 25 percent of the payments that 
would otherwise be made under section 1886(d)(5)(F), we believe the cap 
necessarily applies to payments under section 1886(r)(1) as well. 
Similarly, the commenters were correct to infer that the application of 
the cap on Medicare DSH payment adjustments to those hospitals would be 
taken into account in determining Factor 1 of the uncompensated care 
payment determination, which is equal to 75 percent of the aggregate 
amount of payments that would otherwise be made under section 
1886(d)(5)(F). However, there is nothing in the statute that requires 
an application of this cap to the final amount of uncompensated care 
payments hospitals receive, beyond taking it into consideration in the 
estimate of Factor 1. Therefore, we are taking this opportunity to 
confirm that our proposal did not imply that the cap would be applied 
to payments to hospitals under section 1886(r)(2) of the Act.
    Comment: One commenter asked CMS to clarify how it will apply the 
cap to the empirically justified Medicare DSH payments. The commenter 
offered the following example:
    ``If a hospital subject to the twelve-percent cap has a 
disproportionate share patient percentage sufficient to generate a 
disproportionate share adjustment percentage of 16 percent pursuant to 
[section] 1886(d)(5)(F)(vii) [of the Act], under the proposed formula, 
CMS could use either 16 percent or 12 [percent] as the empirically 
justified amount. If the Agency uses 16 percent, then the empirically 
justified amount portion of the formula would be 4 percent (16 * 0.25); 
if the agency uses 12 percent, then the empirically justified amount 
portion of the formula would be 3 percent (12 * 0.25).''
    Response: Section 1886(r)(1) of the Act clearly provides that 
Medicare shall pay 25 percent of the amount that would otherwise be 
paid ``under subsection (d)(5)(F) to a subsection (d) hospital.'' The 
cap provision is stipulated under section 1886(d)(5)(F)(xiv)(II) of the 
Act. Therefore, for purposes of the empirically justified Medicare DSH 
payment adjustment amount under section 1886(r)(1) of the act, Medicare 
is only authorized to pay 25 percent of the amount otherwise payable 
under section 1886(d)(5)(F), subject to the 12-percent cap. We note 
that the 12-percent cap only applies to the following hospital types: 
hospitals located in urban areas with less than 100 beds, and hospitals 
located in rural areas with less than 500 beds (however, we note that 
the 12-percent cap does not apply to Rural Referral Centers or to 
Medicare Dependent Hospitals, regardless of bed size). In the 
commenter's example, the empirically justified Medicare DSH payment 
adjustment amount paid under section 1886(r)(1) of the Act would be 25 
percent of the maximum 12-percent

[[Page 50627]]

DSH adjustment factor under section 1886(d)(5)(F) of the Act, or 3 
percent (12 * 0.25). That is, the empirically justified Medicare DSH 
payment adjustment amount paid under section 1886(r)(1) of the Act 
could not exceed 25 percent of the maximum 12-percent DSH adjustment 
factor under section 1886(d)(5)(F) of the Act and, therefore, could not 
exceed 3 percent.
d. Uncompensated Care Payments
    As we have discussed above, section 1886(r)(2) of the Act provides 
that, for each eligible hospital in FY 2014 and subsequent years, the 
new uncompensated care payment is the product of three factors. These 
three factors represent our estimate of 75 percent of the amount of 
Medicare DSH payments that would otherwise have been paid, an 
adjustment to this amount for the percent change in the national rate 
of uninsurance compared to a base of 2013, and each eligible hospital's 
estimated uncompensated care amount relative to the estimated 
uncompensated care amount for all eligible hospitals. Below we discuss 
the proposed data sources and methodologies for computing each of these 
factors and our final policies.
    Before we begin to discuss these data sources and methodologies, it 
is necessary to discuss the timing and manner for determining the 
eligibility of hospitals for uncompensated care payments. The statute 
provides that subsection (d) hospitals that receive a payment under 
section 1886(d)(5)(F) of the Act are eligible to receive a payment 
under section 1886(r)(2) of the Act. Specifically, section 1886(r)(2) 
of the Act states that, ``[i]n addition to the payment made to a 
subsection (d) hospital under paragraph (1) . . . the Secretary shall 
pay to such subsection (d) hospitals an additional amount. . . .'' 
Therefore, because paragraph (1) refers to empirically justified 
Medicare DSH payments, the additional payment for FY 2014 and 
subsequent years is limited to hospitals that receive empirically 
justified Medicare DSH payments for the respective year. However, as we 
have discussed above, we currently have a system for interim payment 
and final settlement of DSH payments. Specifically, interim payments 
are made for each claim based on the best available data concerning 
each hospital's eligibility for DSH payments and the appropriate level 
of such payments. Final determination of eligibility for Medicare DSH 
payments and the final amount of such payments for eligible hospitals 
are determined at the time of cost report settlement.
    As we describe above, because section 1886(r)(1) of the Act does 
not revise the criteria governing eligibility for DSH payments or the 
underlying payment methodology, we do not believe that it is necessary 
to develop any new operational mechanisms for making such payments and, 
therefore, will continue using the existing system of interim 
eligibility and payment determination with final cost report settlement 
for the empirically justified Medicare DSH payments. In the FY 2014 
IPPS/LTCH PPS proposed rule (78 FR 27582), we proposed to adopt a 
similar system of interim eligibility and payment determination with 
final cost report settlement for purposes of uncompensated care 
payments. We discussed our proposals regarding the specific operational 
details of this system in section V.E.3.f. of the preamble of the 
proposed rule.
    We invited public comments on these proposals.
    Comment: Some commenters requested that if CMS has initially 
projected that a hospital is ineligible for uncompensated care 
payments, but data later become available to indicate that the hospital 
is eligible, the hospital be able to receive the uncompensated care 
payments prior to cost report settlement.
    Response: For the reasons discussed above regarding the empirically 
justified Medicare DSH payments, we do not believe that it is necessary 
or advisable to depart from our longstanding process of making interim 
eligibility determinations for Medicare DSH payments with final 
determination at cost report settlement. As we discuss in greater 
detail in section V.E.3.f. of the preamble to this final rule, we will 
make interim eligibility determinations based on data from the most 
recently available SSI ratios and Medicaid fractions prior to the 
beginning of the payment year. We will then make final determinations 
of eligibility at the time of settlement of each hospital's cost 
report. Therefore, if a hospital is initially determined to be 
ineligible for payments under sections 1886(r)(1) and 1886(r)(2) of the 
Act, but is later determined to indeed be eligible, we are adopting as 
final our proposal to make those payments at cost report settlement. We 
also note that, consistent with our decision, as discussed in the next 
section, to determine Factor 1 prospectively, we will not revise Factor 
1 retrospectively to account for the effects of these final 
determinations of eligibility for payments under sections 1886(r)(1) 
and 1886(r)(2) of the Act at cost report settlement.
(1) Methodology To Calculate Factor 1
    Section 1886(r)(2)(A) of the Act establishes Factor 1 in the 
calculation of the uncompensated care payment. Section 1886(r)(2)(A) of 
the Act states that it is a factor ``equal to the difference between 
(i) the aggregate amount of payments that would be made to subsection 
(d) hospitals under subsection (d)(5)(F) if this subsection did not 
apply for such fiscal year (as estimated by the Secretary); and (ii) 
the aggregate amount of payments that are made to subsection (d) 
hospitals under paragraph (1) for such a fiscal year (as so 
estimated).'' Therefore, section 1886(r)(2)(A)(i) of the Act represents 
the estimated Medicare DSH payment that would have been made under 
section 1886(d)(5)(F) if section 1886(r) of the Act did not apply for 
such fiscal year. Section 1886(r)(2)(A)(i) of the Act specifies that, 
for each fiscal year to which the provision applies, such amount is to 
be ``estimated by the Secretary.'' Under a prospective payment system, 
we would not know the precise aggregate Medicare DSH payment amount 
that would be paid for a Federal fiscal year until cost report 
settlement for all IPPS hospitals is completed, which occurs several 
years after the end of the Federal fiscal year. Therefore, the statute 
gives CMS authority to estimate this amount, by specifying that, for 
each fiscal year to which the provision applies, such amount is to be 
``estimated by the Secretary.'' Similarly, section 1886(r)(2)(A)(ii) of 
the Act represents the estimated empirically justified Medicare DSH 
payments to be made in FY 2014 and subsequent years, as prescribed 
under section 1886(r)(1) of the Act. Again, section 1886(r)(2)(A)(ii) 
of the Act gives CMS authority to estimate this amount.
    Therefore, Factor 1 is the difference between our estimates of: (1) 
The amount that would have been paid in Medicare DSH payments for FY 
2014 and subsequent years, in the absence of the new payment provision; 
and (2) the amount of empirically justified Medicare DSH payments that 
are made for FY 2014 and subsequent years, which takes into account the 
requirement to pay 25 percent of what would have otherwise been paid 
under section 1886(d)(5)(F) of the Act. In other words, this factor 
represents our estimate of 75 percent (100 percent minus 25 percent) of 
our estimate of Medicare DSH payments that would otherwise be made, in 
the absence of section 1886(r) of the Act, for FY 2014 and subsequent 
years.

[[Page 50628]]

    In order to determine Factor 1 in the uncompensated care payment 
formula, we proposed to develop final estimates of both the aggregate 
amount of Medicare DSH payments that would be made in the absence of 
section 1886(r)(1) and the aggregate amount of empirically justified 
Medicare DSH payments to hospitals under section 1886(r)(1) of the Act 
prior to each fiscal year to which the new provision applies. We 
believe this will create some level of predictability and finality for 
hospitals eligible for these payments, in addition to being 
administratively efficient. Specifically, in order to determine the two 
elements of Factor 1 (Medicare DSH payments prior to the application of 
section 1886(r)(1) of the Act, and empirically justified Medicare DSH 
payments after application of section 1886(r)(1)), we proposed to use 
the most recently available projections of Medicare DSH payments for FY 
2014 and each subsequent year, as calculated by CMS' Office of the 
Actuary. The Office of the Actuary projects Medicare DSH payments on a 
biannual basis, typically in February of each year (based on data from 
December of the previous year) as part of the President's Budget, and 
in July (based on data from June) as part of the Midsession Review. The 
estimates are based on the most recently filed Medicare hospital cost 
report with Medicare DSH payment information and the most recent 
Medicare DSH patient percentages and Medicare DSH payment adjustments 
provided in the IPPS Impact File.
    Therefore, for the Office of the Actuary's February 2013 estimate, 
the data are based on the December 2012 update of the Medicare Hospital 
Cost Report Information System (HCRIS) and the FY 2013 IPPS/LTCH PPS 
final rule IPPS Impact file, published in conjunction with the 
publication of the FY 2013 IPPS/LTCH PPS final rule. For the July 2013 
estimate, we anticipated that the data would be based on the March 2013 
update of the Medicare Hospital Cost Report data and the proposed 
rule's IPPS Impact file, published in conjunction with the proposed 
rule. For purposes of the proposed rule, we used the February 2013 
Medicare DSH estimates to calculate Factor 1 and to model the proposed 
impact of this provision. We stated that if our proposal to use the 
Office of the Actuary's projections for Factor 1 is finalized, we would 
use the July 2013 Medicare DSH estimates to determine Factor 1 for this 
FY 2014 IPPS/LTCH PPS final rule.
    In addition, because we proposed to exclude SCHs paid under their 
hospital-specific payment rate from the application of section 1886(r) 
of the Act, we also proposed to exclude these hospitals from our 
Medicare DSH estimate. Similarly, because Maryland hospitals and 
hospitals participating in the Rural Community Hospital Demonstration 
do not receive DSH payments, we also proposed to exclude these 
hospitals from our Medicare DSH estimate.
    Using the data sources discussed above, the Office of the Actuary 
uses the most recently submitted Medicare cost report data to identify 
current Medicare DSH payments and the most recent DSH payment 
adjustments provided in the IPPS Impact File, and applies inflation 
updates and assumptions for future changes in utilization and case-mix 
to estimate Medicare DSH payments for the upcoming fiscal year. The 
February 2013 Office of the Actuary estimate for Medicare DSH payments 
for FY 2014, without regard to the application of section 1886(r)(1) of 
the Act, was $12.338 billion. This estimate excludes Maryland 
hospitals, SCHs paid under their hospital-specific payment rate and 
hospitals participating in the Rural Community Hospital Demonstration 
as discussed above. Therefore, based on this estimate, the estimate for 
empirically justified Medicare DSH payments for FY 2014, with the 
application of section 1886(r)(1) of the Act, was $3.084 billion (25 
percent of the total amount estimated). Under our proposal, Factor 1 is 
the difference of these two estimates of the Office of the Actuary. 
Therefore, for the purpose of modeling Factor 1, we calculated Factor 1 
to be $9.2535 billion.
    We also proposed to develop and use the estimates necessary for 
Factor 1 on a purely prospective basis. We proposed to use the 
Actuary's most recent February Medicare DSH estimates each year to 
calculate Factor 1 and to model the impact of this provision for the 
IPPS/LTCH PPS proposed rule. Similarly, we proposed to use the 
Actuary's most recent July Medicare DSH estimates to determine Factor 1 
for the IPPS/LTCH PPS final rule each year. In other words, we would 
not revise or update our estimates after we know the final Medicare DSH 
payments for FY 2014 and subsequent years. As we discussed earlier, we 
do not know the aggregate Medicare DSH payment amount that would be 
paid for each federal fiscal year until the time of cost report 
settlements, which occur several years after the end of the fiscal 
year. Because the statute provides that CMS use estimates in order to 
determine Factor 1 each year, we stated that we believe that applying 
our best estimates prospectively would be most conducive to 
administrative efficiency, finality, and predictability in payments. We 
proposed to add a new paragraph (g)(1)(i) under Sec.  412.106 of our 
regulations to define the methodology for calculating Factor 1.
    We invited public comments on all the elements of this proposed 
methodology to calculate Factor 1.
    Comment: Some commenters pointed out that the summary analysis that 
CMS provided of the uncompensated care Factor 1 estimate indicates that 
the 2009 Medicare DSH payments were used as the starting point to 
project expected empirically justified Medicare DSH payment adjustments 
for FY 2014. The commenters noted that the current 2009 Medicare DSH 
payments do not reflect several key issues that have yet to be settled 
by the courts, such as dual eligible days and MA days, or issues that 
have already been settled such as labor and delivery room days. In 
addition, the commenters noted that the majority of the 2009 cost 
reports remain unaudited. Therefore, commenters maintained that we 
should not use 2009 as a base year for empirically justified Medicare 
DSH payment adjustment eligibility without finalizing all 2009 cost 
reports and appeals.
    Response: In this final rule, our Office of the Actuary has based 
its projections on cost reports for fiscal year 2010 as a starting 
point. This is the most recent year for which cost report data has been 
submitted by almost all the hospitals, which is very important for 
purposes of estimating the full amount of empirically justified 
Medicare DSH payments. We do not believe that we should employ a cost 
reporting period for which cost report data have all been audited 
because doing so would require using much earlier data as the basis for 
the projection. This would create the potential for much larger 
projection errors and would, therefore, not tend to increase the 
accuracy of the projection.
    Comment: Some commenters noted that CMS proposed to use 2009 cost 
report data as the base year for Factor 1, but to use 2010-2012 cost 
report data for purposes of the Factor 3 calculations. The commenters 
asked why the baseline information cannot be derived from the same 
period as the data used in the Factor 3 calculation and urged CMS to 
reconcile this discrepancy.
    Response: In order to determine the total amount of Medicare DSH 
spending for Factor 1, it is important to use the latest available data 
year for which almost all hospitals have submitted their cost reports, 
which for purposes of this final rule is 2010 cost report data. This is 
because we are computing a total

[[Page 50629]]

number that must include all hospitals and, therefore, to avoid 
discrepancies, we believe that it is important to use data from the 
same time period for all hospitals. Therefore, we believe that it is 
appropriate to use a data year that does not include some hospitals. 
However, for purposes of determining hospital-specific factors used to 
compute Factor 3, it is important to use the most recent data for each 
hospital. In this way, the projections for each hospital will be as 
accurate as possible because we use the most recent available data. It 
is more important in this case to provide for the most accurate 
projection for each hospital than to employ data from the same cost 
reporting period for each hospital. Therefore, using different years in 
making these two determinations actually enhances, rather than detracts 
from, the accuracy of these projections.
    Comment: One commenter maintained that we underestimated the 2009 
Medicare DSH amount by not including adjustments required by the recent 
decision in Allina v. Sebelius. The commenter estimated that the 
projected 2014 Medicare DSH payments, which are based on 2009 DSH 
payments, are understated by $1.1 billion as a result of the incorrect 
treatment of MA days. Therefore, the commenter argued that CMS must use 
proper 2009 Medicare DSH data, including corrections required as a 
result of court cases, before it can appropriately extrapolate the data 
for current year calculations.
    Response: The commenter is correct that we did not include the 
effects of any court cases that are not already reflected in the cost 
reports in developing our estimate for Factor 1. We continue to believe 
that Allina was wrongly decided and have appealed the decision. 
Therefore, a final decision has not yet been rendered in the case. We 
note that elsewhere in this final rule, we are finalizing our proposal 
to readopt our policy to include Medicare Advantage days in the 
Medicare SSI ratio, which we believe further makes it unnecessary to 
revise our Factor 1 estimate. A secondary reason for not including such 
an adjustment in our estimate is that we are not aware of a methodology 
that could accurately estimate the impact of any court cases and so 
introducing another estimate would likely reduce, not improve, the 
accuracy of our calculations. We appreciate that the commenter has 
offered an estimate but we are unable to verify the methodology and 
computations used to develop it.
    Comment: One commenter noted that the summary analysis of the 
uncompensated care Factor 1 estimate that we provided after the 
publication of the proposed rule includes a column for ``other'' 
adjustment factors used in developing the estimate. However, the 
commenter stated that CMS did not provide the detail explaining and 
supporting this factor. The commenter further noted that the footnote 
to the ``other'' column states: ``Other column includes impact of only 
IPPS discharges and impact of DSH payments increasing or decreasing at 
a different rate than other IPPS payments.'' The commenter requested 
that CMS provide the details behind this factor.
    Response: The ``other'' ``adjustment factors as mentioned in the 
data file supporting our estimate of Factor 1 reflect two identifiable 
factors: The impacts of (1) only including IPPS discharges in the 
calculation, and (2) of Medicare DSH payments increasing or decreasing 
at a different rate than other IPPS payments. In relation to the first 
factor, an adjustment is made to reflect the fact that IPPS discharges 
increase at a different rate than total inpatient hospital discharges 
(which are reflected in the discharge column of the data file). The 
second factor comes into play if the Medicare DSH payments under IPPS 
are increasing faster or slower than all payments to IPPS hospitals, 
which is determined by looking at prior year's impact files. We note 
that the application of these ``other'' adjustment factors has caused 
the total Medicare DSH estimate to increase. If we were to ignore these 
factors, the final Medicare DSH payment estimate used for purposes of 
estimating Factor 1 would be much lower.
    Comment: Some commenters stated that the same summary analysis of 
the Medicare DSH payments estimate includes an adjustment factor for 
discharges. However, the commenters noted that CMS had not provided the 
detail supporting the discharge factor it used. In addition, the 
commenters stated that the footnote to the discharge column states that 
all inpatient hospitals were included, not just IPPS hospitals. The 
commenters suggested that because the purpose of the projection is to 
estimate the amount of Medicare DSH payments that will go to a subset 
of all inpatient hospitals, CMS should use only the hospitals' 
projected share in the payments when determining the factors that drive 
the estimate.
    Response: We agree that the Medicare DSH payment projections 
ideally should reflect only the number of discharges for IPPS 
hospitals. However, the Office of the Actuary only has projections of 
total inpatient hospital discharges. As a result, in this calculation 
we have included an adjustment to reflect the impact of IPPS hospitals' 
discharges as part of the ``other'' adjustment factors that we have 
just discussed.
    Comment: Several commenters asserted that CMS' assumption that 
actual Medicare DSH payments made for FY 2012 amounted to only $11.59 
billion is illogical and unsupported by any substantial evidence. The 
commenters stated that, first, this assumption conflicts with other 
recent estimates by the same Actuary concerning total Medicare DSH 
payments for the same year, 2012. The commenters noted that within 1 
month of the release of the proposed rule, CMS released data, which it 
attributed to the Office of the Actuary indicating that aggregate 
Medicare DSH payments for FY 2012 totaled $11.93 billion. The 
commenters pointed out that this number is nearly $400 million greater 
than the 2012 estimate (extrapolated from 2009 data) used to calculate 
Factor 1 in the proposed rule.
    Response: The estimate of $11.93 billion in Medicare DSH payments 
for FY 2012 was based on all reported Medicare DSH payments, which are 
shown on the cost reports. We note that Maryland hospitals, SCHs, and 
hospitals participating in the Rural Community Hospital Demonstration 
program report DSH payments on their cost reports even if ultimately 
they are not paid a DSH payment adjustment. Therefore, this estimate 
included payments for three categories of hospitals that will not 
receive uncompensated care payments: Maryland hospitals; SCHs paid on a 
hospital-specific basis; and hospitals that are part of the Rural 
Community Hospital Demonstration program. Therefore, we removed the 
estimated DSH payments for these three categories of hospitals for 
purposes of determining Factor 1 in the proposed rule. The removal of 
these hospitals reduced the Factor 1 estimate to $11.59 billion 
compared to the $11.93 billion estimate of all reported Medicare DSH 
payments.
    Comment: Several commenters stated that the summary analysis of the 
Medicare DSH payment estimate includes an adjustment factor for case-
mix. However, the commenters noted that CMS had not provided the detail 
supporting the case-mix factor used. The commenters suggested that CMS 
provide the details behind this factor to allow for comprehensive 
comments. In addition, these commenters requested that CMS clarify how 
the case-mix change from year to year was derived as it relates to the 
documentation and coding adjustment. The commenters

[[Page 50630]]

pointed out that the trend in the change in case-mix from year to year 
does not seem to support the need for a documentation and coding 
adjustment and, in fact, the year-to-year change in two cases is a 
decrease. The commenters urged CMS to ensure that the case-mix being 
used does not already reflect the documentation and coding adjustment 
so providers can be certain the adjustment is not being made twice.
    Response: The case-mix increase is calculated using the weighted 
average of the relative weights for each year. These relative weights 
are weighted by the number of discharges in the first year. The case-
mix numbers used in the estimate of Medicare DSH payments do not 
include the documentation and coding adjustments. The years which have 
been adjusted for documentation and coding (as required by law) 
occurred before the years shown in this data file.
    Comment: Several commenters noted that, based on projections made 
by CBO, the number of uninsured people is projected to drop 11.2 
percentage points in 2014 compared to 2013. The commenters expressed 
the view that the projected decline in the uninsured rate is due in 
part to the potential addition of 9 million new Medicaid recipients, 
according to the May 2013 CBO projections to be used by CMS. However, 
the commenters stated that it does not appear that the projected 2014 
Medicare DSH amount includes expected additional Medicare DSH payments 
due to Medicaid expansion and requested that CMS provide additional 
information.
    Response: We agree with the commenters that the number of Medicaid 
days will likely increase as a result of Medicaid expansion, therefore 
likely increasing the aggregate amount of payments that would have been 
made to subsection (d) hospitals under section 1886(d)(5)(F) of the Act 
if section 1886(r) of the Act did not apply. Medicaid days are included 
as part of a hospital's disproportionate patient percentage as 
described at Sec.  412.106(b)(4) of the regulations. Accordingly, we 
have included an estimate of the impact of the Medicaid expansion in 
our projection of Factor 1 for this final rule.
    Comment: Several commenters objected to the proposal to apply our 
best estimates of Factor 1 on a prospective basis only. These 
commenters maintained that the administrative efficiency, finality, and 
predictability in payments that CMS cited in favor of the proposal were 
less important than accuracy in payments. The commenters noted that 
there were a number of questions and uncertainties about the Actuary's 
proposed projection for FY 2014, and that it would therefore be most 
appropriate to establish a final value for Factor 1 only at the time of 
final cost report settlements, using actual data or at a later time, 
when more informed projections will be available. Other commenters 
supported the proposal to employ prospective estimates from the Office 
of the Actuary and not to update these estimates once final data become 
available. However, some of these commenters urged CMS to publish final 
amounts of Factor 1 so that any consistent errors can be addressed to 
improve the accuracy of future projections.
    Response: As we noted in the proposed rule (78 FR 27583), we would 
not know the precise aggregate Medicare DSH payment amount that would 
be paid for a Federal fiscal year until cost report settlement for all 
IPPS hospitals is completed, which occurs several years after the end 
of the Federal fiscal year. The statute gives us authority to estimate 
this amount by specifying that, for each fiscal year to which the 
provision applies, such amount is to be ``estimated by the Secretary.'' 
We believe that it is, therefore, most consistent with the statute to 
employ estimates for purposes of determining Factor 1. Otherwise, final 
settlement of these payments could be delayed as much as 6 years or 
more after the payment year. As in the case of other payment factors 
that we determine on the basis of prospective estimates (for example, 
the aggregate amount of annual payments for outliers), we will 
continually examine our estimates compared to actual data for each year 
in order to improve our future projections.
    Comment: Several commenters pointed out that CMS assumed a 2-
percent documentation and coding adjustment for FY 2014 in estimating 
Factor 1 for the proposed rule, but that CMS actually proposed a 
documentation and coding adjustment of 0.8 percent. These commenters 
urged CMS to correct this assumption in the final rule.
    Response: We agree with these commenters. Accordingly, for this 
final rule, the Office of the Actuary has employed a documentation and 
coding adjustment of 0.8 percent for FY 2014 in developing our estimate 
of Factor 1 for FY 2014.
    After consideration of the public comments we received, we are 
finalizing our proposal to add a new paragraph (g)(1)(i) under Sec.  
412.106 of our regulations to define the methodology for calculating 
Factor 1. As we noted in the proposed rule (78 FR 27582 through 27583), 
the Office of the Actuary projects Medicare DSH payments on a biannual 
basis, typically in February of each year (based on data from December 
of the previous year) as part of the President's Budget, and in July 
(based on data from June) as part of the Midsession Review. The 
estimates are based on the most recently filed Medicare hospital cost 
report with Medicare DSH payment information and the most recent 
Medicare DSH patient percentages and Medicare DSH payment adjustments 
provided in the IPPS Impact File.
    Therefore, for the Office of the Actuary's February 2013 estimate, 
the data are based on the December 2012 update of the Medicare Hospital 
Cost Report Information System (HCRIS) and the FY 2013 IPPS/LTCH PPS 
final rule IPPS Impact file, published in conjunction with the 
publication of the FY 2013 IPPS/LTCH PPS final rule. For the July 2013 
estimate, we anticipated that the data would be based on the March 2013 
update of the Medicare Hospital Cost Report data and the IPPS Impact 
file published in conjunction with the proposed rule. For purposes of 
the proposed rule, we used the February 2013 Medicare DSH estimates to 
calculate Factor 1 and to model the proposed impact of this provision. 
We stated that if our proposal to use the Office of the Actuary's 
projections for Factor 1 is finalized, we would use the July 2013 
Medicare DSH estimates to determine Factor 1 for this FY 2014 IPPS/LTCH 
PPS final rule.
    For this final rule, the Office of the Actuary has used the July 
2013 Medicare DSH estimates, based on the March 2013 update of the 
Medicare Hospital Cost Report data and the proposed rule's IPPS Impact 
file, to determine Factor 1. The July 2013 Office of the Actuary 
estimate for Medicare DSH payments for FY 2014, without regard to the 
application of section 1886(r)(1) of the Act, is approximately $12.772 
billion (for purposes of the proposed rule, we estimated this amount to 
be approximately $12.338 billion). As in the proposed rule, this 
estimate excludes Maryland hospitals, SCHs paid under their hospital-
specific payment rate, and hospitals participating in the Rural 
Community Hospital Demonstration program. Therefore, based on this 
estimate, the estimate for empirically justified Medicare DSH payments 
for FY 2014, with the application of section 1886(r)(1) of the Act, is 
approximately $3.193 billion (25 percent of the total amount 
estimated). Under our proposal, Factor 1 is the difference of these two 
estimates of the Office of the Actuary.

[[Page 50631]]

Therefore, for the purpose of this final rule, we calculate Factor 1 to 
be approximately $9.579 billion (for purposes of the proposed rule, 
Factor 1 was estimated to be approximately $9.2535).
(2) Methodology To Calculate Factor 2
    Section 1886(r)(2)(B) of the Act establishes Factor 2 in the 
calculation of the uncompensated care payment. Specifically, section 
1886(r)(2)(B)(i) of the Act provides: ``For each of fiscal years 2014, 
2015, 2016, and 2017, a factor equal to 1 minus the percent change in 
the percent of individuals under the age of 65 who are uninsured, as 
determined by comparing the percent of such individuals (I) who are 
uninsured in 2013, the last year before coverage expansion under the 
Patient Protection and Affordable Care Act (as calculated by the 
Secretary based on the most recent estimates available from the 
Director of the Congressional Budget Office before a vote in either 
House on the Health Care and Education Reconciliation Act of 2010 that, 
if determined in the affirmative, would clear such Act for enrollment); 
and (II) who are uninsured in the most recent period for which data is 
available (as so calculated), minus 0.1 percentage points for fiscal 
year 2014 and minus 0.2 percentage points for each of fiscal years 
2015, 2016, and 2017.''
    Section 1886(r)(2)(B) of the Act establishes, as Factor 2 in the 
uncompensated care payment formula, the percent change in uninsurance, 
based on a comparison of the percent of individuals under 65 without 
insurance in 2013 to the percent of such individuals without insurance 
in the most recent period for which we have data, minus 0.1 percentage 
points for FY 2014 and 0.2 percentage points for each of FYs 2015, 
2016, and 2017.
    Section 1886(r)(2)(B)(i)(I) of the Act further indicates that the 
percent of individuals under 65 without insurance in 2013 must be the 
percent of such individuals ``who are uninsured in 2013, the last year 
before coverage expansion under the Patient Protection and Affordable 
Care Act (as calculated by the Secretary based on the most recent 
estimates available from the Director of the Congressional Budget 
Office before a vote in either House on the Health Care and Education 
Reconciliation Act of 2010 that, if determined in the affirmative, 
would clear such Act for enrollment).'' The Health Care and Education 
Reconciliation Act (Pub. L. 111-152) was enacted on March 30, 2010. It 
was passed in the House of Representatives on March 21, 2010, and by 
the Senate on March 25, 2010. Because the House of Representatives was 
the first House to vote on the Health Care and Education Reconciliation 
Act of 2010 on March 21, 2010, we have determined that the most recent 
estimate available from the Director of the Congressional Budget Office 
``before a vote in either House on the Health Care and Education 
Reconciliation Act of 2010 . . .'' appeared in a March 20, 2010 letter 
from the director of the CBO to the Speaker of the House. (Emphasis 
supplied.) Therefore, we believe that only the estimates in this March 
20, 2010 letter meet the statutory requirement under section 
1886(r)(2)(B)(i)(I) of the Act. (To view the March 20, 2010 letter, we 
refer readers to the Web site at: http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/113xx/doc11379/amendreconprop.pdf.
    In its March 20, 2010 CBO letter to the Speaker of the House of 
Representatives, the CBO provided two estimates of the ``post-policy 
uninsured population.'' The first estimate is of the ``Insured Share of 
the Nonelderly Population Including All Residents'' (which is 82 
percent) and the second estimate is of the ``Insured Share of the 
Nonelderly Population Excluding Unauthorized Immigrants'' (83 percent). 
In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27583), we proposed 
to use the first estimate that includes all residents, including 
unauthorized immigrants. We stated that we believe this estimate is 
most consistent with the statute which requires us to measure ``the 
percent of individuals under the age of 65 who are uninsured,'' and 
provides no exclusions except for individuals over the age 65. In 
addition, we stated that we believe that this estimate would more fully 
reflect the levels of uninsurance in the United States that influence 
uncompensated care for hospitals than the estimate that reflects only 
legal residents. Therefore, using this estimate would seem more 
consistent with the statutory requirement of establishing a payment for 
uncompensated care. For these reasons, we proposed to use the estimate 
of the ``Insured Share of the Nonelderly Population Including All 
Residents'' for 2013 to calculate the baseline percentage of 
individuals under age 65 without insurance.
    We invited public comments on this proposal.
    Comment: Several commenters supported the proposal to use the CBO 
estimate of the ``Insured Share of the Nonelderly Population Including 
All Residents'' for purposes of determining Factor 2. The commenters 
agreed that this estimate more fully reflects the levels of uninsurance 
in the United States that influence uncompensated care for hospitals 
than the estimate that excludes unauthorized immigrants and is, 
therefore, more consistent with the statutory requirement of 
establishing a payment for uncompensated care.
    Response: We appreciate the commenters' support for this proposal, 
and we are finalizing our proposal to employ the CBO estimate of the 
``Insured Share of the Nonelderly Population Including All Residents'' 
contained in its March 20, 2010 letter to the Speaker of the House of 
Representatives to determine the percentage of individuals under age 65 
without insurance for purposes of Factor 2.
    The March 20, 2010 CBO letter reports these figures as the 
estimated percentage of individuals with insurance. However, because 
section 1886(r)(2)(B)(i) of the Act requires that we compare the 
percent of individuals ``who are uninsured in 2013,'' in the FY 2014 
IPPS/LTCH PPS proposed rule (78 FR 27584), we proposed to use the CBO 
insurance rate figure and subtract that amount from 100 percent (that 
is, the total population, without regard to insurance status) to 
estimate the 2013 baseline percentage of individuals without insurance. 
In its March 20, 2010 letter, the CBO reported its estimate of the 
``Insured Share of the Nonelderly Population Including All Residents'' 
as 82 percent. Therefore, we proposed that, for FYs 2014 through 2017, 
our estimate of the uninsurance percentage for 2013 would be 18 
percent. As provided for in the CBO March 20, 2010 letter, the CBO 
estimate for insurance for the nonelderly (under age of 65) population 
only includes residents of the 50 States and the District of Columbia, 
and the count of uninsured people includes unauthorized immigrants, as 
well as individuals who are eligible for, but not enrolled in, 
Medicaid. We note that, although we proposed that acute care hospitals 
located in Puerto Rico that receive DSH payments would be eligible to 
receive payments under section 1886(r) of the Act, this estimate for 
insurance does not account for residents in Puerto Rico. We believe 
that the impact of the exclusion of Puerto Rico from the insurance 
estimate is negligible.
    We invited public comments on this proposal.
    We did not receive any public comments on our proposal to employ an 
estimate for insurance among the nonelderly that includes only 
residents of the 50 States and the District of Columbia and, therefore, 
does not account for residents in Puerto Rico.

[[Page 50632]]

Therefore, we are finalizing the policy, as proposed.
    Section 1886(r)(2)(B)(i) of the Act requires that we compare the 
baseline uninsurance rate to the percent of such individuals ``who are 
uninsured in the most recent period for which data is available (as so 
calculated).'' In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27584), we proposed to use the same data source, CBO estimates, to 
calculate this percent of individuals without insurance. Section 
1886(r)(2)(B)(i)(I) of the Act refers to the percent of uninsured in 
2013 ``as calculated by the Secretary based on'' the CBO data. 
Similarly, section 1886(r)(2)(B)(i)(II) of the Act immediately 
afterwards refers to the percent of uninsured for 2014 ``as so 
calculated.'' (Emphasis supplied.) The phrase ``as so calculated'' in 
the latter section can be reasonably interpreted to require the 
calculation to similarly be based on CBO estimates. In addition, we 
believe that it is preferable from a statistical point of view to 
calculate a percent change in insurance over time using a consistent 
data source. Furthermore, rather than using the estimates included in 
the March 20, 2010 CBO letter, we believe it is appropriate to use more 
recent CBO estimates of the percent of individuals with insurance. The 
more recent CBO projections take into account changes in the 
environment that can impact insurance rates, such as more recent 
economic conditions and the Supreme Court's decision in National 
Federation of Independent Business. v. Sebelius--U.S.--, 132 S. Ct. 
2566 (2012), regarding Medicaid expansions authorized by the Affordable 
Care Act. Because the statute requires that we use ``the most recent 
period for which data is available'' to calculate the comparison 
percentage of individuals without insurance, we proposed to use the 
most recent update (that is, the most recent update available at the 
time of rulemaking with respect to a particular fiscal year) to the 
percent of individuals with insurance provided by the CBO to calculate 
this comparison figure.
    In addition, for FY 2014, we proposed to use CBO's most recent 
estimate for the percent of individuals with insurance in 2014 for 
purposes of section 1886(r)(2)(B)(i)(II) of the Act because this is the 
year in which this provision is effective. This figure is used for 
Factor 2 and later applied to Factor 1, which is also based on an 
estimate for FY 2014. On February 5, 2013, the CBO released its annual 
Budget and Economic Outlook. The report included updated economic and 
budget projections that incorporated the effects of the legislation 
enacted prior to the start of the year, a revised economic forecast 
consistent with the budget projections, and other changes to CBO's 
estimates. (To view the report, we referred readers to the Web site at: 
http://www.cbo.gov/sites/default/files/cbofiles/attachments/43900_ACAInsuranceCoverageEffects.pdf.)
    In the proposed rule (78 FR 27584), we used the February 5, 2013, 
CBO health insurance estimates in order to calculate the percentage of 
individuals without insurance for 2014. As we did for the uninsurance 
percentage estimate for 2013 (based on the March 20, 2010 CBO letter 
discussed above), we proposed to use the ``Insured Share of the 
Nonelderly Population Including All Residents'' to calculate the 
comparison of the percentage of people without insurance for 2014. 
Consistent with the CBO estimate used to calculate the baseline 
uninsurance estimate, this estimate for insurance only includes 
residents of the 50 States and the District of Columbia, and the count 
of uninsured people includes unauthorized immigrants, as well as 
individuals who are eligible for, but not enrolled in, Medicaid. The 
CBO report projects that the ``Insured Share of the Nonelderly 
Population Including All Residents'' for 2014 will be 84 percent. 
Therefore, in the same manner that we calculated the uninsurance 
percentage for the baseline, we proposed that the uninsurance 
percentage for 2014 would be 16 percent (that is, 100 percent minus 84 
percent) for the purpose of this proposed rule. We indicated that if 
our proposal was finalized, and there is a more recent estimate of the 
percentage of individuals with insurance in 2014 by the CBO available 
for the FY 2014 IPPS/LTCH PPS final rule, we would use that estimate to 
calculate Factor 2. However, we would not adjust Factor 2 retroactively 
to account for estimates that become available after publication of the 
final rule.
    Comment: Some commenters agreed with the proposal to use CBO 
estimates of rates of insurance coverage in 2014 and subsequent years 
as a basis for calculating Factor 2. One commenter stated that the CBO 
estimates were both sufficient and accurate for the purpose of 
determining Factor 2. However, other commenters expressed concern about 
the accuracy of CBO projections of insurance coverage in 2014 and 
subsequent years. These commenters mentioned uncertainties in the wake 
of the Supreme Court decision about Medicaid expansion. These 
commenters also noted that the statewide exchanges that are to be 
established under the Affordable Care Act will not be in operation 
until January 2014, so that the CBO projections of an increase in the 
rate of insurance coverage may be overstated. Other commenters stated 
that the CBO projections are unsupported by substantial data and 
requested that Factor 2 be reconciled on the basis of actual data for 
2014.
    Response: We continue to believe that the CBO projections of 
insurance coverage in 2014 and subsequent years are the most reliable 
and consistent basis on which to calculate Factor 2. As we noted in the 
proposed rule, section 1886(r)(2)(B)(i)(I) of the Act refers to the 
percent of uninsured in 2013 ``as calculated by the Secretary based 
on'' the CBO data. Similarly, section 1886(r)(2)(B)(i)(II) of the Act 
immediately afterwards refers to the percent of uninsured for 2014 ``as 
so calculated.'' (Emphasis supplied.) The phrase ``as so calculated'' 
in the latter section can be reasonably interpreted to require the 
calculation to similarly be based on CBO estimates. In addition, we 
continue to believe that it is preferable from a statistical point of 
view to calculate a percent change in insurance over time using a 
consistent data source. The more recent CBO projections take into 
account changes in the environment that can impact insurance rates, 
such as more recent economic conditions and the Supreme Court's 
decision in National Federation of Independent Business. v. Sebelius--
U.S.--, 132 S. Ct. 2566 (2012), regarding Medicaid expansions 
authorized by the Affordable Care Act. As is the case with regard to 
reconciling the estimates used to determine Factor 1, we believe that 
employing actual data as the basis for reconciling the projections 
employed to determine Factor 2 would impose an unacceptable delay in 
the final determination of uncompensated care payments. Actual data on 
the rates of insurance and uninsurance would not become available until 
several years after the payment year, and the initial data for the year 
would continue to be adjusted for several years after that as further 
data become available. Furthermore, by stating that the Secretary's 
calculations should be based on ``estimates'' provided by the CBO, the 
statute clearly contemplates the use of such estimates on a prospective 
basis without reconciliation. Therefore, we are finalizing our proposal 
to use the most recently available CBO estimates of insurance rates for 
each payment year, and not to adjust Factor 2 retroactively to account 
for estimates that become available after publication of the final 
rule.
    Section 1886(r)(2)(B)(i) of the Act states that Factor 2 for FY 
2014 is equal

[[Page 50633]]

to 1 minus the percent change in the percent of individuals under the 
age of 65 who are uninsured, as determined by comparing the percent of 
such individuals without insurance in the baseline and in the most 
recent period for which we have data (minus 0.1 percentage points for 
FY 2014). Therefore, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27584), we proposed that Factor 2 is 1 minus the percent change between 
the baseline percentage of individuals without insurance in 2013 (which 
was, for the proposed rule, 18 percent) and the most recent percentage 
of individuals without insurance for 2014 (which was, for this proposed 
rule, 16 percent) minus 0.1 percentage points.
    Using the March 20, 2010 CBO projection for 2013 and the February 
5, 2013 CBO projection of uninsurance for all residents for 2014, we 
proposed to use the following computation for Factor 2 for FY 2014:

Percent of individuals without insurance for CY 2013 (March 2010 CBO 
estimate): 18 percent
Percent of individuals without insurance for CY 2014 (February 2013 
CBO estimate): 16 percent
1-[verbar][(0.16-0.18)/0.18][verbar] = 1-0.111 = 0.889 (88.9 
percent)
0.889 (88.9 percent)-0.001 (0.1 percentage points) = 0.888 (88.8 
percent)
0.888 = Factor 2.

    Accordingly, we proposed Factor 2 to be 88.8 percent for FY 2014. 
In conjunction with this proposal, we proposed that the amount 
available for uncompensated care payments for FY 2014 would be $8.217 
billion (0.888 times our proposed Factor 1 estimate of $9.2535 
billion). As we noted previously, in the FY 2014 IPPS/LTCH PPS proposed 
rule (78 FR 27585), we stated that our proposal for Factor 2 may be 
subject to change if more recent CBO estimates of the insurance rate 
for 2014 become available prior to the preparation of the final rule. 
In the proposed rule, we proposed to add a new paragraph (g)(1)(ii) 
under Sec.  412.106 of our regulations to define the methodology for 
calculating Factor 2.
    We invited public comment on our proposed methodology to calculate 
Factor 2.
    Comment: Many commenters noted that the CBO estimates of the effect 
of the Affordable Care Act on the level of insurance coverage are made 
on a calendar year basis (for example, calendar year 2014). However, 
the commenters stated, the new payment methodology for uncompensated 
care payments will go into effect for FY 2014 (that is, on October 1, 
2013). The commenters stated that, therefore, the CBO estimate for 
calendar year 2014 represents the first full year during which the 
exchanges and Medicaid expansion under the Affordable Care Act will be 
in effect. However, the commenters further stated, the new payment 
methodology will be in effect for 3 months of the previous calendar 
year before these Affordable Care Act provisions that should lower the 
uninsurance rate go into effect. Therefore, these commenters urged CMS 
to normalize the CBO estimate to reflect FY 2014 more accurately, 
specifically by calculating a weighted average of the CBO estimate for 
October-December 2013 and the estimate for January-September 2014. 
Several commenters illustrated the effect of calculating a weighted 
average using the February 5, 2013 CBO projections that CMS employed in 
the proposed rule as follows:

CY 2013 rate of insurance coverage (February 2013 CBO estimate): 80 
percent
CY 2014 rate of insurance coverage (February 2013 CBO estimate): 84 
percent
FY 2014 rate of insurance coverage: (80 percent * .25) + (84 percent 
* .75) = 83 percent.
Percent of individuals without insurance for CY 2013 (March 2010 CBO 
estimate): 18 percent
Percent of individuals without insurance for FY 2014 (weighted 
average): 17 percent
1-[verbar][(0.17-0.18)/0.18][verbar] = 1-0.056 = 0.944 (94.4 
percent)
0.944 (94.4 percent)-0.001 (0.1 percentage points) = 0.943 (94.3 
percent)
0.943 = Factor 2

    Response: We are finalizing our proposal to employ the most recent 
CBO estimates of the rates of insurance for FY 2014 and subsequent 
payment years. We agree with the recommendation of the commenters that 
we should normalize the estimate of uninsurance for FY 2014 by 
calculating a weighted average of the CBO estimates for CY 2013 and CY 
2014, respectively. We agree that normalizing the estimate to cover FY 
2014 rather than CY 2014 will more accurately reflect the actual rate 
of uninsurance that hospitals will experience during the FY 2014 
payment year. We also believe that we have sufficient discretion under 
the statute to employ a normalized estimate for FY 2014 in place of the 
CBO estimate for CY 2014 because section 1886(r)(2)(B)(i) of the Act 
merely requires us to develop such estimates ``based on the most recent 
estimates available from'' the CBO. (We note that the base year 
estimate for 2013 remains the same whether it is normalized to FY 2013 
or not. This is because the CBO estimates that the statute requires us 
to use for the base year indicate a rate of uninsurance of 18 percent 
for both CY 2012 and CY 2013, the calendar years which we would employ 
to normalize the estimate for FY 2013.)
    In this final rule, we are employing the most recent available 
estimate, specifically CBO's May 2013 estimates of the effects of the 
Affordable Care Act on health insurance coverage, which are available 
at http://www.cbo.gov/sites/default/files/cbofiles/attachments/44190_EffectsAffordableCareActHealthInsuranceCoverage_2.pdf, as amended by 
CBO's July 2013 estimates of changes in estimates of the effects of 
insurance coverage provisions in the Affordable Care Act issued in 
conjunction with a memo regarding ``Analysis of the Administration's 
Announced Delay of Certain Requirements Under the Affordable Care 
Act,'' which are available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/44465-ACA.pdf. The CBO's May 2013 estimate of the 
rate of insurance for CY 2013 is 80 percent, and for CY 2014 is 84 
percent. (These estimates are unchanged from the February 5, 2013 CBO 
projections that we employed in the proposed rule.) The CBO's May 2013 
estimate includes an estimate of the change in the number of uninsured 
non-elderly people (including unauthorized immigrants) of -14 million 
in CY 2014. Based on this estimate of the change in the number of 
uninsured non-elderly people, in May 2013, the CBO estimated that in CY 
2014 there will be 44 million uninsured non-elderly people. In 
addition, the CBO's May 2013 estimate stated that there will be a total 
of 274 million non-elderly people in CY 2014. Accordingly, we concluded 
that in the May 2013 CBO estimates that there will be 230 million 
insured non-elderly people (that is, 274 million total non-elderly 
people minus 44 million uninsured non-elderly people), which supports 
their estimate that the insured share of the non-elderly population is 
84 percent (that is, 230 million insured non-elderly people divided by 
274 million total non-elderly people). The CBO's July 2013 estimates do 
not include a revised estimate of the insured share of the non-elderly 
population in CY 2014, and instead include estimates of the changes in 
the number of non-elderly people by type of insurance coverage. In 
other words, the CBO's July 2013 estimate includes an estimate of the 
change in the number of uninsured non-elderly people (including 
unauthorized immigrants). The CBO's July 2013 estimate includes a 
revised estimate of the change in the number of uninsured non-elderly 
people (including unauthorized immigrants) of -13 million in CY 2014.

[[Page 50634]]

Based on this July 2013 revised estimate of the change in the number of 
uninsured non-elderly people and the May 2013 estimate of uninsured 
non-elderly people, we conclude that it is appropriate to infer that in 
CY 2014 there will be 45 million uninsured non-elderly people. We also 
believe that is appropriate to conclude that the CBO made no change to 
its estimates of total non-elderly people in July 2013, so that it 
remains the same as in their May 2013 estimates of 274 million. 
Accordingly, we believe that the number of insured non-elderly people 
based on the July 2013 CBO estimates for CY 2014 is 229 million (that 
is, 274 million total non-elderly people minus 45 million uninsured 
non-elderly people), which results in the insured share of the non-
elderly population of 84 percent (that is, 229 million insured non-
elderly people divided by 274 million total non-elderly people). 
Therefore, the calculation of Factor 2 for FY 2014, employing a 
weighted average of the CBO projections for CY 2013 and CY 2014, is as 
follows:

CY 2013 rate of insurance coverage (May 2013 CBO estimate): 80 
percent
CY 2014 rate of insurance coverage (May 2013 CBO estimate, updated 
with July 2013 CBO estimate): 84 percent
FY 2014 rate of insurance coverage: (80 percent * .25) + (84 percent 
* .75) = 83 percent.
Percent of individuals without insurance for 2013 (March 2010 CBO 
estimate): 18 percent
Percent of individuals without insurance for FY 2014 (weighted 
average): 17 percent
1-[verbar][(0.17-0.18)/0.18][verbar] = 1-0.056 = 0.944 (94.4 
percent)
0.944 (94.4 percent)-0.001 (0.1 percentage points) = 0.943 (94.3 
percent)
0.943 = Factor 2

    We note that, as a result of this change, we will reduce the total 
amount of uncompensated care payments by a smaller amount than the 
reductions that would have resulted from our proposed methodology for 
Factor 2.
    Therefore, in this final rule, we are adopting 0.943 as the final 
determination of Factor 2 for FY 2014. In conjunction with this 
determination, we have also determined, for the purpose of this final 
rule, that the amount available for uncompensated care payments for FY 
2014 will be approximately $9.033 billion (0.943 times our Factor 1 
estimate of $9.579 billion).
    Comment: One commenter opined that the new Medicare DSH payment 
adjustment policy will hurt Massachusetts hospitals, which will see no 
reduction in uninsured rates because the State has already expanded 
health insurance coverage under its own health care reform. The 
commenter requested that CMS exempt Massachusetts and any other State 
which expands health care coverage from any cuts driven by the 
reduction in uninsurance at the national level under the Affordable 
Care Act. At minimum, the commenter requested that CMS adjust Factor 2 
to account for changes in uninsurance at the State level so that 
hospitals in States that are not expected to see reductions in their 
uninsured rates--because they have already expanded access in alignment 
with the Affordable Care Act--will not see large reductions in their 
Medicare DSH payments.
    Response: We appreciate receiving the commenter's concerns. 
However, the statute provides no authority to exempt some States from 
the provision or to adjust the calculation of Factor 2 to reflect 
uninsurance rates at a State level. Therefore, we are unable to accept 
the commenter's recommendations.
(3) Methodology to Calculate Factor 3
    Section 1886(r)(2)(C) of the Act defines Factor 3 in the 
calculation of the uncompensated care payment. As we have discussed 
above, section 1886(r)(2)(C) of the Act states that Factor 3 is ``equal 
to the percent, for each subsection (d) hospital, that represents the 
quotient of (i) the amount of uncompensated care for such hospital for 
a period selected by the Secretary (as estimated by the Secretary, 
based on appropriate data (including, in the case where the Secretary 
determines alternative data is available which is a better proxy for 
the costs of subsection (d) hospitals for treating the uninsured, the 
use of such alternative data)); and (ii) the aggregate amount of 
uncompensated care for all subsection (d) hospitals that receive a 
payment under this subsection for such period (as so estimated, based 
on such data).''
    Therefore, Factor 3 is a hospital-specific value that expresses the 
proportion of the estimated uncompensated care amount for each 
subsection (d) hospital and subsection (d) Puerto Rico hospital with 
the potential to receive DSH payments relative to the estimated 
uncompensated care amount for all hospitals estimated to receive DSH 
payments in the fiscal year for which the uncompensated care payment is 
to be made. Factor 3 is applied to the product of Factor 1 and Factor 2 
to determine the amount of the uncompensated care payment that each 
eligible hospital will receive for FY 2014 and subsequent years. In 
order to implement the statutory requirements for this factor of the 
uncompensated care payment formula, we must determine the following: 
(1) The definition of uncompensated care, or in other words, the 
specific items that are to be included in the numerator (that is, the 
estimated uncompensated care amount for an individual hospital) and 
denominator (that is, the estimated uncompensated care amount for all 
hospitals estimated to receive DSH payments in the applicable FY); (2) 
the data source(s) for the estimated uncompensated care amount; and (3) 
the timing and manner of computing the quotient for each hospital 
estimated to receive DSH payments. The statute instructs the Secretary 
to estimate the amounts of uncompensated care for a period ``based on 
appropriate data.'' In addition, we note that the statute permits the 
Secretary to use alternative data ``in the case where the Secretary 
determines that alternative data is available,'' which is a better 
proxy for the costs of subsection (d) hospitals for treating uninsured 
individuals.
    In the course of considering how to determine Factor 3, we 
considered proposing to define the amount uncompensated care for a 
hospital as the uncompensated care costs of that hospital and 
considered potential data sources for those costs. In doing so, we 
first considered which costs should be included in the definition of 
``uncompensated care costs.'' We examined the broad literature on 
uncompensated care and the concepts of uncompensated care used in 
various public and private programs. We also considered input from 
stakeholders and public comments in various forums, including the 
national provider call that we held in January 2013. Our review of the 
information from these sources indicated that there is some variation 
in how different States, provider organizations, and Federal programs 
define ``uncompensated care.'' However, a common theme of almost all 
these definitions is that they include both ``charity care'' and ``bad 
debt'' as constituents of ``uncompensated care.'' After considering the 
various factors that are included in different definitions of 
``uncompensated care,'' we considered proposing to adopt a definition 
which incorporated those factors that are most commonly included within 
the term. Thus, we considered proposing to define ``uncompensated 
care'' as the cost of charity care plus bad debt which includes the 
cost of non-Medicare bad debt and non-reimbursed Medicare bad debt. In 
turn, we also considered proposing to define ``charity care costs'' as 
the cost of care for patients that meet hospitals' individual criteria 
for charity care net of any partial payment received by the hospital 
from patients for that

[[Page 50635]]

care, and to define ``non-Medicare bad debt costs'' as the cost of 
hospital care for non-Medicare patients that have the financial 
capacity to pay, but are unwilling to settle the claim. In addition, we 
considered proposing to define ``non-reimbursed Medicare bad debt 
costs'' as the amount of allowable coinsurance and deductible for 
Medicare patients from whom the hospital has sought to collect payment 
through reasonable collection efforts as described in Sec.  413.89(e) 
of the Medicare regulations and not reimbursed by Medicare. We 
discussed these possible elements of uncompensated care in more detail 
in the proposed rule (78 FR 27585)
    For purposes of selecting an appropriate data source for this 
possible definition of uncompensated care costs, we reviewed the 
literature and available data sources and determined that the Medicare 
cost report Worksheet S-10 could potentially provide the most complete 
data for Medicare hospitals. (We refer readers to the report 
``Improvements to Medicare Disproportionate Share (DSH) Payments'' for 
a full discussion and evaluation of the available data sources. The 
report can be found on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html.) 
However, we noted that Worksheet S-10 is a relatively new data source 
that has been used for specific payment purposes only in relatively 
restricted ways (for example, to provide a source of charity care 
charges in the computation of EHR incentive payments; 75 FR 44456.). We 
also noted that some stakeholders have expressed concern that hospitals 
have not had enough time to learn how to submit accurate and consistent 
data through this reporting mechanism. Other stakeholders have 
maintained that some instructions for Worksheet S-10 still require 
clarification in order to ensure standardized and consistent reporting 
by hospitals. We understand and appreciate the concerns of these 
stakeholders. At the same time, Worksheet S-10 is the only national 
data source that includes data for all Medicare hospitals and is 
designed to elicit data that are both accurate and consistent with the 
definition of uncompensated care costs that we considered proposing to 
use. We discussed the possible use of data reported on Worksheet S-10 
to determine uncompensated care costs in more detail in the proposed 
rule (78 FR 27586).
    In order to apply a definition of uncompensated care costs based 
upon information reported on the Worksheet S-10, it would be necessary 
to use the 2010/2011 cost reports, which were submitted on or after May 
1, 2010, when the new Worksheet S-10 went into effect. These are the 
most recently available full year of cost reports and the first cost 
reports with detailed uncompensated care data on the Worksheet S-10 
that would be available for use in implementing the new methodology for 
uncompensated care payments for FY 2014. Concerns about the 
standardization and completeness of the Worksheet S-10 data could be 
more acute for data collected in the first year of the Worksheet's use. 
Because of these concerns, we did not propose to define uncompensated 
care in a way that would require use of the Worksheet S-10 data. 
However, we stated our belief that Worksheet S-10 of the Medicare Cost 
Report would otherwise be an appropriate data source to determine 
uncompensated care costs. In particular, we noted that Worksheet S-10 
was developed specifically to collect information on uncompensated care 
costs in response to interest by MedPAC and other stakeholders 
regarding the topic (for example, MedPAC's March 2007 Report to 
Congress) and that it is not unreasonable to expect information on the 
cost report to be used for payment purposes. Furthermore, hospitals 
attest to the accuracy and completeness of the information reported in 
the cost report at the time of submission. While we realize that 
hospitals may wish to have a more specific understanding of how these 
data will be used, we believe that the discussion in the proposed rule 
will help to increase their understanding and also inform our efforts 
to refine the cost report and cost report instructions so that 
hospitals may continue to gain experience in reporting accurate 
information. We also expect reporting on Worksheet S-10 to improve over 
time, particularly in the area of charity care which is already being 
used and audited for payment determinations related to the electronic 
health record incentive program, and will continue to monitor these 
data. Accordingly, we stated in the proposed rule that we may proceed 
with a proposal to use data on the Worksheet S-10 to determine 
uncompensated care costs in the future, once hospitals are submitting 
accurate and consistent data through this reporting mechanism.
    As we describe above, in the FY 2014 IPPS/LTCH PPS proposed rule, 
we indicated that we were concerned about stakeholder input that the 
variations in the data reported on Worksheet S-10 of the Medicare cost 
report regarding uncompensated care may be due to hospitals' relative 
lack of experience reporting all of the data elements on that 
worksheet. A large number of stakeholders noted that there is 
considerable variation and numerous inconsistencies in how 
uncompensated care is calculated and reported in Worksheet S-10 and 
they point out that these inconsistencies can produce divergent 
results. Some stakeholders went as far as noting that data from 
Worksheet S-10 is ``flawed'' and many suggested more precision in 
reporting instructions to help hospitals report data in a more 
consistent manner. We noted that most of the data elements reported on 
Worksheet S-10 have been previously unused for payment purposes, with 
only some data elements recently being used for determining a 
hospital's electronic health record incentive payments, and these data 
elements have not been subject to audit prior to this time. We stated 
that we believe it is important that data used to determine Factor 3 
are data that have been historically publicly available, subject to 
audit, and used for payment purposes (or that the public understands 
will be used for payment purposes). We indicated that it is our belief 
that hospitals expend more resources to ensure data accuracy when data 
are publicly available and used for payments. For example, the National 
Quality Forum (NQF) first endorsed quality measures for readmissions 
for heart failure (HF) in May 2008 and acute myocardial infarction 
(AMI) and pneumonia (PN) in October 2008. HF was subsequently adopted 
in the Hospital Inpatient Quality Reporting (IQR) Program in the FY 
2009 IPPS rule and AMI and PN in the CY 2009 OPPS rule. All three were 
adopted for the FY 2010 Hospital IQR program and publicly reported in 
Hospital Compare in 2009. More recently, starting in FY 2013, all three 
were used to determine a payment adjustment under section 1886(q) of 
the Act. As the measures became linked with payment, CMS has received 
an increasing number of questions regarding and requests to refine 
these measures, leading us to believe that hospitals are increasingly 
focused on ensuring that their data are correct. Furthermore, it is 
also our belief that auditing plays an important role in ensuring data 
accuracy by identifying and remediating problem areas and/or hospitals 
as well as by having a sentinel effect in others. For example, each 
year, CMS and its intermediaries work with hospitals to review salary 
and wage data reported on Worksheet S-3 of the

[[Page 50636]]

Medicare cost report for use in determining the wage index. This 
extensive process identifies errors and ensures that anomalous data are 
reviewed, corrected as needed, and documented. Due to stakeholder 
concerns and our belief in the importance of using data that have been 
historically publicly available, subject to audit, and used for payment 
purposes (or that the public understands will be used for payment 
purposes), for FY 2014, we stated in the proposed rule that we had 
serious concerns about proposing to use Worksheet S-10 to determine the 
amount of uncompensated care.
    While the statute instructs the Secretary to estimate the amounts 
of uncompensated care for a period ``based on appropriate data,'' 
section 1886(r)(2)(C)(i) of the Act permits the Secretary to use 
alternative data ``in the case where the Secretary determines that 
alternative data is available which is a better proxy for the costs of 
subsection (d) hospitals for treating the uninsured'' for the numerator 
of Factor 3. For the denominator of that quotient, section 
1886(r)(2)(C)(ii) of the Act requires the Secretary to use ``the 
aggregate amount of uncompensated care for all subsection (d) hospitals 
that receive a payment under this subsection for such period (as so 
estimated, based on such data). (Emphasis added.) The phrase ``as so 
estimated, based on such data'' in the latter section can be reasonably 
interpreted to require the calculation to similarly be based on the 
same data as is used to estimate the numerator of the quotient in 
Factor 3, including any alternative data which is determined to be a 
better proxy for the costs of treating the uninsured.
    As a result of our concerns regarding variations in the data 
reported on the Worksheet S-10, we stated in the proposed rule that we 
believe it is appropriate to consider the use of alternative data, at 
least in FY 2014, the first year that this provision is effective, and 
possibly additional years until hospitals have adequate experience 
reporting all of the data elements on Worksheet S-10. We noted that 
this is consistent with input we received from some stakeholders in 
response to the CMS National Provider Call in January 2013, who stated 
their belief that existing FY 2010 and FY 2011 data from the Worksheet 
S-10 cannot be used for implementation of section 1886(r) and who 
requested the opportunity to re-submit the data once more specific 
instructions were issued by CMS. Accordingly, we examined alternative 
data sources that could be used to allow time for hospitals to gain 
experience with and to improve the accuracy of their S-10 reporting.
    In order to implement the statutory requirements for Factor 3 using 
alternative data, we must: (1) Determine whether alternative data would 
be a better proxy for the treatment costs of the uninsured than the 
information available on the Worksheet S-10; (2) identify a source for 
this alternative data; and (3) determine the timing and manner of 
computing the quotient for each hospital.
    We stated in the FY 2014 IPPS/LTCH PPS proposed rule that we 
believe that data on utilization for insured low-income patients can be 
a reasonable proxy for the treatment costs of uninsured patients. 
Moreover, due to the concerns regarding the accuracy and consistency of 
the data reported on the Worksheet S-10, we believe that this 
alternative data, which is currently reported on the Medicare cost 
report, would be a better proxy for the amount of uncompensated care 
provided by hospitals. Accordingly, in the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27587 through 27588), we proposed to use the 
utilization of insured low-income patients defined as inpatient days of 
Medicaid patients plus inpatient days of Medicare SSI patients as 
defined in 42 CFR 412.106(b)(4) and 412.106(b)(2)(i), respectively to 
determine Factor 3. We describe our proposal and rationale, on which we 
sought public comment, more fully below.
    As a preliminary matter, we noted that precise data on health care 
costs are difficult to obtain. For Medicare payment purposes, we 
estimate those costs using reported charges and cost-to-charge ratios. 
This approach to estimating costs is what is used on Worksheet S-10 to 
determine costs for charity care and bad debt. We do believe that the 
Medicare cost report is the most comprehensive data source regarding 
hospital costs reported to Medicare, and note that alternative data on 
uninsured patients are difficult to find in a comprehensive manner on a 
hospital-specific basis. In a September 2002 report, Analysis of the 
Joint Distribution of Disproportionate Share Hospital Payments, RAND 
and Urban Institute researchers describe this difficulty, citing as an 
example how detailed inpatient utilization data on self-pay patients 
were available only for the sample of hospitals (20 percent sample) 
from the 24 States included in AHRQ's HCUP database.\13\
---------------------------------------------------------------------------

    \13\ Wynn, B. et al. Analysis of the Joint Distribution of 
Disproportionate Share Hospital Payments. PM-1387-ASPE. September 
20, 2002. Available at: http://www.urban.org/UploadedPDF/410975_ASPEDSH_final.pdf.
---------------------------------------------------------------------------

    While Worksheet S-10 does contain some information regarding the 
treatment costs of the uninsured, most notably of those uninsured 
patients who qualify for charity care at an individual hospital, for 
the reasons described above, we stated that we were concerned about the 
use of information reported on the Worksheet S-10 as appropriate data 
for FY 2014 and possibly additional years. As a result of these 
concerns, in identifying alternative data that could serve as a proxy 
for the treatment costs of the uninsured, we acknowledged that we must 
consider methods other than costs to approximate the resources expended 
by hospitals to treat uninsured patients. One such method is 
utilization. A hospital's costs for treating uninsured patients are a 
function of its input costs and utilization of services. In accordance 
with the statute, in order to determine Factor 3, a hospital-level 
estimate of uncompensated care is required. Such an estimate can be 
constructed using detailed data regarding specific items or services. 
However, such data are not available to us. In contrast, hospital-level 
data measuring utilization as inpatient days or discharges are 
available. While we noted that inpatient days or discharges would be 
more precise if they took into account the relative resource 
utilization of individual patients, such as case-mix, no such data are 
available to us. In the September 2002 report discussed above, RAND and 
Urban Institute researchers asserted that without specific case-mix 
data for low-income populations, inpatient days are preferable to 
discharges as a way to measure utilization. Therefore, we stated our 
belief that utilization based upon inpatient days is an appropriate 
method to approximate costs for the treatment costs of the uninsured.
    We further stated that we believe that utilization by insured low-
income patients, such as Medicaid patients or Medicare patients that 
receive SSI benefits (Medicare SSI), can be a reasonable proxy for 
utilization by uninsured patients. In its 2000 report on American's 
Health Care Safety Net, the Institute of Medicine considers uninsured 
individuals, low-income underinsured individuals, Medicaid 
beneficiaries, and patients with special health care needs all as 
vulnerable populations.\14\ We note that when

[[Page 50637]]

studying access to care, researchers may study Medicaid and/or low-
income populations (for example, health outcomes, utilization, etc.) in 
order to understand more broadly the impact of similar policy 
interventions for other vulnerable populations.\15\ For example, 
recently, researchers have studied the effects of Medicaid expansions 
to gauge the effects of these expansions on health status and other 
indicators to inform policymakers as these expansion efforts 
continue.\16\ Researchers have also studied the ability of Medicaid 
patients to gain access to outpatient care in an effort to highlight 
the ramifications of various policy interventions, such as mandatory 
co-payments and utilization restrictions.\17\ We noted that we believe 
that this type research is often used by state and other policy makers 
to evaluate how Medicaid and other public health insurance can expand 
access to care to uninsured populations.
---------------------------------------------------------------------------

    \14\ Marion Ein Lewin and Stuart Altman, Editors; Committee on 
the Changing Market, Managed Care, and the Future Viability of 
Safety Net Providers, Institute of Medicine. America's Health Care 
Safety Net: Intact but Endangered. 2000. Available at: http://www.nap.edu/catalog/9612.html.
    \15\ John K. Iglehart. Medicaid. N Engl J Med 1993; 328:896-900. 
March 25, 1993.
    \16\ Benjamin D. Sommers, M.D., Ph.D., Katherine Baicker, Ph.D., 
and Arnold M. Epstein, M.D. Mortality and Access to Care among 
Adults after State Medicaid Expansions. N Engl J Med 2012; 367:1025-
1034. September 13, 2012.
    \17\ The Medicaid Access Study Group. Access of Medicaid 
Recipients to Outpatient Care. N Engl J Med 1994; 330:1426-1430. May 
19, 1994.
---------------------------------------------------------------------------

    While the report by RAND and the Urban Institute cited above found 
shortcomings in how well both Medicaid and Medicare DSH target funds 
towards safety net hospitals, another key finding of the report was 
that the allocation methods used by these programs target funds to 
safety net hospitals at least as well as the alternative allocation 
methods they examined. The allocation method used by Medicare for 
Medicare DSH is the sum of two computations. The first computation, 
defined at 42 CFR 412.106(b)(2), known as the SSI ratio or Medicare 
fraction, is the proportion of a hospital's Medicare SSI days relative 
to Medicare days. The second computation, defined at 42 CFR 
412.106(b)(4), known as the Medicaid fraction, is the proportion of a 
hospital's Medicaid days relative to total days. The RAND and the Urban 
Institute study also found that the choice of patient populations used 
to evaluate how well Medicare and Medicaid DSH funds are allocated is 
important. The study notes that including Medicare SSI beneficiaries 
along with all other low-income patients generally performed better, 
resulting in a better targeting of these payments towards safety net 
hospitals. Therefore, we indicated that we believe the utilization of 
insured low-income patients defined as insured low-income days, or 
inpatient days of Medicaid patients plus inpatient days of Medicare-SSI 
patients could be a proxy for the treatment costs of uninsured 
patients. Currently, for the Medicare DSH adjustment, hospitals report 
utilization for Medicaid and Medicare SSI patients in accordance with 
the regulations at 42 CFR 412.106(b)(4) and 412.106(b)(2)(i), 
respectively. Specifically, we would define inpatient days for Medicaid 
patients as they are defined in Sec.  412.106(b)(4) and inpatient days 
for Medicare-SSI patients as they are defined at Sec.  
412.106(b)(2)(i). A hospital's individual insured low-income insured 
days based on this calculation would represent that hospital's 
numerator for Factor 3. The sum of the low-income insured days under 
this calculation for all the hospitals that we estimate would receive 
DSH payments (and thus the uncompensated care payment) for FY 2014 
would represent the denominator of Factor 3.
    It is important to point out that when these insured low-income 
utilization data are used to determine Medicare DSH payments, they are 
subject to additional computations as described in 42 CFR 412.106(b) 
and 412.106(d). Therefore, using these data to determine Factor 3 will 
lead to a different set of results than using these data to determine 
hospitals' Medicare DSH payments.
    In the FY 2014 IPPS/LTCH PPS proposed rule, we stated that we 
believe the data in the Medicare cost report (and the data that are 
used to update the SSI ratios in the cost report) are acceptable for 
use as a source for this alternative data because they include data for 
all Medicare hospitals. For the reasons described above, we considered 
data elements from the Medicare cost report that have been historically 
publicly available, subject to audit, and used for payment purposes, as 
alternative data for the costs of subsection (d) hospitals for treating 
the uninsured. Worksheet S-3, Part I of the CMS-2552-96 version of the 
Medicare cost report and Worksheet S-2, Part I of the CMS 2552-10 
version of the Medicare cost report contain information on the 
utilization of Medicaid patients. Specifically, they contain 
information regarding Medicaid days (that is, the numerator of the 
Medicaid fraction). The SSI ratios can be found in Worksheet E, Part A 
and hospitals' SSI ratios are reported by CMS on the Medicare DSH Web 
site, by Federal fiscal year, and include a hospital's Medicare SSI 
days. We pointed out that CMS calculates the SSI ratios using the 
MedPAR claims data and updates them annually in accordance with the 
process and timing set forth in the FY 2011 IPPS/LTCH PPS final rule 
(75 FR 50282), generally issuing them in the Spring of each year for 
the Federal fiscal year 2 years prior. For instance, we would expect 
that the SSI ratios for FY 2011 would be made available in the Spring 
of 2013. SSI ratios can be downloaded from http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html. The SSI 
ratios for a Federal fiscal year are the data that would ultimately be 
used in Worksheet E, Part A to determine a hospital's Medicare DSH 
adjustment for that fiscal year. While a hospital may choose to have 
its DSH payments settled using an SSI ratio based on the hospital's 
cost reporting period, this choice will vary by hospital and the timing 
of this choice will vary. As a result, a hospital's decision whether to 
have its SSI ratio calculated on the basis of its cost reporting period 
may not be available at the time we determine Factor 3 for a specific 
federal fiscal year. Therefore, in an effort to balance consistency and 
administrative efficiency with precision, we stated our belief that it 
is appropriate to use the SSI ratios based on the Federal fiscal year.
    Except for the data on Worksheet S-10, the Medicare cost report 
does not currently include information that would allow calculation of 
the treatment costs of uninsured patients. For the reasons described 
previously, for FY 2014 and possibly additional years, we have concerns 
with using these data. Accordingly, in the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27589), we proposed to use Worksheet S-3 Part I of 
the CMS-2552-96 version of the Medicare cost report and Worksheet S-2, 
Part I of the CMS 2552-10 version of the Medicare cost report and data 
that are used to update the SSI ratios on that Worksheet E, Part A as 
the source of the alternative data to determine Factor 3 for FY 2014. 
In the proposed rule, we stated that we may propose to use data from 
Worksheet S-10 to determine uncompensated care costs in the future, 
once hospitals are submitting accurate and consistent data through this 
reporting mechanism.
    The statute also allows the Secretary the discretion to determine 
the time periods from which we will derive the data to estimate the 
numerator and the denominator of the Factor 3 quotient. Specifically, 
the statute defines the numerator of the quotient as ``the amount of 
uncompensated care for such hospital for a period selected by the 
Secretary * * *'' (Emphasis added.) The

[[Page 50638]]

statute defines the denominator as ``the aggregate amount of 
uncompensated care for all subsection (d) hospitals that receive a 
payment under this subsection for such period.'' (Emphasis added.) As 
we have discussed above, we proposed a process of making interim 
payments with final cost report settlement for both the empirically 
justified Medicare DSH payments and the uncompensated care payments 
required by section 3133 of the Affordable Care Act. Consistent with 
that proposed process, we also proposed to determine the time period 
from which to estimate the numerator and denominator of the Factor 3 
quotient in a way that will be consistent with making interim and final 
payments. Specifically, we must have Factor 3 values available for 
hospitals that we estimate will qualify for Medicare DSH payments using 
most recently available historical data and for those hospitals that we 
do not estimate will qualify for Medicare DSH payments but that may 
ultimately qualify for Medicare DSH payments at the time of cost report 
settlement.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27589), we 
proposed to estimate the numerator and the denominator of Factor 3 for 
hospitals based on the most recently available full year of Medicare 
cost report data (including the most recently available data that may 
be used to update the SSI ratios) with respect to a Federal fiscal 
year. In other words, we proposed to use data from the most recently 
available cost report for the Medicaid days and the most recently 
available SSI ratios (that is, latest available SSI ratios before the 
beginning of the Federal fiscal year) for the Medicare-SSI days. We 
noted that these data are publicly available, subject to audit, and 
used for payment purposes. While we recognized that older data also 
meet these criteria, we often use the most recently available data for 
payment determinations. Therefore, for FY 2014, we proposed to use data 
from the 2010/2011 cost reports for the Medicaid days and the FY 2011 
SSI ratios for the Medicare-SSI days (or, if the FY 2011 SSIs are 
unavailable, the FY 2010 SSI ratios) to estimate Factor 3 for FY 2014.
    To summarize, for FY 2014, in response to stakeholder concerns 
regarding data variability and lack of reporting experience with 
Worksheet S-10, we proposed to determine Factor 3 using insured low-
income patient days from the 2010/2011 cost reports (including the 
FY2011 or FY 2010 SSI ratios, whichever represents the most recently 
available inputs prior to October 1, 2013) as alternative data which 
are a better proxy for the treatment costs of uninsured patients. We 
further proposed to define insured low-income patient days as inpatient 
days of Medicaid patients plus inpatient days of Medicare SSI patients 
as defined in 42 CFR 412.106(b)(4) and 412.106(b)(2)(i), respectively.
    We proposed to add a new paragraph (g)(1)(iii) under Sec.  412.106 
of our regulations to define the methodology for calculating Factor 3.
    We invited public comments on this proposal. Notwithstanding our 
concerns regarding Worksheet S-10, we stated that we were interested in 
hearing commenters' views on the quality of the data reported on the 
Worksheet S-10, and whether it would be sufficient for use in 
determining uncompensated care amounts for fiscal year 2014, either by 
itself or in combination with other data. We also sought public comment 
on how fast we could transition to the use of Worksheet S-10 data based 
upon increased reliability over time, including whether the data could 
be used to determine uncompensated care in FY 2014 either alone or in 
combination with other data.
    Comment: Most commenters supported the proposal not to employ the 
Worksheet S-10 data to determine uncompensated care costs. These 
commenters agreed with CMS' assessment that, at the least, hospitals 
need more time to learn how to accurately and consistently report the 
Worksheet S-10 data before CMS employs the data to determine Factor 3 
in the uncompensated care cost calculation. Some commenters discouraged 
CMS from considering the use of these data at any point in the future, 
and asked CMS to provide sufficient notice that we may propose use of 
the Worksheet S-10 data so that stakeholders will have sufficient time 
to express remaining concerns about employing such data. Other 
commenters encouraged CMS to clarify and revise the reporting 
instructions as appropriate to ensure consistent and accurate reporting 
of Worksheet S-10 data so that it can eventually be employed in the 
determination of Factor 3.
    Response: We appreciate the comments in support of our proposal not 
to employ Worksheet S-10 data at this time for purposes of determining 
Factor 3. However, we remain convinced that the Worksheet S-10 could 
ultimately serve as an appropriate source of more direct data regarding 
uncompensated care costs. Therefore, we will review Worksheet S-10 in 
order to determine what revisions or clarifications may be necessary so 
that it can yield accurate and consistent data. We will consider the 
commenters' specific recommendations for such revisions and 
clarifications as we do so. It is our intention to propose introducing 
use of the Worksheet S-10 to determine Factor 3 within a reasonable 
amount of time.
    Comment: Some commenters objected to our proposal not to employ the 
Worksheet S-10 data to determine uncompensated care costs. These 
commenters noted that Worksheet S-10 was developed specifically to 
collect information on uncompensated care costs. In addition, MedPAC 
expressed reservations about CMS' proposal to employ insured low-income 
days as a proxy for uncompensated care costs, and recommended 
consideration of charity care and/or a blend of the insured low-income 
days and uncompensated care data over a transition of several years to 
sole use of the Worksheet S-10 uncompensated care data in determining 
Factor 3.
    Response: We agree with the commenters that the Worksheet S-10 was 
developed specifically to collect information on uncompensated care 
costs. However, we also agree with the many commenters who stated that 
the data reported on the Worksheet S-10 are not yet reported accurately 
and consistently enough to be adopted for purposes of determining 
Factor 3. Specifically, we agree that because this is the first year 
these data are being reported, confusion could exist about how to 
report information on Worksheet S-10. This confusion could affect the 
accuracy and completeness of the information reported on Worksheet S-
10. In addition, for the reasons described in the FY 2014 IPPS/LTCH PPS 
proposed rule and above, we believe that it would be most appropriate 
to use data elements that have been historically publicly available, 
subject to audit, and used for payment purposes (or that the public 
understands will be used for payment purposes) to determine the amount 
of uncompensated care. For FY 2014, we do not believe that data 
regarding uncompensated care from Worksheet S-10 meet these criteria 
and, therefore, are not reliable enough to use for determining FY 2014 
uncompensated care payments. We do not think they meet these criteria 
because it is the first year they are available and while we recognize 
that a limited portion of these data will be used for payment purposes 
(for example, for EHR payments) and, therefore, subject to audit for 
those purposes they are still not generally used for payment purposes 
and subject to audit. Accordingly, we continue to believe that 
alternative data will provide a better proxy for the amount of

[[Page 50639]]

uncompensated care during first year or years of implementation.
    As we discuss below, we will work on reviewing the instructions for 
Worksheet S-10 to determine whether any revisions or clarifications may 
be necessary to ensure that the data reported on this Worksheet can 
eventually be employed to determine Factor 3. We also appreciate 
MedPAC's recommendation that we consider alternative proxies and also a 
transition period of several years to sole use of the Worksheet S-10 
uncompensated care data in determining Factor 3, possibly with use of a 
blend of the insured low-income days and uncompensated care data. While 
we acknowledge the appeal of a transition to the sole use of the 
uncompensated care data, we believe that we would need to further 
analyze the appropriateness of blending Worksheet S-10 uncompensated 
care data with other data for use in determining Factor 3. We note that 
it is possible that we would consider a more refined proxy or other 
proxies for the treatment costs of the uninsured until such a time that 
we can propose a methodology to calculate Factor 3 based directly on 
reported amounts of uncompensated care. Regardless, we believe that 
hospitals should have a full opportunity to comment on any such 
proposals before their adoption. Therefore, we may consider including 
this recommendation among our proposals in future rulemaking.
    Comment: Most commenters supported CMS' proposal to employ each 
Medicare disproportionate share hospital's insured low-income inpatient 
days relative to the total insured low-income inpatient days provided 
by Medicare disproportionate share hospitals as a better proxy for the 
costs of the uninsured. These commenters agreed with CMS' assessment 
that the data reported on the Worksheet S-10 are not yet reported 
accurately and consistently enough to be adopted for purposes of 
determining Factor 3. Most commenters endorsed the adoption of the 
proxy approach as an interim measure as CMS proceeds to refine the 
definition of uncompensated care costs and the instructions for 
reporting data on the Worksheet S-10. An association representing 
hospitals in a major metropolitan area requested that CMS use the wage 
index to adjust insured low-income days to account for the differences 
in ``purchasing power'' in different regions of the country. The 
association, along with several other commenters, requested that CMS 
include insured low-income days from exempt units (for example, 
inpatient rehabilitation units paid under the IRF PPS or inpatient 
psychiatric units paid under the IPF PPS) of the hospital in order to 
better capture the treatment costs of the uninsured by the hospital. 
Some commenters, including a beneficiary advocacy organization and a 
hospital system, objected to CMS' proposal to use insured low-income 
inpatient days as the proxy for distributing uncompensated care 
payments. These commenters believed that the proposed method unfairly 
rewards States that expand Medicaid to the detriment of States that do 
not, despite their belief that the latter group of States should have 
larger relative uncompensated care costs. The commenters also believed 
that this approach was not an appropriate proxy for uncompensated care 
because, by definition, insured low-income days are not uncompensated.
    Response: We agree with the commenters who supported our proposal 
to employ insured low-income days as a proxy for uncompensated care 
costs. For the reasons we detailed in the proposed rule, we believe 
that this proxy provides a reasonable basis on which to determine 
Factor 3 during an interim period while we work with the hospital 
community to review and make any necessary revisions and clarifications 
to the instructions to ensure that the data on Worksheet S-10 is 
reported accurately and consistently enough to employ in the 
determination of this factor. As is noted above, it remains our 
intention to propose introducing use of the Worksheet S-10 to determine 
Factor 3 within a reasonable amount of time. We do not agree with the 
commenters who stated that our proposal inappropriately rewards States 
that expand Medicaid coverage to the detriment of States that do not. 
Using some of the uncompensated care data discussed in the proposed 
rule, we recognize it would be possible for hospitals in States that 
choose to expand Medicaid to receive lower uncompensated care payments 
because they are less likely to have uninsured patients than hospitals 
in a State that does not choose to expand Medicaid. Nevertheless, for 
the reasons discussed above, we believe that data on insured low-income 
days remains the best proxy for uncompensated care costs currently 
available to determine Factor 3.
    With respect to the comments requesting that we use the wage index 
to adjust low-income days, we agree that there may be regional 
variation in uncompensated care costs due to regional variations in the 
costs of care generally. However, we do not believe that there is 
sufficient basis for believing that the wage index reflects the 
variations in uncompensated care costs well enough to adopt it as the 
basis for adjusting Factor 3. The wage index reflects the relative 
hospital wage level in the geographic area of the hospital compared to 
the national average hospital wage level. In computing the wage index, 
we derive an average hourly wage for each labor market area (total wage 
costs divided by total hours for all hospitals in the geographic area) 
and a national average hourly wage (total wage costs divided by total 
hours for all hospitals surveyed in the nation). A labor market area's 
wage index value is the ratio of the area's average hourly wage to the 
national average hourly wage. We note that, for FY 2014, 69.6 percent 
of the standardized amount is considered to be the labor-related share 
and, therefore, adjusted by the wage index. However, in addition to the 
labor-related share of the standardized amount being adjusted by the 
wage index, the entire standardized amount is also adjusted for the 
relative weight of the MS-DRG for each individual patient. In other 
words, the wage index only adjusts for a portion of the variation in 
costs, and does not address variations in resource use and patient 
severity. Therefore, we think that there is insufficient basis for 
believing that adjusting low-income patient days by the wage index 
would better reflect variations in uncompensated care costs. 
Furthermore, as we discuss above, we are aware of no other data that 
may adequately capture these variations, such as case-mix.
    Finally, we believe that there may be some merit to the comments 
recommending inclusion of insured low-income days from exempt units of 
the hospital in order to better capture the full costs of the treatment 
of the uninsured by the hospital insofar as those data may be publicly 
available, subject to audit, and used for payment purposes. We believe 
that it would be prudent to more carefully consider the degree to which 
these data meet these conditions before adopting this recommendation. 
Therefore, we will consider including this recommendation among our 
proposals in future rulemaking.
    In the FY 2014 IPPS/LTCH PPS proposed rule, we proposed to estimate 
which hospitals would receive an empirically justified Medicare DSH 
payment in a given Federal fiscal year using the most recent data 
available. As we described previously, only hospitals that receive 
empirically justified Medicare DSH payments in a fiscal year may 
receive an uncompensated care payment. However, because whether or

[[Page 50640]]

not a hospital will actually receive an empirically justified Medicare 
DSH payment is not known until cost report settlement and cost report 
settlement occurs several years after end of the federal fiscal year, 
we stated that we believe it is necessary to estimate which hospitals 
will receive Medicare DSH payments for a given fiscal year. Because the 
uncompensated care amounts for these hospitals are used to determine 
the denominator of Factor 3, this allows for the calculation of Factor 
3 in advance of or during the federal fiscal year so that interim 
payments can begin during the fiscal year. We indicated in the proposed 
rule that we believe this will create some level of predictability and 
finality for hospitals eligible for these payments, in addition to 
being administratively efficient.
    Therefore, for FY 2014, we proposed that the denominator for Factor 
3 would reflect the estimated Medicaid and Medicare SSI patient days 
based on data from the 2010/2011 Medicare cost report (including the 
most recently available data that may be used to update the SSI ratios) 
for all hospitals that we estimate would receive an empirically 
justified Medicare DSH payment in FY 2014. The numerator of Factor 3 
would be the estimated Medicaid and Medicare SSI patient days for the 
individual hospital based on its most recent 2010/2011 Medicare cost 
report data (including the most recently available data that may be 
used to update the SSI ratios). We proposed to calculate a numerator 
for all subsection (d) hospitals and subsection (d) Puerto Rico 
hospitals that have the potential of receiving a DSH payment regardless 
of whether we estimate that the hospital would receive DSH payments in 
the respective Federal fiscal year. In that way, if a hospital becomes 
eligible to receive the empirically justified Medicare DSH payment and 
also an uncompensated care payment, we will be able to finalize its 
uncompensated care payment efficiently and without affecting the 
uncompensated care payments of other hospitals.
    We noted that we believe this proposed approach strikes an 
appropriate balance between administrative efficiency, finality, and 
predictability in payments. Therefore, we also proposed to publish a 
table or tables listing Factor 3 for all hospitals that we estimate 
would receive empirically justified Medicare DSH payments in a fiscal 
year (that is, hospitals that would receive interim uncompensated care 
payments during the fiscal year), and for the remaining subsection (d) 
and subsection (d) Puerto Rico hospitals that have the potential of 
receiving a DSH payment in the event that they receive an empirically 
justified Medicare DSH payment for the fiscal year as determined at 
cost report settlement. We also proposed that hospitals would have 60 
days from the date of display of the IPPS/LTCH PPS proposed rule to 
review these tables and notify CMS in writing of a change in a 
hospital's subsection (d) hospital status, such as if a hospital has 
closed or converted to a CAH. We stated that we would notify hospitals 
concerning the specifics of this process in program instructions after 
the final rule. For FY 2014, we stated that we would allow hospitals 60 
days from the date of display of the IPPS/LTCH PPS proposed rule to 
review these tables and notify CMS in writing of a change in a 
hospital's subsection (d) hospital status, and we indicated that we may 
allow an additional (perhaps shorter) such period after the publication 
of the final rule.
    For hospitals that were not estimated to receive an empirically 
justified Medicare DSH payment for a fiscal year, but ultimately 
qualify for such a payment at cost report settlement, we proposed to 
make the full uncompensated care payment at that time. In the case of 
hospitals that we estimated would receive an empirically justified 
Medicare DSH payment for a fiscal year and that received interim 
empirically justified Medicare DSH payments and uncompensated care 
payments, but are found to be ineligible for DSH payments at cost 
report settlement, we would recover the overpayment. However, we 
proposed only to calculate the denominator (that is, the estimated 
Medicaid and Medicare SSI patient days based on data from the 2010/2011 
Medicare cost report (including the most recently available data that 
may be used to update the SSI ratios) for all hospitals that we 
estimate would receive an empirically justified Medicare DSH payment in 
FY 2014) once, at the time of the IPPS/LTCH PPS final rule each year. 
We did not propose to recalculate the denominator at the time when cost 
reports are settled and final eligibility determinations for 
uncompensated care (and empirically justified Medicare DSH) payments 
are made. We discuss our proposals and final polices for interim 
payments and reconciliation processes below in section V.E.3.f. of the 
preamble of this final rule.
    For the purpose of the proposed rule, we posted proposed tables 
listing Factor 3 for the hospitals that we estimated would receive 
Medicare DSH payments for FY 2014 on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html. We requested that hospitals review these 
tables. In order to ensure that we would have sufficient time to 
incorporate any updated information in the tables for the final rule, 
we indicated that hospitals should notify CMS in writing within 60 days 
from the date of display of the proposed rule of any change in a 
hospital's subsection (d) hospital status. For FY 2014, we stated that 
we may allow an additional (perhaps shorter) such period after the 
publication of the final rule for hospitals to notify CMS of such 
changes.
    Comment: Several commenters questioned their hospitals' Medicare 
DSH eligibility because many of these hospitals, particularly SCHs, 
were projected not to receive empirically justified Medicare DSH 
payment adjustments in the FY 2014 IPPS/LTCH PPS proposed rule and, 
therefore, to be ineligible to receive uncompensated care payments. 
Many of the commenters submitted documentation that they had received 
Medicare DSH payments in the past, so the hospitals reasoned that they 
should be considered eligible for empirically justified Medicare DSH 
payment adjustments and uncompensated care payments.
    Response: For the FY 2014 IPPS/LTCH PPS proposed rule, we 
identified hospitals as being eligible for empirically justified 
Medicare DSH payment adjustments and, therefore, eligible to receive 
uncompensated care payments, based on our projections of whether a 
hospital would receive Medicare DSH payments for FY 2014. Many SCHs 
were determined to be ineligible for empirically justified Medicare DSH 
payment adjustments and uncompensated care payments because SCHs are 
paid the higher of the hospital-specific rate (which, by definition, 
excludes Medicare DSH payments), or the Federal rate (which includes 
Medicare DSH payments). With the 75-percent reduction to Medicare DSH 
payments in FY 2014 pursuant to section 1886(r)(1) of the Act, and 
because we did not propose to include the uncompensated care payment as 
part of the Federal payment rate in the proposed rule, more SCHs were 
projected to receive payments under their hospital-specific rate. As a 
result, these SCHs were determined to be ineligible for empirically 
justified Medicare DSH payment adjustments and, therefore, were also 
ineligible for uncompensated care payments.
    In the FY 2014 IPPS/LTCH PPS proposed rule, we noted that we would 
calculate a Factor 3 for hospitals found to be ineligible for 
empirically justified Medicare DSH payment adjustments in

[[Page 50641]]

our projections, in the event that they become eligible for empirically 
justified Medicare DSH payment adjustments at cost report settlement 
and, therefore, able to receive uncompensated care payments. However, 
unlike the hospitals projected to receive empirically justified 
Medicare DSH payment adjustments for FY 2014, those non-DSH hospitals 
would not receive uncompensated care payments on an interim basis.
    For the final rule, we are finalizing our methodology to identify 
hospitals eligible for empirically justified Medicare DSH payment 
adjustments and, therefore, eligible to receive interim uncompensated 
care payments based on our projections of whether the hospital would 
receive Medicare DSH payments for FY 2014. We will identify those 
subsection (d) and Puerto Rico subsection (d) hospitals that we project 
to have a disproportionate patient percentage (DPP) of at least 15 
percent, which is the minimum required DPP to be eligible for Medicare 
DSH payments under section 1886(d)(5)(F) of the Act and, by extension, 
under 1886(r)(1) of the Act (that is, empirically justified Medicare 
DSH payments). The DPP is the sum of a hospital's SSI fraction and 
Medicaid fraction. We are using the most recent data available to us at 
the time of this rulemaking to calculate the DPP for all subsection (d) 
hospitals and Puerto Rico subsection (d) hospitals and to identify 
those hospitals projected to be eligible for empirically justified 
Medicare DSH payment adjustments for FY 2014. For purposes of this 
final rule, the most recent SSI fraction is the FY 2011 SSI fraction. 
We posted the FY 2011 SSI fractions for each subsection (d) hospital on 
the CMS DSH Web site (http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html) on June 27, 2013. The most 
recently available Medicaid fraction is that reported on the March 2013 
update of the Provider Specific File.
    However, we are modifying our methodology so that an estimated 
uncompensated care payment amount will be included as part of the 
Federal rate when comparing payments under the hospital-specific rate 
versus the Federal rate for SCHs. Once we identify which SCHs we 
project will be paid on their hospital-specific rate, we will consider 
these hospitals to be ineligible to receive interim uncompensated care 
payments because we do not project them to be eligible for the 
empirically justified Medicare DSH payment adjustments.
    We will calculate Factor 3 for all hospitals that are eligible for 
empirically justified Medicare DSH payment adjustments under our 
revised methodology based on their proportion of low-income insured 
days relative to the low-income insured days for all hospitals 
projected to receive DSH payments, and the hospital will receive 
uncompensated care payments on an interim basis. As we describe more 
fully below, hospitals that receive uncompensated care payments on an 
interim basis but are not eligible for Medicare DSH payments at the 
time of cost report settlement would no longer be eligible to receive 
an uncompensated care payment and would need to repay those interim 
payments.
    However, we are adopting a policy to calculate Factor 3 for all 
subsection (d) hospitals, including hospitals that are projected to be 
ineligible to receive Medicare DSH payments (that is, those hospitals 
with a DPP less than 15 percent or SCHs that are projected to be paid 
based on their hospital-specific rate). If these hospitals are later 
determined to be eligible to receive Medicare DSH payments, those 
payments (under both sections 1886(r)(1) and 1886(r)(2) of the Act) 
would be made at the time of cost report settlement. We note that in 
calculating Factor 3, we include in the denominator data only for those 
hospitals that we estimate will be eligible to receive empirically 
justified Medicare DSH payments for FY 2014. As part of our estimation 
of the hospitals eligible for Medicare DSH payments, we consider 
whether a SCH is projected to receive Medicare DSH payments in FY 2014 
and exclude those SCHs we project to be paid on their hospital-specific 
rate. The remaining hospitals with an estimated DPP of 15 percent of 
higher are considered to be eligible for Medicare DSH payments and 
their SSI days and Medicaid days are included in the calculation of the 
denominator for Factor 3.
    Comment: Two hospitals submitted public comments regarding their 
subsection (d) status. One hospital, Missouri Baptist Sullivan (CCN: 
260115), commented that it converted to a CAH and is no longer a 
subsection (d) hospital and, therefore, not eligible for uncompensated 
care payments. Davie County Hospital submitted a public comment that 
stated it was converting from CAH status to become a subsection (d) 
hospital as of August 1, 2013, and the hospital requested to have a 
Factor 3 calculated so it could be determined eligible for 
uncompensated care payments.
    Response: As discussed earlier, a hospital is eligible for 
uncompensated care payments if the hospital is eligible for the 
empirically justified Medicare DSH payment adjustment. Only subsection 
(d) hospitals are eligible for these payments. We have removed Missouri 
Baptist Hospital as a subsection (d) hospital as we have documentation 
that it has converted to a CAH, and we have adjusted our calculation of 
Factor 3 to ensure that its data are excluded from the denominator of 
this calculation. We do not have documentation to confirm that Davie 
County Hospital has been approved to convert from a CAH to an IPPS 
hospital. Therefore, we are not calculating a Factor 3 amount for that 
provider. If the CAH has converted to an IPPS hospital with the 
appropriate supporting documentation, the new IPPS hospital would 
receive a new CCN and would be treated as a new hospital. We discuss 
how we will calculate uncompensated care payments for new hospitals 
later in this final rule.
    In the FY 2014 IPPS/LTCH PPS proposed rule our estimates of 
eligibility to receive FY 2014 Medicare DSH payments were based on the 
Medicaid fraction listed in the December 2012 update of the Provider 
Specific File and the FY 2010 SSI ratios. We stated in the proposed 
rule that we intended to update in the final rule the list of hospitals 
that we estimate will be eligible for Medicare DSH payments for FY 2014 
and our estimate of Factor 3 using more recent data and verified 
hospital notifications regarding hospital status for example, 
closures).
    Accordingly, we have updated our data, and, for this final rule, 
our estimates of eligibility to receive FY 2014 Medicare DSH payments 
are now based on the Medicaid fraction listed in the March 2013 update 
of the Provider Specific File and the FY 2011 SSI ratios published on 
June 27, 2013 on the CMS Web site. This is the most recently available 
data on the DPP for hospitals that are qualified to receive Medicare 
DSH payments. We identified 2,695 hospitals with a DPP greater than or 
equal to 15 percent and, therefore, eligible to receive Medicare DSH 
payments. However, we project that only 2,437 of these DSH-eligible 
hospitals would receive a Medicare DSH payment in FY 2014, as the 
remaining 257 hospitals are SCHs that we project would be paid under 
the hospital-specific rate and, therefore, ineligible for Medicare DSH 
and the uncompensated care payments. (As discussed above, in 
determining whether a SCH is projected to receive Medicare DSH payments 
in FY 2014, we included an estimated uncompensated care payment amount 
in the Federal rate when comparing payments under the hospital-specific

[[Page 50642]]

rate versus the Federal rate.) We estimate that 2,437 hospitals, or 72 
percent of all subsection (d) hospitals and subsection (d) Puerto Rico 
hospitals, would be eligible for Medicare DSH payments in FY 2014. The 
data from these 2,437 hospitals was used to determine the denominator 
for Factor 3. However, we will estimate a Factor 3 numerator for each 
subsection (d) and subsection (d) Puerto Rico hospital that has the 
potential of receiving Medicare DSH payments for FY 2014 and, 
therefore, qualifying for the uncompensated care payment in FY 2014.
    Comment: Several hospitals submitted public comments regarding the 
accuracy of the data used in the calculation of the hospital's Factor 3 
amount provided in the FY 2014 IPPS/LTCH PPS proposed rule. These 
hospitals either indicated that their Medicaid days were understated 
and had not been updated in the HCRIS database used to calculate the 
Medicaid days for Factor 3, or they indicated that the Medicaid days 
reported on Worksheet S-2 of the Medicare Hospital Cost Report version 
2552-10 did not match the Medicaid days reported on Worksheet S-3 of 
the Medicare Hospital Cost Report version 2552-10. Many hospitals 
submitted supporting documentation of the additional Medicaid days. The 
hospitals requested that their Medicaid days used in the calculation of 
Factor 3 be corrected for the final rule.
    Response: We appreciate the information submitted by commenters 
regarding the accuracy of the number of Medicaid days used in the 
calculation of Factor 3. For this final rule, we are using the March 
2013 update of HCRIS and we are identifying a hospital's Medicaid days 
based on the Medicaid days reported on the 2011, or if not available, 
the 2010 Medicare Hospital Cost Report. In addition, for hospitals that 
we project to be eligible to receive empirically justified Medicare DSH 
payment adjustments for FY 2014, we are using Medicaid days reported on 
Worksheet S-2 of the Medicare Hospital Cost Report version 2552-10 to 
determine Factor 3 and not Medicaid days reported on Worksheet S-3 of 
the Medicare Hospital Cost Report version 2552-10. The Medicaid days 
reported on Worksheet S-2 are used in the computation of the Medicaid 
fraction for Medicare DSH payments. Therefore, because they are used 
for the payment of Medicare DSH, we believe that these data are more 
reliable than data not used for payment purposes. We understand that 
there are inconsistencies between the reporting of the days on 
Worksheet S-2 and Worksheet S-3. We also understand that hospitals were 
not able to report their Medicaid days on Worksheet S-2 if they were 
not eligible to receive Medicare DSH payments on that cost report. A 
Transmittal has since been released allowing these hospitals to report 
their Medicaid days on Worksheet S-2 and to ensure that the Medicaid 
days reported on Worksheet S-3 align with the Medicaid days reported on 
Worksheet S-2, but those changes may not be reflected in the March 2013 
update of HCRIS. Accordingly, for hospitals that did not claim Medicare 
DSH payments on their CMS Form 2552-10 Medicare Hospital Cost Report 
for FY 2011 or FY 2010, we are calculating Medicaid days from Worksheet 
S-3 of the Medicare Hospital Cost Report from the most recently 
available cost report from 2011 or 2010. For disproportionate share 
hospitals, we are calculating Medicaid days from Worksheet S-2 of the 
Medicare Hospital Cost Report from the most recently available cost 
report from 2011 or 2010. By using this more updated data, we believe 
that we will address many of the issues and questions raised by 
commenters. We also remind hospitals that the data we are using are 
data that they submit and attest are accurate on the Medicare cost 
report.
    Comment: Two hospitals merged in 2011 with one surviving provider 
number. These hospitals had two cost reports and two SSI ratios in 
2011. However, in the proposed rule, CMS calculated Factor 3 using only 
the surviving hospital's cost report data and SSI ratio data. The 
hospital submitted a public comment requesting that we account for the 
merger and include both hospitals' data in the calculation of the 
Factor 3 amount.
    Response: A hospital's Factor 3 is calculated based on the data 
tied to its CCN. This is consistent with the treatment of other IPPS 
payment factors, where data used to calculate a hospital's Medicare DSH 
payment adjustment, CCRs for outlier payments, and wage index values is 
tied to a hospital's CCN. Data associated with a CCN that is no longer 
in use are not used to determine those IPPS hospital payments under the 
surviving CCN. Furthermore, data reported on the Medicare hospital cost 
report under the CCN associated with the old provider agreement would 
not necessarily be used to determine hospital payments for the CCN 
associated with the surviving provider agreement. Accordingly, in the 
case of a merger between two hospitals, Factor 3 will be calculated 
based on the low-income insured patient days (that is, Medicaid days 
and SSI days) under the surviving CCN, based on the most recent 
available data for that CCN from the cost report for 2011 or 2010.
    Comment: Several commenters asked how new providers will be treated 
in the calculation of Factor 3, specifically what data will be used for 
the Factor 3 calculation and how this approach will impact existing 
providers. In addition, the commenters questioned how providers 
``terminated'' from participation in the Medicare program as a 
subsection (d) hospital prior to 2014 would be treated and whether they 
would be removed from the Factor 3 calculation and how that would have 
an impact on the remaining providers.
    Response: In the FY 2014 IPPS/LTCH PPS proposed rule, we requested 
that the public verify the accuracy of the list of hospitals that we 
identified to be subsection (d) hospitals. As discussed above, one 
hospital submitted a public comment stating that it had converted to a 
CAH and was no longer a subsection (d) hospital. We have removed that 
hospital from our list and calculation of Factor 3. We are using this 
process of allowing the public to review the accuracy of our list of 
hospitals eligible to receive empirically justified Medicare DSH 
payment adjustments and uncompensated care payments as a mechanism of 
identifying and removing terminating providers, and adjusting the 
calculation of Factor 3 for the remaining providers accordingly. For 
the final rule, we have published an updated list of the hospitals we 
have identified to be subsection (d) hospitals and subsection (d) 
Puerto Rico hospitals eligible to receive empirically justified 
Medicare DSH payment adjustments and uncompensated care payments for FY 
2014. For FY 2014, we will allow the public an additional period after 
the issuance of this final rule to contact us with comments on whether 
any of these hospitals should be removed from the list or if any 
hospitals should be added to the list, based on their subsection (d) 
status. The public can submit input on these two topics via the 
Internet on the CMS Web site at: [email protected]. All 
information, including relevant documentation, must be received by 
August 31, 2013. If we identify changes to the list of hospitals, we 
will publish a revised list of hospitals and updated Factor 3 values on 
the CMS Medicare DSH Web site after August 31, 2013.
    For new providers, meaning hospitals with a CCN established after 
2011, we do not have data currently available to calculate a Factor 3 
amount and we do not have data to determine if the new hospital is 
eligible for empirically

[[Page 50643]]

justified Medicare DSH payment adjustments and, therefore, eligible for 
uncompensated care payments for FY 2014. Accordingly, we will treat new 
hospitals in the same manner as hospitals that are not found to be 
eligible to receive empirically justified Medicare DSH payment 
adjustments based upon the most recently available cost report from 
2011 or 2010, such that the hospital may not receive either interim 
empirically justified Medicare DSH payment adjustments or interim 
uncompensated care payments. However, should a hospital later be 
determined to be eligible to receive an empirically justified Medicare 
DSH payment adjustment based on its FY 2014 cost report, the hospital 
will also be eligible to receive uncompensated care payments. 
Consistent with our policy to calculate the Factor 3 for all subsection 
(d) hospitals regardless of whether or not they are projected to 
qualify for Medicare DSH payments, we will also calculate a Factor 3 
for new hospitals, although we note that new hospitals would only 
require a Factor 3 calculation to receive their uncompensated care 
payment if they are ultimately determined to be eligible for the 
empirically justified Medicare DSH payment at cost report settlement. 
The denominator of every hospital's Factor 3, including new hospitals, 
is set to be the sum of the low-income insured days for all hospitals 
projected to receive empirically justified Medicare DSH payment 
adjustments for FY 2014 as calculated in this final rule using the FY 
2011 SSI ratios and the 2011 cost reports. We do not have Medicaid days 
or SSI days for new hospitals at the time of this final rule and we do 
not know when we will have Medicaid days or SSI days for new hospitals. 
Accordingly, we will use the Medicaid days and SSI days for FY 2014 for 
new hospitals to serve as the numerator in their Factor 3 calculations 
for their FY 2014 uncompensated care payments because we believe that 
at minimum, all new hospitals will have data on Medicaid and SSI 
patient days for FY 2014.
e. Limitations on Review
    Section 1886(r)(3) of the Act provides that there will be no 
administrative or judicial review under section 1869 of the Act, 1878 
of the Act, or otherwise for any of the following:
     Any estimate of the Secretary for purposes of determining 
the factors described in paragraph (2) of section 1886(r) of the Act.
     Any period selected by the Secretary for such purposes.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27590), we 
proposed to codify this policy in new Sec.  412.106(g)(2) of our 
regulations. We invited public comment on this proposal.
    We did not receive any public comments on our proposal to implement 
the statutory limitations on administrative or judicial review.
    We are finalizing the proposed new provisions at Sec.  412.106(f) 
and (g) to codify these policies. We note, however, that we have made a 
minor change to the provision at Sec.  412.106(g)(1)(i) to clarify that 
we intend to revisit the issue of the data that should be used to 
determine hospitals' uncompensated care amounts for FY 2015. In 
addition, we have also made a minor technical correction to the 
provision at Sec.  412.106(g)(2)(iii).
f. Operational Considerations
    As discussed in section V.F.3.d. of the preamble of the proposed 
rule and this final rule, and in accordance with section 1886(r)(2) of 
the Act, only subsection (d) hospitals that receive empirically 
justified Medicare DSH payments in a given Federal fiscal year will 
also receive the uncompensated care payment (that is, Factor 1 times 
Factor 2 times Factor 3) for that given Federal fiscal year. In 
addition, as discussed above in this section, in the FY 2014 IPPS/LTCH 
PPS proposed rule (78 FR 27580), we proposed that subsection (d) Puerto 
Rico hospitals that receive empirically justified Medicare DSH payments 
in a given Federal fiscal year would also receive the uncompensated 
care payment (that is, Factor 1 times Factor 2 times Factor 3) for that 
given Federal fiscal year. As we discussed above, we proposed to 
estimate Factor 3 for each subsection (d) and subsection (d) Puerto 
Rico hospital with the potential to receive a DSH payment prior to the 
beginning of the Federal fiscal year and intend to make that 
information available via our Web site. http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html.
    Specifically, we proposed to make interim uncompensated care 
payments on the basis of our best available estimates concerning the 
eligibility of each hospital for empirically justified Medicare DSH 
payments and our best available calculations concerning the amount of 
the uncompensated care payments that the hospital is eligible to 
receive. We stated that we intended to make these interim uncompensated 
care payments on a periodic basis and not on a per discharge basis as 
Medicare DSH payments are currently made and as empirically justified 
Medicare DSH payments will be made. As discussed above, we made this 
proposal because we believed that this approach was more consistent 
with the language in the statute describing the additional payment, 
from which we inferred that the payment should not be made on a per-
discharge basis. We also believed that this would be the most 
administratively efficient means to distribute a set dollar amount to 
individual hospitals and would also create predictability for 
hospitals. In the proposed rule, we acknowledged that if we were to 
make these interim uncompensated care payments on a per-discharge basis 
as Medicare DSH payments are currently made, unless a hospital's 
Medicare utilization is identical to the period used to determine the 
per-discharge payment level, it is certain that Medicare would overpay 
or underpay. We stated further in the proposed rule that by making 
interim payments periodically, we could virtually eliminate the 
possibility that Medicare would pay a higher or lower amount than 
intended and limit the need for reconciliation to whether a hospital is 
eligible for Medicare DSH payments and, therefore, the entire 
uncompensated care payment at cost report settlement. In response to 
the comments on this suggested approach discussed below, in this final 
rule, we are instead adopting a policy to make the uncompensated care 
payment on a per-discharge basis, which will require reconciliation of 
the interim payments made during the year to the total uncompensated 
care payment derived as the product of Factors 1, 2, and 3.
    Comment: Many commenters, including national hospital associations, 
disagreed with CMS' proposal to make interim uncompensated care 
payments, and to distribute them on a periodic basis rather than a per-
discharge basis. The commenters expressed concern about the impact this 
proposal would have on certain providers, and stated that providers' 
cash flow would be adversely affected if payments are distributed on a 
periodic bi-weekly basis, as we proposed. Many commenters were 
specifically concerned about the potential effects of this proposal on 
hospitals treating MA enrollees. One of the commenters, a national 
hospital association stated that, ``[t]he contracts between the MA 
Plans and hospitals typically provide for payment based upon Medicare 
rates and reimbursements. Though the specific contract terms may vary, 
they often refer to Medicare DSH payments as one component of the 
Medicare reimbursement on which the MA Plan payments are based.'' The 
commenters

[[Page 50644]]

further noted that under such contracts MA organizations typically use 
vendor software that utilizes the CMS Medicare Inpatient PPS PC PRICER, 
as a claim adjudication tool for paying acute care hospital claims. The 
commenters also pointed out that MA organizations are required by 
statute to pay non-contracted hospitals a floor amount based on what 
the provider would have received under original Medicare (what a 
hospital would be paid if the beneficiary were not enrolled in an MA 
plan), and they understand that MA organizations use the CMS Medicare 
Inpatient PPS PC PRICER to determine what that floor amount is. The 
commenters expressed concern that if the uncompensated care payment is 
not distributed on a per-discharge basis, it would not be incorporated 
into the CMS Medicare Inpatient PPS PC PRICER and that because they 
believe MA plans employ tools that rely on this software, MA plans 
would not be able to calculate an appropriate payment amount, which the 
commenters believed should include an amount representing a given 
Medicare patient's share of the hospital's uncompensated care payment. 
Another commenter added that the proposal would lead to confusion and 
underpayment from MA plans to providers. Several commenters requested 
that CMS also add a line in the CMS Medicare Inpatient PPS PC PRICER 
software for additional DSH ``A-DSH'' that would represent the per-
discharge payment for Medicare Part A and the per-discharge payments 
for MA claims paid by MA plans when the MA-paid claim option is 
selected, and these commenters requested that the per-discharge 
payments be reconciled at cost report settlement. One commenter 
recommended that CMS calculate the interim payment by dividing each 
hospital's uncompensated care payment amount by the number of its 
transfer-adjusted cases.
    In addition, these commenters expressed concerns about the impact 
to SCHs under the proposal to make interim uncompensated care payments 
on a periodic basis because only the empirically justified Medicare DSH 
payment adjustments would be included in the comparison that determines 
whether an SCH is paid the Federal rate or the hospital-specific rate. 
Some commenters asserted under this approach that the comparison 
between payments under the Federal rate and under the hospital-specific 
rate would be inaccurate, causing several hospitals that were 
previously eligible for Medicare DSH payments to instead receive the 
hospital-specific rate. These commenters asserted that this would 
impose unwarranted payment cuts for SCHs because uncompensated care 
payments were not accounted for in determining whether SCHs are paid 
the Federal rate or hospital-specific rate. Therefore, the commenters 
reasoned that such SCHs would be unfairly penalized. One commenter 
expressed concern that a hospital-specific rate based on costs creates 
incentives for SCHs to have higher costs of operation. Several 
commenters discussed how the uncompensated care payment should be 
considered when determining outlier payments and the fixed-loss 
threshold, and expressed their concerns about the impact of excluding 
uncompensated care payments from these determinations. These comments 
will be summarized and addressed fully in section II.A.4.g. of Appendix 
A to this final rule under the discussion of outlier payments, where we 
finalize our policy decision that uncompensated care payments also 
should be included in the determination of outlier payments.
    Response: We appreciate the commenters' input with regard to fact 
that under our proposed approach, the new uncompensated care payments 
would not be accounted for in the CMS PC PRICER tool. While we 
acknowledge that many MA plans use this tool to estimate fee-for-
service payments, we note that there is no official CMS requirement 
that MA plans use this specific tool. For those MA plans that may elect 
to use the CMS PC PRICER, we acknowledge that our proposed interim 
payment approach would make it a more complex task for MA organizations 
to determine the amount of the uncompensated care payment that would be 
attributable to a given discharge. We agree with the commenters that 
the uncompensated care payment must be treated as part of a hospital's 
Medicare payment for purposes of section 1866(a)(1)(O) of the Act. We 
note that under section 1866(a)(1)(O) of the Act, hospitals treating MA 
enrollees are entitled to receive payment from an MA organization with 
which they have no contract governing payment of an amount representing 
the amount the hospital would have received from Medicare if the 
beneficiary were not enrolled in an MA plan. We understand the 
commenters' reasoning that because the new uncompensated care payments 
are intended to replace a portion of the DSH payments previously made 
by CMS, and MA organizations have always included the amount of 
applicable DSH payment in their payments to non-contracting hospitals 
under section 1866(a)(1)(O) of the Act and to contracting hospitals 
that contract to be paid at the section 1866(a)(1)(O) rate, MA 
organizations should similarly be required to include amounts 
representing these uncompensated care payments in their payments for 
inpatient services furnished to their MA plan enrollees. It was not our 
intention to suggest otherwise in the proposed rule. We also note that 
while some commenters expressed concern regarding the payment 
arrangements between MA organizations and contracted providers, section 
1854(a)(6)(B)(iii) of the Act prohibits CMS from interfering in the 
payment arrangements between MA organizations and contract providers 
and these arrangements are not within the scope of this rulemaking. We 
are only addressing an MA organization's obligations under section 
1866(a)(1)(O) of the Act with respect to payments to non-contracting 
hospitals. Of course, insofar as both parties to a contract agree that 
the contract provides for payment of the rate the MA organization is 
required under section 1866(a)(1)(O) to pay to non-contracting 
providers, that contract would be indirectly affected. However, this 
does not constitute an interference in the terms of the contracts, only 
on the indirect effects of our interpretation of section 1866(a)(1)(O) 
of the Act on those terms.
    We also recognize the potential impact on SCHs if the interim 
uncompensated care payments were to be paid on a periodic biweekly 
basis rather than a per-discharge basis. As we discuss previously in 
the preamble, after a thorough review of the above policy 
considerations reflected in the numerous public comments we received, 
we believe that distributing these payments on a per-discharge basis 
would allow these payments to be considered in the comparison of 
payments under the Federal rate and the hospital-specific rate for SCHs 
and that this would be an appropriate policy. We also note that we 
disagree with the commenter who stated that this could create an 
incentive for higher costs of operation for SCHs because hospital-
specific payment rates are based on costs in past years and would not 
be affected by higher costs of operation in the current or future 
years.
    Similarly, after a thorough review of the above policy 
considerations reflected in the numerous public comments we received, 
we believe that distributing these payments on a per-discharge basis 
would make it easier for MA organizations to take these payments into 
account when making payments to non-contracting hospitals

[[Page 50645]]

under section 1866(a)(1)(O) of the Act. We have always intended that 
this occur as current payments by MA organizations under this provision 
include 100 percent of DSH payments and the uncompensated care payment 
is intended to replace 75 percent of those payments, after adjusting 
for the uninsured percentage. The inclusion of amounts representing 
uncompensated care payments in MA organization payments to non-
contracting hospitals does not change the amount of CMS' uncompensated 
care payments nor overall IPPS payment, but ensures that payments by MA 
organizations under section 1866(a)(1)(O) of the Act reflect the full 
amount that would otherwise have been paid by CMS in the case of a 
given discharge. We also note that our decision to make uncompensated 
care payments on a per-discharge basis will make more SCHs eligible for 
uncompensated care payments and, therefore, also change the 
distribution of the uncompensated care payments.
    Accordingly, for FY 2014 we are finalizing a process to distribute 
interim uncompensated care payments under the IPPS on a per-discharge 
basis through our claims processing system, with a reconciliation of 
the hospital's payments at cost report settlement to ensure that 
hospitals receive no more than the estimated amount included in this 
final rule. We do not intend to reconcile Factor 3 using data from the 
FY 2014 cost reports because we believe that the statute provides the 
authority to make these payments on the basis of estimates for Factors 
1, 2, and 3, and that it is preferable to do so. If we were to use data 
from the FY2014 cost reports to recompute Factor 3, we would need to 
wait until such a time that all of these data were submitted by 
hospitals and then available to CMS, likely 2 years. Furthermore, it 
would be administratively difficult to recompute Factor 3 values for 
all hospitals. Under the methodology we are finalizing, because the 
per-discharge payment amounts are based on a hospital's historic 
Medicare utilization, we would expect the amount of over- or under- 
payments to reflect the year to year changes in a hospital's 
utilization patterns. We intend to calculate an estimated per-discharge 
amount (or per claim amount) for each hospital eligible to receive 
interim uncompensated care payments and we will pay that estimated 
amount on a per-discharge basis by adding it to the payment otherwise 
made on that claim. The estimated per-discharge amount is based on the 
amount of the uncompensated care payment that we have calculated for 
the hospital for a fiscal year divided by the average number of 
discharges, or claims, in the most recently available three fiscal 
years of the Medicare claims dataset. For FY 2014 payments, we will use 
the average number of claims from the most recent 3 years of MedPAR 
claims data, FY 2010, FY 2011 and FY 2012, as this is the most recently 
available data on hospital utilization. We believe that it is 
appropriate to use a 3-year average to reduce the degree to which we 
would over- or under-pay the uncompensated care payment on an interim 
basis. In any given year, a hospital could have low or high Medicare 
utilization that differs from other years. For example, if a hospital 
had two Medicare discharges in its most recent cost report but 
experienced four discharges in FY2014, during the fiscal year, we would 
pay two times the amount the hospital should receive and need to adjust 
for that at cost report settlement. Similarly, if a hospital had four 
Medicare discharges on its most recent cost report, but experienced two 
discharges in FY2014, during the fiscal year, we would only pay half 
the amount the hospital should receive and need to adjust for that at 
cost report settlement. We note that because this fee-for-service per-
claim payment will be reconciled against actual hospital utilization at 
the end of a hospital's cost year, it may be necessary to make 
actuarial adjustments so that the MA organizations can more accurately 
and appropriately take these payments into account when making payment 
to non-contracting hospitals under section 1866(a)(1)(O) of the Act.
    Furthermore, because we do not intend to reduce the uncompensated 
care payment based on any claim-specific factors, such as DRG weight or 
transfer status, for discharges that are transfers, we do not believe 
that it is appropriate to determine the per-discharge interim payment 
using the number of transfer-adjusted discharges. In other words, we 
will not be using transfer-adjusted discharges to determine per-claim 
payments. In order to determine per-claim payments, we will use the 3-
year average of the most recent periods to determine discharges. At 
cost report settlement, we will reconcile the total amounts paid on a 
per-discharge basis during the Federal fiscal year with the amount of 
the uncompensated care payment that we have calculated for the hospital 
for the fiscal year and issue further instructions as needed.
    Comment: MedPAC submitted a comment supporting the proposal to make 
interim uncompensated care payments on a periodic basis, and further 
stated that this payment approach was appropriate and would prevent 
unnecessary cash flow problems for the hospitals. Other commenters also 
supported the proposal. One commenter urged CMS to make direct lump sum 
uncompensated care payments to hospitals on a biweekly basis to avoid 
the need for hospital-specific reconciliations.
    Response: Although we appreciate the commenters' support for our 
proposal, for the reasons stated above, we are not adopting our 
proposed policy to make interim uncompensated care payments on a 
periodic basis. After consideration of the public comments we received, 
in this final rule, for FY2014, we are adopting a process to distribute 
interim uncompensated care payments on a per-discharge basis through 
the claims processing system. We believe that the inclusion of the 
uncompensated care per-claim amount on each claim paid will address 
MedPAC's concerns about cash flow problems for the hospitals. Because 
the per-discharge uncompensated care payments will be made on a claim-
by-claim basis in the claims processing system, we anticipate that the 
FY 2014 CMS Medicare Inpatient PPS PC PRICER software tool will also 
display the uncompensated care per-claim amount in the pricing 
information it calculates. This should assist those MA plans that opt 
to use the CMS Medicare Inpatient PPS PC PRICER tool to estimate fee-
for-service like payments.
    Comment: Some commenters urged CMS to clarify in the final rule 
that MA plans must include payment for uncompensated care in their 
payments to hospitals, and requested that CMS take steps to ensure MA 
plans have access to the information they need to make payments for 
uncompensated care costs as of October 1, 2013.
    Response: We appreciate receiving the commenters' feedback. As 
stated above, we agree with the commenters that MA organizations have 
the obligation to include these payment amounts for purposes of 
payments under section 1866(a)(1)(O) of the Act, and, as noted above, 
are taking steps to ensure that these amounts are included in the 
software used by MA organizations.
    After consideration of the public comments we received, in this 
final rule we are not adopting our proposed policy to make interim 
uncompensated care payments on a periodic basis, and instead for FY 
2014 are adopting a process to distribute interim uncompensated care 
payments on a per-discharge basis through the claims processing system, 
and also such tools

[[Page 50646]]

that we make available to the public, including MA organizations.
    In the FY 2014 IPPS/LTCH PPS proposed rule, we also proposed to 
make a final determination concerning eligibility for uncompensated 
care payments at the time of cost report settlement. As a result of 
this proposal, our operational system must be able to handle the 
various situations that may arise between interim and final eligibility 
determinations. For example, a hospital may receive empirically 
justified Medicare DSH payments and uncompensated care payments based 
on an initial determination that the hospital is eligible for such 
payments, but the hospital may then be determined to be ineligible for 
such payments at cost report settlement. In such situations, we must be 
prepared and able to recoup the interim empirically justified Medicare 
DSH payments and uncompensated care payments that the hospital 
received.
    For each Federal fiscal year, we proposed to estimate which 
hospitals will receive an empirically justified Medicare DSH payment 
(that is, eligible hospitals). We proposed to provide periodic payments 
to these hospitals during the relevant Federal fiscal year so that they 
can receive their uncompensated care payments on an interim basis. For 
a fiscal year, each eligible hospital's interim uncompensated care 
payments will be determined by multiplying the final values for Factor 
1, Factor 2, and Factor 3 for that year and dividing the amount by the 
number of periods over which the interim payments will be made.
    Because we would be using historical data to estimate each 
hospital's eligibility for empirically justified Medicare DSH payments 
in FY 2014 and subsequent years, we acknowledged that a reconciliation 
process would be necessary to account for cases in which a hospital's 
eligibility for such payments changes after we have published our 
estimates during the rulemaking process. For example, a hospital that 
had not been estimated to be eligible for these payments may become 
eligible during the course of a given payment period. In such cases, 
our estimates would have indicated that the hospital was ineligible for 
empirically justified Medicare DSH payments and, therefore, ineligible 
for uncompensated care payments. That hospital would not receive 
interim payments. However, if the data available at cost report 
settlement were to indicate that the hospital is eligible for an 
empirically justified Medicare DSH payment, the hospital would become 
eligible for an uncompensated care payment based on that hospital's 
Factor 3 value.
    Therefore, we proposed that, at cost report settlement, the fiscal 
intermediary/MAC will issue a notice of program reimbursement that 
includes a determination concerning whether each hospital is eligible 
for empirically justified Medicare DSH payments and, therefore, 
eligible for uncompensated care payments in FY 2014 and each subsequent 
year. In the case where a hospital received interim payments for its 
empirically justified Medicare DSH payments and uncompensated care 
payments for FY 2014 or a subsequent year on the basis of estimates 
prior to the payment year, but is determined to be ineligible for the 
empirically justified Medicare DSH payment at cost report settlement, 
the hospital would no longer be eligible for either payment and CMS 
would recoup those monies. For a hospital that did not receive interim 
payments for its empirically justified Medicare DSH payments and 
uncompensated care payments for FY 2014 or a subsequent year, but at 
cost report settlement is determined to be eligible for DSH payments, 
the uncompensated care payment for such a hospital is calculated based 
on the Factor 3 value determined prospectively for that fiscal year.
    We proposed to codify this policy regarding the manner and timing 
of payments in new Sec.  412.106(h) of our regulations.
    We invited public comment on this proposal.
    The reconciliations at cost report settlement would be based on the 
values for Factor 1, Factor 2, and Factor 3 that we have finalized 
prospectively for a Federal fiscal year. For example, a hospital that 
was estimated by CMS to receive empirically justified Medicare DSH 
payments for FY 2014 and received interim uncompensated care payments 
would not receive a different uncompensated care payment amount if the 
hospital remained eligible for empirically justified Medicare DSH 
payments at cost report settlement. In other words, we did not propose 
to include a reestimation of Factor 1, Factor 2, or Factor 3 in the 
reconciliation process. Rather, Factor 1, Factor 2, and Factor 3 are 
estimates determined prospectively using methodologies we establish 
through rulemaking. We recognize that, under this proposal, we may pay 
a total amount that could either be more or less than the product of 
Factor 1 and Factor 2. However, we believed this risk is inherent in 
the use of estimates to determine the Factors, similar to the manner in 
which we estimate the amount of total outlier payments under section 
1886(d)(5)(A)(iv) although, as in this case, the amount of actual total 
outlier payments might vary from that estimate. In the FY 2014 IPPS/
LTCH PPS proposed rule, we indicated that we do not know of any reason 
to believe that there will be a bias toward systematic overpayment or 
underpayment from year to year.
    We proposed to codify this policy at Sec.  412.106(g)(1)(iv) of our 
regulations.
    We invited public comments on this proposal, especially in regard 
to whether we should include Factor 3 within the reconciliation 
process. We stated that, depending on the public comments received, we 
may revise our proposed policy in the final rule so that at the time of 
cost report settlement and reconciliation a hospital's final 
uncompensated care payments could be based on Factor 3 numerators and 
denominators estimated using more recent cost report data (and 
associated inputs). In addition, we stated that we may revise our 
proposed reconciliation process, as appropriate, to account for any 
policy changes that we make in the final rule.
    We also note that the uncompensated care payment will be reported 
on the Medicare Hospital Cost Report. We recognized that hospitals have 
their own cost reporting periods that may differ from the Federal 
fiscal year and that may span more than one Federal fiscal year. In the 
FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27592), we proposed that 
hospitals would receive their uncompensated care payments with respect 
to the fiscal year in which their cost report begins. For example, if a 
hospital is estimated to be eligible for the empirically justified DSH 
payment and also an uncompensated care payment in FY 2014 and has a 
cost report period of January 1, 2014 through December 31, 2014, this 
hospital would begin to receive interim payments for its uncompensated 
care on October 1, 2013. If, at cost report settlement, this hospital 
remained eligible for an empirically justified DSH payment, then the 
hospital would receive its FY 2014 uncompensated care payment on its 
cost report for the cost reporting period beginning on January 1, 2014 
(that is, the hospital would neither owe nor be owed monies for its 
uncompensated care payment). As another example, if that same hospital 
is no longer eligible for an empirically justified Medicare DSH payment 
at the time of settlement of its cost report for the cost reporting 
period beginning January 1, 2014, the hospital would be required to pay 
back the interim payments it received for its uncompensated care 
payments. We

[[Page 50647]]

noted that this methodology would not delay the full payment of FY 2014 
payments to hospitals with cost reporting periods that begin after 
October 1, 2013. While it is possible to align interim and final 
payments for the uncompensated care payment with individual hospital's 
cost reporting periods, we noted that we believe it would be 
administratively efficient and practical to pay the uncompensated care 
payment on the basis of the Federal fiscal year because that is how it 
is determined, and to reconcile that amount in the cost reporting 
period that begins in the respective Federal fiscal year. We stated in 
the proposed rule that if this proposal is finalized, we would revise 
the cost report accordingly. We invited public comments on our 
proposal.
    Comment: Many commenters, including national hospital associations, 
expressed concerns regarding the accuracy of the data used to determine 
insured low-income days and requested that we establish a limited time 
period after the final rule for data corrections to afford hospitals an 
opportunity to provide the most current and best available data. 
Specifically, the commenters were concerned about the accuracy and 
completeness of the HCRIS data used to calculate Factor 3 in the 
proposed rule, noting that the inaccuracies could be due to timing 
issues related to when the HCRIS files are created, revised, and 
reissued. Therefore, the commenters requested that we allow hospitals 
an opportunity to validate the estimates and data used to determine the 
uncompensated care payments. Some commenters also stated that the 
Worksheet S-2 and Worksheet S-3 data being used are primarily from 
unaudited cost reports and there are discrepancies between Medicaid 
days reported on Worksheet S-2 versus Worksheet S-3. The commenters 
also noted that many of the as-filed cost reports would not necessarily 
include the final count of Medicaid days due to the nature of 
retroactive Medicaid eligibility determination. These commenters 
pointed out that this is more problematic because some States have a 
longer Medicaid eligibility determination timeline than others, and 
believed that hospitals in these States rely on secondary research to 
identify a large volume of retroactive Medicaid eligible days. One 
commenter stated that providers should be given sufficient time to 
review SSI data before the Factor 3 percentages are used, and stated 
that the 2011 SSI data should be published to allow for this. In 
addition, some commenters urged us to allow a 30-day period after the 
publication of the final rule for hospitals to submit corrections to 
their cost reports; some commenters requested a 90-day period for 
corrections.
    Response: We understand the commenters' concerns regarding the 
accuracy of the data used to calculate Factor 3, and as discussed 
above, for this final rule we are taking several steps to address these 
inconsistencies, including using the March 2013 update of HCRIS and 
identifying a hospital's Medicaid days based on the Medicaid days 
reported on the 2011, or if not available 2010, Medicare Hospital Cost 
Report. For FY 2014 Factor 3 determinations, for hospitals filing CMS 
Form 2552-10 that claimed DSH on their cost reports, we will determine 
Medicaid days using Worksheet S-2, even if those data conflict with the 
Medicaid days reported on Worksheet S-3. We believe that this is 
appropriate because those hospitals' DSH payments are determined using 
the data from Worksheet S-2. We also note that we believe that there 
should be no discrepancy between the Medicaid days reported on 
Worksheet S-2 and Worksheet S-3 and, therefore, have updated our 
processes so that Medicaid days reported on Worksheet S-2 may no longer 
be inconsistent with Medicaid days reported on Worksheet S-3. However, 
we understand that for FY 2014 Factor 3 determinations for hospitals 
filing CMS Form 2552-10 for either 2011 or 2010, that did not claim DSH 
on their cost report, it may have been impossible for some of these 
hospitals to enter data on Worksheet S-2 due to Medicare systems 
issues. Therefore, for all hospitals that did not claim DSH on their 
cost report for either 2011 or 2010, for the FY 2014 Factor 3 
determination, we will use Medicaid days from Worksheet S-3. We believe 
that this is appropriate so as not to disadvantage any group of 
hospitals that were unable to report information on Worksheet S-2 for 
their FY 2011 (or FY 2010) cost reporting period. Hospitals certify the 
accuracy of the information on their cost reports at the time of 
submission. As a result, we do not agree that providing hospitals 
additional time to submit data will necessarily improve the accuracy of 
the estimate used to calculate Factor 3 because such data could not be 
audited in a meaningful timeframe and still allow payments to be made 
in FY 2014. Therefore, we are not providing additional time after the 
publication of the final rule for hospitals to submit changes to their 
data.
    In response to the comment requesting that CMS publish the 2011 SSI 
ratios, on June 27, 2013, the FY 2011 SSI ratios were posted on the CMS 
Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html. We note that CMS generally 
publishes SSI ratios annually in the spring.
    We are finalizing the proposed new provisions at Sec.  412.106(g) 
and (h) to codify these policies. However, we note that we have made a 
minor change to the provision at Sec.  412.106(h) to clarify that we 
intend to make interim payments during the year, and not interim 
payments on a periodic basis as we had proposed.

F. Medicare-Dependent, Small Rural Hospital (MDH) Program (Sec.  
412.108)

1. Backgound
    Section 1885(d)(5)(G) of the Act provides special payment 
protections, under the IPPS, to a Medicare-dependent, small rural 
hospital (MDH). (For additional information on the MDH program and the 
payment methodology, we refer readers to the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51683 through 51684.) As we discussed in the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50287) and in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51683 through 51684), section 3124 of the Affordable 
Care Act extended the expiration of 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 by striking out 
``October 1, 2011'' and inserting ``October 1, 2012''. Section 3124(b) 
of the Affordable Care Act made conforming amendments to sections 
1886(b)(3)(D) and 1886(b)(3)(D)(iv) of the Act.
    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 final rule (76 FR 51683 through 51684), we 
did not make any additional changes to the MDH regulatory text for FY 
2012. As discussed below, the ATRA (Pub. L. 112-240) amended the Act to 
extend the MDH program through the end of FY 2013.

[[Page 50648]]

2. Provisions of the ATRA for FY 2013
    a. Background
    Prior to the enactment of the ATRA, under section 3124 of the 
Affordable Care Act, the MDH program authorized by section 
1886(d)(5)(G) of the Act was set to expire at the end of FY 2012. 
Section 606 of the ATRA amended sections 1886(d)(5)(G)(i) and 
1886(d)(5)(G)(ii)(II) of the Act to provide for an additional 1-year 
extension of the MDH program, effective from October 1, 2012 to 
September 30, 2013 (FY 2013). Section 606 of the ATRA also made 
conforming amendments to sections 1886(b)(3)(D)(i) and 
1886(b)(3)(D)(iv) of the Act. Prior to the enactment of the ATRA, in 
the FY 2013 IPPS/LTCH PPS final rule, we discussed the expiration of 
the MDH program at the end of FY 2012 (77 FR 53413 through 53414) and 
revised the SCH regulation at Sec.  412.92(b) to change the effective 
date of SCH status for MDHs that apply for SCH status with the 
expiration of the MDH program (77 FR 53404 through 53405).
    In a FY 2013 IPPS notice issued in the Federal Register on March 7, 
2013 (78 FR 14689), we announced the extension of the MDH program for 
FY 2013 in accordance with the provisions of section 606 of the ATRA. 
In that notice, we explained that, as a result of section 606 of the 
ATRA, the MDH program is now extended for 1 additional year, through 
the end of FY 2013 (that is, effective October 1, 2012 through 
September 30, 2013). The FY 2013 IPPS notice explained how providers 
may be affected by the ATRA extension of the MDH program and described 
the steps to reapply for MDH status for FY 2013, as applicable. 
Generally, a provider that was classified as an MDH at the end of FY 
2012 (that is, as of September 30, 2012) was reinstated as an MDH 
effective October 1, 2012, with no need to reapply for MDH 
classification. However, if the MDH had classified as a sole community 
hospital (SCH) or cancelled its rural classification under Sec.  
412.103(g) effective on or after October 1, 2012, the effective date of 
MDH status was not retroactive to October 1, 2012. In the FY 2013 IPPS 
notice, we also stated that we intended to make conforming changes to 
the regulations at Sec. Sec.  412.108(a)(1) and (c)(2)(iii) in future 
rulemaking to reflect the statutory changes made by section 606 of the 
ATRA. We refer readers to the FY 2013 IPPS notice (78 FR 14689 through 
14694) for additional information on the extension of the MDH program 
through FY 2013 pursuant to section 606 of the ATRA and for additional 
information on how and when MDH status was determined for hospitals 
classified as MDHs prior to the September 30, 2012 expiration of the 
program.
b. Conforming Regulatory Changes
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27593), we 
proposed to make conforming changes to the regulations at Sec. Sec.  
412.108(a)(1) and (c)(2)(iii) to reflect the statutory extension of the 
MDH program through FY 2013 made by section 606 of the ATRA.
    We did not receive any public comments on the proposed conforming 
changes to the existing regulations text at Sec.  412.108 to reflect 
the extension of the MDH program through FY 2013 in accordance with 
section 606 of the ATRA. Therefore, in this final rule, we are adopting 
as final the proposed revisions to paragraphs (a)(1) and (c)(2)(iii) of 
Sec.  412.108 without modification.
c. Expiration of the MDH Program
    Since section 606 of the ATRA extended the MDH program through FY 
2013 only, the MDH program will no longer be in effect in FY 2014 
absent a change in law to extend the program. Therefore, beginning in 
FY 2014, all hospitals that previously qualified for MDH status will no 
longer have MDH status and will be paid based solely on the Federal 
rate.
    As noted earlier, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53404 through 53405), we revised our SCH policies to allow MDHs to 
apply for SCH status and be paid as such under certain conditions, 
following expiration of the MDH program at the end of FY 2012. We 
codified these changes in the regulations at Sec.  412.92(b)(2)(i) and 
Sec.  412.92(b)(2)(v). For additional information, we refer readers to 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 through 53405 and 
53674). We note that those same conditions apply to MDHs that intend to 
apply for SCH status with the expiration of the MDH program at the end 
of FY 2013. Specifically, the existing regulations at Sec.  
412.92(b)(2)(i) and (b)(2)(v) allow for an effective date of approval 
of SCH status that is the day following the expiration date of the MDH 
program. In accordance with these regulations, in order for an MDH to 
receive SCH status effective October 1, 2013, it must apply for SCH 
status at least 30 days before the end of the MDH program; that is, the 
MDH must apply for SCH status by August 31, 2013. The MDH also must 
request that, if approved as an SCH, the SCH status be effective with 
the expiration of the MDH program provision; that is, the MDH must 
request that the SCH status, if approved, be effective October 1, 2013, 
immediately after its MDH status expires with the expiration of the MDH 
program at the end of FY 2013, on September 30, 2013.
    We note that an MDH that applies for SCH status in anticipation of 
the expiration of the MDH program would not qualify for the October 1, 
2013 effective date upon approval if it does not apply by the August 
31, 2013 deadline. The provider would instead be subject to the usual 
effective date for SCH classification, that is, 30 days after the date 
of CMS' written notification of approval as specified at Sec.  
412.92(b)(2)(i).
    Comment: Several commenters expressed concern with the expiration 
of the MDH program, citing serious detrimental effects that would 
result to patients, hospitals, and communities. The commenters 
encouraged the continuation of the MDH program.
    Response: The MDH program, which provides special treatment of and 
payment to small, rural, Medicare-dependent hospitals, is authorized by 
statute through FY 2013. Therefore, a change in law would be necessary 
in order for the MDH program to continue, or in order to reinstate it 
once it expires. While we understand the commenters' concerns, CMS does 
not have the authority under current law to continue the MDH program.
    Comment: Several commenters continued to express their support of 
the ``seamless transition'' policy we finalized in last year's rule. 
However, some commenters requested that, in the event that the MDH 
provision is reinstated, CMS allow providers that transitioned to SCH 
status to revert back to MDH status retrospectively without the need to 
reapply for MDH status. Similarly, these commenters requested that, if 
providers cancel their rural status in anticipation of the expiration 
of the MDH provision, CMS allow the providers to waive their 
cancellation and revert to MDH status retroactively should the MDH 
provision be reinstated. These commenters stated that CMS' current 
regulations, which do not allow providers that transition to SCH status 
or cancel their rural classification in anticipation of the expiration 
of the MDH provision to be reinstated as MDHs retroactively upon the 
reinstatement of the MDH provision, put providers in the unfair 
position of having to guess whether or not Congress will reinstate the 
MDH provision and weigh the effects of applying for SCH classification 
or cancelling their rural status. A few others commenters pointed out 
that CMS' policy to transition MDHs to SCH classification does not 
address the needs of many of

[[Page 50649]]

the hospitals currently classified as an MDH because those hospitals do 
not meet the criteria for an SCH, and recommended that CMS revise the 
criteria for an MDH to become an SCH.
    Response: The statute specifies that, in order to be an MDH, among 
other requirements, a hospital must be located in a rural area and not 
classified as an SCH. Hospitals that convert to an SCH or canceled 
their rural status no longer meet the statutory criteria to be 
classified as an MDH. If legislation is passed to authorize the 
continuation of the MDH program, we will develop policy to implement 
the specific provisions of such legislation. While we understand the 
commenters' concerns about the expiration of the MDH program, the 
statute specifies the criteria for a hospital to be classified as an 
SCH and CMS does not have the authority to revise those statutory 
criteria as requested by the commenters.
    Comment: Some commenters requested that, if the MDH provision is 
reinstated after October 1, 2013, CMS expedite the MDH reinstatement 
process because many hospitals were not reinstated until several weeks 
after the enactment of the ATRA.
    Response: We understand those hospitals' concerns regarding the 
time involved in the implementation of the reinstatement of their MDH 
status after the enactment of the ATRA. While we have made every effort 
to issue public notification and instructions to the MACs on our 
implementation of the extension of the MDH program as provided for in 
the provisions of the ATRA in a timely manner, we also are limited by 
the time necessary to develop the policy and systems changes to 
implement the specific provisions of the newly enacted legislation, as 
well as the time required to undergo the issuance process. If 
legislation is enacted to continue the MDH program, we will keep these 
concerns in mind in the implementation of the specific provisions of 
such legislation.

G. Hospital Readmissions Reduction Program (Sec. Sec.  412.150 through 
412.154)

1. 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 applicable hospitals may be reduced to account 
for certain excess readmissions.
    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, ``base operating DRG payments'' are reduced by a 
hospital-specific adjustment factor that accounts for the hospital's 
excess readmissions. 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 adjustment payments, and add-on 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).'' 
In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53374), we finalized 
policies to implement the statutory provisions related to the 
definition of ``base operating DRG payment amount''.
    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 the 
terms ``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 
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 is addressed in detail in section 
IV.C.3.a. of the FY 2012 IPPS/LTCH PPS final rule (76 FR 51665 through 
51666)) 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).'' Section 1886(q)(5)(B) of 
the Act also requires the Secretary, beginning in 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

[[Page 50650]]

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 under 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 
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 public 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. Overview
    The payment adjustment factor set forth in section 1886(q) of the 
Act did not apply to discharges until FY 2013. In the FY 2012 IPPS/LTCH 
PPS final rule, we addressed the issues of the selection of readmission 
measures and the calculation of the excess readmission ratio, which 
will be used, in part, to calculate the readmission adjustment factor. 
Specifically, in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51660 
through 51676), we addressed the 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; 
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 specifically addressed the following:
     Index hospitalizations;
     Risk adjustment;
     Risk standardized readmission rate;
     Data sources; and
     Exclusion of certain readmissions.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53374 through 
53401), we finalized our policies that relate to the calculation of the 
hospital readmission payment adjustment factor and the process by which 
hospitals can review and correct their data. Specifically, in the final 
rule, we addressed the portions of section 1886(q) of the Act related 
to the following provisions:
     Base operating DRG payment amount, including policies for 
SCHs and MDHs and hospitals paid under section 1814(b) of the Act;
     Adjustment factor (both the ratio and floor adjustment 
factor);
     Aggregate payments for excess readmissions and aggregate 
payments for all discharges;
     Applicable hospital;
     Limitations on review; and
     Reporting of hospital-specific information, including the 
process for hospitals to review readmission information and submit 
corrections.
    In the FY 2013 IPPS/LTCH PPS final rule, we established a new 
Subpart I under 42 CFR Part 412 (Sec. Sec.  412.150 through 412.154) to 
codify rules for implementing the Hospital Readmissions Reduction 
Program.
3. FY 2014 Policies for the Hospital Readmissions Reduction Program
a. Overview
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27594), for FY 
2014 and beyond, we proposed to--
     Refine the readmissions measures and related methodology 
for the current applicable conditions (section V.G.3.b. of this 
preamble);
     Expand the ``applicable conditions'' for FY 2015 (section 
V.G.3.c. of this preamble);
     Specify additional policies for hospitals paid under 
section 1814(b)(3) of the Act (Sec.  412.154(d)), including the process 
to be exempted from the Hospital Readmissions Reduction Program and the 
definition of ``base operating DRG payment amount'' (section V.G.3.d. 
of this preamble);
     Specify the proposed adjustment factor floor for FY 2014 
(section V.G.3.e. of this preamble);
     Specify the proposed applicable period for FY 2014 
(section V.G.3.f. of this preamble);
     Refine the methodology to calculate the aggregate payments 
for excess readmissions (section V.G.3.g. of this preamble); and
     Clarify the process for reporting hospital-specific 
information, including the opportunity to review and submit corrections 
(section V.G.3.h. of this preamble).
    Comment: Some commenters requested that CMS conduct additional 
analyses on the Hospital Readmissions Reduction Program. One commenter 
suggested that CMS evaluate how hospitals work towards reducing 
readmissions and determine if the Hospital Readmissions Reduction 
Program is successful. Another commenter suggested that CMS analyze the 
Hospital Readmissions Reduction Program to determine its impact on 
mortality rates. One commenter stated that CMS should monitor the 
program for unintended consequences, such as avoiding admissions for 
difficult patients or placing more patients in observations to avoid 
readmissions. Other commenters requested that CMS conduct additional 
analyses on any unintended consequences with avoiding readmissions.
    Response: We appreciate the commenters' feedback and suggestions. 
However, we believe that there does not appear to be a meaningful 
correlation between hospital risk-standardized mortality rates and 
readmission rates. We believe that a hospital's performance on 
mortality and readmissions measures represents different aspects of 
quality. While a recent MedPAC report \18\ indicates that there may be 
an inverse correlation between readmission and mortality rates, we note 
that this inverse relationship has been found to be modest.\19\ We 
recognize the commenter's concern and will monitor changes in the 
strength of these inverse correlations over time. Further, we recognize 
that performance-based payment programs, as with any pay-for-
performance or pay-for-reporting program, may create the potential for 
unintended consequences. However, we remain committed to monitoring the 
Hospital Readmissions Reduction Program and assessing unintended 
consequences such as changes in utilization and patient outcomes over 
time, and adjusting the program as needed. We will also continue to 
make these analyses available to the public in the Chartbook posted 
annually each Fall on the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/OutcomeMeasures.html. We are especially cognizant 
of those areas of concern raised by stakeholders, including 
inappropriate shifting of care,

[[Page 50651]]

increased patient morbidity and mortality, and increases in the use of 
observation services to avoid hospital readmissions. We remain 
committed to quickly addressing these areas, as well as any other 
unintended consequences that may arise as the Hospital Readmissions 
Reduction Program progresses.
---------------------------------------------------------------------------

    \18\ http://www.medpac.gov/documents/Jun13_EntireReport.pdf.
    \19\ Krumholz HM, Lin Z, Keenan PS, et al. Relationship between 
hospital readmission and mortality rates for patients hospitalized 
with acute myocardial infarction, heart failure, or pneumonia. JAMA. 
2013; 309(6): 587-593.
---------------------------------------------------------------------------

b. Refinement of the Readmission Measures and Related Methodology for 
FY 2014 and Subsequent Years Payment Determinations
(1) Overview of the Inclusion of Planned Readmissions for the 
Calculation of the FY 2014 Readmissions Adjustment Factors
    In the FY 2012 IPPS/LTCH PPS final rule, we adopted AMI, HF, and PN 
readmission measures for the Hospital Readmissions Reduction Program 
payment determinations beginning with FY 2013. During development of 
the three readmission measures for AMI, HF, and PN, we consulted with 
medical experts to identify readmissions that are typically scheduled 
as follow-up care for each specific condition within 30 days of 
discharge. We categorized these readmissions as planned follow-up care 
and excluded them from being counted as a readmission. The AMI measure 
finalized for the Hospital Readmissions Reduction Program included two 
revascularization procedures (coronary artery bypass graft surgery 
(CABG) and percutaneous coronary intervention (PCI) (76 FR 51667)). We 
considered these procedures planned readmissions and excluded them from 
the readmission calculation as long as the readmissions were not for 
one of five acute conditions (HF, AMI, other acute/subacute forms of 
ischemic heart disease, arrhythmia, and cardiac arrest).
    During development of the HF and PN readmission measures, we did 
not identify any readmissions that were typically planned as follow-up 
care at the time of the patient's discharge. Therefore, the readmission 
measures finalized for the Hospital Readmissions Reduction Program for 
these two conditions did not exclude any planned readmissions from the 
readmission calculation.
(2) Refinement of the Readmission Measures and Related Methodology for 
the FY 2014 and Subsequent Years Payment Determinations
    Since the development and implementation of the initial three 
readmission measures adopted under the Hospital Readmissions Reduction 
Program, we have received comments from the medical community, other 
stakeholders, and the general public encouraging us to identify and not 
count as readmissions a broader range of planned readmissions. 
Stakeholders also made recommendations for expanding the number and 
types of planned readmissions during the public comment period for the 
FY 2013 IPPS/LTCH PPS proposed rule (as discussed in the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53382 through 53398)).
    Stakeholders commented that readmission measures are intended to 
capture unplanned readmissions that arise from acute clinical events 
requiring urgent rehospitalization within 30 days of discharge. In 
addition, stakeholders commented that planned readmissions do not 
generally signal poor quality of care. In response to stakeholders' 
concerns, we have worked with experts in the medical community, other 
stakeholders, and the public to broadly identify planned readmissions 
for procedures and treatments for exclusion from the readmission 
measures. Specifically, we developed an expanded ``planned readmission 
algorithm'' in the CMS Planned Readmission Algorithm Version 2.1 Report 
to identify planned readmissions across our readmission measures. In 
the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27595), we proposed to 
apply the algorithm to the AMI, HF, and PN measures for FY 2014. The 
CMS Planned Readmission Algorithm Version 2.1 Report is available on 
the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    As discussed in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27595), we developed the algorithm based on a hospital-wide (not 
condition-specific) cohort of patients. We began the development by 
using the Agency for Healthcare Research and Quality's (AHRQ's) 
Clinical Classification Software (CCS) codes to group thousands of 
individual procedures and diagnoses codes into clinically coherent, 
mutually exclusive procedure and diagnosis categories (PROC-CCS 
categories and Diagnosis-CCS categories, respectively). A panel of 
independent, non-CMS clinicians then reviewed the procedure categories 
and identified those that are commonly planned and require admission. 
Clinicians also reviewed the diagnosis categories and identified those 
that were acute diagnoses likely requiring hospitalization. Using these 
procedure and diagnosis categories and some individual ICD-9-CM 
procedure and diagnoses codes in the categories, we developed an 
initial algorithm for identifying planned readmissions for a hospital-
wide cohort of patients.
    The algorithm underwent several reviews by stakeholders. We 
initially posted the detailed algorithm for informal public comment 
during the measurement development process in August 2011. The National 
Quality Forum (NQF) reviewed and made the algorithm available for 
public comment during its endorsement review of the Hospital-Wide All-
Cause Unplanned Readmission Measure (NQF 1789). We also 
recruited 27 surgical subspecialists nominated by their specialty 
societies to review the algorithm and suggest refinements, which 
resulted in Version 2.1 of the Planned Readmission Algorithm. In the 
proposed rule, we proposed to use this algorithm in the readmission 
measures under the Hospital Readmissions Reduction Program beginning 
with FY 2014. A detailed description of this algorithm is included 
later in this section.
    As required by section 1886(q)(5)(A)(ii) of the Act, the first 
three applicable conditions of AMI, HF and PN, must use readmission 
measures that have been endorsed by the entity with a contract under 
section 1890(a) of the Act; and such endorsed measures must have 
exclusions for readmissions that are unrelated to the prior discharge 
(such as planned readmission or transfer to another applicable 
hospital). Because the statute requires that the readmission measures 
for the three current applicable conditions (AMI, HF and PN) be NQF-
endorsed, we sought NQF's endorsement of the measures that were revised 
to include the CMS Planned Readmission Algorithm Version 2.1. NQF 
reviewed these revised measures through its ad hoc review process, 
which reviews previously endorsed measures that undergo material 
changes. Following ad hoc review, NQF endorsed the revised AMI (NQF 
0505) and HF (NQF 0330) measures in January 2013 and 
the PN measure (NQF 0506) in March 2013.
    Comment: Several commenters stated that the Hospital Readmissions 
Reduction Program uses unreliable measures. One commenter suggested 
that the method used to calculate the number of excess readmissions 
adjusts for the volume of eligible patients served by the hospital, and 
weakens the incentive for low-volume hospitals to reduce their 
readmission rates. Another commenter stated that it is not reasonable 
to give a pass to hospitals with consistently high readmission rates 
year after year because they are low volume.

[[Page 50652]]

    Response: We appreciate the commenters' feedback. However, we 
disagree that the Hospital Readmissions Reduction Program uses 
unreliable measures for two reasons. First, the NQF both reviewed and 
endorsed the measures used in the Hospital Readmissions Reduction 
Program. As part of this endorsement process, the NQF requires that 
measures meet criteria for scientific acceptability, which include 
validity and reliability. Specifically, reliability under the NQF 
measure evaluation criteria means that the measure both allows for 
comparability and is well defined and precisely specified so it can be 
implemented consistently within and across organizations.\20\ Second, 
as previously addressed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53379), ``We determined the 25-case threshold for public reporting 
based on a reliability statistic that is calculated from the 
intercluster correlation, a parameter of the model. We are maintaining 
the minimum 25-case threshold that we adopted through rulemaking last 
year.''
---------------------------------------------------------------------------

    \20\ National Quality Forum (NQF), Measure Evaluation Criteria 
(November, 2012). Available at: http://www/qualityforum.org/docs/
measure--evaluation--criteria.aspx.
---------------------------------------------------------------------------

    We acknowledge that smaller hospitals typically have less certain 
estimates because they have fewer cases for use in assessing quality. 
This challenge is inherent in outcome measurements. However, one 
advantage of the statistical model that we use for the measures is that 
it allows for the inclusion of small hospitals while characterizing the 
certainty of their estimates. The hierarchical logistic regression 
model that we use to calculate the risk-standardized outcome measures 
allows the inclusion of hospitals with relatively few observations, but 
takes into account the uncertainty associated with sample size in 
estimating their risk-standardized outcome rates. The model takes into 
account the uncertainty in the estimate of outcome rates for low-volume 
hospitals by assuming that each hospital is a typically performing 
hospital. It weighs that assumption along with the outcomes for the 
particular hospital in calculating the outcome rate. Therefore, the 
estimated outcome rates for smaller hospitals will likely be closer to 
the national rate because the limited number of eligible cases in the 
hospital tells little about that hospital's true outcome rate.
    Comment: One commenter suggested that CMS exclude patients coded 
under ICD-9-CM code V15.81 (Personal history of non-compliance with 
medical treatment) from the readmission measures.
    Response: We appreciate the commenter's suggestion. We recognize 
that some patients choose not to follow a recommended treatment plan, 
even when they have access to the care they need. However, all 
hospitals have the opportunity to reduce the rate of readmission, even 
among less compliant patients. Improving readmission rates is the joint 
responsibility of hospitals and clinicians. Measuring readmissions will 
create incentives to invest in interventions to improve hospital care, 
better assess the readiness of patients for discharge, and facilitate 
transitions to outpatient status.
(a) Description of CMS Planned Readmission Algorithm Version 2.1
    As described in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27595), this algorithm is a set of criteria for classifying 
readmissions as ``planned'' using Medicare claims. The algorithm 
identifies typical planned admissions that may occur within 30 days of 
discharge from the hospital.
    We based the CMS Planned Readmission Algorithm on three principles:
     A few specific, limited types of care are always 
considered planned (obstetrical delivery, transplant surgery, 
maintenance chemotherapy, rehabilitation);
     Otherwise, a planned readmission is defined as a nonacute 
readmission for a scheduled procedure; and
     Admissions for acute illness or for complications of care 
are never planned.
    The Planned Readmission Algorithm uses a flow chart and four tables 
of procedures and conditions to implement these principles and to 
classify readmissions as planned or unplanned. The flow chart and 
tables are available in a report, CMS Planned Readmission Algorithm 
Version 2.1, which is available on the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    We incorporated the algorithm into each condition-specific and 
procedure-specific readmission measure. For most readmission measures, 
including the AMI, HF, and PN measures, we used one standard version of 
the algorithm--the CMS Planned Readmission Algorithm Version 2.1. 
However, for a subset of readmission measures, we revised the list of 
potentially planned procedures or acute primary diagnosis after 
applying the standard algorithm version because it was clinically 
indicated. For example, for the Total Hip Arthroplasty (THA) and Total 
Knee Arthroplasty (TKA) readmission measure that we proposed in the FY 
2014 IPPS/LTCH PPS proposed rule and are adopting in this final rule 
for FY 2015, we removed diagnostic cardiac catheterization from the 
potentially planned procedure list because patients in the hip/knee 
measure are typically well enough to undergo elective surgery and would 
not be expected to need a catheterization within 30 days of discharge. 
The details of these adaptations are available in the CMS Planned 
Readmission Algorithm Version 2.1 report (http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html).
    Comment: Several commenters supported the refinement of the 
readmission measures using the planned readmission algorithm. The 
commenters appreciated that CMS considered and acted upon public 
comments and suggestions made in last year's rule, and supported CMS' 
continued efforts to exclude planned readmissions from the penalty 
calculation.
    Response: We appreciate the commenters' support of our proposal to 
include a planned readmission algorithm for readmissions measures in 
the Hospital Readmissions Reduction Program.
    Comment: Several commenters suggested that CMS continually assess 
the algorithm for planned readmissions to determine whether additional 
diagnoses or procedures should be considered ``planned.''
    Response: We appreciate the commenters' suggestion. We intend to 
continually review the planned readmissions algorithm. Our measures 
continually undergo maintenance to determine the need for updated 
specifications, and to monitor for trends and any relevant coding 
changes associated with the measures. With such updates, we will modify 
the planned readmission algorithm as needed. If substantive updates are 
required, we will inform the public of any changes to the planned 
readmissions algorithm through rulemaking.
    Comment: Some commenters stated that relying solely on claims data 
is insufficient for proper risk-adjustment. One commenter stated that 
risk-adjustment based solely on claims data loses clinical detail for 
proper adjustment for severity. The commenter added, for example, that 
our coding does not capture those patients who are readmitted from 
hospice care.

[[Page 50653]]

    Response: We have performed validation work to confirm the 
scientific rigor of using claims data for risk adjustment in outcome 
measures. We validated the AMI, HF, and PN mortality and readmission 
measures with models that use medical record-abstracted data for risk-
adjustment. These analyses demonstrated that using claims data produces 
estimated hospital-level risk-standardized mortality rates (RSMRs) and 
risk-standardized readmission rates (RSRRs) that are very similar to 
the rates estimated by models based solely on medical record data 
(available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html). 
This high level of agreement in the results based on the two different 
approaches supports the use of the claims-based models for public 
reporting. These analyses are available in the methodology report 
located on the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    Our approach to gathering risk factors for patients also mitigates 
the potential limitations of claims data. Because not every diagnosis 
is coded at every visit, we use claims data for the year prior to the 
index admission, as well as secondary diagnosis codes during the index 
admission, for risk-adjustment.
    Comment: One commenter requested that the measures be risk-adjusted 
for hospitals located in rural areas because this may cause their 
readmission rate to be higher than hospitals in more concentrated 
markets.
    Response: We routinely monitor the impact of readmission measures 
on hospitals and have examined if hospitals in rural areas tend to have 
higher risk-standardized readmission rates. Our most recent analyses 
(available on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/MedicareHospitalQualityChartbook2012.pdf) examined hospital 
readmission rates for different hospital referral regions and did not 
find a relationship between rural referral regions and increased 
readmission rates.
    Comment: Several commenters addressed the proposed policy to not 
risk-adjust measures for socioeconomic status and other factors. Some 
commenters supported the policy and urged CMS to resist making any 
changes to the Hospital Readmissions Reduction Program based on 
socioeconomic status concerns. These commenters stated that the same 
care protocols that work with a different population may also work with 
patients of lower socioeconomic circumstances. The commenters added 
that until CMS can disprove that notion, CMS should not modify the 
program in a way that would shield certain hospitals, based on fairness 
concerns about socioeconomic factors, from truly participating in a 
program to change the way Medicare and Medicaid services and payments 
are delivered.
    Other commenters suggested that the readmission measures should 
include adjustments for socioeconomic status and other factors that are 
either outside the hospitals' or providers' immediate control or that 
may adversely affect certain types of hospitals more than others. 
Suggestions for variables to include in either the patient-level or the 
hospital-level model included: patient race, ethnicity, language, 
income, lifestyle, health literacy, dual-eligible status (that is, 
eligibility for both Medicare and Medicaid), insurance status, 
functional status, cognitive impairment, post-discharge care support 
structure, and access to primary care. Some commenters suggested 
stratification of the hospital calculations by the percentage of dual-
eligible patients. One commenter stated that a patient's ability to 
afford medication should be included as a risk-adjustment variable 
because socioeconomic status impacts the patient's ability to be 
compliant with medications and a patient's ability to pay for 
medications is separate and apart from care provided by the hospital. 
Another commenter recommended that CMS conduct a thorough analysis of 
the role economic factors play in readmissions. This commenter also 
suggested that the analysis be conducted at the claims level, with 
matching zip codes to existing poverty data to provide an accurate 
understanding of the role of economic conditions. The commenter stated 
that readmission measures should fully account for economic drivers. 
Another commenter stated that chronic diseases as well as socioeconomic 
status are related to hospital readmissions, and these factors comprise 
major determinants of outcomes.
    Response: We appreciate the commenters' feedback and suggestions on 
this issue. We have continued to consider and evaluate stakeholder 
concerns regarding the influence of patient socioeconomic status on 
readmission and mortality rates. The Hospital Readmissions Reduction 
Program, as pointed out by one commenter, seeks to transform the 
Medicare payment and delivery system by financially incentivizing 
providers to change the way they deliver care. The program's design 
encourages hospitals to make changes to avoid payment penalties while 
simultaneously enhancing the quality of health care provided to 
patients. We routinely monitor the impact of socioeconomic status on 
hospitals' results and have consistently found that hospitals that care 
for large proportions of patients of low socioeconomic status are 
capable of performing well on our measures. Our most recent analyses, 
available on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Downloads/MedicareHospitalQualityChartbook2012.pdf, again confirmed 
this finding. The definition of low SES we used was whether the 
beneficiary was enrolled in Medicaid, which is a proxy for low-income. 
Many safety-net providers and teaching hospitals do as well or better 
on the measures than hospitals without substantial numbers of patients 
of low socioeconomic status. Our analyses also show that adding 
socioeconomic status to the risk-adjustment has a negligible impact on 
hospitals' risk-standardized rates. The risk-adjustment for clinical 
factors likely captures much of the variation due to socioeconomic 
status, therefore leading to more modest impact of socioeconomic status 
on hospitals' results than stakeholders expect. We note that the goal 
of risk-adjustment is to account for factors that are inherent to the 
patient at the time of admission, such as severity of disease, so as to 
put hospitals on a level playing field. The measures should not be 
risk-adjusted to account for differences in practice patterns that lead 
to lower or higher risk for patients to be readmitted or die. The 
measures aim to reveal differences related to the patterns of care. The 
measures do not adjust for socioeconomic status because the association 
between socioeconomic status and health outcomes can be due, in part, 
to differences in the quality of health care received by groups of 
patients with varying socioeconomic status. The measures also do not 
adjust for socioeconomic status, or other patient factors such as race 
because we do not want to hold hospitals to different standards for the 
outcomes of their patients of low socioeconomic status. Finally, we do 
not want to mask potential disparities or minimize incentives to 
improve the outcomes of disadvantaged populations. This approach also 
is consistent with the guidance from the NQF, which states that risk 
models should not obscure

[[Page 50654]]

disparities by adjusting for factors associated with inequality (such 
as race or socioeconomic status). Furthermore, the statutory language 
in section 1886(q)(5)(A)(ii)(I) of the Act requires that the measures 
included in the Hospital Readmissions Reduction Program be NQF-
endorsed, and the measures as endorsed by the NQF are not currently 
adjusted for socioeconomic status. However, we are committed to 
tracking this issue and will continue to evaluate disparities in care 
and the impact of patient's socioeconomic status on hospital's 
readmissions rates moving forward.
    Comment: Some commenters suggested that CMS separate Hospital 
Readmissions Reduction Program-eligible hospitals into quartiles based 
on the proportion of their patients that are dually eligible, such that 
readmissions penalties would then be dependent on how hospitals perform 
compared to hospitals with a similar proportion of dually eligible 
patients. Several commenters expressed concern that hospitals with 
higher proportions of low socioeconomic status patients are at a 
disadvantage, and suggested that CMS stratify the measure score 
calculation to address this concern. One commenter suggested that CMS 
stratify hospitals by their proportion of dual-eligible patients and 
calculate the measure score in four different hospital strata. Based on 
commenters' understanding of the proposal, the commenters suggested 
that CMS rank hospitals by their proportion of dual-eligible patients, 
and divide hospitals into quartiles based on their rank. The commenters 
further suggested that CMS apply the NQF-approved measure to each group 
of hospitals to calculate the risk-standardized ratio that is used for 
the Hospital Readmissions Reduction Program. Under this approach, each 
hospital's ``expected'' (denominator) rate would be derived based on 
how hospitals within its quartile perform with similar patients. In 
other words, the benchmark for performance would be set within each 
quartile of hospitals, rather than by including all hospitals in the 
calculation and setting a uniform performance benchmark.
    Another commenter suggested that CMS stratify patients by their 
dual-eligible status and calculate two readmission ratios for each 
hospital for each measure--one using dual-eligible patients and one 
using all other patients. The commenter further suggested that CMS 
combine these scores to derive a single, ``blended'' excess readmission 
ratio for each hospital.
    Response: We appreciate these suggestions. However, we continue to 
believe that it is appropriate to include all hospitals and patients in 
a single comparison group. The measures do not stratify hospitals or 
patients by socioeconomic status or risk adjust for socioeconomic 
status because the association between socioeconomic status and health 
outcomes can be due, in part, to differences in the quality of health 
care received by groups of patients with varying socioeconomic status. 
We have consistently found that hospitals that care for large 
proportions of patients of low socioeconomic status are capable of 
performing well on our measures. Our most recent analyses (located on 
our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/MedicareHospitalQualityChartbook2012.pdf) again confirmed this finding. 
Many safety-net providers and teaching hospitals do as well or better 
on the measures than hospitals without substantial numbers of patients 
of low socioeconomic status. Our analyses also show that adding 
socioeconomic status to the risk-adjustment has a negligible impact on 
hospitals' risk-standardized rates. The risk-adjustment for clinical 
factors likely captures much of the variation due to socioeconomic 
status, therefore leading to more modest impact of socioeconomic status 
on hospitals' results than stakeholders expect. These findings suggest 
that using all hospitals and patients to calculate excess readmission 
ratios is most appropriate.
    We will continue to monitor this issue carefully. We note that we 
continue to provide support to hospitals with high numbers of dual-
eligible patients through other programs and to assist hospitals with 
high excess readmission ratios with lowering their readmission rates 
through the Partnership for Patients Program and the Quality 
Improvement Organization Program.
    Comment: One commenter suggested that the readmission measures 
risk-adjust for the acuity of the condition at the time of admission.
    Response: The measures, endorsed by the NQF and finalized in the FY 
2012 IPPS/LTCH PPS final rule, risk-adjust for key factors that are 
clinically relevant and have strong relationships with the outcome (for 
example, patient demographic factors, patient coexisting 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 on the NQF Web site at: http://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841.
    Comment: Some commenters stated that the planned readmission 
algorithm does not account for the full range of planned readmissions, 
or for unrelated readmissions. Other commenters suggested that CMS 
exclude unrelated admissions from the payment adjustment. One commenter 
added that the unintended consequences of our position to not exclude 
unrelated readmissions may affect patient care. Other commenters stated 
that CMS has ignored the Affordable Care Act requirements by not 
excluding unrelated readmissions from the Hospital Readmissions 
Reduction Program.
    Response: We appreciate the commenters' feedback and suggestions. 
However, we disagree that we have ignored the statutory requirements at 
section 1886(q)(5) of the Act as established by section 3025 of the 
Affordable Care Act relating to unrelated admissions. Section 
1886(q)(5) of the Act requires us to use measures that contain 
appropriate exclusions for readmissions that are unrelated to the prior 
discharge. Section 1886(q)(5) of the Act then cites specific examples 
of such unrelated readmissions, including planned readmissions and 
transfers to another hospital. We note that we incorporated both 
examples of unrelated readmissions cited by the statute in the Hospital 
Readmissions Reduction Program. Further, we continue to review and 
revise the area of unrelated readmissions through our expansion of 
planned readmissions. For example, we included the planned readmissions 
algorithm to address public comments raised last year relating to 
expanding the number of planned readmissions.
    Regarding other types of unrelated readmissions, we currently do 
not seek to differentiate between related and unrelated readmissions 
because readmissions not directly related to the index condition may 
still be a result of the care received during the index 
hospitalization. For example, a patient hospitalized for COPD who 
develops a hospital-acquired infection may ultimately be readmitted for 
sepsis. It

[[Page 50655]]

would be inappropriate to treat this readmission as unrelated to the 
care the patient received during the index hospitalization. 
Furthermore, the range of potentially avoidable readmissions also 
includes those not directly related to the initial hospitalization, 
such as those resulting from poor communication at discharge or 
inadequate follow-up. As such, creating a comprehensive list of 
potential complications related to the index hospitalization would be 
arbitrary, incomplete, and, ultimately, extremely difficult to 
implement. However, in coordination with medical experts, we expanded 
the list of conditions considered planned. Generally speaking, planned 
readmissions are not a signal of quality of care. Therefore, we have 
worked with experts in the medical community, as well as other 
stakeholders to carefully identify procedures and treatments that 
should be considered ``planned'' and, therefore, not counted as 
readmissions. For FY 2014, we have proposed that the measures identify 
planned readmissions by using an expanded algorithm, which is a set of 
criteria for classifying readmissions as planned using Medicare claims. 
This algorithm identifies admissions that are typically planned and may 
occur within 30 days of discharge from the hospital.
    Comment: One commenter suggested that Left Ventricular Assist 
Devices (LVADs) and heart transplants be excluded as planned 
readmissions for HF patients.
    Response: As part of the planned readmissions algorithm, patients 
who are readmitted for a transplant are always classified as planned 
readmissions and will not count as readmissions in the measures. The 
same is true for LVADs because they are classified under CCS 49 (Other 
or heart procedures).
    Comment: One commenter suggested that hospitals have the ability to 
code when a readmission is considered planned.
    Response: We note that discharge status codes for planned 
readmissions have been adopted by the NUBC, as discussed earlier in 
this final rule, and allow for hospitals to identify planned 
readmissions on the claim through the use of specific discharge status 
codes. However, prior to considering use of such codes in our quality 
measures, we will need to establish that hospitals are using these 
codes in a valid and reliable manner relative to our planned 
readmission algorithm. Accordingly, these discharge status codes are 
not currently taken into account in the Hospital Readmissions Reduction 
Program.
    Comment: One commenter suggested that CMS exclude more admissions 
from the AMI, HF, and PN measures because the penalties associated with 
these conditions are very high.
    Response: We appreciate the commenter's feedback. We are 
continuously evaluating the AMI, HF, and PN measures and may consider 
further exclusions to these measures in future rulemaking.
    Comment: One commenter recommended the inclusion of AMI codes with 
``0'' in the fifth digit in the ICD-9-CM code on the claim, indicating 
``episode of care unspecified.'' The commenter noted that if the 
episode of care is unspecified, it could be outside the 30-day 
readmission timeframe. The commenter added that under the ICD-9-CM 
guidelines, the ICD-9-CM codes 410.XX for AMI are used for ``acute'' 
condition for up to 8 weeks duration.
    Response: We appreciate the commenter's suggestion and note that we 
addressed this question in the FY 2013 IPPS/LTCH PPS final rule. In 
that final rule (77 FR 53377), we stated that the AMI ICD-9-CM codes 
described by the commenter are used to identify index hospitalizations, 
not readmissions. The measures only identify the index admissions based 
on the use of the principal discharge diagnosis, which should represent 
the reason the patient was admitted to the hospital. Therefore, despite 
the use of the word ``unspecified,''' in most cases, the AMI diagnosis 
is the primary reason for admission and appropriately included as an 
index case.
    Comment: Several commenters suggested exclusions from the index 
hospitalizations included in the measures, which included exclusions 
for patients under ``extreme circumstances'' such as transplants, end-
stage renal disease, burn, trauma, psychosis, and substance abuse.
    Response: We appreciate the commenters' suggestions. We addressed 
this comment in the FY 2013 IPPS/LTCH PPS final rule. In that final 
rule (77 FR 53377), we stated that, ``we appreciate the concern 
expressed by some commenters that patients of these `extreme 
circumstances' clinically could be sicker and more likely to be 
readmitted. The measures address clinical differences in hospitals' 
case-mix through risk adjustment rather than through excluding patients 
from the measure as suggested by the commenter. The goal in developing 
outcomes measures is to create a clinically cohesive cohort that 
includes as many patients as possible admitted with the given 
condition. Greatly expanding our list of exclusions would result in a 
measure that was less useful and meaningful, because it would reflect 
the care of fewer patients. In addition, we believe that by excluding 
patients with significant comorbidities, the measure would not assess 
of the quality of care for those patients. To fairly profile hospitals' 
performance, it is critical to place hospitals on a level playing field 
and account for their differences in the patients that present for 
care. This is accomplished through adequate risk-adjustment for 
patients' clinical presentation rather than exclusion of patients.''
    After consideration of the public comments we received, we are 
finalizing our proposal, without modification, to refine the 
readmission measures and to adopt the planned readmissions algorithm 
for the Hospital Readmissions Reduction Program.
(b) Counting of Readmissions That Occur After a Planned Readmission
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27596), we 
proposed a related change to the AMI, HF, and PN measures to address 
unplanned readmissions that occur after a planned readmission but 
within 30 days of the patient's initial index discharge. The AMI 
measure finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51666) 
counted unplanned readmissions for the index admission if they occurred 
within 30 days of discharge from the index admission, even if they 
occurred following planned readmissions (because the two other measures 
did not have any planned readmissions, this method of counting only 
applied to the AMI measure).
    For the proposed revised AMI, HF, and PN measures, all of which now 
account for planned readmissions by incorporating the CMS Planned 
Readmission Algorithm Version 2.1, we proposed the following additional 
change: If the first readmission is planned, it will not count as a 
readmission, nor will any subsequent unplanned readmission within 30 
days of the index readmission. In other words, unplanned readmissions 
that occur after a planned readmission and fall within the 30-day post 
discharge timeframe would no longer be counted as readmissions for the 
index admission. The rationale for this proposed change was that, in 
this case, either the index or the planned readmission could have 
contributed to the patient's unplanned readmission. Therefore, it was 
unclear whether the unplanned readmission should be attributed back to 
the index admission.

[[Page 50656]]

We stated in the proposed rule that this proposed change in counting 
practice would affect a very small percentage of readmissions 
(approximately 0.3 percent of index admissions nationally for AMI, 0.2 
percent for HF, and less than 0.1 percent for PN). However, we stated 
that we intend to monitor trends in the proportion of planned 
readmissions for evidence of misuse or misapplication, and other 
unintended consequences.
    Comment: Several commenters supported the proposal to change the 
manner in which readmissions are counted following a planned 
readmission.
    Response: We appreciate the commenters' support of our proposal 
relating to the counting of a readmission following a planned 
readmission.
    After consideration of the public comments we received, we are 
finalizing the proposed change to the AMI, HF, and PN measures to 
address unplanned readmissions that occur after a planned readmission 
but within 30 days of the patient's initial index discharge, without 
modification.
(c) Anticipated Effect of the Changes of CMS Planned Readmission 
Algorithm Version 2.1 and Counting of Readmissions on the Readmission 
Measures
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27596), we stated 
that the proposed changes to the measures in the proposed rule would 
have had the following effects on the measures based on our analyses of 
discharges between July 2008 and June 2011, if these changes had been 
applied for FY 2013. We noted that these statistics were for 
illustrative purposes only, and we did not propose to revise the 
measure calculations for the FY 2013 payment determination. Rather, in 
the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27596), we proposed to 
apply these changes to the readmissions measures for the FY 2014 
payment determination and subsequent years.
    In the proposed rule, we stated that among hospitals that were 
subject to the Hospital Readmissions Reduction Program in FY 2013 
(Table V.G.1), the number of eligible discharges based on the July 2008 
through June 2011 data were 501,765 discharges for AMI; 1,195,967 
discharges for HF; and 957,854 discharges for PN:
     The proposed 30-day readmission rate (excluding the 
planned readmissions) would decrease by 1 percentage point for AMI; 1.5 
percentage points for HF; and 0.7 percentage point for PN.
     The new national measure (unplanned) rate for each 
condition would have been 18.2 percent for AMI; 23.1 percent for HF; 
and 17.8 percent for PN.
     The number of readmissions considered planned (and, 
therefore, not counted as a readmission) would increase by 4,942 for 
AMI; 17,512 for HF; and 7,084 for PN.
    In the proposed rule, we proposed to update the measures to: (1) 
Incorporate the CMS Planned Readmission Algorithm Version 2.1 to 
identify planned readmissions; and (2) not count unplanned readmissions 
that follow planned readmissions. We invited public comments on this 
proposal.

    Table V.G.1--Comparison of Original AMI/HF/PN Measures Finalized in FY 2013 Relative to Revised AMI/HF/PN
                                              Measures for FY 2014
                     [Based on July 2008 through June 2011 discharges from 3,025 hospitals]
----------------------------------------------------------------------------------------------------------------
                                               AMI                       PN                        HF
                                   -----------------------------------------------------------------------------
                                      Revised      Original     Revised      Original     Revised      Original
                                      measure      measure      measure      measure      measure      measure
----------------------------------------------------------------------------------------------------------------
Number of Admissions..............      501,765      501,765      957,854      957,854    1,195,967    1,195,967
Number of Unplanned Readmissions..       91,360       96,302      170,396      177,480      276,748      294,260
Readmission Rate..................        18.2%        19.2%        17.8%        18.5%        23.1%        24.6%
Number of Planned Readmissions....       12,811        7,869        7,084            0       17,512            0
Planned Readmission Rate..........         2.6%         1.6%         0.7%         0.0%         1.5%         0.0%
Percent of Readmissions that are          12.3%         7.6%         4.0%         0.0%         6.0%         0.0%
 Planned..........................
----------------------------------------------------------------------------------------------------------------

    Comment: One commenter suggested that CMS clarify aspects of what 
is counted as a readmission, including whether a patient's death during 
a hospital readmission is counted for purposes of the Hospital 
Readmissions Reduction Program.
    Response: We appreciate the commenter's feedback. A patient's death 
during the index hospitalization is excluded from the readmission 
measure because no opportunity exists for a subsequent admission. The 
same rationale applies when a patient dies after the index discharge 
but within the 30-day post discharge period. However, a patient's death 
during a readmission in the hospital is included in the measure because 
they were discharged alive from the index admission and are, therefore, 
eligible for readmission. For more information relating to the 
exclusion criteria for a readmission, we refer readers to the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51660 through 51676).
    Comment: One commenter requested clarification on what is meant 
that patients without at least 30 days post-discharge enrollment in 
Medicare Parts A and B are excluded from the readmission measures.
    Response: Patients without at least 30 days post-discharge 
enrollment in FFS Medicare are excluded from the readmission measures 
because the 30-day readmission outcome cannot be assessed in this 
group. An example of a patient without 30 days of post discharge 
enrollment in Medicare Parts A and B would be a patient who enrolled in 
Medicare Advantage within 30 days of being discharged. However, 
patients who die during or after a readmission would be included in the 
measures because the readmission measures assign readmission status as 
a dichotomous ``yes/no'' value. Once a patient has been readmitted, the 
readmission measures would assign readmission status as a ``yes'' even 
if the patient subsequently died after the readmission.
    Comment: One commenter suggested that CMS modify the definition of 
transfer exclusion in the Hospital Readmissions Reduction Program to 
take into account the level of care provided at the transferring 
hospital.
    Response: We appreciate the commenter's suggestion. We recognize 
that a readmission for a patient transferred to a second acute care 
hospital and then discharged to the subacute setting from that second 
hospital may be related to events that

[[Page 50657]]

occurred at the first admitting hospital. In developing the measures, 
we reviewed the approach to attributing the outcome carefully with 
clinical experts and with technical expert panels, and developed the 
attribution strategy that was most appropriate for each patient cohort. 
For the medical admissions of AMI, HF, and PN, the hospital discharging 
the patient retains primary responsibility for preparing the patient 
for discharge and developing a post-discharge care plan to minimize 
readmission risk, even if that risk was increased by management at a 
prior hospital. We have addressed this issue differently for other 
patient groups as appropriate. For example, for our readmissions 
measure for patients undergoing elective hip or knee replacement, we 
excluded patients who were transferred into the index hospital because 
it is likely that the procedure for these patients was not elective. In 
addition, we exclude patients who were admitted for the index procedure 
and subsequently transferred to another acute care facility because the 
index hospital that performed the joint replacement did not discharge 
the patient to the subacute care setting and, therefore, cannot fairly 
be held accountable for the readmission.
    In summary, we are finalizing our proposal, without modification, 
to use the revised versions of the AMI, HF, and PN measures to 
calculate the payment adjustments for the Hospital Readmissions 
Reduction Program in FY 2014. We believe that the revised measures will 
address stakeholder suggestions to broaden the number of planned 
readmissions and will result in a more accurate readmission calculation 
for purposes of the payment adjustment.
c. Expansion of the Applicable Conditions for FY 2015
(1) Background
    Under section 1886(q)(5)(B) of the Act, beginning with FY 2015, 
``the Secretary shall, to the extent practicable, expand the applicable 
conditions beyond the three conditions for which measures have been 
endorsed as described in subparagraph (A)(ii)(I) . . . to the 
additional 4 conditions that have been identified by the Medicare 
Payment Commission in its report to Congress in June 2007, and to other 
conditions and procedures as determined appropriate by the Secretary.'' 
The four conditions and procedures recommended by MedPAC are: (1) 
coronary artery bypass graft (CABG) surgery; (2) chronic obstructive 
pulmonary disease (COPD); (3) percutaneous coronary intervention (PCI); 
and (4) other vascular conditions. Section 1886(q)(5)(A)(i) of the Act 
directs the Secretary, in selecting an ``applicable condition,'' to 
choose from among conditions and procedures ``that represent conditions 
or procedures that are high volume or high expenditures under this 
title (or other criteria specified by the Secretary).''
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27597), in 
accordance with section 1886(q)(5)(A) of the Act, effective for the 
calculation of the readmissions payment adjustment factors in FY 2015, 
we proposed to expand the applicable conditions and procedures to 
include: (1) Patients admitted for an acute exacerbation of COPD; and 
(2) patients admitted for elective total hip arthroplasty (THA) and 
total knee arthroplasty (TKA). At this point, it was not feasible for 
CMS to add readmission measures for three of the conditions identified 
by MedPAC in its 2007 Report to Congress (CABG, PCI, and other vascular 
conditions). We noted that inpatient admissions for PCI and other 
vascular conditions seem to be decreasing, and these procedures are 
being performed more in hospital outpatient departments. We stated that 
this shift in setting for these procedures may make their future 
inclusion in the Hospital Readmission Reduction Program more difficult 
and impracticable because: (1) The statutory definition of a 
readmission in section 3025 of the Affordable Care Act does not allow 
admissions following procedures performed on an outpatient basis to 
count as a readmission for purposes of this program, and (2) the shift 
of this procedure to the outpatient setting may result in much lower 
inpatient counts for this procedure, and hence potential statistical 
modeling issues.
    We also stated that we would explore how we may address CABG in 
this program at a future time.
    Comment: Several commenters addressed delaying implementation of 
CABG and PCI measures in the Hospital Readmissions Reduction Program. 
Some commenters supported delayed inclusion of a CABG readmission 
measure and stated that CMS should explore options on developing a CABG 
readmission measure for the Hospital Readmissions Reduction Program in 
the future. Other commenters generally supported the proposal to 
exclude vascular and PCI measures from the Hospital Readmissions 
Reduction Program at this time. However, other commenters opposed the 
proposal to exclude these measures from the program and requested 
clarification on the proposal. These commenters suggested that CMS 
include measures for CABG, PCI, and other vascular conditions because 
MedPAC previously recommended inclusion of these measures in the 
Hospital Readmissions Reduction Program. One commenter further stated 
that, instead of THA/TKA, CMS should have focused on CABG, COPD, 
Percutaneous transluminal coronary angioplasty, and other vascular 
conditions for the Hospital Readmissions Reduction Program.
    Response: We appreciate the commenters' feedback and suggestions. 
However, did not propose to include measures for these conditions 
because inclusion would not be feasible at this time. First, we found 
that inpatient admissions for PCI and other vascular conditions appear 
to be decreasing. Second, it appears that hospitals are increasingly 
performing procedures relating to these conditions in outpatient 
departments. Therefore, given the apparent shift in settings for these 
procedures, inclusion of these measures in the Hospital Readmissions 
Reduction Program is not currently practical. However, moving forward, 
we will continue to review these conditions and may consider them in 
future rulemaking.
    Comment: Several commenters addressed the expansion of measures for 
the Hospital Readmissions Reduction Program. One commenter suggested 
that CMS make the process for selecting measures for the Hospital 
Readmissions Reduction Program more transparent moving forward. Another 
commenter suggested that CMS add a wider variety of conditions to the 
program. Other commenters stated that CMS should ensure that hospitals 
are aware of the proposed expansion of the Hospital Readmissions 
Reductions Program and how the program works.
    Response: We appreciate the commenters' suggestions and will take 
them into consideration for future rulemaking. We will continue to 
review and monitor the program to determine whether additional 
conditions should be added. We also have taken a number of steps to 
ensure that hospitals are aware of the proposed expansion and how the 
program works, including press releases, open door forums, as well as 
through the Federal rulemaking process. However, we maintain that our 
measure selection process for the Hospital Readmissions Reduction 
Program strives to ensure transparency and allows the public several 
opportunities to comment on measures being selected for the Hospital 
Readmissions Reduction Program. First, prior to being proposed in the 
proposed rule, we place our measures on a measure under consideration 
list, which is made public

[[Page 50658]]

by December 1 of each year. The Measure Application Partnership (MAP), 
a multi-stakeholder group convened by the NQF, then reviews the 
measures being proposed for Federal programs and provides input on 
those measures to the Secretary. The MAP process also allows an 
opportunity for the public to comment on the proposed measures being 
considered for selection and to participate in the MAP process. Second, 
should a measure be proposed through rulemaking for use in the Hospital 
Readmissions Reduction Program, the public may comment on any measure 
through the public comment period for the proposed rule. Therefore, we 
believe that the various opportunities available both before and during 
the rulemaking process provide safeguards to ensure public 
transparency. However, we will continue to review the measure selection 
process and make adjustments as needed to continue maintaining high 
levels of public transparency.
    Comment: One commenter agreed with all of MedPAC's public comments 
on the Hospital Readmissions Reduction Program except for MedPAC's 
recommendation to incorporate a hospital-wide readmission measure in 
the program. Specifically, in its public comment, MedPAC recommended 
that the law be redefined to address the following: The readmission 
penalty formula; random variation with single condition readmissions 
rates due to a small number of observations; readmission and mortality 
related to heart failure, and readmission rates and penalties being 
correlated with a low-income patient share.
    Response: We appreciate the commenter's feedback. We emphasize that 
we have included several of MedPAC's previously recommended conditions 
for the Hospital Readmissions Reduction Program, including the 
incorporation of the COPD readmission measure in the program. However, 
other MedPAC recommendations could not be implemented for a number of 
reasons. First, some of MedPAC's recommendations, such as those 
relating to changes to the readmission penalty, would require a 
legislative change. Second, in regard to those MedPAC recommendations 
to include a PCI measure in the Hospital Readmissions Reduction 
Program, we cannot implement the measure at this time because the 
current PCI measure also uses outpatient data, which makes it 
ineligible for the Hospital Readmissions Reduction Program. However, we 
are working towards finding a suitable PCI measure for the Hospital 
Readmissions Reduction Program and may introduce such a measure in 
future rulemaking.
    Comment: Some commenters expressed concern with measures 
overlapping with other programs. One commenter suggested that CMS not 
use the same measures in more than one program, such as the Hospital 
IQR Program. Another commenter raised concerns about penalties that 
would incur as a result of measures overlapping.
    Response: We appreciate the commenter's feedback. We acknowledge 
stakeholders' concern with potential measure overlap in our programs. 
However, several stakeholders requested that we align our programs and 
measures to decrease provider burden associated with multiple reporting 
programs. Further, the Hospital Readmissions Reduction Program and the 
Hospital IQR Program are separate hospital reporting programs with 
different purposes and policy goals. The Hospital Readmissions 
Reduction Program is a program that reduces payments to hospitals for 
excess readmissions to increase patient safety in hospitals, therefore, 
the payment adjustment is based on hospital performance on the 
readmissions measures. On the other hand, the Hospital IQR Program is a 
reporting program in which the applicable percentage increase applied 
to the hospital's payment rate is dependent on whether the hospital 
satisfactorily reported data on the Hospital IQR measures. Therefore, 
although we acknowledge that similar measures may exist in both 
programs, the measures are used and calculated for different purposes. 
We maintain that the safety of our beneficiaries, coupled with the 
overwhelming requests by stakeholders to align all programs and 
measures, justify the use of some measures in more than one program. 
However, we will in the future monitor this issue and revise and update 
the program's measures, if needed.
    Comment: MedPAC recommended that CMS include an all-condition 
readmission measure in the Hospital Readmissions Reduction Program.
    Response: We appreciate MedPAC's suggestion and will take it into 
consideration in future rulemaking for the Hospital Readmissions 
Reduction Program.
    Comment: One commenter suggested that CMS include ESRD patients 
under the age of 65 from the readmission measures. While the commenter 
understood our current policy to exclude patients under the age of 65 
from the readmissions measures and excessive readmissions data, the 
commenter encouraged CMS to reconsider this policy for FY 2014 for 
those with end-stage renal disease (ESRD) who are on dialysis and 
readmitted for any of the diagnosis codes under the readmissions and 
excessive readmissions reduction program.
    Response: We appreciate the commenter's suggestion. However, we 
exclude Medicare patients under the age of 65, including ESRD patients, 
from the readmission measures because patients under the age of 65 have 
markedly different clinical risk profiles from other patients in the 65 
and over category that are included in the measure. In general, we seek 
to address clinical differences in hospitals' case-mix through risk-
adjustment rather than through excluding patients from the measure 
because the goal in developing outcomes measures is to create a 
clinically cohesive cohort that includes as many patients as possible 
admitted with the given condition. We include patients 65 and over, 
including ESRD patients, in our measure and our risk-adjustment 
methodology takes into consideration ESRD-related comorbidities such as 
ESRD or dialysis and renal failure.
    Comment: One commenter requested that CMS develop process and 
outcomes measures to be reported alongside the readmission measures to 
evaluate transitions of care.
    Response: We appreciate the commenter's suggestion and will take it 
into consideration in future rulemaking for the Hospital Readmissions 
Reduction Program.
    After consideration of the public comments we received and in light 
of the MedPAC recommendation, we are finalizing our proposal to include 
a measure of patients admitted for an acute exacerbation of COPD. Also, 
although MedPAC did not recommend inclusion of patients admitted for 
elective THA and TKA, we consider this category appropriate for the 
Hospital Readmissions Reduction Program because it is a high-volume and 
high-expenditure procedure and are finalizing the adoption of this 
measure in this final rule.
    For example, in 2003, 202,500 primary hip arthroplasties and 
402,100 primary total knee arthroplasties were performed.\21\ The 
number of procedures performed has increased steadily over the past 
decade.\22\ Although these

[[Page 50659]]

procedures can dramatically improve patient health-related quality-of-
life, they are costly. In 2005, annual hospital charges totaled $3.95 
billion and $7.42 billion for primary THA and TKA, respectively.\23\ 
The aggregate costs for THA are projected to increase by 340 percent 
over a 10-year period, to $17.4 billion per fiscal year by FY 2015, and 
for TKA, by 450 percent to $40.8 billion per fiscal year by 2015.\24\ 
Medicare is the single largest payer for these procedures, covering 
approximately two-thirds of all THAs and TKAs performed in the United 
States.\25\ THA and TKA procedures combined account for the largest 
procedural cost in the Medicare budget.\26\ Therefore, as explained in 
detail below, we believe that it is appropriate to include THA/TKA as 
an applicable condition.
---------------------------------------------------------------------------

    \21\ Kurtz S, Ong K, Lau E, Mowat F, Halpern M.: Projections of 
primary and revision hip and knee arthroplasty in the United States 
from 2005 to 2030. J Bone Joint Surg Am. Apr 2007;89(4):780-785.
    \22\ Ong KL, Mowat FS, Chan N, Lau E, Halpern MT, Kurtz SM. 
Economic burden of revision hip and knee arthroplasty in Medicare 
enrollees. Clin Orthop Relat Res. May 2006;446:22-28.
    \23\ Kurtz SM, Ong KL, Schmier J, et al.: Future clinical and 
economic impact of revision total hip and knee arthroplasty. J Bone 
Joint Surg Am. Oct 2007;89 Suppl 3:144-151.
    \24\ Ibid.
    \25\ Ong KL, Mowat FS, Chan N, Lau E, Halpern MT, Kurtz SM. 
Economic burden of revision hip and knee arthroplasty in Medicare 
enrollees. Clin Orthop Relat Res. May 2006;446:22-28.
    \26\ Bozic KJ, Rubash HE, Sculco TP, Berry DJ. An analysis of 
medicare payment policy for total joint arthroplasty. Journal of 
Arthroplasty. 2008;23(6 Suppl 1):133-138.
---------------------------------------------------------------------------

    We developed a hospital-level, 30-day, all-cause, risk-standardized 
readmission measure for THA/TKA. NQF endorsed the measure (NQF 
1551) in January of 2012. The measure incorporated the Planned 
Readmission Version 2.1 algorithm and excludes transfers. Accordingly, 
we believe that the THA/TKA measure met the criteria of applicable 
condition and are finalizing it for the Hospital Readmissions Reduction 
Program.
    The rationale for expanding the applicable conditions and the 
measures used to estimate the Excess Readmission Ratios are described 
in detail below, as discussed in the FY 2014 IPPS/LTCH PPS proposed 
rule (78 FR 27597 through 27599).
(2) COPD Readmission Measure
    COPD is a leading cause of readmissions to hospitals.\27\ In 2007, 
the MedPAC published a report to Congress in which it identified the 
seven conditions associated with the most costly potentially 
preventable readmissions. Among these seven conditions, COPD ranked 
fourth.\28\ Evidence also shows variation in readmissions for patients 
with COPD, supporting the finding that opportunities exist for 
improving care. The median, 30-day, risk-standardized readmission rate 
among Medicare fee-for-service patients aged 65 or older hospitalized 
for COPD in 2008 was 22.0 percent, and ranged from 18.33 percent to 
25.03 percent across 4,546 hospitals.\29\ Clinical trials and 
observational studies suggest that several aspects of care provided to 
patients hospitalized for exacerbations of COPD can have significant 
effects on readmission.30 31 32 33 In addition, inclusion of 
this measure in the Hospital Readmissions Reduction Program aligns with 
CMS' priority objectives to promote successful transitions of care for 
patients from the acute care setting to the outpatient setting, and 
reduces short-term readmission rates. Therefore, as we stated in the FY 
2014 IPPS/LTCH PPS proposed rule, we believe the COPD measure warrants 
inclusion in the Hospital Readmissions Reduction Program for FY 2015. 
We invited public comments on this proposal.
---------------------------------------------------------------------------

    \27\ Jencks SF, Williams MV, Coleman EA. Rehospitalizations 
among patients in the Medicare fee-for-service program. N Engl J 
Med. April 2 2009;360(14):1478-1428.
    \28\ Committee MPA. Report to the Congress: Promoting Greater 
Efficiency in Medicare. 2007.
    \29\ Grosso L.M., Lindenauer P., Wang C., et al.: Hospital-level 
30-day Readmission Following Admission for an Acute Exacerbation of 
Chronic Obstructive Pulmonary Disease: Report prepared for the 
Centers for Medicare & Medicaid Services. 2011; Available at: http://www.qualitynet.org/.
    \30\ Global Strategy for Diagnosis M, and Prevention of COPD. 
2009; Available at: http://www.goldcopd.org/.
    \31\ National Institute for Health and Clinical Excellence. 
Chronic Obstructive Pulmonary Disease: Management of Chronic 
Obstructive Pulmonary Disease in Adults in Primary and Secondary 
Care (Partial Update):. National Collaborating Centre for Acute and 
Chronic Conditions. Available at: http://www.nice.org.uk/nicemedia/live/13029/49397/49397.pdf.
    \32\ Walters JA, PG Gibson, R Wood-Baker, M Hannay, EH Walters. 
Systemic corticosteroids for acute exacerbations of chronic 
obstructive pulmonary disease. Cochrane Database Syst Rev. 
2009;CD001288(1).
    \33\ Lightowler JV, Wedzicha JA, Elliott MW, Ram FS. Non-
invasive positive pressure ventilation to treat respiratory Failure 
resulting from exacerbations of chronic obstructive pulmonary 
disease: Cochrane systematic review and meta-analysis. Bmj. 
2003;326(7382).
---------------------------------------------------------------------------

    Comment: Several commenters supported the proposed expansion of 
applicable conditions to include patients admitted for an acute 
exacerbation of COPD and patients admitted for elective THA and TKA.
    Response: We appreciate the commenters' support of the expansion of 
the Hospital Readmissions Reduction Program.
    Comment: One commenter suggested that CMS not expand the Hospital 
Readmissions Reduction Program to include additional measures due to 
lack of risk-adjustment of pre-existing conditions.
    Response: The COPD and hip/knee measures risk-adjust for key 
factors that are clinically relevant and are strongly correlated with 
the likelihood for readmission (for example, patient demographic 
factors, patient coexisting 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 on our Web site at: 
http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    Comment: Some commenters recommended that CMS not expand the 
Hospital Readmissions Reduction Program to include additional 
conditions because the measures for the program are not reliable. The 
commenters suggested that CMS raise the minimum case threshold required 
for hospitals to quality for the Hospital Readmissions Reduction 
Program to well over 25 cases in order to improve reliability.
    Response: We appreciate the commenters' feedback. However, we 
disagree that the Hospital Readmissions Reduction Program uses 
unreliable measures. First, the NQF both reviewed and endorsed all 
measures used in the Hospitals Readmissions Reduction Program. Second, 
as previously stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53379), ``We determined the 25-case threshold for public reporting 
based on a reliability statistic that is calculated from the 
intercluster correlation, a parameter of the model. We are maintaining 
the minimum 25-case threshold that we adopted through rulemaking last 
year.''
    We have further considered how to best measure quality for low-
volume hospitals in order to address the concerns raised by 
stakeholders. We acknowledge that smaller hospitals do typically have 
less certain estimates because they have fewer cases for use in 
assessing quality. However, this challenge is inherent in outcome 
measurement. One advantage of the statistical model that we use for the 
measures is that it allows for the

[[Page 50660]]

inclusion of small hospitals while characterizing the certainty of 
their estimates. The hierarchical logistic regression model that we use 
to calculate the risk-standardized outcome measures allows the 
inclusion of hospitals with relatively few observations, but takes into 
account the uncertainty associated with sample size in estimating their 
risk-standardized outcome rates. The model takes into account the 
uncertainty in the estimate of outcome rates for low-volume hospitals 
by assuming that each hospital is a typically performing hospital. It 
weighs that assumption along with the outcomes for the particular 
hospital in calculating the outcome rate. Therefore, the estimated 
outcome rates for smaller hospitals will likely be closer to the 
national rate because the limited number of eligible cases in the 
hospital tells little about that hospital's true outcome rate.
    Comment: One commenter suggested that CMS provide hospitals with a 
preview of their COPD and THA/TKA readmission data before these 
measures are included in the Hospital Readmissions Reduction Program.
    Response: We appreciate the commenter's suggestion. Hospitals will 
have an opportunity to review and correct the readmissions data 
relating to these measures prior to its release to the public on the 
Hospital Compare Web site. We expect that these data will be provided 
around June of 2014.
    Comment: Several commenters addressed risk-adjusting the COPD, THA, 
and TKA measures to account for socioeconomic status. One commenter 
stated that CMS should not further expand the Hospital Readmissions 
Reduction Program beyond current and proposed conditions without 
properly planning to risk-adjust for education level and socioeconomic 
status. Another commenter stated that a patient's ability to afford 
medication should be included as a risk-adjustment variable because 
socioeconomic status impacts the patient's ability to be compliant with 
medications and a patient's ability to pay for medications is separate 
and apart from the care provided by the hospital. One commenter 
suggested that a hospital's performance on the COPD measure be compared 
to its peer hospitals that serve a similar population, rather than to 
all hospitals. For example, safety-net hospitals with large minority 
populations should be compared only to each other, rather than to all 
hospitals in the country.
    Response: We appreciate the commenters' feedback. We have continued 
to consider and evaluate stakeholder concerns regarding the influence 
of patient socioeconomic status on readmission and mortality rates. The 
Hospital Readmissions Reduction Program, as pointed out by one 
commenter, seeks to transform the Medicare payment and delivery system 
by financially incentivizing providers to change the way they deliver 
care. The program's design encourages hospitals to make changes to 
avoid payment penalties while simultaneously enhancing the quality of 
health care provided to patients. We routinely monitor the impact of 
low socioeconomic status, using the proportion of patients enrolled in 
Medicaid as a proxy for low-income, on hospitals' results and have 
consistently found that hospitals that care for large proportions of 
patients of low socioeconomic status are capable of performing well on 
our measures. Our most recent analyses, available on our Web site at: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Downloads/MedicareHospitalQualityChartbook2012.pdf, again confirmed this finding. 
Many safety-net providers and teaching hospitals do as well or better 
on the measures than hospitals without substantial numbers of patients 
of low socioeconomic status. Our analyses also show that adding 
socioeconomic status to the risk-adjustment has a negligible impact on 
hospitals' risk-standardized rates. The risk-adjustment for clinical 
factors likely captures much of the variation due to socioeconomic 
status, therefore leading to more modest impact of socioeconomic status 
on hospitals' results than stakeholders expect. We note that the goal 
of risk-adjustment is to account for factors that are inherent to the 
patient at the time of admission, such as severity of disease, so as to 
put hospitals on a level playing field. The measures should not be 
risk-adjusted to account for differences in practice patterns that lead 
to lower or higher risk for patients to be readmitted or die. The 
measures aim to reveal differences related to the patterns of care. The 
measures do not risk-adjust for socioeconomic status because the 
association between socioeconomic status and health outcomes can be 
due, in part, to differences in the quality of health care received by 
groups of patients with varying socioeconomic status. The measures also 
are not risk-adjusted for socioeconomic status, or other patient 
factors such as race, because we do not want to hold hospitals to 
different standards for the outcomes of their patients of low 
socioeconomic status. Finally, we do not want to mask potential 
disparities or minimize incentives to improve the outcomes of 
disadvantaged populations. This approach also is consistent with the 
guidance from the NQF,\34\ which states that risk models should not 
obscure disparities by adjusting for factors associated with inequality 
(such as race or socioeconomic status). Furthermore, the statutory 
language in section 1886(q)(5)(A)(ii)(I) of the Act requires that the 
measures included in the Hospital Readmissions Reduction Program for 
FYs 2013 and 2014 be NQF-endorsed. However, we are committed to 
tracking this issue and will continue to evaluate disparities in care 
and the impact of patient's socioeconomic status on hospital's rates.
---------------------------------------------------------------------------

    \34\ National Quality Forum, Measure Evaluation Criteria 
(November, 2012). Available at: http://www.qualityforum.org/docs/measure_evaluation_criteria.aspx.
---------------------------------------------------------------------------

    (3) Overview of COPD Measure: Hospital-Level, 30-Day, All-Cause, 
Risk-Standardized Readmission Rate (RSRR) following Chronic Obstructive 
Pulmonary Disease (COPD) Hospitalization (NQF 1891)
    The COPD readmission measure assesses hospitals' 30-day, all-cause 
risk-standardized rate of readmission for an acute exacerbation of COPD 
(AECOPD). In general, the measure uses the same approach to risk-
adjustment and hierarchical logistic modeling (HLM) methodology that is 
specified for CMS' AMI, HF, and PN readmission measures previously 
adopted for this program. Information on how the measure employs HLM 
can be found in the 2011 COPD Readmission Measure Methodology Report 
(available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html). 
This approach appropriately accounts for the types of patients a 
hospital treats (that is, hospital case-mix), the number of patients it 
treats, and the quality of care it provides. The HLM methodology is an 
appropriate statistical approach to measuring quality based on patient 
outcomes when the patients are clustered within hospitals (and, 
therefore, the patients' outcomes are not statistically independent) 
and sample sizes vary across hospitals. The measure methodology defines 
hospital case-mix based on the clinical diagnoses provided in the 
hospitals' claims for the hospitals' patient inpatient and outpatient 
visits for the 12 months prior to the hospitalization for COPD, as well 
as those present in the claims for care at admission. However, the 
methodology specifically does not

[[Page 50661]]

account for diagnoses present in the index admission that may indicate 
complications rather than patient comorbidities.
    As we did in the proposed rule, we are providing a summary of the 
measure methodology below. For further details on the risk-adjustment 
statistical model, we refer readers to the 2011 COPD Readmission 
Measure Methodology Report that we have posted on the CMS Web site at: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. NQF endorsed 
the measure (NQF 1891) in March 2013 (http://www.qualityforum.org/QPS/1891).
     Data Sources. The COPD measure is claims-based. It uses 
Medicare administrative data from hospitalizations for 
fee[hyphen]for[hyphen]service Medicare beneficiaries hospitalized with 
an acute exacerbation of COPD (AECOPD).
     Outcome. The outcome for the COPD measure is 30-day, all-
cause readmission, defined as an unplanned subsequent inpatient 
admission to any applicable acute care facility from any cause within 
30 days of the date of discharge from the index hospitalization. A 
number of studies demonstrate that improvements in care at the time of 
discharge can reduce 30[hyphen]day readmission rates.35 36 
It is a timeframe that a readmission may reasonably be attributed to 
the hospital care and transitional period to a subacute care setting.
---------------------------------------------------------------------------

    \35\ Gulshan Sharma, Kou Yong-Fang, Freeman Jean L, Zhang Dong 
D, Goodwin James S.: Outpatient Follow-up Visit and 30-Day Emergency 
Department Visit and Readmission in Patients Hospitalized for 
Chronic Obstructive Pulmonary Disease. Arch Intern Med. Oct. 
2010;170:1664-1670.
    \36\ Nelson EA, Maruish ME, Axler JL.: Effects of Discharge 
Planning and Compliance with Outpatient Appointments on Readmission 
Rates. Psychiatr Serv. July 1 2000;51(7):885-889.
---------------------------------------------------------------------------

    The COPD readmissions measure assesses all-cause unplanned 
readmissions (excluding planned readmissions) rather than readmissions 
for acute exacerbations of COPD only. As we stated in the proposed 
rule, we proposed this measure for several reasons. First, from the 
patient perspective, a readmission for any reason is likely to be an 
undesirable outcome of care, even though not all readmissions are 
preventable. Second, limiting the measure to COPD[hyphen]related 
readmissions may limit the effort focus too narrowly rather than 
encouraging broader initiatives aimed at improving the overall care 
within the hospital and transitions from the hospital setting. 
Moreover, it is often hard to exclude quality issues and accountability 
based on the documented cause of readmission. For example, a patient 
with COPD who develops a hospital-acquired infection may ultimately be 
readmitted for sepsis. It would be inappropriate to consider such a 
readmission to be unrelated to the care the patient received for COPD. 
Finally, while the measure does not presume that each readmission is 
preventable; interventions generally have shown reductions in all types 
of readmissions.
    The measure does not count planned readmissions as readmissions. 
Planned readmissions are identified in claims data using the CMS 
Planned Readmission Algorithm Version 2.1 that detects planned 
readmissions that may occur within 30 days of discharge from the 
hospital. This algorithm is described briefly in section V.G.3.b.(2)(a) 
of the preamble of this final rule and more detailed information can be 
found on the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. For the COPD measure, unplanned readmissions 
that fall within the 30-day post discharge timeframe from the index 
admission would not be counted as readmissions for the index admission 
if they were preceded by a planned readmission (we refer readers to 
section V.G.3.b.(2)(b) of the preamble of this final rule on the 
counting of readmissions that occur after a planned readmission).
     Cohort of Patients. COPD is a group of lung diseases 
characterized by airway obstruction. Patients hospitalized for an acute 
exacerbation of COPD (AECOPD) present with varying degrees of severity 
ranging from a worsening of baseline symptoms (dyspnea, cough, and/or 
sputum) to respiratory failure. To capture the full spectrum of 
severity of patients hospitalized for an AECOPD, the measure includes 
patients with a principal diagnosis of COPD, as well as those with a 
principal diagnosis of respiratory failure with a secondary diagnosis 
of an AECOPD. Requiring AECOPD as a secondary diagnosis helps to 
identify respiratory failure due to COPD exacerbation versus another 
condition (for example, heart failure). For detailed information on the 
cohort definition, we refer readers to the 2013 COPD Readmission 
Measure Updates and Specifications Report on the CMS Web site at: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
     Inclusion and Exclusion Criteria. The COPD measure 
includes hospitalizations for patients who are 65 years of age or older 
at the time of index admission and for whom there was a complete 12 
months of Medicare fee-for-service (FFS) enrollment to allow for 
adequate risk-adjustment. The measure excludes the following admissions 
from the measure cohort: (1) Admissions for patients who die during the 
initial hospitalization (these patients are not eligible for 
readmission); (2) admissions for patients having a principal diagnosis 
of COPD during the index hospitalization and subsequently transferred 
to another acute care facility (these are excluded because the measure 
focuses on discharges to a nonacute care setting such as the home or a 
SNF); (3) admissions for patients that are discharged against medical 
advice (AMA) (excluded because providers do not have the opportunity to 
deliver full care and prepare the patient for discharge); (4) 
admissions for patients without at least a 30-day post-discharge 
enrollment in Medicare FFS (excluded because the 30-day readmission 
outcome cannot be assessed in this group); and (5) additional COPD 
admissions for patients within 30 days of discharge from an index COPD 
admission will be considered readmissions and not additional index 
admissions.
     Risk-Adjustment. The COPD measure adjusts for differences 
across hospitals in how at risk their patients are for readmission 
relative to patients cared for by other hospitals. The measure uses 
claims data to identify patient clinical conditions and comorbidities 
to adjust patient risk for readmission across hospitals, but does not 
adjust for potential complications of care. Consistent with NQF 
guidelines, the model does not adjust for socioeconomic status or race 
because risk-adjusting for these characteristics would hold hospitals 
with a large proportion of patients of minority race or low 
socioeconomic status to a different standard of care than other 
hospitals. Rather, this measure seeks to illuminate quality 
differences, and risk-adjustment for socioeconomic status or race would 
obscure such quality differences.
     Calculating the Excess Readmission Ratio. The COPD 
readmission measure uses the same methodology and statistical modeling 
approach as the AMI, HF, and PN measures. We published a detailed 
description of how the readmission measures estimate the Excess 
Readmission Ratio used in the Hospital Readmissions Reduction

[[Page 50662]]

Program in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53380 through 
53381).
    Comment: Several commenters stated that CMS should not adopt the 
COPD all-cause readmission measure. Some commenters stated that 
unrelated readmissions are outside the hospital's control or are not 
preventable. The commenters added that COPD patients often have other 
conditions for which they are admitted. Another commenter added that 
the hospital could not adequately plan for such readmissions and, 
therefore, should not be accountable. That commenter recommended that 
the causes for readmission be narrowed to more closely align with the 
index diagnosis.
    Response: We appreciate the commenters' feedback. However, we do 
not seek to differentiate between related and unrelated readmissions 
because readmissions not directly related to the index condition may 
still be a result of the care received during the index 
hospitalization. For example, a patient hospitalized for COPD who 
develops a hospital-acquired infection may ultimately be readmitted for 
sepsis. It would be inappropriate to treat this readmission as 
unrelated to the care the patient received during the index 
hospitalization. Furthermore, the range of potentially avoidable 
readmissions also includes those not directly related to the initial 
hospitalization, such as those resulting from poor communication at 
discharge or inadequate follow-up. As such, creating a comprehensive 
list of potential complications related to the index hospitalization 
would be arbitrary, incomplete, and, ultimately, impossible to 
implement. However, in coordination with medical experts we expanded 
the list of conditions considered planned.
    Generally speaking, planned readmissions are not a signal of 
quality of care. Therefore, we have worked with experts in the medical 
community, as well as other stakeholders to carefully identify 
procedures and treatments that should be considered ``planned'' and 
therefore not counted as readmissions. For the FY 2014 program, we have 
proposed that the measures identify planned readmissions by using an 
expanded algorithm, which is a set of criteria for classifying 
readmissions as planned using Medicare claims. This algorithm 
identifies admissions that are typically planned and may occur within 
30 days of discharge from the hospital.
    We developed the COPD measure to reflect the quality of care 
delivered to patients who are hospitalized with COPD. The goal of this 
measure is to improve patient outcomes by providing patients, 
physicians, and hospitals with information about hospital-level, risk-
standardized readmission rates following hospitalization for COPD. The 
measure is not intended to drive hospitals to a zero readmission rate, 
but rather is designed to encourage hospitals to identify opportunities 
to systematically reduce readmission risks in their environment. We do 
not assume all readmissions are preventable. The goal of the 
readmission measure is to identify hospitals that seem to have excess 
readmissions above and beyond what would be expected for their case-
mix. Careful discharge planning and instructions, communication with 
outpatient providers, attention to patient safety, and prevention of 
infections are all important for reducing readmissions. Hospitals that 
take these and other steps to reduce readmissions will have lower 
overall readmission rates and will likely have better rates on this 
measure.
    Comment: Some commenters stated that the current measures will 
encourage hospitals to not accept COPD patients or hip/knee patients to 
avoid high readmission rates and because its poses a financial risk.
    Response: We recognize that performance-based payment programs may 
have the potential for unintended consequences. We are committed to 
monitoring the COPD measure and assessing unintended consequences over 
time, such as the inappropriate shifting of care, increased patient 
morbidity and mortality, and other negative unintended consequences for 
patients.
    Comment: One commenter suggested that CMS implement standard 
intervention strategies to reduce COPD readmissions.
    Response: We appreciate the commenter's suggestion, but note that 
the Hospital Readmissions Reduction Program does not implement 
intervention strategies.
    Comment: Some commenters stated that the COPD readmission measure 
should not be included in the program because the MAP did not recommend 
the measure.
    Response: We appreciate the commenters' feedback. However, the MAP 
did support the measure for use in the Hospital IQR Program and does 
further support the direction of the measure for use in the Hospital 
Readmissions Reduction Program. Further, the NQF, the entity who 
convenes the MAP, subsequently reviewed and endorsed the COPD 
readmissions measure for use in the Hospital Readmissions Reduction 
Program. We refer readers to the MAP February 2013 Pre-rulemaking 
report for more information about their recommendations regarding these 
measures. The report can be found on the following Web site at: https:/
/www.qualityforum.org/Publications/2013/02/MAP_Pre-Rulemaking_
Report__-February_2013.aspx.
    We also received several comments supporting using the COPD 
readmission measure in the Hospital Readmissions Reduction Program. We 
believe that this support, coupled with MedPAC's recommendation to 
include the measure into the program, warrants adoption of the COPD 
readmissions measure in the Hospital Readmissions Reduction Program.
    Comment: One commenter suggested that the COPD measure be added to 
the Hospital VBP Program.
    Response: Section 1886(o)(2)(A) of the Act statutorily prohibits us 
from including readmission measures in the Hospital VBP Program.
    Comment: One commenter suggested that the COPD readmission measure 
should risk-adjust for environmental factors, such as pollution.
    Response: We appreciate the commenter's suggestion. During measure 
development, we conducted a literature review and consulted with 
experts to explore risk-adjustment for environmental factors, such as 
levels of particulate matter, affecting respiratory patients. We found 
that the literature suggests that ambient levels of particulate matter 
affect short-term mortality and admission rates for COPD (and for other 
cardiovascular and respiratory conditions). Although important from a 
public health standpoint, the increases in risk are relatively small. 
We did not find any studies of the effect of ambient particulates on 
mortality and readmission rates among patients hospitalized for COPD. 
The purpose of risk-adjustment is to account for differences across 
hospitals in factors unrelated to quality, such as patient 
comorbidities, that may affect the outcome of mortality and 
readmission. It is important to risk-adjust for factors that could bias 
the measure results (for example, could favor hospitals in low 
pollution areas). Risk-adjusting for environmental factors would make 
sense if it were technically feasible and if it would improve the model 
by reducing or eliminating a potential bias. We believe that variables 
for environmental factors are unlikely to affect hospital-level risk-
standardized rates. The studies to date focus on the general 
nonhospitalized population, and it is not clear how they apply to the 
patients in our models--that is, patients hospitalized with an acute 
exacerbation

[[Page 50663]]

of COPD. We believe that the effect of risk-adjusting for particulate 
matter would likely be small or negligible, given that the model 
applies to patients already hospitalized for COPD. Second, there are 
feasibility issues with respect to collecting such information. 
Modeling the effect appropriately would be complex. Our review of the 
issues suggests it would be inappropriate to use ambient air quality 
levels as a risk-adjuster without also adjusting for other factors that 
affect the strength and direction of the potential association between 
particulate levels and outcomes, including temperature, humidity, 
seasonal variation, and city-level factors such as smoking and air 
conditioning use rates. Given these challenges, and our expectation 
that building particulate levels into the model is not likely to 
significantly improve the models' performance even with the best 
methods, we do not plan to pursue adding air pollution variables to the 
models at this time.
    Comment: One commenter did not support the COPD readmission measure 
in the Hospital Readmissions Reduction Program because the commenter 
believed that the measure is closely related to heart failure 
readmissions measure.
    Response: We appreciate the commenter's feedback. However, we 
disagree that the measures are closely related. COPD is a group of lung 
diseases characterized by airway obstruction. Patients hospitalized for 
an acute exacerbation of COPD (AECOPD) present with varying degrees of 
severity ranging from a worsening of baseline symptoms (dyspnea, cough, 
and/or sputum) to respiratory failure. To capture the full spectrum of 
severity of patients hospitalized for an AECOPD, we included patients 
with a principal diagnosis of COPD, as well as those with a principal 
diagnosis of respiratory failure who had a secondary diagnosis of an 
AECOPD. Requiring AECOPD as a secondary code helps to identify 
respiratory failure due to COPD exacerbation versus another condition 
(for example, heart failure).
(4) Adoption of the COPD Measure for the Hospital Readmissions 
Reduction Program
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27599), we 
proposed to adopt the COPD measure in the Hospital Readmissions 
Reduction Program beginning in FY 2015. We also proposed the COPD 
measure for use in the Hospital IQR Program for FY 2014 (discussed in 
section IX.A. of this preamble). We noted that the set of hospitals for 
which this measure was calculated for the Hospital Readmissions 
Reduction Program differs from those used in calculations for the 
Hospital IQR Program. The Hospital Readmissions Reduction Program 
includes only subsection (d) hospitals as defined in 1886(d)(1)(B) of 
the Act and hospitals paid under section 1814(b)(3) of the Act (that 
is, Maryland hospitals), while the Hospital IQR Program calculations 
include non-IPPS hospitals such as CAHs, cancer hospitals, and 
hospitals located in the Territories of the United States. However, we 
believe that the COPD measure is appropriate for use in both programs. 
We invited public comments on this proposal.
    Comment: Several commenters supported adding COPD to the Hospital 
Readmissions Reduction Program, but suggested that CMS not add the COPD 
readmission measure to Hospital Readmissions Reduction Program until it 
has been in the Hospital IQR Program for a period of time first. The 
commenters suggested a timeframe of between 1 to 2 years to allow 
hospitals to improve performance prior to the measure being adopted 
under any pay-for-performance program. One commenter explained that 
hospitals have no experience with this measure and no data from CMS 
and, therefore, will not be able to incorporate changes before 
penalties are assessed.
    Response: We appreciate the commenters for their suggestions. We 
are cognizant of stakeholder requests to have the COPD readmission 
measure in the Hospital IQR Program first, given the lack of experience 
with this measure. However, we note that the COPD measure is being 
adopted under the Hospital IQR Program in FY 2014 and under the 
Hospital Readmissions Reduction Program in FY 2015. Therefore, 
stakeholders will have the opportunity to become familiar with the 
measure prior to its inclusion in the Hospital Readmissions Reduction 
Program. Further, we note that the COPD readmissions measure represents 
both a high-impact and high-cost condition that warrants inclusion in 
the Hospital Readmissions Reduction Program. In addition, MedPAC 
recommended the measure for inclusion in the Hospital Readmissions 
Reduction Program. Including this measure in the Hospital Readmissions 
Reduction Program aligns with our priority objectives to promote 
successful transitions of care for patients from the acute care setting 
to the outpatient setting, and reduces short-term readmission rates.
    Comment: One commenter suggested that CMS study the relationship 
between COPD readmissions and mortality before adopting the COPD 
readmissions measure in the Hospital Readmissions Reduction Program.
    Response: We appreciate the commenter's suggestion. However, in 
general, we believe that there does not appear to be a meaningful 
correlation between hospital risk-standardized mortality rates and 
readmission rates. We consider that hospital performance on mortality 
and readmission measures represent different aspects of quality. 
Researchers have found that performance on risk-standardized mortality 
rates was not strongly correlated with performance on risk-standardized 
readmission rates for HF, and not at all for AMI and PN.\37\ We 
recognize the commenter's concern and will monitor the correlation as 
part of our hospital quality surveillance.
---------------------------------------------------------------------------

    \37\ Citation Krumholz HM, Lin Z, Keenan PS, et al. Relationship 
between hospital readmission and mortality rates for patients 
hospitalized with acute myocardial infarction, heart failure, or 
pneumonia. JAMA. 2013; 309(6):587-593)''.
---------------------------------------------------------------------------

    After consideration of the public comments we received, we are 
finalizing our proposal to include the COPD readmissions measure in the 
Hospital Readmissions Reduction Program.
(5) Total Hip Arthroplasty (THA) and Total Knee Arthroplasty (TKA) 
Measure
    As discussed in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27599), THA and TKA are commonly performed procedures that improve 
quality of life. Between 2008 and 2010, over 1.4 million THA and TKA 
procedures were performed on Medicare FFS patients aged 65 years and 
older.\38\ However, the costs of these procedures, especially to 
Medicare, are very high. Combined, THA and TKA procedures account for 
the largest procedural cost in the Medicare budget.\39\ Evidence also 
shows variation in readmissions of patients with THA/TKA procedures, 
supporting the finding that opportunities exist for improving care. The 
median 30-day risk-standardized readmission rate among Medicare FFS 
patients aged 65 or older undergoing THA/TKA procedures between 2008 
and 2010 was 5.7 percent, and ranged from 3.2 percent to 9.9

[[Page 50664]]

percent across 3,497 hospitals.\40\ In addition, inclusion of a THA/TKA 
measure in the Hospital Readmissions Reduction Program aligns with CMS' 
priority objectives to promote successful transitions of care for 
patients from the acute care inpatient setting to the outpatient 
setting, and reduces short-term readmission rates. Therefore, we 
believe the THA/TKA measure warrants inclusion in the Hospital 
Readmissions Reduction Program for FY 2015.
---------------------------------------------------------------------------

    \38\ Gross, L.M., Curtis, J.P., Lin, Z., et al.: Hospital-level 
30-Day All-Cause Risk-Standardized Readmission Rate Following 
Elective Primary total Hip Arthroplasty (THA) and/or Total Knee 
Arthroplasty (TKA): Report prepared for the Centers for Medicare & 
Medicaid Services, 2012. Available on the Web site at: http://www.qualitynet.org/.
    \39\ Bozic KJ, Rubash HE, Sculco TP.: Berry DJ. An analysis of 
medicare payment policy for total joint arthroplasty. J 
Arthroplasty. Sep 2008;23(6 Suppl 1):133-138.
    \40\ Grosso L.M., Curtis J.P., Lin Z., et al.: Hospital-level 
30-Day All-Cause Risk-Standardized Readmission Rate Following 
Elective Primary Total Hip Arthroplasty (THA) And/Or Total Knee 
Arthroplasty (TKA): Report prepared for the Centers for Medicare & 
Medicaid Services. 2012. Available on the Web site at: http://www.qualitynet.org/.
---------------------------------------------------------------------------

(6) Overview of the THA/TKA Measure: Hospital-Level 30-Day All-Cause 
Risk-Standardized Readmission Rate (RSRR) Following Elective Total Hip 
Arthroplasty (THA) and Total Knee Arthroplasty (TKA) (NQF 
1551)
    To better assess hospital care and care transitions for patients 
with elective THA/TKA procedures, we developed a hospital-level 
readmission measure for patients undergoing elective primary THA and/or 
TKA procedures. We finalized this measure for use in the Hospital IQR 
Program in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53519 through 
53521). In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27599), we 
proposed to include this measure, updated with the CMS Planned 
Readmission Algorithm Version 2.1 adapted for THA/TKA (discussed in 
section V.G.3.b.(2) of this preamble) to: (1) Expand the applicable 
conditions for the Hospital Readmissions Reduction Program; (2) derive 
the Excess Readmission Ratio for patients with THA/TKA procedures; and 
(3) calculate the readmission payment adjustments in FY 2015. We refer 
readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53519 through 
53521) for details of the measure specifications as well as the 2013 
Hip/Knee Readmission Measures Updates and Specifications Report which 
is available on the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. NQF endorsed the measure 
in January 2012 (http://www.qualityforum.org/QPS/1551).
    Comment: Many commenters supported the inclusion of the THA/TKA 
readmissions measure in the Hospital Readmissions Reduction Program.
    Response: We appreciate the commenters' support.
    Comment: Some commenters stated that the THA/TKA readmissions 
measure should not be included at this time because the expansion of 
the program is new, MedPAC did not recommend these measures for the 
Hospital Readmissions Reduction Program, and the measure's inclusion 
poses a financial risk to hospitals. One commenter further suggested 
that CMS conduct additional analyses before including the THA and TKA 
measure in the program. Another commenter suggested that CMS defer 
adding the THA/TKA measure until hospitals have had more experience 
with the Hospital Readmissions Reduction Program.
    Response: We appreciate the commenters' feedback and suggestions. 
We believe that the THA/TKA readmissions measure represents both a 
high-impact and high-cost condition that warrants inclusion in the 
Hospital Readmissions Reduction Program. This measure aligns with our 
priority objectives to promote successful transitions of care for 
patients from the acute care inpatient setting to the outpatient 
setting. We further believe that this measure, which consists of one of 
the most frequently performed procedures on the Medicare population, 
will also reduce short-term readmission rates, while at the same time, 
improve the care provided to patients. We also note that the MAP 
supported inclusion of this condition in the Hospital Readmissions 
Reduction Program. We are cognizant of stakeholder concerns relating to 
increased financial risks to hospitals, the fact that this was not 
specifically one of the conditions previously listed by MedPAC, and 
hospitals' inexperience with the measure. Therefore, we will monitor 
the THA/TKA readmissions measure closely for any unintended 
consequences that may arise from implementation of this measure, and 
adjust the Hospital Readmissions Reduction Program, accordingly.
    Comment: One commenter supported the exclusion of diagnostic 
cardiac catheterization from the list of planned procedures for the 
elective THA/TKA readmissions measure.
    Response: We appreciate the commenter's support for our proposal.
    After consideration of the public comments we received, we are 
finalizing our proposal to include the THA/TKA readmissions measure in 
the Hospital Readmissions Reduction Program.
(7) Calculating the Excess Readmission Ratio
    The THA/TKA readmission measure uses the same methodology and 
statistical modeling approach as the AMI, HF, and PN measures. We 
published a detailed description of how the readmission measures 
estimate the Excess Readmission Rate used in the Hospital Readmissions 
Reduction Program in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53380 
through 53381).
(8) THA/TKA Measure for the Hospital Readmissions Reduction Program
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27599), we 
proposed to adopt the THA/TKA measure in the Hospital Readmissions 
Reduction Program beginning in FY 2015. We also finalized this measure 
for use in the Hospital IQR Program in the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53519 through 53521). In the proposed rule, we noted that 
the set of hospitals for which this measure is calculated for the 
Hospital Readmissions Reduction Program differs from the set of 
hospitals used in calculations for the Hospital IQR Program. The 
Hospital Readmissions Reduction Program includes only subsection (d) 
hospitals as defined in 1886(d)(1)(B) of the Act and hospitals paid 
under section 1814(b)(3) of the Act (that is, Maryland hospitals), 
while the Hospital IQR Program calculations include non-IPPS hospitals 
such as CAHs, cancer hospitals, and hospitals in the Territories. 
However, we believe that the THA/TKA measure is appropriate for use in 
both programs. We invited public comments on this proposal.
    Comment: Several commenters suggested that CMS not add the THA/TKA 
readmission measure to Hospital Readmissions Reduction Program until it 
has been in the Hospital IQR Program. The commenters suggested a 
timeframe of between 1 to 2 years to allow hospitals to improve 
performance prior to the measure being adopted under any pay-for-
performance program. One commenter explained that hospitals have no 
experience with this measure and no data from CMS and, therefore, will 
not be able to incorporate changes before penalties are assessed.
    Response: We adopted the measure in the Hospital IQR Program in the 
FY 2013 IPPS/LTCH PPS final rule. We conducted a dry run of the measure 
with hospitals last year, and will be reporting the measure in an 
upcoming release of the Hospital Compare Web site.
    After consideration of the public comments we received, we are 
finalizing our proposal to adopt the THA/TKA readmissions measure in 
the Hospital Readmissions Reduction Program for FY 2015.

[[Page 50665]]

d. Hospitals Paid Under Section 1814(b)(3) of the Act, Including the 
Process To Be Exempt From the Hospital Readmissions Reduction Program 
and Definition of ``Base Operating DRG Payment Amount'' for Such 
Hospitals (Sec.  412.152 and Sec.  412.154(d))
    As finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53397), 
the definition of ``applicable hospital'' under section 1886(q)(5)(C) 
of the Act also includes hospitals paid under section 1814(b)(3) of the 
Act (that is, acute care Maryland hospitals that would have otherwise 
been paid under the IPPS, but for the waiver under section 1814(b)(3) 
of the Act). As discussed in the FY 2014 IPPS/LTCH PPS proposed rule 
(78 FR 27600 through 27601), section 1886(q)(2)(B)(ii) of the Act 
allows the Secretary to exempt such hospitals from the Hospital 
Readmissions Reduction Program, provided that the State submits an 
annual report to the Secretary describing how a similar program to 
reduce hospital readmissions in that State achieves or surpasses the 
measured results in terms of health outcomes and cost savings 
established by Congress for the program as applied to ``subsection (d) 
hospitals.'' Accordingly, a program established by the State of 
Maryland that could serve to exempt the State from the Hospital 
Readmissions Reduction Program would focus on those ``applicable'' 
Maryland hospitals operating under the waiver provided by section 
1814(b)(3) of the Act; that is, those hospitals that would otherwise 
have been paid by Medicare under the IPPS absent this provision.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53384), we 
established criteria for evaluation of an annual report to CMS to 
determine whether Maryland should be exempted from the program each 
year. We codified this requirement at Sec.  412.154(d) of the 
regulations. In addition, we specified that we will evaluate a report 
submitted by the State of Maryland documenting how its program meets 
those criteria. However, because the Hospital Readmissions Reduction 
Program was in its first year and Maryland's program was completing its 
first year, we specified that the evaluation of Maryland's program for 
measurable health outcomes and cost savings would not begin until FY 
2014. In that same final rule, we explained that it would be premature 
to evaluate Maryland's readmission program on health outcomes and cost 
savings at that time, as we did not have sufficient information on 
which to evaluate Maryland's program because FY 2013 was the first year 
of the Hospital Readmissions Reduction Program.
    We noted that our finalized criteria to evaluate Maryland's program 
is for FY 2013, the first year of the program, and our evaluation 
criteria may change through notice-and-comment rulemaking as the 
Hospital Readmissions Reduction Program evolves.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27600 through 
27601), we proposed to establish a deadline by which the State must 
submit its annual report to the Secretary under proposed revised Sec.  
412.154(d)(2) of the regulations. We also proposed the criteria to 
determine whether or not the State would be exempted from the Hospital 
Readmissions Reduction Program beginning with FY 2014. In addition, we 
proposed to define the ``base operating DRG payment amount'' for 
Maryland hospitals under Sec.  412.152 of the regulations in the event 
that the State is not exempted from the Hospital Readmissions Reduction 
Program.
    We proposed that the State of Maryland must submit its preliminary 
report to CMS no later than January 15 of each year for CMS to 
consider, through the IPPS/LTCH PPS proposed rule for a Federal fiscal 
year, its exemption from the Hospital Readmissions Reduction Program 
for the upcoming Federal fiscal year. For example, the State of 
Maryland would have to submit the report by January 15, 2014 for 
consideration for the FY 2015 (beginning October 1, 2014) program year. 
This deadline would provide CMS sufficient time to evaluate the report, 
have any discussions with the State regarding its program, and prepare 
a presentation of that report for the IPPS/LTCH PPS proposed rule. 
Under this proposal, we also would require that the State submit a 
final report, with updated information on the State's readmissions 
program and updated cost savings and health outcomes information, to 
CMS no later than June 1 of each year in order for CMS to determine, 
through the IPPS/LTCH PPS final rule for a Federal fiscal year, whether 
the State meets the requirements for exemption from the Hospital 
Readmissions Reduction Program in that upcoming Federal fiscal year. As 
such, for FY 2015, under proposed Sec.  412.154(d)(2)(ii), the State of 
Maryland would submit its preliminary report to the Secretary no later 
than January 15, 2014, and its final report to the Secretary no later 
than June 1, 2014, for consideration of exemption from the Hospital 
Readmissions Reduction Program.
    As discussed in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27600 through 27601), for FY 2014, we received a preliminary report 
from Maryland describing its readmissions program. Similar to its 
report submitted for FY 2013, Maryland described its current 
readmissions program, the Admissions-Readmission Revenue (ARR) Program. 
Under the voluntary program, the State pays hospitals under a case-mix 
adjusted bundled payment per episode of care, where the episode of care 
is defined as the initial admission and any subsequent readmissions to 
the same hospital or linked hospital system that occur within 30 days 
of the original discharge. According to the State, an initial admission 
with no readmissions provides the hospital with the same weight as an 
initial admission with multiple readmissions. Therefore, hospitals 
receive a financial reward for decreased readmissions (as determined 
through the case-mix adjusted episode of care weights). In the report, 
Maryland indicated that the reduction in intra-hospital readmission 
rates (that is, readmissions to the same hospital as the initial 
admission) resulted in approximately $25 million, or 0.27 percent, in 
savings to the participating hospitals for 2011 and 2012. In addition, 
Maryland reported that its readmission rate per 1,000 Medicare 
beneficiaries declined from 17.14 percent (CY 2011, Quarter 2) to 15.21 
percent (CY 2012, Quarter 2). The State also acknowledged in that 
report that it has begun to track inter-hospital readmissions, where a 
patient is admitted to one hospital and readmitted to another hospital, 
which is comparable to how readmissions are measured under the Hospital 
Readmissions Reduction Program. In the FY 2013 IPPS/LTCH PPS final 
rule, we estimated that, under the Hospital Readmissions Reduction 
Program, for FY 2013, Medicare IPPS operating payments would decrease 
nationally by approximately $300 million (or 0.3 percent of total 
Medicare IPPS operating payments). Maryland indicated that, for FY 
2013, it would achieve comparable savings because it intends to reduce 
the rate update factor for all hospitals by 0.3 percent, regardless of 
a hospital's performance on readmissions.
    Furthermore, in its FY 2014 preliminary report to the Secretary, 
the State of Maryland indicated that, for FY 2014, subject to approval 
by the Commission, it is proposing a shared savings approach, which 
would be applied to all hospitals in the State. Under that shared 
savings approach, hospitals in the State would be ranked

[[Page 50666]]

based on their performance on readmissions. Hospitals with high 
readmissions above an established standard would experience a reduction 
in their revenue and the hospitals below the established standard would 
not experience a reduction in their revenue. For Maryland hospitals 
that are in the voluntary ARR Program paid under the case-mix adjusted 
bundled payment per episode of care that are performing worse than the 
established standard for readmissions, their payment per episode of 
care would be reduced. In addition, the State proposes that hospitals 
that improve in readmissions above a certain standard would experience 
no reduction in their payments and those hospitals below the standard 
would experience a reduction. Based on this preliminary information, we 
believe that the State can achieve savings on readmissions that are 
tied to hospitals' performance on readmissions, which is comparable to 
the Hospital Readmissions Reduction Program applied throughout the rest 
of the country.
    For FY 2014, we proposed to evaluate Maryland based on whether, 
under the shared savings approach, it can achieve comparable health 
outcomes and cost savings to the Hospital Readmissions Reduction 
Program. We noted that, for FY 2014, we project that the Hospital 
Readmissions Reduction Program will result in a 0.2 percent decrease, 
or approximately $175 million nationally, in payments to hospitals. We 
invited public comments on this proposal.
    Comment: Several commenters supported the proposals regarding the 
process by which Maryland may seek exemption from the Hospital 
Readmissions Reduction Program, on an annual basis. One commenter 
requested that Maryland be able to submit one annual report to seek 
exemption from the Hospital Readmissions Reduction Program under 
subsection (q), the Hospital VBP Program under subsection (p), and the 
HAC Reduction Program under subsection (o), and that if CMS exempts 
Maryland from the requirements of these provisions, that the State 
should be exempt for 3 years.
    Response: We believe that the section 1886(q)(2)(B)(ii) of the Act 
requires that in order for hospitals paid under section 1814(b)(3) of 
the Act to be exempt from the Hospital Readmissions Reduction Program, 
the State must submit a report demonstrating a similar State program 
that achieves or surpasses measured results in terms of cost savings 
and patient health outcomes, and the State must submit this report on 
an annual basis to receive an annual exemption. Therefore, the statute 
does not provide for a 3-year exemption. Accordingly, we are finalizing 
the requirement that the State of Maryland submit its preliminary 
report to us no later than January 15 of each year and a final report 
no later than June 1 of each year for us to consider, through the IPPS/
LTCH PPS proposed and final rules for a Federal fiscal year, its 
exemption from the Hospital Readmissions Reduction Program for the 
upcoming Federal fiscal year.
    Comment: Maryland provided additional information on Maryland's 
readmissions program for FY 2014. The commenter stated that Maryland 
has implemented a population-based ratesetting model for 10 hospitals 
called the Total Patient Revenue (TPR) system and an episode-of-care 
ratesetting model called the Admissions Readmissions Revenue (ARR) 
Program for most other hospitals in the State, which reduces payments 
to hospitals that do not meet an established readmissions performance 
target. The ARR Program will become effective January 1, 2014, and 
because it will be effective in the middle of Maryland's 2014 rate 
year, the reduction is expected to be twice the amount it would have 
been had the program been effective for the entire 2014 rate year. The 
TPR and ARR Program have reduced readmissions and is estimated to 
achieve savings in FY 2014 in excess of the national savings: 0.3 
percent of all payer inpatient revenue compared to an expected national 
savings of 0.2 percent of national Medicare base payments.
    Response: We appreciate the additional information on Maryland's 
readmissions program. We believe that the program will provide for 
comparable savings to the Hospital Readmissions Reduction Program for 
FY 2014, and we believe that Maryland's program for FY 2014 meets the 
requirement for Maryland hospitals to be exempt from the Hospital 
Readmissions Reduction Program for FY 2014. In the future, we intend to 
evaluate actual savings and health outcomes from the Hospital 
Readmissions Reduction Program, as compared to actual savings and 
health outcomes to Maryland's readmissions program. In addition, we 
intend to evaluate how Maryland hospitals would perform in terms of 
readmissions measures and payment reductions if these hospitals were in 
the Hospital Readmissions Reduction Program, to potentially serve as 
another metric by which to evaluate Maryland when seeking an exemption 
from the Hospital Readmissions Reduction Program.
    Comment: Several commenters suggested that CMS also exempt certain 
categories of hospitals from the Hospital Readmissions Reduction 
Program. Specifically, the commenters suggested that CMS exclude 
hospitals participating in Accountable Care Organizations (ACOs), 
including the Pioneer ACO Program. The commenters also suggested that 
hospitals enrolled in the Bundled Payment demonstrations with a focus 
on hip/knee replacement should be exempt from the Hospital Readmissions 
Reduction Program and stated that because CMS is adding the THA/TKA 
readmissions measure to the Hospital Readmissions Reduction Program, 
hospitals in demonstrations that focus on THA/TKA should not be 
penalized twice for the same activity.
    Response: We appreciate the suggestions to exempt hospitals from 
the Hospital Readmissions Reduction Program if they already participate 
in an ACO program or other demonstrations. We addressed this comment in 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53398) where we explained 
that we did not have the authority under section 1886(q) of the Act to 
exempt any subsection (d) hospitals participating in the Bundled 
Payment Care Improvement Demonstration or in an Accountable Care 
Organization from the Hospital Readmissions Reduction Program. In 
addition, we were not compelled to waive hospitals in Accountable Care 
Organizations through their waiver authority because the incentives of 
the Hospital Readmissions Reduction Program and the Medicare ACO 
initiatives are aligned, and we did not see a need to waive the 
requirements of the Hospital Readmissions Reduction Program in order to 
test the Pioneer ACO Model. We found that because the incentives of the 
two programs are aligned, we believe that hospitals successful in 
reducing avoidable readmissions could be important allies for ACOs that 
share similar goals. Because it is unlikely that the beneficiaries 
assigned to an ACO will use only a single inpatient facility, ACOs will 
need to work effectively with all local hospitals that their Medicare 
FFS beneficiaries choose to use. Finally, we stated that as we gain 
experience with the program and other new payment incentives in the 
Medicare FFS program, we will monitor their interactions with the 
Hospital Readmissions Reduction Program and continue our efforts to 
align measures and incentives to achieve the best outcomes for our 
patients and the program.
    Comment: One commenter stated that CMS should permit a one-time 
opportunity to waive the payment reduction to safety-net hospitals or 
hospitals that serve a large proportion of low socioeconomic status 
patients, and

[[Page 50667]]

in return, require those hospitals to submit to CMS their 
implementation plan to improve readmission rates and the waiver would 
be time limited in order to give hospitals the time to implement their 
readmission reduction strategies.
    Response: In the FY 2013 IPPS/LTCH PPS final rule, we finalized our 
definition of applicable hospitals, or hospitals included in the 
Hospital Readmissions Reduction Program, as hospitals that are (1) 
subsection (d) hospitals, that is hospitals paid under the IPPS, and 
(2) hospitals in Maryland that are paid under section 1814(b)(3) of the 
Act, and absent the ``waiver'' specified by section 1814(b)(3) of the 
Act, would have been paid under the IPPS. We do not believe that we 
have the authority to implement a process described above, whereby we 
provide a waiver for safety-net hospitals that submit to us an 
implementation plan to reduce readmissions. We believe that all 
hospitals should be working towards the goal of reducing readmissions, 
on an ongoing basis, regardless of patient population. Therefore, we do 
not believe that we need to provide additional time through a waiver to 
hospitals to implement readmission reduction programs.
    After consideration of the public comments we received, we are 
finalizing the requirement that the State of Maryland must submit its 
preliminary report to us no later than January 15 of each year and a 
final report no later than June 1 of each year for us to consider, 
through the IPPS/LTCH PPS proposed and final rules for a Federal fiscal 
year, its exemption from the Hospital Readmissions Reduction Program 
for the upcoming Federal fiscal year. In addition, we are finalizing 
the policy to exempt Maryland hospitals paid under section 1814(b)(3) 
of the Act from the Hospital Readmissions Reduction Program for FY 
2014.
    As proposed in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27600 
through 27601), in this final rule we are defining ``base operating DRG 
payment amount'' for hospitals paid under section 1814(b)(3) of the Act 
in the event that we do not exempt Maryland hospitals from the Hospital 
Readmissions Reduction Program in a given year. Consistent with section 
1886(q)(2) of the Act, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53382), under the regulations at Sec.  412.152, we defined the ``base 
operating DRG payment amount'' under the Hospital Readmissions 
Reduction Program as the wage-adjusted DRG operating payment plus any 
applicable new technology add-on payments. As required by the statute, 
the definition of ``base operating DRG payment amount'' does not 
include adjustments or add-on payments for IME, DSH, outliers, and low-
volume hospitals provided for under sections 1886(d)(5)(A), (d)(5)(B), 
(d)(5)(F), and (d)(12) of the Act, respectively. Section 1886(q)(2) of 
the Act does not exclude new technology payments made under section 
1886(d)(5)(K) of the Act in the definition of ``base operating DRG 
payment amount''; therefore, any payments made under section 
1886(d)(5)(K) of the Act are included in the definition of ``base 
operating DRG payment amount.'' In addition, under the regulations at 
Sec.  412.152, we define ``wage-adjusted DRG operating payment'' as the 
applicable average standardized amount adjusted for resource 
utilization by the applicable MS-DRG relative weight and adjusted for 
differences in geographic costs by the applicable area wage index (and 
by the applicable COLA for hospitals located in Alaska and Hawaii).
    Acute care hospitals located in the State of Maryland currently are 
not paid under the IPPS but are, instead, paid under a special waiver 
as provided by section 1814(b)(3) of the Act. For these applicable 
hospitals, as we proposed, we are finalizing that the term ``base 
operating DRG payment amount'' means the base operating DRG payment 
amount defined at Sec.  412.152. In other words, we are revising 
existing Sec.  412.152, to specify that, for Maryland hospitals, the 
``base operating DRG payment amount'' is an amount equal to the IPPS 
wage adjusted DRG payment amount or the average standardized amount 
adjusted for resource utilization by the applicable MS-DRG relative 
weight and adjusted for differences in geographic costs by the 
applicable area wage index plus new technology payments that would be 
paid to Maryland hospitals absent section 1814(b)(3) of the Act. 
Although Maryland hospitals are currently paid under this waiver and 
not under the IPPS, if, for any year, Maryland is not exempt from the 
Hospital Readmissions Reduction Program in, we are finalizing that, to 
determine the amount by which the hospitals' payments under section 
1814(b)(3) of the Act would be reduced under the Hospital Readmissions 
Reduction Program, the readmission payment adjustment under Sec.  
412.154(b) would be determined using the estimated base operating DRG 
payment amount that would have applied had the hospital been paid under 
the IPPS. To implement this policy, as proposed, we are finalizing that 
claims submitted by Maryland hospitals will be ``priced'' under the 
IPPS payment methodology, and if a Maryland hospital has a readmissions 
payment adjustment factor, that factor would be applied to that base 
operating DRG payment amount to determine the payment adjustment under 
Sec.  412.154(b) (that is, the amount of the payment reduction). We are 
adopting that the amount of the payment reduction, if any, would be 
applied to (that is, subtracted from) the payments made to the affected 
Maryland hospital under the waiver. This methodology would result in 
Maryland hospitals having the readmissions adjustment factor applied in 
a manner similar to that which is applied to hospitals that are paid 
under the IPPS.
    Furthermore, as proposed, we are finalizing that if Maryland is not 
exempt from the Hospital Readmissions Reduction Program in a given 
year, the definition of ``base operating DRG payment amount'' for 
Maryland hospitals discussed above (that is, the base operating DRG 
payment amount calculated as if the hospital were paid under the IPPS), 
and not any payment amount made under the waiver under section 
1814(b)(3) of the Act, would be used to calculate both the ``aggregate 
payments for excess readmissions'' and ``aggregate payments for all 
discharges'' (defined at Sec.  412.152) for purposes of determining the 
hospital's readmission adjustment factor that accounts for excess 
readmissions under Sec.  412.154(c).
    Comment: Several commenters supported the proposed definition of 
``base operating DRG payment amount'' for Maryland hospitals, which is 
the base operating DRG payment amount calculated as if the hospital 
were paid under the IPPS, in the event that Maryland is not exempt from 
the Hospitals Readmissions Reduction Program in a given year. One 
commenter stated that the proposed definition of ``base operating DRG 
payment amount'' for Maryland hospitals for the Hospital Readmissions 
Reduction Program is inconsistent with both the definition of ``base 
operating DRG payment amount'' under the Hospital VBP Program and how 
Maryland hospitals are actually paid by Medicare for inpatient hospital 
services. The commenter recommended that CMS use a consistent 
definition of base operating DRG payment amount for Maryland hospitals.
    Response: We believe that the statute at section 1886(q)(2) of the 
Act clearly defines the base operating DRG payment amount as the wage-
adjusted DRG payment amount excluding adjustments or add-on payments 
for IME, DSH, outliers, and low-volume hospitals

[[Page 50668]]

provided for under sections 1886(d)(5)(A), (d)(5)(B), (d)(5)(F), and 
(d)(12) of the Act, respectively. Section 1886(q)(2) of the Act does 
not exclude new technology add-on payments made under section 
1886(d)(5)(K) of the Act in the definition of ``base operating DRG 
payment amount''; therefore, any payments made under section 
1886(d)(5)(K) of the Act are included in the definition of ``base 
operating DRG payment amount.'' Section 1886(q) of the Act does not 
provide a separate definition for base operating DRG payment amount for 
Maryland hospitals. The definition under the Hospital Readmissions 
Reduction Program may be inconsistent with the definition of base 
operating DRG payment amount under the Hospital VBP Program because 
these two programs are governed by different sections of the statute 
that provide different statutory definitions of base operating DRG 
payment amounts. As such, we do not believe that we have latitude to 
change our definition of ``base operating DRG payment amount'' and we 
are finalizing the definition, as proposed.
e. Floor Adjustment Factor for FY 2014 (Sec.  412.154(c)(2))
    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. Specifically, 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 . . . .'' In the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53386), we codified the calculation of this ratio at Sec.  
412.154(c)(1) of the regulations. Section 1886(q)(3)(C) of the Act 
specifies 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. We codified the floor adjustment factor at Sec.  412.154(c)(2) 
of the regulations.
    For FY 2013, under Sec.  412.154(c), we specified that an 
applicable hospital will receive an adjustment factor that is either 
the greater of the ratio or a floor adjustment factor of 0.99. In the 
FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27601), for FY 2014, we 
proposed that the floor adjustment factor be 0.98, consistent with 
section 1886(q)(3) of the Act, as codified at Sec.  412.154(c)(2). As 
finalized in the FY 2013 IPPS/LTCH PPS final rule, the ratio is rounded 
to the fourth decimal place. In other words, for FY 2014, a hospital 
subject to the Hospital Readmissions Reduction Program would have an 
adjustment factor that is between 1.0 and 0.9800. We invited public 
comments on this proposal.
    Comment: One commenter stated that doubling the readmission payment 
reduction would be harmful to hospitals and would be particularly 
harmful to safety-net hospitals.
    Response: We recognize the commenter's concern regarding the 
magnitude of the payment reduction for FY 2014. Section 1886(q)(3) of 
the Act requires that, effective for discharges occurring in FY 2014, 
the maximum readmissions adjustment factor or the floor adjustment 
factor be 0.98, or a 2-percent reduction, applied to a hospital's base 
operating DRG payment amount. While the maximum reduction will increase 
for FY 2014, only 18 hospitals are subject to the maximum reduction of 
2.0 percent and all but one of those hospitals were subject to the 
maximum reduction of 1.0 percent in FY 2013, suggesting that these 
hospitals have poor performance on these readmissions measures compared 
to the national average. In addition, we believe that our other 
proposed changes to the Hospital Readmissions Reduction Program, 
including the application of a planned readmissions algorithm to the 
readmissions measures and the change to the calculation of the 
readmission payment adjustment factors to be more consistent with the 
calculation of the excess readmission ratios, provide refinements to 
the readmissions penalties that mitigate severe payment impacts to the 
hospitals in the program. As such, we are finalizing our proposal that 
the floor adjustment factor be 0.98, consistent with section 1886(q)(3) 
of the Act, as codified at Sec.  412.154(c)(2).
    Comment: One commenter suggested that, if CMS added the additional 
readmissions measures for the conditions COPD and TKA/THA proposed in 
the FY 2014 IPPS/LTCH PPS proposed rule to be included as part of the 
readmissions payment adjustment for FY 2015, CMS should phase in the 
payment penalty over time so that the maximum reduction due to these 
two additional measures is 1 percent for FY 2015 rather than the full 3 
percent for FY 2015. The commenter stated that the method for computing 
penalties will result in relatively large penalties for readmissions of 
THA and TKA because there are low readmissions rates for these cases.
    Response: We appreciate the commenter's suggestion regarding the 
readmission payment adjustment factors for FY 2015. However, we believe 
that this comment is outside the scope of this rulemaking as we have 
not made any proposals on the calculation of the payment adjustment for 
FY 2015, with the inclusion of the two additional readmissions measures 
of COPD and TKA/THA. We intend to propose the calculation of the 
readmissions payment adjustment with the additional readmissions 
measures for FY 2015 in future rulemaking.
    After consideration of the public comments we received, we are 
finalizing our proposal that, for FY 2014, the floor adjustment factor 
is 0.98, consistent with section 1886(q)(3) of the Act, as codified at 
Sec.  412.154(c)(2).
f. Applicable Period for FY 2014
    Under section 1886(q)(5)(D) of the Act, the Secretary has the 
authority to specify the applicable period with respect to a fiscal 
year under the Hospital Readmissions Reduction Program. We finalized 
our policy to use 3 years of claims data to calculate the readmission 
measures in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51671). In the 
FY 2013 IPPS/LTCH PPS final rule (77 FR 53675), we codified the 
definition of ``applicable period'' in the regulations at 42 CFR 
412.152 as the 3-year period from which data are collected in order to 
calculate excess readmission ratios and adjustments for the fiscal 
year, which includes aggregate payments for excess readmissions and 
aggregate payments for all discharges used in the calculation of the 
payment adjustment.
    For the Hospital Readmissions Reduction Program for FY 2013, we 
established an applicable period under Sec.  412.152 as July 1, 2008, 
to June 30, 2011. Specifically, to calculate the excess readmission 
ratios and to calculate the payment adjustments for FY 2013 (including 
aggregate payments for excess readmissions and aggregate payments for 
all discharges used in the calculation of the payment adjustment), we 
used Medicare claims data from the 3-year time period of July 1, 2008 
to June 30, 2011 (76 FR 51671 and 77 FR 53388).
    In the FY 2014 IPPS/LTCH PPS proposed rule, consistent with the 
definition at Sec.  412.152 of the existing regulations, we proposed 
that the applicable period for FY 2014 under the Hospital Readmissions 
Reduction Program would be the 3-year period from July 1, 2009, to June 
30, 2012. That is, we would determine the excess readmission ratios and 
calculate the

[[Page 50669]]

payment adjustment (including aggregate payments for excess 
readmissions and aggregate payments for all discharges) for FY 2014 
using data from the 3-year time period of July 1, 2009 to June 30, 
2012, as this was the most recent available 3-year period of data upon 
which to base these calculations. As discussed later in this section, 
although we proposed an applicable period of July 1, 2009 through June 
30, 2012 for FY 2014, for purposes of determining the readmissions 
payment adjustment factors for the FY 2014 proposed rule, we used 
excess readmission ratios based on older data, that is, from the FY 
2013 applicable period of July 1, 2008 to June 30, 2011 (that includes 
the application of the planned readmission algorithm discussed earlier 
in this section). However, for this FY 2014 final rule, we are using 
excess readmission ratios based on data from the applicable period of 
July 1, 2009 to June 30, 2012, because the data for that period are now 
finalized.
    Comment: Some commenters supported the proposed 3-year applicable 
period of July 1, 2009 to June 30, 2012 to calculate the excess 
readmission ratios and the readmissions payment adjustment factors. 
Some commenters supported the 3-year applicable period because it 
aligns with the reporting data on Hospital Compare.
    The commenters also expressed concern regarding the use of 3 years 
of data to calculate the excess readmission ratios and the readmissions 
payment adjustment factors. The commenters stated that the payment 
penalties should be assessed every 3 years instead of every year; 
otherwise, CMS would be penalizing hospitals more than once for the 
same years of data and it would make it difficult for low-performing 
hospitals to improve.
    Several commenters suggested shorter timeframes for the applicable 
period. One commenter stated that the 3-year measurement period 
penalizes hospitals for performance before the focus on readmissions 
began. Other commenters suggested that the measures be reported on a 
quarterly basis.
    Response: We recognize the concerns raised by the commenters. As 
discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53394), we use 
3 years of data in order to have sufficient data to reliably measure a 
hospital's performance, and we update the data annually with the most 
recently available 3 years of data. We continue to believe that 
hospitals do have the opportunity to not be subject to a readmission 
reduction to payments due to excess readmissions if they can perform 
better than the average hospital in the future. We also believe that 
using the most recent 3 years of data may help hospitals in the event 
that a hospital's poor performance in 1 year due to anomalous 
circumstances may be mitigated with the inclusion of 2 additional years 
of data.
    After consideration of the public comments we received, we are 
finalizing, as proposed, the policy to use data from the 3-year time 
period from July 1, 2009 to June 30, 2012 to calculate the excess 
readmission ratio and to calculate the readmission payment adjustment 
factors for FY 2014.
g. Refinements of the Methodology To Calculate the Aggregate Payments 
for Excess Readmissions
    Section 1886(q)(3)(B) of the Act specifies the ratio used to 
calculate the adjustment factor under the Hospital Readmissions 
Reduction Program. 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 . . . .'' In the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53387), we defined ``aggregate payments 
for excess readmissions'' and ``aggregate payments for all 
discharges,'' as well as a methodology for calculating the numerator of 
the ratio (aggregate payments for excess readmissions) and the 
denominator of the ratio (aggregate payments for all discharges).
    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 ``for a hospital for an 
applicable period, 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.'' In 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53675), we included this 
definition of ``aggregate payments for excess readmissions'' under the 
regulations at Sec.  412.152.
    The ``Excess Readmission Ratio'' is a hospital-specific ratio 
calculated for 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 for each applicable condition, to the 
``risk-adjusted expected readmissions'' for the applicable hospital for 
the applicable condition. The methodology for the calculation of the 
excess readmission ratio was finalized in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51673). ``Aggregate payments for excess 
readmissions'' is the numerator of the ratio used to calculate the 
adjustment factor under the Hospital Readmissions Reduction Program.
    The term ``aggregate payments for all discharges'' is defined at 
section 1886(q)(4)(B) of the Act as ``for a hospital for an applicable 
period, the sum of the base operating DRG payment amounts for all 
discharges for all conditions from such hospital for such applicable 
period.'' ``Aggregate payments for all discharges'' is the denominator 
of the ratio used to calculate the adjustment factor under the Hospital 
Readmissions Reduction Program. In the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53387), we included this definition of ``aggregate payments for 
all discharges'' under the regulations at Sec.  412.152.
    As proposed in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27602), we note that we are taking this opportunity to finalize a 
technical change to the definition of ``base operating DRG payment 
amount'' in the existing regulations at Sec.  412.152 to reflect our 
policy that the difference between the applicable hospital-specific 
payment rate and the Federal payment rate for SCHs and MDHs is excluded 
from the base operating DRG amount for these hospitals. We note that 
section 1886(q)(2)(B)(i) of the Act provides ``special rules'' for MDHs 
with respect to discharges occurring during FYs 2012 and 2013, and not 
for subsequent years. Under current law, as discussed in section V.F. 
of the preamble of this final rule, the MDH program expires at the end 
of FY 2013 (that is, the MDH program is in effect through September 30, 
2013); therefore, the technical change would reflect that our policy 
applies to MDHs for FY 2013 only.
    We did not receive any public comments on this technical change on 
the definition of ``base operating DRG payment amount'' for MDHs, and 
we are finalizing the definition, as proposed.
    As discussed above, when calculating the numerator (aggregate 
payments for excess readmissions), we determined the base operating DRG 
payments for the applicable period. ``Aggregate payments for excess 
readmissions'' (the numerator) is defined as ``the sum, for applicable 
conditions . . . of the product, for each applicable condition,

[[Page 50670]]

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.''
    When determining the base operating DRG payment amount for an 
individual hospital for such applicable period for such condition, we 
use Medicare inpatient claims from the MedPAR file with discharge dates 
that are within the same applicable period that was finalized in the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51671) to calculate the excess 
readmission ratio. We use MedPAR claims data as our data source for 
determining aggregate payments for excess readmissions and aggregate 
payments for all discharges, as this data source is consistent with the 
claims data source used in IPPS rulemaking to determine IPPS rates.
    For FY 2014, as proposed in the FY 2014 IPPS/LTCH PPS proposed rule 
(78 FR 27603), we are using MedPAR claims with discharge dates that are 
on or after July 1, 2009, and no later than June 30, 2012. As specified 
in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53387), we use the 
update of the MedPAR file for each Federal fiscal year, which is 
updated 6 months after the end of each Federal fiscal year within the 
applicable period, as our data source (that is, the March updates of 
the respective Federal fiscal year MedPAR files) for the final rules. 
The FY 2009 through FY 2012 MedPAR data files can be purchased from 
CMS. Use of these files allows the public to verify the readmission 
adjustment factors. Interested individuals may 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 files and provides directions and further detailed 
instructions for how to order the data sets. 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:
     If using the U.S. Postal Service: Centers for Medicare and 
Medicaid Services, RDDC Account, Accounting Division, P.O. Box 7520, 
Baltimore, MD 21207-0520.
     If using express mail: Centers for Medicare and Medicaid 
Services, OFM/Division of Accounting- RDDC, Mailstop C-07-11, 
7500 Security Boulevard, Baltimore, MD 21244-1850.
    In the FY 2014 IPPS/LTCH PPS proposed rule (FR 27603), we proposed 
to determine aggregate payments for excess readmissions and aggregate 
payments for all discharges using data from MedPAR claims with 
discharge dates that are on or after July 1, 2009, and no later than 
June 30, 2012. However, we noted that, for the purposes of modeling the 
proposed readmissions payment adjustment factors in the proposed rule, 
we used excess readmission ratios based on an older performance period 
of July 1, 2008 to June 30, 2011, with the application of the planned 
readmission algorithm.
    Consistent with the approach taken in the FY 2013 IPPS/LTCH PPS 
proposed rule (77 FR 27964), for the purpose of modeling the FY 2014 
readmissions payment adjustment factors for the FY 2014 proposed rule, 
we used excess readmission ratios for applicable hospitals from the FY 
2013 Hospital Readmission Reduction Program applicable period. For FY 
2014, applicable hospitals have had the opportunity to review and 
correct data from the FY 2014 applicable period of July 1, 2009 to June 
30, 2012 before they were made public under our policy regarding the 
reporting of hospital-specific information, which is discussed later in 
this section.
    In the FY 2014 IPPS/LTCH PPS proposed rule, we proposed for FY 2014 
to use MedPAR data from July 1, 2009 through June 30, 2012, and we used 
the March 2010 update of the FY 2009 MedPAR file to identify claims 
within FY 2009 with discharges dates that are on or after July 1, 2009, 
the March 2011 update of the FY 2010 MedPAR file to identify claims 
within FY 2010, the March 2012 update of the FY 2011 MedPAR file to 
identify claims within FY 2010, and the December 2012 update of the FY 
2012 MedPAR file to identify claims within FY 2012 with discharge dates 
no later than June 30, 2012. For this FY 2014 IPPS/LTCH PPS final rule, 
we are using the same MedPAR files as listed above, with the exception 
of using the March 2013 update of the FY 2012 MedPAR file.
    In order to identify the admissions for each condition for an 
individual hospital for calculating the aggregate payments for excess 
readmissions, as we did for FY 2013, we proposed in the FY 2014 IPPS/
LTCH PPS proposed rule (78 FR 27603), for FY 2014, to identify each 
applicable condition using the same ICD-9-CM codes used to identify 
applicable conditions to calculate the excess readmission ratios. In 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51669), in our discussion 
of the methodology of the readmissions measures, we stated that we 
identify eligible hospitalizations and readmissions of Medicare 
patients discharged from an applicable hospital having a principal 
diagnosis for the measured condition in an applicable period. The 
discharge diagnoses for each applicable condition are based on a list 
of specific ICD-9-CM codes for that condition. These codes are posted 
on the Web site at: http://www.QualityNet.org > Hospital-Inpatient > 
Claims-Based Measures > Readmission Measures > Measure Methodology.
    In order to identify the applicable conditions to calculate the 
aggregate payments for excess readmissions, as we did for FY 2013, we 
proposed, for FY 2014, to identify the claim as an applicable condition 
if the ICD-9-CM code for that condition is listed as the principal 
diagnosis on the claim, consistent with the methodology to identify 
conditions to calculate the excess readmission ratio. Based on public 
comments that we received on the FY 2013 IPPS/LTCH PPS proposed rule, 
which stated that the index admissions that are not considered 
readmissions for the purpose of the readmissions measures, and are thus 
excluded from the calculation of the excess readmission ratio, should 
also not be considered admissions for the purposes of determining a 
hospital's aggregate payments for excess readmissions, we proposed to 
further modify our methodology to identify the admissions included in 
the calculation of ``aggregate payments for excess readmissions.'' As 
we did for FY 2013 in response to public comments (77 FR 53390), using 
our MedPAR data source, we identified admissions for the purposes of 
calculating aggregate payments for excess readmissions making the 
following exclusions: (1) Hospitalizations for patients discharged with 
an in hospital death; (2) hospitalization for patients discharged 
against medical advice; (3) transfers; (4) hospitalizations for 
patients under 65; (5) hospitalizations for patients enrolled in 
Medicare Part C; and (6) same day discharges for AMI cases. These 
admissions were excluded based on how they were identified in the 
MedPAR file.
    For FY 2014, as proposed in the FY 2014 IPPS/LTCH proposed rule (78 
FR 27603 through 27604), we are adopting our proposal to make the same 
exclusions as we did in FY 2013, but, for some of the exclusions, to 
identify them using a different methodology which is more consistent 
with the manner in which exclusions are made to the admissions used to 
calculate the

[[Page 50671]]

excess readmission ratio. For FY 2014, in order to have the same types 
of admissions to calculate aggregate payments for excess readmissions, 
as is used to calculate the excess readmission ratio, we are finalizing 
our proposal to identify admissions for the purposes of calculating 
aggregate payments for excess readmissions as follows; we note where 
our methodology for exclusions for FY 2014 differs from our methodology 
in FY 2013:
     We will exclude admissions that are identified as an 
applicable condition based on the ICD-9-CM code listed as the primary 
diagnosis if the patient died in the hospital, as identified by the 
discharge status code on the MedPAR claim. This is consistent with how 
we identified patients who died in the hospital in the FY 2013 IPPS/
LTCH PPS final rule.
     We will exclude admissions identified as an applicable 
condition based on the ICD-9-CM code listed as the primary diagnosis 
for which the patient was transferred to another acute care hospital 
(that is, a CAH or an IPPS hospital), as identified through examination 
of contiguous stays in MedPAR at other hospitals. (We note that this 
step differs from the methodology we used in the FY 2013 IPPS/LTCH PPS 
final rule to identify transfers based on discharge destination codes 
in the MedPAR file.)
     We will exclude admissions identified as an applicable 
condition based on the ICD-9-CM code listed as the primary diagnosis 
for patients who are under the age of 65, as identified by linking the 
claim information to the information provided in the Medicare 
Enrollment Database. (We note that this step differs from the 
methodology we used in the FY 2013 IPPS/LTCH PPS final rule in that we 
previously used claims in the MedPAR file to identify a patient's age.)
     For conditions identified as AMI, we will exclude claims 
that are same day discharges, as identified by the admission date and 
discharge date on the MedPAR claim. (This is consistent with how we 
identified patients with same day discharges for AMI in the FY 2013 
IPPS/LTCH PPS final rule. In addition, it is consistent with the 
calculation of the excess readmission ratio for AMI where same day 
discharges for AMI are not included as an index admission.)
    Furthermore, as proposed, we will only identify Medicare FFS claims 
that meet the criteria (that is, claims paid for under Medicare Part C 
(Medicare Advantage) would not be included in this calculation), 
consistent with the methodology to calculate excess readmission ratios 
based solely on admissions and readmissions for Medicare FFS patients. 
For FY 2013, we excluded admissions for Medicare Advantage patients 
based on whether the claim was identified as a Medicare Advantage claim 
in the MedPAR file or whether the FFS payment amount on the claim was 
for an IME payment only, also indicative of an admission for a Medicare 
Advantage patient. For FY 2014, we will exclude admissions for patients 
enrolled in Medicare Advantage as identified in the Enrollment 
Database, which is consistent with how admissions for Medicare 
Advantage patients are identified in the calculation of the excess 
readmission ratios.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53390), we noted 
that there were additional exclusions to the admissions used to 
calculate the excess readmission ratio that we could not apply to the 
calculation of aggregate payments for excess readmissions at the time 
of rulemaking. However, we stated our intention to modify our systems 
to identify the additional exclusions in order to calculate the 
aggregate payments for excess readmissions in a manner that would be 
more consistent with the calculation of the excess readmission ratio. 
Therefore, in addition to the exclusions to the admissions we finalized 
in FY 2013, as proposed for FY 2014, we are finalizing additional 
exclusions so that the criteria used to identify admissions for the 
purposes of calculating aggregate payments for excess readmissions will 
be the same as the criteria used to identify admissions for the 
purposes of calculating the excess readmission ratios. We are adopting 
as final the proposal to link our MedPAR claims data with the Medicare 
Enrollment Database to make additional exclusions to the admissions 
used to calculate aggregate payments for excess readmissions, which is 
consistent with our established methodology for calculating the excess 
readmission ratios. The Medicare Enrollment Database contains 
information on all individuals entitled to Medicare, including 
demographic information, enrollment dates, third party buy-in 
information, and Medicare managed care enrollment. For FY 2014, as 
proposed, we are including the following additional steps to identify 
admissions for the purposes of calculating aggregate payments for 
excess readmissions:
     We are excluding admissions for patients who did not have 
Medicare Parts A and B FFS enrollment in the 12 months prior to the 
index admission, based on the information provided in the Medicare 
Enrollment Database.
     We are excluding admissions for patients without at least 
30 days post-discharge enrollment in Medicare Parts A and B FFS, based 
on the information provided in the Medicare Enrollment Database.
     We are excluding all multiple admissions within 30 days of 
a prior index admission, as identified in the MedPAR file, consistent 
with how multiple admissions within 30 days of an index admission are 
excluded from the calculation of the excess readmission ratio.
    The tables below list the ICD-9-CM codes we are using, as proposed, 
to identify each applicable condition to calculate the aggregate 
payments for excess readmissions for FY 2014. These ICD-9-CM codes also 
will be used to identify the applicable conditions to calculate the 
excess readmission ratios, consistent with our policy finalized in the 
FY 2012 IPPS/LTCH PPS final rule. The list of ICD-9-CM codes for each 
condition has not changed from the list provided in the FY 2013 IPPS/
LTCH PPS final rule.

             ICD-9-CM CODES TO IDENTIFY PNEUMONIA (PN) CASES
------------------------------------------------------------------------
      ICD-9-CM Code                     Description of code
------------------------------------------------------------------------
480.0....................  Pneumonia due to adenovirus.
480.1....................  Pneumonia due to respiratory syncytial virus.
480.2....................  Pneumonia due to parainfluenza virus.
480.3....................  Pneumonia due to SARS-associated coronavirus.
480.8....................  Viral pneumonia: pneumonia due to other virus
                            not elsewhere classified.
480.9....................  Viral pneumonia unspecified.
481......................  Pneumococcal pneumonia [streptococcus
                            pneumoniae pneumonia].
482.0....................  Pneumonia due to klebsiella pneumoniae.

[[Page 50672]]

 
482.1....................  Pneumonia due to pseudomonas.
482.2....................  Pneumonia due to hemophilus influenzae [h.
                            influenzae].
482.30...................  Pneumonia due to streptococcus unspecified.
482.31...................  Pneumonia due to streptococcus group a.
482.32...................  Pneumonia due to streptococcus group b.
482.39...................  Pneumonia due to other streptococcus.
482.40...................  Pneumonia due to staphylococcus unspecified.
482.41...................  Pneumonia due to staphylococcus aureus.
482.42...................  Methicillin Resistant Pneumonia due to
                            Staphylococcus Aureus.
482.49...................  Other staphylococcus pneumonia.
482.81...................  Pneumonia due to anaerobes.
482.82...................  Pneumonia due to escherichia coli [e.coli].
482.83...................  Pneumonia due to other gram-negative
                            bacteria.
482.84...................  Pneumonia due to legionnaires' disease.
482.89...................  Pneumonia due to other specified bacteria.
482.9....................  Bacterial pneumonia unspecified.
483.0....................  Pneumonia due to mycoplasma pneumoniae.
483.1....................  Pneumonia due to chlamydia.
483.8....................  Pneumonia due to other specified organism.
485......................  Bronchopneumonia organism unspecified.
486......................  Pneumonia organism unspecified.
487.0....................  Influenza with pneumonia.
488.11...................  Influenza due to identified novel H1N1
                            influenza virus with pneumonia.
------------------------------------------------------------------------


           ICD-9-CM Codes To Identify Heart Failure (HF) Cases
------------------------------------------------------------------------
      ICD-9-CM Code                       Code description
------------------------------------------------------------------------
402.01...................  Hypertensive heart disease, malignant, with
                            heart failure.
402.11...................  Hypertensive heart disease, benign, with
                            heart failure.
402.91...................  Hypertensive heart disease, unspecified, with
                            heart failure.
404.01...................  Hypertensive heart and chronic kidney
                            disease, malignant, with heart failure and
                            with chronic kidney disease stage I through
                            stage IV, or unspecified.
404.03...................  Hypertensive heart and chronic kidney
                            disease, malignant, with heart failure and
                            with chronic kidney disease stage V or end
                            stage renal disease.
404.11...................  Hypertensive heart and chronic kidney
                            disease, benign, with heart failure and with
                            chronic kidney disease stage I through stage
                            IV, or unspecified.
404.13...................  Hypertensive heart and chronic kidney
                            disease, benign, with heart failure and with
                            chronic kidney disease stage I through stage
                            IV, or unspecified failure and chronic
                            kidney disease stage V or end stage renal
                            disease.
404.91...................  Hypertensive heart and chronic kidney
                            disease, unspecified, with heart failure and
                            chronic kidney disease stage V or end stage
                            renal disease heart failure and with chronic
                            kidney disease stage I through stage IV, or
                            unspecified.
404.93...................  Hypertensive heart and chronic kidney
                            disease, unspecified, with heart failure and
                            chronic kidney disease stage V or end stage
                            renal disease.
428.xx...................  Heart Failure.
------------------------------------------------------------------------


   ICD-9-CM Codes To Identify Acute Myocardial Infarction (AMI) Cases
------------------------------------------------------------------------
      ICD-9-CM Code                     Description of code
------------------------------------------------------------------------
410.00...................  AMI (anterolateral wall)--episode of care
                            unspecified.
410.01...................  AMI (anterolateral wall)--initial episode of
                            care.
410.10...................  AMI (other anterior wall)--episode of care
                            unspecified.
410.11...................  AMI (other anterior wall)--initial episode of
                            care.
410.20...................  AMI (inferolateral wall)--episode of care
                            unspecified.
410.21...................  AMI (inferolateral wall)--initial episode of
                            care.
410.30...................  AMI (inferoposterior wall)--episode of care
                            unspecified.
410.31...................  AMI (inferoposterior wall)--initial episode
                            of care.
410.40...................  AMI (other inferior wall)--episode of care
                            unspecified.
410.41...................  AMI (other inferior wall)--initial episode of
                            care.
410.50...................  AMI (other lateral wall)--episode of care
                            unspecified.
410.51...................  AMI (other lateral wall)--initial episode of
                            care.
410.60...................  AMI (true posterior wall)--episode of care
                            unspecified.
410.61...................  AMI (true posterior wall)--initial episode of
                            care.
410.70...................  AMI (subendocardial)--episode of care
                            unspecified.
410.71...................  AMI (subendocardial)--initial episode of
                            care.
410.80...................  AMI (other specified site)--episode of care
                            unspecified.
410.81...................  AMI (other specified site)--initial episode
                            of care.

[[Page 50673]]

 
410.90...................  AMI (unspecified site)--episode of care
                            unspecified.
410.91...................  AMI (unspecified site)--initial episode of
                            care.
------------------------------------------------------------------------

    For FY 2014, as proposed, we are calculating aggregate payments for 
excess readmissions, using MedPAR claims from July 1, 2009 to June 30, 
2012, to identify applicable conditions based on the same ICD-9-CM 
codes used to identify the conditions for the readmissions measures and 
to apply the exclusions for the types of admissions discussed above.
    Comment: Several commenters supported the proposal to calculate 
excess payments for readmissions, or the numerator of the readmissions 
payment adjustment factor, using MedPAR claims with the proposed trims 
such that the calculation is more consistent with the calculation of 
the excess readmission ratio.
    Response: We appreciate the commenters' support for our proposed 
modifications to the MedPAR data to calculate the excess payments for 
readmissions, which is the numerator of the readmissions payment 
adjustment factor. As such, we are finalizing, as proposed, our 
methodology to apply the trims to the admissions used to calculate 
excess payments for readmissions discussed earlier.
    Comment: Some commenters stated that the data currently available 
are insufficient to replicate the readmission payment adjustment 
factors. The commenters requested that CMS provide sufficient data in 
the public MedPAR file to fully replicate the readmission payment 
adjustment factors.
    Response: We recognize the limitations on the public's ability to 
replicate our calculations based on the data that are currently 
available. In response to those comments, we are providing additional 
provider-level information on the calculation of the readmissions 
payment adjustment factors in the Hospital Readmissions Reduction 
Program Supplemental Data File that can be found on our Web site at: 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2014-IPPS-Final-Rule-Home-Page.html.
    Comment: One commenter believed that the proposed calculation of 
the readmission payment adjustment factor creates excessive payment 
reductions. The commenter contended that the excess readmission ratio, 
which is a ratio of actual readmissions to expected readmissions, 
should be applied to the number of a hospital's readmissions, not 
admissions, in order to determine the hospital's excess payments for 
readmissions. The commenter believed that CMS has the discretionary 
authority to implement the policy as Congress intended, and that 
regulatory action could be confirmed by Congress with a technical 
amendment. Furthermore, the commenter found that the Congressional 
Budget Office (CBO) score for the provision exceeds the estimated 
savings that we calculated. The commenter provided an alternative 
approach whereby CMS would determine the magnitude of the readmission 
reduction using the 25th percentile of hospital performance on the 
readmission measures rather than the current policy of comparing a 
hospital's performance to the national average hospital performance.
    Response: We received a similar comment in response to the FY 2013 
IPPS/LTCH PPS proposed rule and responded to it in the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53393). We stated in the FY 2013 IPPS/LTCH 
PPS final rule that we believe that the statute is prescriptive with 
respect to the calculation of ``aggregate payments for excess 
readmissions'' where the statute specifies that the ``aggregate 
payments for excess readmissions'' is the sum for each condition of the 
product of ``the operating DRG payment amount for such hospital for 
such applicable period for such condition'' and ``the number of 
admissions for such condition'' and ``the excess readmission ratio'' 
minus one. We believe that section 1886(q)(4)(A) of the Act requires us 
to include all admissions for a condition in the calculation of 
``aggregate payments for excess readmissions.'' We continue to believe 
that we are implementing the provision as required by law.
    Comment: Several commenters requested that CMS make additional 
adjustments to the calculation of the readmissions payment adjustment 
factor to account for differences in the readmissions payment 
adjustment factors for hospitals that treat a high proportion of 
patients of low socioeconomic status. The commenters also suggested 
that CMS make an adjustment to the readmission payment adjustment 
factors to account for a hospital's proportion of dual-eligible 
patients. The commenters contended that dual-eligible status is a 
better predictor of readmission rates because it reflects Medicare 
beneficiaries, which is what the readmissions measures are based on.
    Response: We appreciate the commenters' suggestions on modifying 
the readmission payment adjustment factors to account for differences 
in the socioeconomic status of patients treated by hospitals. As stated 
earlier and in prior rules, we continue to believe that we need to 
examine the relationship of patient socioeconomic status and 
readmissions as it applies to the readmissions measures. As we have 
stated above, the readmissions measures, as endorsed by the NQF, are 
not risk-adjusted for socioeconomic status. Currently, the NQF does not 
support risk-adjustments based on socioeconomic status, as the NQF 
believes it can create different standards of quality for hospitals 
that treat a higher proportion of patients with low socioeconomic 
status. Risk-adjusting the readmissions measures for socioeconomic 
status can obscure differences in the quality of health care.
    Similarly, applying an adjustment to the readmissions payment 
adjustment factors can also create different standards of quality for 
hospitals based on the socioeconomic status of the patients treated. 
Applying an adjustment to the readmissions payment adjustment factors 
at this point to account for socioeconomic status rather than 
determining whether a risk-adjustment for socioeconomic status would be 
appropriate for the readmissions measures could appear as circumventing 
the NQF's position on the application of a risk-adjustment for 
socioeconomic status on the readmissions measures. We note that, to the 
extent that dual-eligible patients or patients of low socioeconomic 
status have higher readmission rates because they are sicker or have 
more comorbidities, we already account for comorbidities in the risk-
adjustment for the excess readmission ratios. While we are not 
incorporating any special adjustments for socioeconomic status in the 
Hospital Readmissions Reduction Program at this time, we remain

[[Page 50674]]

concerned about the impact of this provision on hospitals that serve a 
high proportion of low-income patients. We will continue to monitor the 
issue of the relationship of a patient's socioeconomic status and a 
hospital's readmission performance, and how it affects payments to 
hospitals.
    Comment: Several commenters requested various modifications to the 
calculation of the readmissions payment adjustment factor. One 
commenter suggested that CMS give credit to hospitals that have better 
than average national mortality rates for AMI, HF, and PN because the 
commenter believed it shows that hospitals are not sacrificing 
performance on the mortality measures in order to improve performance 
on readmission measures. Another commenter suggested that CMS reward 
hospitals that reduce their readmissions rate each year. The commenter 
suggested that CMS structure the Hospital Readmissions Reduction 
Program like the Hospital VBP Program that rewards hospitals for their 
performance. Another commenter suggested that readmissions that occur 
later in the 30-day window should count less towards the calculation of 
the readmission payment adjustment factor than readmissions that occur 
earlier in the 30-day window. Another commenter suggested that a 
hospital's readmissions payment adjustment be based on whether or not 
the hospital can meet a fixed performance target. Another commenter 
believed that CMS should exclude additional admissions because the 
penalties are excessive, at $26,000 per excess readmission. The 
commenter suggested that CMS exclude admissions for patients over the 
age of 80 from the readmissions measures and payment adjustment 
calculations, risk-adjust for patient-mix, or apply alternative 
policies to obtain savings for the Medicare program.
    Response: We appreciate the comments on various ways to change the 
calculation of the readmissions payment adjustment factors that account 
for improvement in readmissions or provide incentives for readmissions, 
as opposed to a penalty for readmissions. We received similar comments 
in response to the FY 2012 IPPS/LTCH PPS proposed rule that we 
addressed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53394). We 
believe that the Hospital Readmissions Reduction Program is structured 
to apply a payment reduction to hospitals with excess readmissions, as 
measured by having worse performance on readmissions for certain 
conditions compared to the average hospital. Section 1886(q)(4) of the 
Act is prescriptive in the methodology to calculate the readmissions 
payment adjustment factor such that we are limited to readmissions 
payment adjustment factor being the higher of a ratio of a hospital's 
excess payments for readmissions relative to their total payments for 
all discharges or a floor defined in the statute. In addition, we 
believe that the statute does not provide us with the authority to 
reward hospitals for improvement, which is allowed under section 
1886(p) of the Act for the Hospital VBP Program. However, we continue 
to believe that if a hospital improves over time and those improvements 
result in performance on readmissions on the three readmissions 
measures that is better than the average hospital, the hospital would 
not be subject to a payment reduction.
    Comment: MedPAC submitted a comment that was similar to comments 
from several other commenters, stating that the readmission penalty 
formula is flawed where the aggregate penalties will remain constant 
even if national readmission rates decline. MedPAC recommended 
establishing a fixed performance target by which to compare hospitals 
against in order to evaluate a hospital's performance on readmissions 
and to determine the readmissions payment adjustment. MedPAC is 
particularly concerned that the readmission penalties will increase 
more significantly with the introduction of additional readmissions 
measures in FY 2015 because the condition-specific penalty per excess 
readmission is higher for conditions with low readmission rates, such 
as for TKA/THA. Finally, MedPAC noted a correlation between readmission 
rates and a hospital's share of low-income patients, and recommended 
that CMS evaluate hospital readmission rates against a group of peer 
hospitals with a similar share of low-income Medicare beneficiaries, as 
measured by proportion of patients with Supplemental Security Income 
(SSI), as a way to risk-adjust readmission penalties for socioeconomic 
status. MedPAC acknowledged that the proposals to implement the 
Hospital Readmissions Reduction Program are consistent with the statute 
and that its recommendations were beyond the scope of the statute and 
would require a legislative change by Congress.
    Response: We appreciate the comments and suggestions made by MedPAC 
and will be certain to explore in future rulemaking the payment 
implications of adding additional measures to the Hospital Readmissions 
Reduction Program for FY 2015. We also appreciate MedPAC's observations 
and suggestions to refine the payment formula for the Hospital 
Readmissions Reduction Program. We agree that their recommendations are 
currently beyond the scope of the statute, particularly because we 
believe that we are required by sections 1886(q)(4)(C) and 
1886(q)(5)(A) of the Act to use readmissions measures that are endorsed 
by the NQF, and the readmissions measures currently endorsed by the NQF 
measure a hospital's performance on readmissions relative to the 
average hospital at the national level.
    We will evaluate MedPAC's comment, particularly with regards to 
MedPAC's recommendation that we evaluate hospital readmission rates 
against a group of peer hospitals with a similar share of low-income 
Medicare beneficiaries, as measured by proportion of patients with 
Supplemental Security Income (SSI), as a way to risk-adjust readmission 
penalties for socioeconomic status. However, as stated earlier in this 
final rule, our analyses also show that adding socioeconomic status to 
the risk-adjustment has a negligible impact on hospitals' risk-
standardized rates. The risk-adjustment for clinical factors likely 
captures much of the variation due to socioeconomic status, therefore 
leading to a more modest impact of socioeconomic status on hospitals' 
results than stakeholders may expect.
    As we discussed earlier in this final rule, we remain concerned 
about the impact of the Hospital Readmissions Reduction Program on 
hospitals that serve a high proportion of low-income patients. We will 
continue to assess various metrics of low-income patients and how to 
identify hospitals that serve a large share of low-income patients. In 
addition, we will continue to monitor the relationship of patient's 
socioeconomic status and a hospital's performance on readmissions as it 
applies to the readmissions measures and how this relationship impacts 
payments to hospitals.
    Comment: Some commenters suggested that CMS show the impact of the 
Hospital Readmissions Reduction Program by DSH decile, as it had done 
for the FY 2013 rule, in the interest of transparency.
    Response: In response to these comments, we have provided a table 
displaying the number of hospitals subject to the 2-percent maximum 
reduction, the number of hospitals subject to a reduction between 1 
percent and 2 percent, the number of hospitals subject to a reduction 
less than 1 percent, and the number of hospitals that will not be 
subject to any reduction

[[Page 50675]]

by DSH Patient Percentage (DPP) decile. The DPP is reported in the FY 
2014 IPPS Final Rule Impact file. The analysis excludes new hospitals 
as they would not receive a readmissions payment adjustment and would 
not have a DPP. New providers were identified as providers in the March 
2013 update of the provider specific file and not in the March 2012 
update of the provider specific file (used in the FY 2013 IPPS/LTCH PPS 
final rule). We will continue to explore different measures of 
socioeconomic status, including the potential to evaluate the 
relationship of a hospital's readmissions payment adjustment and their 
uncompensated care costs as reported on their Worksheet S-10 of the 
Medicare Hospital Cost Report.

                                Distribution of Hospitals Readmissions Adjustment Factor By DSH Patient Percentage (DPP)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Payment
                                                                              Payment       adjustment                          Any             No
                                                             Number of     adjustment up    between -1      -2 percent      adjustment     readmissions
                         Decile                              hospitals     to -1 percent  percent and  2       floor       (sum of  col.    adjustment
                                                                            (inclusive)    percent  (not    adjustment         2-4)           factor
                                                                                            inclusive)
                                                                     (1)             (2)             (3)             (4)             (5)             (6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Lowest DPP..............................................             336             116               2               2             120             216
Second..................................................             336             204              11               0             215             121
Third...................................................             336             202              16               1             219             117
Fourth..................................................             336             205              19               1             225             111
Fifth...................................................             336             203              17               0             220             116
Sixth...................................................             336             219              14               3             236             100
Seventh.................................................             336             218              12               3             233             103
Eighth..................................................             336             213              25               3             241              95
Ninth...................................................             336             240              16               3             259              77
Highest DPP.............................................             335             234              21               2             257              78
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................           3,359           2,054             153              18           2,225           1,134
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Comment: Some commenters requested that the inpatient claims denied 
by the CMS Recovery Audit Contractors (RACs) not be included in the 
calculation of the readmissions payment adjustment or readmissions 
measures, as those claims were not considered as inpatient for payment 
purposes.
    Response: As discussed earlier in this final rule, MedPAR claims 
data is our data source to calculate readmissions payment adjustment 
factors, specifically the excess payments for readmissions and payment 
for all discharges. We are finalizing the policy to use MedPAR data for 
discharges from July 1, 2009 through June 30, 2012, and we are 
finalizing the policy to use the March 2010 update of the FY 2009 
MedPAR file, the March 2011 update of the FY 2010 MedPAR file, the 
March 2012 update of the FY 2011 MedPAR, and the March 2013 update of 
the FY 2012 MedPAR file to identify the discharges occurring from July 
1, 2009 through June 30, 2012. In addition, the Standard Analytic File 
is the data source used to calculate the excess readmission ratios. We 
use the June 2010 update of the 2009 SAF file, the June 2011 update of 
the 2010 file, the June 2012 update of the 2011 file, and the September 
2012 update of the 2012 file. As discussed in the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53390), the RACs have up to 3 years to review claims 
to determine whether a claim was inappropriately billed as inpatient 
when it should have been an outpatient claim. If a claim is denied as 
an inpatient stay, the claim is adjusted through the standard Medicare 
claims processing systems, going through the CWF, SAF and MedPAR. 
However, given the timing of the RAC audits and the updates of the SAF 
and MedPAR files used to calculate the readmissions measures and 
readmissions payment adjustment factors, it is not certain that all 
denied claims will be reflected in our claims files at the time of our 
calculations. However, we continue to believe that using these updates 
of the MedPAR and SAF files is consistent with IPPS ratesetting and 
allows for transparency for the public to obtain this dataset for 
replication. Furthermore, inpatient stays that are denied payment under 
Medicare Part A remain classified as inpatient stays, and can be billed 
to Medicare Part B as an Medicare Part B inpatient stay. These 
inpatient stays that are denied payment under Medicare Part A will 
typically continue to count as a qualifying inpatient stay for other 
payment purposes such as qualifying for SNF benefits and Medicare DSH 
patient days. Therefore, we believe that it is appropriate to include 
these admissions in the Hospital Readmissions Reduction Program.
    After consideration of the public comments we received, we are 
finalizing the proposed methodology to calculate the readmissions 
payment adjustment factors, including our methodology to apply the 
trims to the admissions used to calculate excess payments for 
readmissions discussed earlier.

         Formulas To Calculate the Readmission Adjustment Factor
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Aggregate payments for excess readmissions = [sum of base operating DRG
 payments for AMI x (Excess Readmission Ratio for AMI-1)] + [sum of base
 operating DRG payments for HF x (Excess Readmission Ratio for HF-1)]
 +[sum of base operating DRG payments for PN x (Excess Readmission Ratio
 for PN-1)].
 
Aggregate payments for all discharges = sum of base operating DRG
 payments for all discharges.
 
Ratio = 1-(Aggregate payments for excess readmissions/Aggregate payments
 for all discharges).
 

[[Page 50676]]

 
Readmissions Adjustment Factor for FY 2014 is the higher of the ratio or
 0.9800.
 
*Based on claims data from July 1, 2009 to June 30, 2012 for FY 2014.
------------------------------------------------------------------------

    Comment: Some commenters provided suggestions regarding waivers for 
hospitals located in areas that experience disasters or other 
extraordinary circumstances. One commenter suggested that CMS establish 
a formal waiver process for disaster or other extraordinary 
circumstances. Another commenter suggested that CMS suppress reporting 
readmission rates for the last quarter of 2012 and the first quarter of 
2013 pending analysis of potential bias in readmission rates due to 
Hurricane Sandy.
    Response: We appreciate the suggestions to establish a potential 
exception process from the Hospital Readmissions Reduction Program for 
hospitals located in areas that experience disasters or other 
extraordinary circumstances. We did not make any proposals related to a 
waiver process for the Hospital Readmissions Reduction Program in the 
proposed rule. Therefore, these comments are outside the scope of the 
provisions of the proposed rule. There are several policy and 
operational considerations in developing an exception process for 
extraordinary circumstances (such as natural disasters) for the 
Hospital Readmissions Reduction Program. If we consider implementing an 
exception application and approval process for hospitals located in 
areas that experience disasters or other extraordinary circumstances, 
we will propose that process through notice-and-comment rulemaking.
h. Clarification of Reporting Hospital-Specific Information, Including 
Opportunity To Review and Submit Corrections
    In the FY 2013 IPPS/LTCH PPS final rule, we finalized our policy 
for the public reporting of the information for this program as well as 
providing hospitals with an opportunity to review and submit 
corrections to the information prior to public reporting. For FY 2014, 
we did not propose changes to the reporting, review, and submittal of 
corrections policy and the regulatory text that we finalized in the FY 
2013 IPPS/LTCH final rule (77 FR 53399 through 53401). However, we wish 
to clarify that requests to incorporate claims previously billed under 
a different CMS Certification Number (CCN) by recently acquired 
entities into calculations for a particular CCN will not be considered. 
This is because the particular CCN was not responsible for the patients 
under the other CCN prior to the hospital merger at the time of 
service.
    Comment: One commenter suggested that CMS make all data used in 
measure calculations available so hospitals can replicate readmissions 
and perform an independent analysis.
    Response: In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53401), we 
finalized the policies of providing applicable hospitals with: ``(1) a 
period of 30 days to review and submit corrections for their excess 
readmission ratios for the Hospital Readmissions Reduction Program; and 
(2) confidential reports and accompanying confidential discharge-level 
information (this includes the excess readmission ratios, the risk-
factors for the discharges that factor into the calculation of the 
excess readmission ratio, as well as information about the readmissions 
associated with these discharges.''
    After consideration of the public comments received, for the review 
and correction process, we are finalizing additional clarification on 
what constitutes a correction for the Hospital Readmissions Reduction 
Program. Specifically, requests to incorporate claims previously billed 
under a different CMS Certification Number (CCN) by recently acquired 
entities into calculations for a particular CCN shall not be considered 
a correction under the Hospital Readmissions Reduction Program.

H. Hospital Value-Based Purchasing (VBP) Program

1. Statutory Background
    Section 1886(o) of the Act, as added by section 3001(a)(1) of the 
Affordable Care Act, requires the Secretary to establish a hospital 
value-based purchasing program (the Hospital Value-Based Purchasing 
(VBP) Program) under which value-based incentive payments are made in a 
fiscal year to hospitals that meet 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 states that the Hospital VBP 
Program applies to payments for hospital discharges occurring on or 
after October 1, 2012. In accordance with section 1886(o)(6)(A) of the 
Act, we are required to make value-based incentive payments under the 
Hospital VBP Program to hospitals that meet or exceed performance 
standards for a performance period for a fiscal year. As further 
required by section 1886(o)(6)(C)(ii)(I) of the Act, we base each 
hospital's value-based payment percentage on the hospital's Total 
Performance Score (TPS) for a specified performance period. In 
accordance with section 1886(o)(7) of the Act, the total amount 
available for value-based incentive payments for a fiscal year will be 
equal to the total amount of the payment reductions for all 
participating hospitals for such fiscal year, as estimated by the 
Secretary. For FY 2013, the available funding pool was equal to 1.00 
percent of the base-operating DRG payments to all participating 
hospitals, as estimated by the Secretary, and the size of the 
applicable percentage will increase to 1.25 percent for FY 2014, 1.50 
percent for FY 2015, 1.75 percent for FY 2016, and 2.0 percent for FY 
2017 and successive fiscal years.
    Section 1886(o)(1)(C) of the Act generally defines the term 
``hospital'' for purposes of the Hospital VBP Program as a subsection 
(d) hospital (as that term is 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 has 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 that apply to the hospital 
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.
    Comment: Several commenters opposed the increased reduction to the 
base operating DRG payment amount for FY 2014 because they believed 
that the measures under the Hospital VBP Program were not adequately 
risk-adjusted.

[[Page 50677]]

    Response: As noted above, the 1.25 percent reduction to base 
operating DRG payment amounts for FY 2014 is required by statute. It is 
a part of the gradual increase to 2.0 percent by 2017 in the applicable 
percent used to fund value-based incentive payments under the Hospital 
VBP Program.
    Comment: One commenter asked whether CMS could combine all CMS 
incentive payment program adjustments that affect payment to subsection 
(d) hospitals under the IPPS into one aggregate annual percent update 
(APU) adjustment.
    Response: While we appreciate the complexity of the multiple 
payment adjustments that are applicable to hospitals under various 
incentive payment programs, we are unable to combine the Hospital IQR 
Program, Hospital VBP Program, HAC Reduction Program, and Hospital 
Readmissions Reduction Program adjustments into one aggregate 
adjustment to the APU, because by law, they affect different portions 
of the Medicare payment made to subsection (d) hospitals under the 
IPPS. The Hospital IQR Program adjustment is made to the applicable 
percentage increase that applies to the standardized amount (referred 
to by the commenters as the APU), the HAC adjustment is a percentage 
reduction to the amount otherwise payable under the IPPS, and the 
Hospital VBP and Hospital Readmissions Reduction Programs' adjustments 
are made to the base operating DRG payment amount. We also believe that 
it is useful for hospitals to be able to distinguish the effect of each 
program, so that they can focus their resources for improvement.
2. Overview of the FY 2013 Hospital VBP Program
    In April 2011, we issued the Hospital Inpatient VBP Program final 
rule to implement section 1886(o) of the Act (76 FR 26490 through 
26547). As described more fully in that final rule, for the FY 2013 
Hospital VBP Program, we adopted 13 measures, including 12 clinical 
process of care measures and 8 dimensions from the Hospital Consumer 
Assessment of Healthcare Providers and Systems Survey (HCAHPS) measure 
that we categorized into two domains (76 FR 26495 through 26511). We 
grouped the 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), and performance standards on which hospital 
performance would be evaluated. To determine whether a hospital meets 
or exceeds the performance standards for these measures, we assessed 
each hospital's achievement during this specified performance period, 
as well as its improvement during this period as compared with its 
performance during a 3-quarter baseline period from July 1, 2009 
through March 31, 2010 (76 FR 26493 through 26495).
    We then calculated a TPS 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 were clinical process of care 
= 70 percent, patient experience of care = 30 percent), and adding 
together the weighted domain scores. We converted each hospital's TPS 
into a value-based incentive payment percentage using a linear exchange 
function and then converted the value-based incentive payment 
percentage into a per discharge value-based incentive payment amount. 
We incorporated the reduction to each hospital's base operating DRG 
payment amount for each discharge, as well as the value-based incentive 
payment amounts that the hospital earned as a result of its performance 
(if applicable) into our claims processing systems in January 2013, and 
these adjustments applied to FY 2013 discharges.
    We finalized the Hospital VBP Program's payment adjustment 
calculation methodology, including codifying certain definitions 
related to the program, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53569 through 53571). We also finalized our methodology for estimating 
the total amount available for value-based incentive payments in a 
fiscal year under the Hospital VBP Program (77 FR 53571 through 53573), 
our methodology to calculate the value-based incentive payment 
adjustment factor (77 FR 53573 through 53576), the delayed application 
of the base-operating DRG payment amount reduction for FY 2013 
discharges until incorporation of the value-based incentive payment 
adjustments into our claims processing system (77 FR 53577), and our 
process for reducing the base-operating DRG payment amount and applying 
the value-based incentive payment adjustment for FY 2013 (77 FR 53577 
through 53578).
    We refer readers to the Hospital Inpatient VBP Program final rule 
(76 FR 26490 through 26547), the CY 2012 OPPS/ASC final rule with 
comment period (76 FR 74527 through 74547) and the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53567 through 53614) for further explanation of 
the details of the FY 2013 Hospital VBP Program and our other finalized 
policies related to future fiscal years.
    We received a number of general comments on the proposed rule 
related to the Hospital VBP Program.
    Comment: Commenters requested that CMS begin the Hospital VBP 
demonstration programs authorized by the Affordable Care Act for small 
hospitals and critical access hospitals as soon as possible.
    Response: We thank commenters for this input. We intend to begin 
those demonstrations as soon as is feasible within our planning and 
resource constraints.
    Comment: Commenters were concerned about the level of risk-
adjustment in use under the Hospital VBP Program, arguing that 
adjusting only for patients' age, illness severity, and for geographic 
payment adjustments is insufficient, particularly for urban and safety-
net hospitals.
    Response: We disagree. We believe that the Hospital VBP Program has 
adopted measures that incorporate risk-adjustment where appropriate, 
and we further believe that the risk-adjusted measures we have adopted 
for the Hospital VBP Program properly take into account hospital 
characteristics that impact the delivery of high-quality patient care.
    Comment: Commenters requested that CMS post Hospital VBP Program 
performance information on the Hospital Compare Web site as soon as 
possible. Commenters noted, for example, that CMS has not yet posted 
any quantitative values for the PSI-90 measure on the Web site, even 
though the measure has been finalized for the FY 2015 Hospital VBP 
Program and proposed for inclusion in the HAC Reduction Program.
    Response: In addition to the PSI-90 performance data that we have 
published on the Hospital Compare Web site in the past, we have also 
posted PSI-90 quantitative data on our data.medicare.gov Web site 
(https://data.medicare.gov/data/hospital-compare) as part of the 
Hospital IQR Program's public reporting display. We note that the July 
2013 update for this measure was suppressed on this Web site, but we 
anticipate updating the quantitative data later in 2013. We intend to 
continue posting performance data for each fiscal year on the Web site, 
including scoring information on PSI-90 for the FY 2015 Hospital VBP 
Program, in the future.

[[Page 50678]]

3. FY 2014 Payment Details
    Section 1886(o)(7)(B) of the Act instructs the Secretary to reduce 
the base operating DRG payment amount for a hospital for each discharge 
in a fiscal year by an applicable percent. Under section 1886(o)(7)(A) 
of the Act, the sum total of these reductions in a fiscal year must 
equal the total amount available for value-based incentive payments for 
all eligible hospitals for the fiscal year, as estimated by the 
Secretary. We finalized details on how we would implement these 
provisions in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53571 through 
53573), and refer readers to that final rule for more details.
    Under section 1886(o)(7)(c)(ii) of the Act, the applicable percent 
for the FY 2014 Hospital VBP Program is 1.25 percent. In the FY 2014 
IPPS/LTCH PPS proposed rule (78 FR 27607), we estimated that the total 
amount available for value-based incentive payments for FY 2014 is $1.1 
billion, based on the December 2012 update of the FY 2012 MedPAR file. 
We stated that we intended to update this estimate for the final rule, 
using the March 2013 update of the FY 2012 MedPAR file. Based on the 
March 2013 update of the FY 2012 MedPAR file, we continue to estimate 
that the amount available for value-based incentive payments for FY 
2014 is $1.1 billion.
    As finalized in the FY 2013 IPPS/LTCH PPS final rule, as referenced 
above, we will utilize a linear exchange function to translate this 
estimated amount available into a value-based incentive payment 
percentage for each hospital, based on its TPS. We will then calculate 
a value-based incentive payment adjustment factor which will be applied 
to the base operating DRG payment amount for each discharge occurring 
in FY 2014, on a per-claim basis. We published proxy value-based 
incentive payment adjustment factors in Table 16 of the FY 2014 IPPS/
LTCH PPS proposed rule (which is available on the CMS Web site). The 
proxy factors are based on the TPSs from the FY 2013 Hospital VBP 
Program. These FY 2013 performance scores are the most recently 
available performance scores that hospitals have been given the 
opportunity to review and correct. We stated that the slope of the 
linear exchange function used to calculate those proxy value-based 
incentive payment adjustment factors was 1.8362446088. This slope, 
along with the estimated amount available for value-based incentive 
payments, was also published in Table 16. As we indicated in the FY 
2014 IPPS/LTCH PPS proposed rule (78 FR 27607), we are updating this 
table, as Table 16A, in this final rule (which is available on the CMS 
Web site) to reflect changes based on the March 2013 update to the FY 
2012 MedPAR file. The slope of the linear exchange function used to 
calculate those updated proxy value-based incentive payment adjustment 
factors is 1.8363321306. The updated proxy value-based incentive 
payment adjustment factors for FY 2014 continue to be based on historic 
FY 2013 Program TPSs because hospitals will not have been given the 
opportunity to review and correct their actual TPSs for the FY 2014 
Hospital VBP Program until after the final rule is published. After 
hospitals have been given an opportunity to review and correct their 
actual TPSs for FY 2014, we will add a new table, Table 16B (which will 
be available on the CMS Web site) to display the actual value-based 
incentive payment adjustment factors, exchange function slope, and 
estimated amount available for the FY 2014 Hospital VBP Program. We 
expect that Table 16B will be posted on the CMS Web site in October 
2013.
4. FY 2014 Hospital VBP Program Measures
    For FY 2014, we adopted 17 measures for the Hospital VBP Program, 
including the 12 clinical process of care measures and the HCAHPS 
measure that we adopted for the FY 2013 Hospital VBP Program, 1 new 
clinical process of care measure (SCIP-Inf-9: Postoperative Urinary 
Catheter Removal on Postoperative Day 1 or 2), and 3 mortality outcome 
measures (Acute Myocardial Infarction (AMI) 30-Day Mortality Rate, 
Heart Failure (HF) 30-Day Mortality Rate, Pneumonia (PN) 30-Day 
Mortality Rate). The clinical process of care, HCAHPS, and mortality 
measures are discussed in more detail in the Hospital Inpatient VBP 
Program final rule (76 FR 26510 through 26511) and SCIP-Inf-9 is 
discussed in more detail in the CY 2012 OPPS/ASC final rule with 
comment period (76 FR 74530).
    We previously adopted 8 HAC measures, 2 AHRQ composite measures, 
and a Medicare Spending per Beneficiary (MSPB) measure for the FY 2014 
Hospital VBP Program, then suspended the effective dates of these 
measures, with the result that these measures were not included in the 
FY 2014 Hospital VBP Program (76 FR 74528 through 74530). However, as 
discussed further below, we finalized adoption of a MSPB measure and an 
AHRQ composite measure for the FY 2015 Hospital VBP Program in the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53582 through 53592).
    Set out below is a complete list of the measures we adopted for the 
FY 2014 Hospital VBP Program:

     Finalized Quality Measures for the FY 2014 Hospital VBP Program
------------------------------------------------------------------------
                 Measure ID                       Measure description
------------------------------------------------------------------------
                    Clinical Process of Care Measures
------------------------------------------------------------------------
Acute myocardial infarction:
    AMI-7a..................................  Fibrinolytic Therapy
                                               Received Within 30
                                               Minutes of Hospital
                                               Arrival.
    AMI-8a..................................  Primary PCI Received
                                               Within 90 Minutes of
                                               Hospital Arrival.
Heart Failure:
    HF-1....................................  Discharge Instructions.
Pneumonia:
    PN-3b...................................  Blood Cultures Performed
                                               in the Emergency
                                               Department Prior to
                                               Initial Antibiotic
                                               Received in Hospital.
    PN-6....................................  Initial Antibiotic
                                               Selection for CAP in
                                               Immunocompetent Patient.
Healthcare-associated infections:
    SCIP-Inf-1..............................  Prophylactic Antibiotic
                                               Received Within One 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.
    SCIP-Inf-4..............................  Cardiac Surgery Patients
                                               with Controlled 6AM
                                               Postoperative Serum
                                               Glucose.
    SCIP-Inf-9..............................  Postoperative Urinary
                                               Catheter Removal on Post
                                               Operative Day 1 or 2.
Surgeries:

[[Page 50679]]

 
    SCIP-Card-2.............................  Surgery Patients on a Beta
                                               Blocker Prior to Arrival
                                               That Received a Beta
                                               Blocker During the
                                               Perioperative Period.
    SCIP-VTE-1..............................  Surgery Patients with
                                               Recommended Venous
                                               Thromboembolism
                                               Prophylaxis Ordered.
    SCIP-VTE-2..............................  Surgery Patients Who
                                               Received Appropriate
                                               Venous Thromboembolism
                                               Prophylaxis Within 24
                                               Hours Prior to Surgery to
                                               24 Hours After Surgery.
------------------------------------------------------------------------
                   Patient Experience of Care Measures
------------------------------------------------------------------------
HCAHPS......................................  Hospital Consumer
                                               Assessment of Healthcare
                                               Providers and Systems
                                               Survey*.
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
MORT-30-AMI.................................  Acute Myocardial
                                               Infarction (AMI) 30-Day
                                               Mortality Rate.
MORT-30-HF..................................  Heart Failure (HF) 30-Day
                                               Mortality Rate.
MORT-30 PN..................................  Pneumonia (PN) 30-Day
                                               Mortality Rate.
------------------------------------------------------------------------
* The finalized dimensions of the HCAHPS survey for use in the FY 2014
  Hospital VBP Program are: Communication with Nurses, Communication
  with Doctors, Responsiveness of Hospital Staff, Pain Management,
  Communication about Medicines, Cleanliness and Quietness of Hospital
  Environment, Discharge Information and Overall Rating of Hospital.
  These are the same dimensions that we adopted for the FY 2013 Hospital
  VBP Program.

5. FY 2015 Hospital VBP Program Measures
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53582 through 
53592), we adopted 12 Clinical Process of Care measures, one Patient 
Experience of Care measure in the form of the HCAHPS survey, 5 Outcome 
measures, including three 30-day mortality measures, the AHRQ PSI 
composite measure, and the CLABSI measure, and one Efficiency measure 
for the FY 2015 Hospital VBP Program.
    We did not adopt two clinical process measures (SCIP-Inf-10 and 
AMI-10) that we determined were ``topped-out'' according to our 
criteria finalized in the Hospital Inpatient VBP Program final rule (76 
FR 26496 through 26497). We also did not adopt SCIP-VTE-1 for the FY 
2015 Hospital VBP Program because we believed that the measure is very 
similar to another measure we have adopted for the program (SCIP-VTE-2) 
and, in our view, is not as closely linked to better surgical outcomes 
because it assesses the ordering of VTE prophylaxis, rather than the 
patient's actual receipt of such prophylaxis within 24 hours of 
surgery. We also noted that, during a recent maintenance review of 
SCIP- VTE-1, the National Quality Forum (NQF) concluded that it would 
no longer endorse this measure.
    Set out below is a complete list of the measures we adopted for the 
FY 2015 Hospital VBP Program:

       Finalized Quality Measures for FY 2015 Hospital VBP Program
------------------------------------------------------------------------
                 Measure ID                       Measure description
------------------------------------------------------------------------
                    Clinical Process of Care Measures
------------------------------------------------------------------------
AMI-7a......................................  Fibrinolytic Therapy
                                               Received Within 30
                                               Minutes of Hospital
                                               Arrival.
AMI-8a......................................  Primary PCI Received
                                               Within 90 Minutes of
                                               Hospital Arrival.
HF-1........................................  Discharge Instructions.
PN-3b.......................................  Blood Cultures Performed
                                               in the Emergency
                                               Department Prior to
                                               Initial Antibiotic
                                               Received in Hospital.
PN-6........................................  Initial Antibiotic
                                               Selection for CAP in
                                               Immunocompetent Patient.
SCIP-Inf-1..................................  Prophylactic Antibiotic
                                               Received Within One 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.
SCIP-Inf-4..................................  Cardiac Surgery Patients
                                               with Controlled 6AM
                                               Postoperative Serum
                                               Glucose.
SCIP-Inf-9..................................  Urinary Catheter Removed
                                               on Postoperative Day 1 or
                                               Postoperative Day 2.
SCIP-Card-2.................................  Surgery Patients on Beta-
                                               Blocker Therapy Prior to
                                               Arrival Who Received a
                                               Beta-Blocker During the
                                               Perioperative Period.
SCIP-VTE-2..................................  Surgery Patients Who
                                               Received Appropriate
                                               Venous Thromboembolism
                                               Prophylaxes Within 24
                                               Hours Prior to Surgery to
                                               24 Hours After Surgery.
------------------------------------------------------------------------
                       Patient Experience Measures
------------------------------------------------------------------------
HCAHPS*.....................................  Hospital Consumer
                                               Assessment of Healthcare
                                               Providers and Systems
                                               Survey.
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
AHRQ PSI composite..........................  Complication/patient
                                               safety for selected
                                               indicators (composite).
CLABSI......................................  Central Line-Associated
                                               Blood Stream Infection.
MORT-30-AMI.................................  Acute Myocardial
                                               Infarction (AMI) 30-day
                                               mortality rate.
MORT-30-HF..................................  Heart Failure (HF) 30-day
                                               mortality rate.
MORT-30-PN..................................  Pneumonia (PN) 30-day
                                               mortality rate.
------------------------------------------------------------------------

[[Page 50680]]

 
                           Efficiency Measures
------------------------------------------------------------------------
MSPB-1......................................  Medicare Spending per
                                               Beneficiary.
------------------------------------------------------------------------
* Dimensions of the HCAHPS survey for use in the FY 2015 Hospital VBP
  Program are: Communication with Nurses, Communication with Doctors,
  Responsiveness of Hospital Staff, Pain Management, Communication about
  Medicines, Cleanliness and Quietness of Hospital Environment,
  Discharge Information and Overall Rating of Hospital. These are the
  same dimensions of the HCAHPS survey that have been finalized for
  prior Hospital VBP Program years.

6. FY 2016 Hospital VBP Program Measures
a. Measures Previously Adopted and Removal of AMI-8a, PN-3b, and HF-1
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53592 through 
53593), we adopted for the FY 2016 Hospital VBP Program the three 30-
day mortality measures that we had finalized for the Hospital VBP 
Program for FYs 2014 and 2015. We also adopted the AHRQ patient safety 
composite (PSI-90) for the Hospital VBP Program for FY 2016. We adopted 
those measures at that time in order to adopt a longer performance 
period and collect more data for performance scoring than would be 
possible if we waited to make those proposals until this proposed rule. 
We also adopted those measures at that time because we recognized that 
under section 1886(o)(3)(C) of the Act, we must establish and announce 
performance standards not later than 60 days prior to the beginning of 
the performance period for the fiscal year involved. We also 
automatically readopted the remaining FY 2015 measures (with the 
exception of the CLABSI measure), in accordance with our policy of 
automatic readoption of measures (77 FR 53592).
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27609), we 
proposed to remove three measures from the measure set previously 
adopted that we have discussed above. First, we analyzed the clinical 
process of care measures for ``topped out'' status and concluded that 
AMI-8a: Primary PCI Received within 90 Minutes of Hospital Arrival is 
``topped-out.'' Our methodology for evaluating whether a measure is 
topped-out focuses on two criteria: (1) National measure data show 
statistically indistinguishable performance levels at the 75th and 90th 
percentiles; and (2) national measure data show a truncated coefficient 
of variation (TCV) less than 0.10. We believe that topped-out measures 
should not be included in the Hospital VBP Program because measuring 
hospital performance on those measures has no meaningful effect on a 
hospital's TPS. Therefore, in the FY 2014 IPPS/LTCH PPS proposed rule 
we proposed to remove AMI-8a from the FY 2016 Hospital VBP Program 
measure set.
    We welcomed public comments on our proposal to remove AMI-8a from 
the FY 2016 Hospital VBP Program measure set and on whether any other 
existing Hospital VBP Program measures are topped-out and, therefore, 
should be removed from the previously adopted FY 2016 measure set. We 
stated our intent to update our topped-out analysis using the most 
recently available data and to announce in the FY 2014 IPPS/LTCH PPS 
final rule whether any of the other FY 2016 measures will be removed 
due to topped-out status.
    We completed an analysis of the proposed and readopted Clinical 
Process of Care measures based on CY 2012 data. We have concluded that, 
in addition to AMI-8a discussed above, SCIP-Inf-1 now meets our 
criteria for being ``topped out,'' and we will therefore remove the 
measure for FY 2016 and subsequent years.
    Second, we proposed to remove PN-3b, Blood Cultures Performed in 
the Emergency Department Prior to Initial Antibiotic Received in 
Hospital, and HF-1, Discharge Instructions, from the FY 2016 Hospital 
VBP Program. Both PN-3b and HF-1 are no longer endorsed by the NQF, and 
we noted that in its 2013 Pre-Rulemaking Report, the Measure 
Applications Partnership (MAP) did not recommend those measures for use 
in the Hospital VBP Program.
    As of February 28, 2012, the NQF Pneumonia Thoracic CT Work Group 
of the Pulmonary and Critical Care Endorsement Maintenance Project 
believed there was insufficient evidence that performing blood cultures 
prior to initiation of antibiotics led to better outcomes. The 
workgroup also cited significant issues with documentation of the 
timing of the blood cultures with respect to the initiation of the 
antibiotics. Documentation is often done retrospectively providing 
opportunities for data entry errors. The issue is compounded with EHRs 
as data entry is electronically time-stamped and may not accurately 
indicate when blood cultures were drawn or antibiotics given. Although 
the measure is currently chart-abstracted, the data might be abstracted 
from an EHR, instead of from a paper record.
    We noted further that NQF reviewed HF-1 during the summer of 2012. 
The NQF Steering Committee determined that there was insufficient 
evidence to link the HF-1 measure of discharge instructions with better 
outcomes. The committee noted that discharge instructions, as measured 
by HF-1, did not cover several important issues, including patient 
understanding of the instructions and their appropriateness for 
patients' education and literacy levels.
    Therefore, we stated that we do not believe that these measures 
appropriately capture relevant inpatient quality information for 
purposes of the Hospital VBP Program, and, as indicated above, we 
proposed to remove them from the FY 2016 Hospital VBP Program.
    We welcomed public comments on our proposals on removing measures 
from the FY 2016 Hospital VBP Program.
    Comment: Many commenters supported the proposal to remove AMI-8a, 
HF-1, and PN-3b from the FY 2016 Hospital VBP Program.
    Response: We thank commenters for their support.
    Comment: Some commenters expressed concern about the proposals not 
to adopt ``topped out'' measures, arguing that CMS had not proposed to 
monitor performance on these measures to ensure that it does not 
decrease. Other commenters argued that CMS should not remove AMI-8a 
from the measure set due to its importance to quality improvement 
efforts and its adoption by The Joint Commission.
    Response: We appreciate commenters' concerns. However, as we 
indicated in the Hospital Inpatient VBP Program final rule (76 FR 
26496), we believe that measuring hospital performance on topped-out 
measures would have no meaningful effect on a hospital's total 
performance score. We therefore do not

[[Page 50681]]

believe it is appropriate to adopt Clinical Process of Care measures 
for the Hospital VBP Program when they are ``topped out'' according to 
our finalized criteria. However, we intend to continue to work with 
quality measurement stakeholders to ensure that performance on measure 
topics covered by ``topped out'' measures does not drop significantly.
    Comment: Some commenters supported the proposal to remove HF-1 from 
the FY 2016 measure set, but expressed concern about the numerous heart 
failure measures that are no longer included in the program. Commenters 
urged CMS to work with stakeholders to develop and implement more heart 
failure measures.
    Response: We thank commenters for the suggestion, and intend to 
continue working with stakeholders to develop robust quality measures, 
particularly in areas of clinical need.
    Comment: Some commenters expressed concerns about the proposal not 
to adopt HF-1 for the FY 2016 Program. Commenters noted that the STK-8 
measure requires similar discharge processes for the stroke patient 
population, but was not proposed for removal. Commenters argued that 
any lack of evidence linking hospital discharge processes to patient 
outcomes should apply to both measures.
    Response: We thank commenters for the input, but note that STK-8 
has never been proposed or adopted for the Hospital VBP Program. As 
discussed above, our proposal not to adopt HF-1 for FY 2016 is based in 
part on NQF's review of the measure, which concluded that there is 
insufficient evidence to link it with better outcomes. We will consider 
any such reviews of STK-8 in rulemaking on the Hospital IQR Program.
    Comment: Some commenters expressed specific support for the 
proposal not to adopt HF-1 for the FY 2016 Hospital VBP Program. 
Commenters suggested that CMS consider adopting a measure of post-
discharge appointments for heart failure patients, which commenters 
noted will be submitted to NQF during its next call for cardiovascular 
measures. Commenters further suggested that CMS consider additional 
measures in this clinical area, including beta blocker therapy for left 
ventricular systolic dysfunction and time to intravenous thrombolytic 
therapy. One commenter also argued that diligence on the measure has 
not improved outcomes for heart failure patients.
    Response: We thank commenters for these suggestions. Under section 
1886(o)(2)(A) of the Act, the Hospital VBP Program may only adopt 
measures that have been specified under the Hospital IQR Program. We 
will consider these measure topics in the future if they become 
available to us under the Hospital VBP Program's statutory 
requirements.
    We did not receive any comments on our intention to update the 
``topped-out'' analysis using the most recent data. After consideration 
of the public comments we received, we are finalizing our proposal to 
remove AMI-8a, HF-1, PN-3b, and SCIP-Inf-1 from the FY 2016 Hospital 
VBP Program.
b. New Measures for the FY 2016 Hospital VBP Program
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27609 through 
27611), we considered if we should adopt additional measures for the FY 
2016 Hospital VBP Program. We considered what measures are eligible for 
adoption based on the statutory requirements, including specification 
under the Hospital IQR Program and posting dates on the Hospital 
Compare Web site, as well as our priorities for quality improvement as 
outlined in the National Quality Strategy, which is available for 
download at http://www.healthcare.gov/news/reports/nationalqualitystrategy032011.pdf.
    We stated that we believe the following measures meet the statutory 
requirements for inclusion in the Hospital VBP Program. We also stated 
that we believe that these measures represent important components of 
quality improvement in the acute inpatient hospital setting.
    Influenza Immunization (IMM-2, NQF 1659) is a chart-
abstracted prevention measure that addresses acute care hospitalized 
inpatients age 6 months or older who were screened for seasonal 
influenza immunization status and were vaccinated prior to discharge, 
if indicated. We believe this measure is important to quality 
improvement efforts because about 36,000 adults die and over 200,000 
are hospitalized annually for flu-related causes. Older adults are more 
vulnerable to influenza, and adults over age 65 comprise about 90 
percent of deaths related to flu. Vaccinations can significantly reduce 
the number of flu-related illnesses and deaths.
    This measure was incorporated into the Hospital IQR Program for FY 
2014 in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50211), and data 
collection began with January 1, 2012 discharges. Measure data were 
posted on Hospital Compare on December 13, 2012, and MAP supported its 
inclusion in the Hospital VBP Program in its February 2013 report 
(available at http://www.qualityforum.org/Publications/2013/02/MAP_
Pre-Rulemaking_Report__-February_2013.aspx), noting that it 
addresses a high-impact condition not adequately addressed in the 
program's current measure set. Therefore, we proposed to adopt IMM-2 
into the Clinical Process of Care domain for the FY 2016 Hospital VBP 
Program.
    Comment: Numerous commenters urged CMS strongly to finalize the 
proposal to adopt IMM-2, congratulating CMS on recognizing the value of 
immunization measures. Commenters also suggested that CMS consider 
other preventative measures, such as immunizations for diphtheria, 
tetanus, and pertussis for patients during inpatient stays. Some 
commenters suggested that the IMM-2 measures should be inclusive of all 
influenza vaccinations available to patients and clinicians today.
    Response: We thank commenters for their support. As described 
above, we will consider new measures for the Hospital VBP Program as 
they become available to us under the statutory requirements. We will 
consider comments on the specific vaccinations that should count 
towards the IMM-2 measure as we continue working with measure 
developers to refine quality measures.
    Comment: Some commenters opposed adoption of IMM-2, arguing that 
many patients receive this immunization prior to hospital admission, 
complicating its measurement by participating hospitals.
    Response: The IMM-2 measure does not require that all patients be 
immunized, but rather, that they ``are screened for seasonal influenza 
immunization status and were vaccinated prior to discharge if 
indicated.'' We believe that screening patients for appropriate 
immunizations is an important component of care provided during acute 
hospitalizations.
    After consideration of the public comments we received, we are 
finalizing our proposal to adopt IMM-2 for the FY 2016 Hospital VBP 
Program.
    Catheter-Associated Urinary Tract Infection (CAUTI, NQF 
0138) is an HAI measure reported via CDC's National Healthcare 
Safety Network (NHSN). This measure is important to quality improvement 
efforts because the urinary tract is the most common site of HAIs, 
accounting for more than 30 percent of infections reported by acute 
care hospitals. Complications associated with CAUTI cause discomfort to 
patients, prolonged hospital stays, increased costs, and mortality. 
More

[[Page 50682]]

than 13,000 deaths each year are associated with UTIs.
    This measure was finalized for the Hospital IQR Program in the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51617 through 51618), and data 
collection began with January 1, 2012 discharges. Measure data were 
posted on Hospital Compare on December 13, 2012, and MAP supported its 
inclusion in the Hospital VBP Program in its February 2013 report, 
noting that it addresses the National Quality Strategy (NQS) priorities 
not adequately addressed in the program's current measure set. 
Therefore, we proposed to adopt the NHSN CAUTI measure into the Outcome 
domain for the FY 2016 Hospital VBP Program.
    Surgical Site Infection (SSI, NQF 0753) is an HAI measure 
reported via CDC's NHSN. As currently specified under the Hospital IQR 
Program, the measure is restricted to colon procedures, including 
incision, resection, or anastomosis of the large intestine, and large-
to-small and small-to-large bowel anastomosis, and abdominal 
hysterectomy procedures, including those done by laparoscope. The 
measure is reported separately on Hospital Compare for those two 
surgery sites, and does not include rectal operations.
    This measure was incorporated into the Hospital IQR Program in the 
FY 2011 IPPS/LTCH PPS final rule (75 FR 50211), and data collection 
began with January 1, 2012 discharges. Measure data were posted on 
Hospital Compare on December 13, 2012, and MAP supported its inclusion 
in the Hospital VBP Program in its February 2013 report, noting that it 
addresses NQS priorities not adequately addressed in the program's 
current measure set. The SSI measure was stratified by surgery site 
when it was adopted for the Hospital IQR Program, and is both collected 
and publicly reported as a stratified measure. However, because we 
adopted SSI as one measure under the Hospital IQR Program, in the FY 
2014 IPPS/LTCH PPS proposed rule (78 FR 27610), we proposed to score 
the measure for purposes of the Hospital VBP Program as a weighted 
average of the measure's strata by applicable cases per stratum. Under 
this proposed scoring methodology, if a hospital meets the Hospital IQR 
Program's threshold for public display of its SSI measure strata scores 
during a Hospital VBP performance period--that is, at least one 
predicted infection during the applicable time period--we will 
calculate a weighted average of the measure's strata to score under the 
Hospital VBP Program.
    We stated our belief that this proposal enables us to score 
participating hospitals on the underlying components of the SSI measure 
fairly. We noted further that, for purposes of calculating performance 
standards displayed subsequently, we would equally weight the SSI 
measure's strata. We sought public comment on our proposed adoption of 
this measure and its proposed scoring methodology under the Hospital 
VBP Program.
    We adopted the NHSN-based CLABSI measure in the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53583), and refer readers to that regulation for 
further discussion of the measure. We stated that we continue to 
believe that the CLABSI measure is consistent with the Hospital VBP 
Program's statutory requirement that we consider measures of HAIs for 
the FY 2013 Hospital VBP Program's measure set. We also noted that the 
measure was included in the HHS Action Plan to Prevent HAIs, which is 
referenced in section 1886(o)(2)(B)(i)(I)(ee) of the Act.
    In the FY 2013 IPPS/LTCH PPS final rule, we stated that we would 
not automatically readopt CLABSI for the FY 2016 Program (77 FR 53592), 
although we stated our intent to adopt the measure in the future. We 
did not automatically readopt CLABSI because we understood that CDC was 
planning to submit a revised version of this measure to NQF for 
endorsement, and that there may have been substantive changes to the 
measure associated with reliability adjustment to the standardized 
infection ratio.
    The reliability-adjusted standardized infection ratio (SIR) is an 
outcome measure that summarizes the healthcare-associated infection 
experience by type of infection (for example, central-line associated 
bloodstream infection, surgical site infection) for individual 
hospitals. The reliability-adjusted measure enables more meaningful 
statistical differentiation between hospitals by accounting for 
differences in patient case-mix, exposures to medical devices or 
procedures (for example, central line-days, surgical procedure volume), 
and unmeasured factors that are not reflected in the unadjusted SIR and 
that cause variation in outcomes between hospitals. Accounting for 
these sources of variability enables better measure discrimination 
between hospitals and leads to more reliable quality measurements.
    We stated that we are aware the CDC has submitted the reliability-
adjusted version of the CLABSI measure to the NQF for endorsement. We 
noted further that, in its February 2013 report, MAP recommended 
adoption of the reliability-adjusted CLABSI measure ``contingent on NQF 
endorsement,'' and noted that the ``most recent NQF-endorsed version 
should be applied.'' We stated our belief that our proposal to adopt 
the current CLABSI measure is consistent with this recommendation, and 
we stated our intent to consider adopting the reliability-adjusted 
CLABSI measure in future rulemaking.
    We stated our intent to monitor CDC's activity on this measure, 
particularly as it moves toward reliability adjustment, and intent to 
adopt the revised measure in future program years. However, in the 
absence of NQF endorsement of the reliability-adjusted measure, unless 
and until the Hospital IQR Program adopts the reliability adjustments, 
in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27610 through 27611), 
we proposed to adopt the CLABSI measure as it currently exists into the 
Outcome domain for the FY 2016 Hospital VBP Program.
    Comment: Some commenters noted that NHSN has initiated a CAUTI 
review and revision process, and requested that CMS reconsider its 
proposal to adopt the measure until that process has been completed.
    Response: We do not agree with the commenters' suggestion. We 
intend to monitor any changes made to the CAUTI measure, or any other 
measures that we have proposed for the program. However, we believe 
strongly that hospitals must be encouraged through the Hospital VBP 
Program to minimize infection events that present significant health 
risks to patients. We also believe that the CAUTI measure provides 
information critical to this quality improvement effort by tracking 
infection events.
    Comment: Commenters requested that CMS clarify whether or not it 
will include CAUTI's expansion into non-ICU settings in the Hospital 
VBP Program.
    Response: We may consider adopting the expanded CAUTI measure in 
future rulemaking. If we decide to adopt the expanded measure, we will 
do so in accordance with the Hospital VBP Program's statutory 
requirements.
    Comment: Some commenters requested that CMS consider revising the 
CAUTI measure before adopting it for the Hospital VBP Program, and 
argued that the measure should exclude certain patients and should 
allow doctors some discretion in catheter removal in order to avoid 
complications. Commenters also argued that CAUTI has not been subject 
to sufficient data validation and that the

[[Page 50683]]

measure has undergone definition changes effective January 1, 2013.
    Response: We disagree. As described above, we believe that CAUTI is 
an important measure for patient safety and quality improvement 
efforts. CAUTI addresses an NQS priority, and has been recommended for 
adoption into the Hospital VBP Program by the MAP. Further, the 
Hospital VBP Program awards value-based incentive payments based on 
data submitted through the Hospital IQR Program. The Hospital VBP 
Program is therefore dependent on Hospital IQR data, and unless and 
until the CAUTI measure is revised under Hospital IQR, we do not 
believe it to be appropriate to revise it under the Hospital VBP 
Program. We also believe that the CAUTI measure, as currently 
structured, is sufficiently reliable for scoring purposes under the 
Hospital VBP Program.
    Comment: Some commenters expressed support for the continued 
adoption of the NHSN CLABSI measure, as well as adoption of the NHSN 
CAUTI and SSI measures. Commenters further stated their support for the 
proposal to stratify the SSI measure for reporting and scoring 
purposes. Commenters requested that CMS work with CDC to ensure that 
performance data for these measures are made available to facilities as 
soon as possible.
    Response: We thank commenters for their support. We intend to 
continue distributing hospitals' performance information via our 
Program's scoring reports, and hospitals should also have had a chance 
to review their data submissions through the Hospital IQR Program.
    Comment: Commenters suggested that CLABSI and CAUTI should be 
reliability-adjusted before their adoption into the Hospital VBP 
Program.
    Response: We disagree. While we understand that CDC is undertaking 
an effort to adjust its NHSN measures' reliability, we do not believe 
that we should wait for that effort to conclude before adopting these 
measures for purposes of the Hospital VBP Program. CAUTI, CLABSI, and 
SSI all track infections that present real health risks to patients, 
and we believe it is critical to quality improvement and patient safety 
to ensure that hospitals are making every possible effort to minimize 
those infection events. We believe that these measures, in their 
current forms, are sufficiently reliable for scoring purposes under the 
Hospital VBP Program. However, if the Hospital IQR Program should adopt 
reliability-adjusted versions of these measures in the future, we will 
consider how to adopt them into the Hospital VBP Program.
    Comment: Some commenters were opposed to the proposal to adopt NHSN 
measures that are also proposed for the HAC Reduction Program, arguing 
that hospitals would therefore be subjected to ``double jeopardy.'' 
Some commenters also argued that the Affordable Care Act expressly 
prohibits measure duplication between the Hospital Readmissions 
Reduction Program and the Hospital VBP Program.
    Response: Section 1886(o)(2)(A) of the Act states that, for 
purposes of the Hospital VBP Program, the Secretary ``shall select 
measures other than measures of readmissions.'' We have interpreted 
this requirement solely to prohibit the adoption of measures of 
readmissions under the Hospital VBP Program.
    While we are aware that some commenters object to the possibility 
of scoring the CAUTI and CLABSI measures under both the Hospital VBP 
and HAC Reduction Programs, we note that these measures cover topics of 
critical importance to quality improvement in the inpatient hospital 
setting, and to patient safety. The NHSN measures that we have proposed 
to adopt track infections that could cause significant health risks to 
Medicare patients, and we believe it is appropriate to provide 
incentives for hospitals to avoid them under more than one program.
    Comment: Some commenters expressed concern about the proposal to 
adopt CLABSI for the FY 2016 Hospital VBP Program, because they 
believed that there is significant variation in coding for this 
condition. Commenters requested that CMS adopt CDC's guidelines for 
identifying and reporting the CLABSI measure, and suggested that CMS 
discontinue use of the current CLABSI measure once its reliability-
adjusted version is available.
    Response: It is our understanding that the reliability-adjusted 
CLABSI measure is not currently NQF-endorsed. The MAP does not 
recommend adopting the reliability-adjusted CLASBI measure until it has 
been endorsed by NQF. In addition, the Hospital VBP Program only uses 
measures adopted by the Hospital IQR Program, and measure data 
collected by the Hospital IQR Program. Given the importance that we 
place on measures of outcomes, as well as on the CLABSI measure's topic 
of infection events that could cause health risks to patients, we 
believe that adopting the measure as currently structured represents 
the best policy to ensure that hospitals are incentivized to provide 
high-quality care that minimizes these infections.
    Comment: Some commenters suggested that CMS align the Hospital VBP, 
HAC Reduction, and Hospital Readmissions Reduction Programs to avoid 
measure duplication. Commenters argued that some proposed Outcome 
measures are more properly placed in the HAC Reduction Program, which 
could be considered the Hospital VBP Program's Safety domain under the 
proposed realigned domains.
    Response: We disagree. While we continue to align our quality 
measurement and pay-for-performance programs in order to minimize 
provider burden and incentivize high-quality care, we do not believe it 
to be feasible at this time to treat one of our quality programs as a 
component of another quality program. We believe that it would present 
significant methodological challenges to combine performance scores 
from separate programs. However, as part of our ongoing alignment work, 
we will continue examining these issues. We note further that by 
adopting certain Outcome measures into more than one quality program, 
we believe we may encourage hospitals to focus intently on these 
measures, which we note capture information important to patient safety 
and to quality improvement efforts.
    Comment: Commenters supported the proposal to adopt the NHSN SSI 
measure, noting that it is NQF-endorsed and provides critical 
information for tracking and reducing infections. Some commenters 
cautioned, however, that it should be validated and further risk-
adjusted before being adopted under the Hospital VBP Program.
    Response: The SSI measure is risk-adjusted based on the patient's 
age and American Society of Anesthesiologists (ASA) score, a global 
score that assesses the physical status of patients before surgery. We 
refer commenters to http://www.cdc.gov/nhsn/PDFs/FINAL-ACH-SSI-Guidance.pdf for more information on risk-adjustment performed on the 
SSI measure. SSI validation is performed as part of the Hospital IQR 
Program's validation of HAI measures. We believe these risk-adjustment 
and validation processes to be sufficient for purposes of ensuring the 
accuracy of the data under the Hospital VBP Program.
    Comment: Commenters suggested that CMS consider removing SCIP-Inf-
9, Post-Operative Urinary Catheter Removal on Post-Op Day 1 or Day 2, 
from the Hospital VBP Program in favor of the proposed CAUTI measure. 
Commenters argued that the process measure is less meaningful than

[[Page 50684]]

measures of the rate of CAUTI in a hospital.
    Response: We thank commenters for the suggestion. However, SCIP-
Inf-9 is not currently ``topped out,'' meaning that hospitals have not, 
in the aggregate, reached high enough performance on the measure to 
merit removing it according to those finalized criteria. Further, we 
believe that the two measures complement each other and appropriately 
encourage hospitals to focus on performance improvement in this 
clinical area. As we stated in the Hospital Inpatient VBP Program final 
rule (76 FR 26491), we believe that public reporting and value-based 
payment systems should rely on a mix of standards, process, outcomes, 
and patient experience measures, including measures of care transitions 
and changes in patient functional status.
    Comment: Commenters argued that CMS should delay adopting the SSI 
measure for the Hospital VBP Program because the current CDC risk-
adjustment methods are insufficient to ensure fair comparisons between 
hospitals. Commenters argued that the impacts of teaching status and 
bed size should be visible to the public, and requested that CMS delay 
adopting SSI until new risk-adjustment models are validated.
    Response: As described above, the SSI measure is already risk-
adjusted, and is subject to validation under the Hospital IQR Program. 
We note further that the SSI measure addresses the HHS NQS priority of 
``Safety.'' The measure is NQF-endorsed and has been recommended for 
inclusion in the Hospital VBP Program by the MAP. We therefore believe 
that the measure will fairly represent hospitals' performance at 
controlling measured surgical site infections, and do not believe we 
should delay its adoption into the Hospital VBP Program.
    Comment: Commenters raised concerns about the proposed weighted-
average SIR calculation for SSI, noting that differences in post-
surgical surveillance programs, lacking data validation, problems with 
small volume calculations, and risk-adjustment could all present issues 
for our proposed scoring methodology. Some commenters suggested that 
CMS weight the SSI measure's strata based on national procedure volume 
for each surgical site, or that CMS weight the strata by predicted 
number of infections.
    Response: We thank commenters for their feedback. We do not believe 
that weighting the underlying SSI strata by national procedure volume 
would appropriately capture each hospital's patient mix, and could 
result in hospitals being scored unfairly. However, we concur with 
commenters' suggestions that we incorporate hospitals' predicted 
infections into our strata scoring.
    We continue to believe that we must score the SSI measure's strata 
separately, but have reconsidered our proposal to create a weighted-
average SIR based on applicable cases per stratum. In response to 
public comments, we will finalize instead a policy under which we will 
award achievement and improvement points to each stratum of the SSI 
measure, then compute a weighted average of the points awarded to each 
stratum by predicted infections. The weighted average of the points 
awarded will be the hospital's SSI measure score.
    As an example, a hospital that received 5 improvement points for 
the SSI-Colon stratum, with 1.0 predicted SSI-Colon infections, and 8 
achievement points for the SSI-Abdominal Hysterectomy stratum, with 2.0 
predicted SSI-Abdominal Hysterectomy infections, would receive a 
composite SSI measure score as follows:

((5 * 1.0) + (8 * 2.0))/(1.0 + 2.0) = 7 points

    We believe this finalized policy appropriately addresses 
commenters' concerns about creating a weighted-average SIR, and instead 
computes a weighted-average SSI score that reflects each individual 
hospital's patient mix and risk-profile.
    Comment: Commenters argued that CMS should consider expanding the 
Hospital VBP Program to include clinical topics with larger measured 
differences among hospitals. Some commenters specifically suggested 
that CMS invest in development and testing of palliative care measures 
for the hospital population to ensure that quality measurement does not 
overlook the preferences and care needs of seriously ill patients. 
Other commenters suggested that CMS consider new measures for the 
program, such as complication rates following hip and knee replacement 
and other topics. Commenters also suggested that CMS consider measures 
related to smoking cessation, immunizations, urinary incontinence, pain 
assessment, imaging resource use, and other topics.
    Response: We thank commenters for these suggestions. We intend to 
continue adding to the Hospital VBP Program's measure set as new 
measures and topics become available to us under the statutory 
requirements.
    Comment: Some commenters were opposed to further adoption of the 
AHRQ PSI composite measure for the Hospital VBP Program, citing 
concerns about non-uniform coding for its underlying indicators. 
Commenters also argued that the measure's structure makes it difficult 
for hospitals to identify the specific cases during which measured 
events occur, and noted that the MAP did not believe the measure should 
be tied to payment. Commenters further argued that the measure is not 
appropriately risk-adjusted and may exaggerate problems at hospitals 
that treat sicker or more complex patients.
    Response: We believe that adopting the AHRQ PSI composite measure 
provides strong incentives for hospitals to ensure that patients are 
not harmed by the medical care they receive, which is a critical 
consideration for quality improvement. As we stated in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53589 through 53590), we are 
particularly concerned about the effects that not finalizing the AHRQ 
PSI composite might have on hospitals' quality performance. We believe 
that the PSI measure, as a composite measure of patient safety, 
appropriately encourages robust hospital attention to patient safety 
events. As we have stated in prior rulemaking, we believe that the 
Hospital VBP Program drives quality improvement in the acute inpatient 
setting, and we believe strongly that measures of patient safety, such 
as the AHRQ PSI measure and the NHSN measures, are important metrics on 
which hospitals should focus their quality improvement efforts.
    On the subject of the PSI composite measure's risk adjustment, we 
note that we use the risk-adjustment factors listed in specifications 
for the AHRQ measures selected for this program. We do not believe that 
the measure's current risk-adjustment factors unfairly penalize 
teaching and large hospitals. PSI-90 is comprised of component measures 
that are risk- and reliability-adjusted. The composite measure is a 
component-weighted average of these risk- and reliability-adjusted 
observed-to-expected ratios. The risk adjustment methodology's adequacy 
is a function of the adequacy of the risk adjustment for each of the 
component indicators, and the average c-statistic for the component 
measures in the PSI composite in version 4.5 of the AHRQ QI software is 
0.775, accounting for component weighting, and we believe that level of 
risk adjustment to be adequate to ensure that we do not penalize 
teaching and large hospitals, or others that treat relatively sicker 
patient populations. We refer readers to AHRQ's Web site for the 
mathematical specifications of the

[[Page 50685]]

composite.\41\ Should changes to the risk-adjustment models for the 
measures be adopted during NQF endorsement maintenance processes, we 
will adopt these changes as soon as possible.
---------------------------------------------------------------------------

    \41\ http://qualityindicators.arhq.gov/Downloads/Modules/PSI/PSI%90Composite%20Development.pdf.
---------------------------------------------------------------------------

    We encourage hospitals that are unsure how to improve their 
performance on the AHRQ PSI measure or on any other measure finalized 
for the Hospital VBP Program to contact their QIO for assistance.
    Comment: Commenters urged CMS to reassess how it adjusts HCAHPS 
survey scores for the severity of patient illness, arguing that the 
survey's patient-mix adjustment model does not adequately account for 
the effect of severity of illness or patient's mental health status, 
and that the HCAHPS Survey is biased against large urban hospitals and 
safety-net hospitals. Commenters also argued that the HCAHPS survey 
lacks sufficient risk-adjustment.
    Response: Since its national implementation in 2006, the HCAHPS 
Survey has included an item that asks for patients' assessments of 
their overall health. We use this information in a transparent manner 
in our standard patient-mix adjustment of HCAHPS scores, as we have 
explained on the official HCAHPS On-Line Web site, http://www.hcahpsonline.org, in the research documents and patient-mix 
adjustment coefficients that are posted on this Web site, and in 
published research listed on this Web site.
    In response to comments about HCAHPS in previous Rules, we added an 
item to the HCAHPS Survey in January 2013 that asks patients to assess 
their overall mental or emotional health. At this time, we are 
analyzing the effect of patients' overall mental or emotional health on 
HCAHPS scores. Based on the results of this analysis, we will determine 
whether we believe a further patient-mix adjustment for mental or 
emotional health may be warranted.
    With respect to a Cleveland Clinic analysis mentioned by a 
commenter that is said to show a greater than expected impact of 
severity of illness on HCAHPS scores, we understand that this analysis 
does not examine associations between patient characteristics and 
HCAHPS scores after the standard HCAHPS patient-mix adjustment has been 
applied. The standard HCAHPS patient-mix adjustment would be expected 
to remove most or all of the association mentioned. We also understand 
that the Cleveland Clinic analysis mentioned by the commenter is not 
based on national data.
    As we stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53585), 
we have examined the association between safety net status and the 
Patient Experience of Care (HCAHPS) domain score in the Hospital VBP 
Program. We stated that we analyzed Patient Experience of Care scores 
during the Hospital VBP Program Dry Run period (Baseline Period: April-
December 2008; Performance Period: April to December 2010), both 
overall and among urban hospitals.
    Although we do not have an official definition or designation of 
``safety net'' hospital, safety net status typically entails one or 
more of three criteria: high Medicaid share; high proportion of 
uncompensated patients; and high county-associated poverty rate. During 
the Hospital VBP Program Dry Run, 28 hospitals (7 of them urban) met 
all three criteria, 157 hospitals (83 of them urban) met two of the 
three criteria, 625 hospitals (391 urban) met one of the three 
criteria, and 2,219 hospitals (1,718 urban) met none of the three 
criteria.
    In general, during the Hospital VBP Program Dry Run, after all 
HCAHPS adjustments are applied (patient mix and survey mode), safety 
net hospitals performed similarly to other hospitals. For example, 24 
percent of the hospitals that meet any of the three safety net criteria 
(198/810) scored in the top quartile of Hospital VBP Patient Experience 
of Care domain (versus 25 percent (550/2219) of hospitals that met none 
of the safety net criteria). For urban hospitals, the figures are 110/
481 safety net hospitals (23 percent) vs. 454/1718 other hospitals (26 
percent). If we consider only those hospitals that meet two of the 
three safety net criteria, then 36/185 safety net hospitals (20 
percent) and 12/90 urban safety net hospitals (13 percent) are in the 
top quartile (with 5 of these 12 in the top decile).
    The HCAHPS patient mix adjustment model controls for patient 
characteristics not under the control of the hospital that directly 
impact response tendencies. It also controls for socioeconomic status 
of the patient population through education, which is a well-accepted 
method for controlling for socioeconomic status, in particular, in the 
elderly population. Other characteristics, such as hospital 
characteristics or geographic location, are not included in the 
adjustment models because controlling for hospital characteristics 
would mask potential quality differences across different types of 
hospitals.
    Comment: Some commenters argued that HCAHPS consistency scores were 
not thoroughly tested and are not functioning as envisioned. Commenters 
argued that CMS should discontinue the use of HCAHPS consistency points 
because hospitals with consistently low HCAHPS scores were assigned a 
greater than average consistency score.
    Response: We designed the components and scoring formula for the 
HCAHPS measure in the Hospital VBP Program in order to achieve our 
stated policy goals, including relying on a mix of standards, process, 
outcomes, and patient experience measures in public reporting and 
value-based payment systems (76 FR 26491). We tested the HCHAPS scoring 
process thoroughly prior to proposing it in the 2011 Hospital Inpatient 
VBP Program proposed rule, and have continued to monitor and evaluate 
it since implementation of the Hospital VBP Program in October 2012.
    The Patient Experience of Care Domain score in the Hospital VBP 
Program is currently based on a hospital's score on one measure, the 
HCAHPS Survey measure, which is scored as (1) the greater of the 
Achievement Points or Improvement Points for each of the eight HCAHPS 
dimensions included in the Hospital VBP Program (0 to 10 points for 
each dimension), plus (2) 0 to 20 Consistency Points, which are derived 
from the lowest HCAHPS dimension. In order to assess the separate 
contribution of Achievement Points and Improvement Points, the HCAHPS 
Project Team, using results from the HCAHPS scores in the FY 2013 
Hospital VBP Program (Baseline Period: July 2009-March 2010; 
Performance Period: July 2011-March 2012),decomposed the scores into 
three separate components: Achievement Points; Improvement Supplement 
(the extra contribution of Improvement Points to the Base Score beyond 
the contribution of Achievement Points); and Consistency Points.
    Briefly, we found that Consistency Points are strongly and 
positively correlated with Achievement Points (0.68), which means that 
Consistency Points go mainly to hospitals with higher scores during the 
Performance Period. Although Achievement Points are the principal 
driver and account for nearly all of the variance in the HCAHPS score, 
Consistency Points play a small but important role by incentivizing 
targeted improvement in hospitals with below average scores, as well as 
augmenting the scores of lower-performing hospitals. See March 2013 
HCAHPS Update Training, slides 91-101, at: http://www.hcahpsonline.org/trainingmaterials.aspx.
    Comment: One commenter specifically argued that the HCAHPS survey 
and its scoring methodology

[[Page 50686]]

need to be modified to incorporate risk-stratification to ensure more 
appropriate peer comparisons, particularly for patients that are 
English language learners and with whom communication may be more 
difficult for hospital staff. The commenter suggested that patients' 
communications difficulty could be incorporated into HCAHPS risk-
stratification. The commenter also contended that some hospitals may be 
unfairly penalized by the HCAHPS survey's use of a ``quietness'' item, 
arguing that hospitals may not easily control ambient noise outside the 
hospital. The commenter presented analysis showing a negative 
correlation between population density and the HCAHPS ``quietness'' 
item.
    Response: We thank the commenter for the comments and research. 
Differences at the hospital level could be due to either patient 
differences or true differences in average hospital quality in urban 
and rural areas. Urban/rural differences have been demonstrated for a 
variety of quality measures, including clinical quality measures. In 
order to ensure that true differences in hospital quality are not 
``adjusted away,'' we only adjust HCAHPS scores for patient-level 
factors. One of the patient-mix adjustment factors that we employ is 
``language spoken at home,'' currently categorized as ``English'' and 
``Non-English.'' Having taken this factor into account through patient-
mix adjustment, we believe that the remaining difference is due to true 
variation in the quality of hospitals in which English and non-English 
speaking patients seek care. We believe that these hospital-level 
differences should not be adjusted away.
    Recently, we began to collect information on additional languages 
that patients speak at home, including English, Spanish, Chinese, 
Russian, Vietnamese, and ``some other language.'' We are conducting 
research to determine whether the patient-mix adjustment for ``language 
spoken at home'' would be measurably improved by including distinctions 
among these specific languages. Should we determine that, based on this 
data and research, a revised patient-mix adjustment for ``language 
spoken at home'' is warranted, we will seek to adopt the adjustment for 
the HCAHPS measure.
    The commenter contends that a major contributor to hospital total 
noise level is ambient noise from outside the hospital, which varies 
systematically with hospital location, that is, urban or rural setting.
    We have not seen evidence that ambient noise from outside the 
hospital is the cause of lower scores on the HCAHPS ``quietness'' item, 
which asks ``how often the area around your room was quiet at night.'' 
Developmental work on the HCAHPS Survey, including cognitive interviews 
and focus groups with patients and caregivers, indicated that patients 
distinguish between noise from outside of the hospital, which is more 
difficult to control, and noise from within the hospital, which the 
hospital can more readily reduce, mitigate or eliminate, such as that 
from loud conversations outside of patient rooms, equipment trolleys, 
alarms and announcements, maintenance operations, etc.
    We are aware of noise reduction efforts in a number of hospitals, 
in both urban and rural settings, that have successfully reduced 
within-hospital noise. In addition, in the Hospital VBP scoring system, 
hospitals are assessed on both achievement and improvement. Thus, 
regardless of location, hospitals can earn improvement points if 
patients experience greater quietness in the performance period than in 
the prior baseline period.
    Comment: One commenter was concerned about HCAHPS survey responses 
where patients refuse to answer. The commenter believed that this 
action could result in inaccurate survey data. The commenter also 
expressed concerns about cleanliness throughout the hospital to reduce 
the risk of infections, not just the cleanliness of the patient's room 
and bathroom.
    Response: We thank the commenter for these concerns. With respect 
to the HCAHPS survey, which is administered after discharge, patients 
may refuse to answer any item by not filling in a response on the mail 
version of the survey, or not providing an answer on the telephone or 
Interactive Voice Response versions of the survey. This non-response is 
then captured in our data collection process. The national response 
rate for the HCAHPS Survey is 33 percent. Based on our analyses of the 
HCAHPS Survey, we found that the patient-mix adjustment model accounts 
for any nonresponse bias that could have been addressed through 
nonresponse weighting. Therefore, no further weighting or adjustment 
for nonresponse is needed (see http://www.hcahpsonline.org/modeadjustment.aspx#ME2 and The Effects of Survey Mode, Patient Mix, 
and Nonresponse on CAHPS Hospital Survey Scores. M.N. Elliott, A.M. 
Zaslavsky, E. Goldstein, W. Lehrman, K. Hambarsoomian, M.K. Beckett and 
L. Giordano. Health Services Research, 44: 501-518. 2009).
    We share the commenter's concern about the importance of clean and 
hygienic conditions in hospitals. The HCAHPS Survey contains an item 
about hospital cleanliness, ``During this hospital stay, how often were 
your room and bathroom kept clean?'' The HCAHPS Survey is designed to 
ask patients about important aspects of their hospital stay. While we 
agree that all hospital areas ought to be clean, we believe that 
patients are most aware of the cleanliness of their own room and 
bathroom, and this item is targeted accordingly.
    Comment: One commenter requested that CMS propose a process to 
account for changes in measure specifications to ensure fair treatment 
to participating hospitals. Commenters specifically suggested that CMS 
suppress the SCIP-Inf-4 measure for FY 2014 and propose a new benchmark 
and achievement threshold once enough data has been collected with the 
new specifications.
    Response: We are aware that the SCIP-Inf-4 measure underwent 
significant specifications changes for discharge quarters beginning on 
or after January 1, 2014. Since we are finalizing below a performance 
period of CY 2014 and a baseline period of CY 2012 for the clinical 
process of care measures under the FY 2016 Hospital VBP Program, we 
believe these specifications changes will have significant impacts on 
hospitals' SCIP-Inf-4 performance during the FY 2016 performance 
period. We are therefore not finalizing the SCIP-Inf-4 measure for the 
FY 2016 Hospital VBP Program, or any other proposal we made that would 
relate to that measure (for example, the measure's performance 
standards).
    However, these specifications changes will not affect either the 
finalized performance periods or baseline periods for FY 2014 or FY 
2015. We do not believe it appropriate to remove the measure from the 
Hospital VBP Program measure set for either of those program years, 
because the changes to the measure specifications do not affect 
hospitals' performance rates on the measure during the finalized 
performance periods for FY 2014 and FY 2015.
    While we have not established a Hospital VBP Program-specific 
process to date to account for specifications changes, we may consider 
doing so in future rulemaking.
    After consideration of the public comments we received, we are 
finalizing the FY 2016 measure set as proposed, with the exception of 
SCIP-Inf-1 and SCIP-Inf-4, described above,

[[Page 50687]]

and with the changes outlined above to the SSI measure's scoring.
    The following table outlines the final measures for the FY 2016 
Hospital VBP Program that we previously adopted, as well as the new 
measures that we are finalizing.

   Newly Finalized and Readopted Measures for the FY 2016 Hospital VBP
                Program Clinical Process of Care Measures
------------------------------------------------------------------------
 
------------------------------------------------------------------------
AMI-7a...................  Fibrinolytic Therapy Received Within 30
                            Minutes of Hospital Arrival.
IMM-2**..................  Influenza Immunization.
PN-6.....................  Initial Antibiotic Selection for CAP in
                            Immunocompetent Patient.
SCIP-Inf-2...............  Prophylactic Antibiotic Selection for
                            Surgical Patients.
SCIP-Inf-3...............  Prophylactic Antibiotics Discontinued Within
                            24 Hours After Surgery End Time.
SCIP-Inf-9...............  Urinary Catheter Removed on Postoperative Day
                            1 or Postoperative Day 2.
SCIP-Card-2..............  Surgery Patients on Beta-Blocker Therapy
                            Prior to Arriva Who Received a Beta-Blocker
                            During the Perioperative Period
SCIP-VTE-2...............  Surgery Patients Who Received Appropriate
                            Venous Thromboembolism Prophylaxes Within 24
                            Hours Prior to Surgery to 24 Hours After
                            Surgery.
------------------------------------------------------------------------
                       Patient Experience Measures
------------------------------------------------------------------------
HCAHPS...................  Hospital Consumer Assessment of Healthcare
                            Providers and Systems Survey.
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
CAUTI**..................  Catheter-Associated Urinary Tract Infection.
CLABSI***................  Central Line-Associated Blood Stream
                            Infection.
MORT-30-AMI*.............  Acute Myocardial Infarction (AMI) 30-day
                            mortality rate.
MORT-30-HF*..............  Heart Failure (HF) 30-day mortality rate.
MORT-30-PN*..............  Pneumonia (PN) 30-day mortality rate.
PSI-90*..................  Complication/patient safety for selected
                            indicators (composite).
SSI**....................  Surgical Site Infection:
                            Colon.
                            Abdominal Hysterectomy.
------------------------------------------------------------------------
                           Efficiency Measures
------------------------------------------------------------------------
MSPB-1...................  Medicare Spending per Beneficiary.
------------------------------------------------------------------------
* Measures previously finalized for the FY 2016 Hospital VBP Program.
** New measures.
*** Measures finalized for FY 2015 but not subject to immediate
  readoption.

    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27611), we also 
sought public comment on our intent to adopt the Methicillin-resistant 
Staphylococcus aureus (MRSA) Bacteremia and the Clostridium difficile 
(C. difficile) standardized infection ratio measures for the FY 2017 
Hospital VBP Program. Both of these measures are high-priority HAI 
measures listed in the HHS Action Plan to Prevent HAIs. We anticipate 
posting performance data for these measures on Hospital Compare later 
this year, and anticipate proposing to adopt these measures for the 
Hospital VBP Program in the FY 2015 IPPS/LTCH PPS proposed rule.
    Comment: Commenters expressed support for CMS' intent to adopt the 
MRSA and C. difficile measures into the Hospital VBP Program in future 
years. Commenters argued that MRSA is especially problematic in both 
hospital ICUs and in long-term care facilities, and noted significant 
increases in HAIs over the past 10 years. Commenters also noted that C. 
difficile-associated complications are linked to 14,000 deaths 
annually. Some commenters suggested that these measures would be better 
additions to the Hospital VBP Program than immunization measures 
because immunization measures do not cover the most effective topics.
    Response: We thank commenters for their support and for their 
input. We agree that these measures capture quality information that is 
critical to patient safety, and intend to consider adopting these 
measures in future rulemaking.
    Comment: Some commenters urged CMS to provide measure 
specifications for MRSA and C. difficile in order to enable 
constructive feedback on the measures. Commenters also suggested that 
it will be necessary to control for known regional variation in 
infection rates if CMS adopts these measures, and argued that CMS 
should consider ways to differentiate community-acquired infections 
from healthcare-associated strains.
    Response: We refer readers to the QualityNet Web site (https://www.qualitynet.org/) for details on the specifications for both 
measures. The finalized Hospital VBP Program methodologies for 
developing performance standards and for calculating measure rates do 
not adjust for regional variation in infection rates, and we have not 
considered adopting such an adjustment for current measures of 
healthcare-associated infections. As we stated in the Hospital 
Inpatient VBP Program final rule (76 FR 26512), we believe that 
achievement thresholds and benchmarks based on national data provide 
balanced, appropriate standards of high quality care for hospitals to 
work towards under the Hospital VBP Program. We also stated in that 
final rule that we do not wish to lower the performance standards for a 
hospital simply because average performance in its local region is 
subpar compared to national performance, nor do we wish to raise or 
lower performance standards for hospitals based on observations that 
different types of hospitals differ in the average performance on 
individual measures. However, we encourage commenters to provide more 
detail on how we might make such adjustments in the future.
    Comment: Some commenters were concerned about CMS' possible 
adoption of MRSA and C. difficile in future program years, noting 
methodological flaws associated with defining when infections are 
incubating at the time of admission. Commenters

[[Page 50688]]

also argued that the definition of ``hospital acquired infection'' must 
be clearly set out for both measures. Some commenters did not support 
CMS' intent to adopt MRSA or C. difficile in future program years, 
arguing that the measures are insufficiently risk-adjusted and should 
therefore not be adopted for Hospital VBP. Commenters noted that both 
measures are relatively new to the Hospital IQR Program, and commenters 
urged CMS to allow hospitals to gain additional experience with the 
measures before adopting them for Hospital VBP.
    Response: We thank commenters for their input. We intend to 
consider these comments when developing our policies for future 
rulemaking.
c. Future Measures for the Efficiency Domain
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27611 through 
27612), we stated that we are considering including additional measures 
in the Efficiency Domain for future years of both the Hospital IQR 
Program and the Hospital VBP Program. If we were to expand the 
Efficiency Domain in the future, we would do so through future 
rulemaking and in accordance with the requirements of section 1886(o) 
of the Act.
    We stated that we are considering adding a measure of hospitals' 
performance on treating Medicare beneficiaries appropriately as a 
hospital inpatient or a hospital outpatient. Specifically, we stated 
that we are considering constructing a measure to assess the rate and/
or dollar amount of billing hospital inpatient services to Medicare 
Part B, subsequent to the denial of a Part A hospital inpatient claim. 
We are considering such a measure in light of our recent proposal that 
when a Medicare Part A claim for inpatient hospital services is denied 
because the inpatient admission was determined not to be reasonable and 
necessary, or when a hospital determines under Sec.  482.30(d) or Sec.  
485.641 after a beneficiary is discharged that his or her inpatient 
admission was not reasonable and necessary, the hospital may be paid 
for all of the Part B services that would have been reasonable and 
necessary had the beneficiary been treated as a hospital outpatient 
rather than admitted as an inpatient, if the beneficiary is enrolled in 
Medicare Part B (78 FR 16632 through 16646). We invited public comments 
on this or other approaches to include a measure of appropriateness of 
hospital inpatient services in future years of the Hospital IQR Program 
and the Efficiency Domain for the Hospital VBP Program.
    We also are considering the addition of Medicare spending measures 
specific to physician services such as Radiology, Anesthesiology, and 
Pathology that occur during a hospital stay. We invited public comment 
on how to best to construct measures of Medicare spending for these or 
other physician services provided during a hospital stay, for future 
inclusion in the Hospital IQR Program and the Efficiency Domain in the 
Hospital VBP Program.
    Comment: One commenter expressed support for a future measure of 
appropriateness of treating Medicare beneficiaries as hospital 
inpatients or hospital outpatients, stating that it would improve 
outcomes and help ensure that prices paid for prescription drugs under 
the 340B discount program are appropriate. Other commenters opposed the 
development of such a measure. The reasons they provided included: 
perceived inconsistencies or inaccuracies in Recovery Audit Contractor 
(RAC) denials across hospitals; the concern that the measure would not 
reflect successful appeals of RAC denials; the belief that such a 
measure would represent a double penalty in addition to any 
overpayments already collected; the belief that confusion exists 
regarding CMS' inpatient versus outpatient policies; that belief that 
services that are rebilled are not medically unnecessary, but rather 
that they are billed incorrectly, and therefore do not represent a 
quality issue; that such a measure would increase the use of the 
appeals system; and that the physician, rather than the hospital is 
responsible for the decision whether or not to admit a patient.
    Response: We thank the commenters for their input and will take it 
into consideration as we develop any future policies related to this 
issue. In response to the comment about 340B drug pricing, we are not 
aware of any effect that inclusion of a future measure of 
appropriateness of treating Medicare beneficiaries as hospital 
inpatients or hospital outpatients would have on the 340B drug pricing 
program.
    Comment: A few commenters noted that any new efficiency measures 
would first have to be adopted in the Hospital IQR Program.
    Response: We agree and wish to clarify that we would finalize any 
future efficiency measure for the Hospital IQR Program through notice 
and comment rulemaking. We would include it in the Hospital IQR Program 
for at least one year and display performance information on the 
Hospital Compare Web site in accordance with section 1886(o)(2)(C)(i) 
of the Act before including it in the Hospital VBP Program. That was 
our intent in stating above that, if we were to expand the Efficiency 
Domain in the future, we would do so through future rulemaking and in 
accordance with the requirements of section 1886(o) of the Act.
    Comment: Some commenters supported CMS' intent to adopt additional 
measures of efficiency in future program years, and suggested that CMS 
consider new measure topics such as Medicare Total Costs Per Capita and 
Rates of Medicare Service Utilization. Commenters also suggested that 
CMS consider measures that compare actual observed costs with expected 
costs both regionally and nationally.
    Response: We thank commenters for their support. We will consider 
additional measure topics as they become available to us under the 
Hospital VBP Program's statutory requirements.
    Comment: One commenter expressed support for development of a 
measure of physician services occurring during a hospital stay, in 
order to align incentives for hospitals and physicians to provide high 
quality, efficient care. The commenter suggested that such a measure 
should not be overly risk-adjusted, so as to avoid incorporating 
payment inequities.
    Response: We thank this commenter for the input and will take it 
into consideration as we develop any future measures for the Efficiency 
Domain.
    Comment: The majority of commenters did not support the development 
of a measure of physician services occurring during a hospital stay. 
These commenters' concerns included the belief that hospitals should 
not be held accountable for physician services, with some commenters 
stating that the nature of the employment relationship between the 
hospital and its physicians dictate the level of control by the 
hospital over those physicians. Commenters also expressed concern that 
there is not adequate data on the appropriate level of utilization for 
the purpose of setting benchmarks and avoiding the reduction in needed 
care. These commenters also expressed a belief that such a measure 
would be duplicative of the MSPB measure.
    Response: We thank the commenters for their input, and we will take 
it into consideration as we develop any future measures for the 
Efficiency domain.
    Comment: Several commenters expressed concern that specialty-
specific spending measures would be better suited for the Physician 
Value-Based Payment Modifier Program or generally stated that 
accountability for physician services should be shared

[[Page 50689]]

with physicians, not placed solely with the hospital. Many of the 
commenters expressed the opinion that incentives should be aligned for 
physicians and hospitals, expressing the concern that parallel 
incentives do not yet exist.
    Response: We thank the commenters for their input and we will take 
it into consideration as we develop any future measures for the 
Efficiency domain. As we stated in the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51626), we agree that alignment of incentives is an important 
goal.
    Comment: Several commenters offered suggestions of additional 
measures for future inclusion in the Efficiency domain. These 
suggestions included measures of appropriate use, especially for 
cardiovascular conditions; national and regional total per capita cost 
measures; resource service utilization measures that compare overuse of 
services for patients with the same condition across the country; 
radiology efficiency measures; anesthesia efficiency measures; and DRG-
specific spending measures. Two commenters also suggested adding 
radiation dose measures to the Hospital VBP Program.
    Response: We thank the commenters for their input and we will take 
it into consideration as we develop any future measures for the 
efficiency domain.
7. Performance Periods and Baseline Periods
a. Background
    Section 1886(o)(4) of the Act requires the Secretary to establish a 
performance period for the Hospital VBP Program for a fiscal year that 
begins and ends prior to the beginning of such fiscal year.
b. Clinical Process of Care Domain Performance Period and Baseline 
Period for the FY 2016 Hospital VBP Program
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53594 through 
53595), we finalized a 12-month performance period for FY 2015 Clinical 
Process of Care measures of CY 2013, or January 1, 2013 through 
December 31, 2013, with a corresponding baseline period of CY 2011, or 
January 1, 2011 through December 31, 2011, for purposes of calculating 
improvement points and performance standards. As we stated in that 
rule, a 12-month performance period provides us more data on which to 
score hospital performance, which is an important goal both for CMS and 
for stakeholders. We also noted that a 12-month performance period is 
consistent with the reporting periods used for these measures under the 
Hospital IQR Program.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27612), we 
proposed to adopt a 12-month performance period for FY 2016 Clinical 
Process of Care measures of CY 2014, or January 1, 2014 through 
December 31, 2014, for the FY 2016 Hospital VBP Program. We also 
proposed to adopt a corresponding 12-month baseline period of CY 2012, 
or January 1, 2012 through December 31, 2012, for purposes of 
calculating improvement points and calculating performance standards.
    We invited public comment on these proposals.
    Comment: One commenter argued that CMS should not adopt the 
entirety of CY 2012 as the performance period for the IMM-2 measure 
within the Clinical Process of Care domain for FY 2016. The commenter 
explained that the measure was not collected during the 2nd and 3rd 
quarters of that year, and recommended that CMS also omit those 
quarters from the proposed baseline period to ensure fair comparisons.
    Response: According to the IMM-2 measure's specifications, the 
measure is to be collected for discharges during the months of October, 
November, December, January, February, and March. The commenter is 
therefore correct that it is not collected during the second and third 
quarters of the calendar year. However, we do not believe this requires 
us to specify a separate performance or baseline period for this 
measure. We believe that CY 2012 is an appropriate baseline period for 
this measure, as it captures the measure's reporting period and aligns 
the measure with the other measures in the Clinical Process of Care 
domain.
    After consideration of the public comments we received, we are 
finalizing the FY 2016 performance and baseline periods for the 
Clinical Process of Care domain as proposed.
c. Patient Experience of Care Domain Performance Period and Baseline 
Period for the FY 2016 Hospital VBP Program
    Consistent with our goal of adopting a full 12-month period for 
this domain in order to collect a larger amount of HCAHPS survey data 
compared to a 9-month period, in the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53595), we finalized a 12-month performance period for FY 2015 
Patient Experience of Care measures of CY 2013, or January 1, 2013 
through December 31, 2013, with a corresponding baseline period of CY 
2011, or January 1, 2011 through December 31, 2011, for purposes of 
calculating improvement points and performance standards. As we stated 
in that rule, a 12-month performance period provides us more data on 
which to score hospital performance, which is an important goal both 
for CMS and for stakeholders.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27612), we 
proposed to adopt a 12-month performance period for FY 2016 Patient 
Experience of Care measures of CY 2014, or January 1, 2014 through 
December 31, 2014, for the FY 2016 Hospital VBP Program. We also 
proposed to adopt a corresponding 12-month baseline period of CY 2012, 
or January 1, 2012 through December 31, 2012, for purposes of 
calculating improvement points and calculating performance standards.
    We invited public comment on these proposals. However, we did not 
receive any specific comments on the proposed FY 2016 performance and 
baseline periods for the Patient Experience of Care domain. We are 
therefore finalizing these periods as proposed.
d. Efficiency Domain Measure Performance Period and Baseline Period for 
the FY 2016 Hospital VBP Program
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53595 through 
53596), we finalized a performance period for the MSPB measure for the 
FY 2015 Hospital VBP Program of May 1, 2013 through December 31, 2013, 
with a corresponding baseline period of May 1, 2011 through December 
31, 2011. We finalized that performance period based on the measure's 
posting date on Hospital Compare, our desire to ensure consistency 
across domains where possible, and in order to ensure that data have 
been posted for at least 1 year prior to the beginning of the measure 
performance period.
    In order to expand the dataset available for performance scoring on 
this measure, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27612) 
we proposed to adopt a 12-month performance period for the MSPB measure 
for the FY 2016 Hospital VBP Program of CY 2014, or January 1, 2014 
through December 31, 2014, with a corresponding baseline period of CY 
2012, or January 1, 2012 through December 31, 2012. These proposed 
performance and baseline periods align with the performance and 
baseline periods for Clinical Process of Care Domain measures. These 
proposed performance and baseline periods also enable us to collect 
sufficient measure data, while allowing time to calculate and 
incorporate MSPB measure data into the Hospital VBP Program scores in a 
timely manner.
    We invited public comments on the proposed performance and baseline 
periods for the MSPB measure.

[[Page 50690]]

Although we received no specific comments regarding the proposed 
performance and baseline periods for the MSPB measure, we did receive a 
number of general comments on the MSPB measure, which we respond to 
below.
    Comment: Some commenters fully supported the inclusion of the MSPB 
measure in the Hospital VBP Program as proposed, noting the importance 
of measuring resource use. One of these commenters noted the MSPB 
measure's importance in the establishment of an effective Hospital VBP 
Program that begins to bend the cost curve for Medicare and emphasized 
the measure's apparent importance to Congress, given that it was the 
only measure specifically required by statute for inclusion in the 
Hospital VBP Program.
    Response: We thank these commenters for their support, and we agree 
that the measure's inclusion is important because it helps to address 
the critical issue of health care costs and furthers Medicare's 
transformation from a system that rewards volume of service to one that 
rewards efficient, effective care and reduces delivery system 
fragmentation, as we stated in the FY 2012 IPPS/LTCH PPS final rule (77 
FR 51618).
    Comment: The majority of commenters expressed concern with use of 
the MSPB measure in the Hospital VBP Program. The commenters' concerns 
included: concern that there may not be a clear connection between cost 
variance and patient outcomes or other quality measurements; concern 
that hospitals might not provide necessary services, in order to 
improve measure performance; concern that the measure includes factors 
that are outside the hospital's control; questioning whether claims 
data is sufficient for measure calculation; concern that the measure is 
not adjusted for socioeconomic factors; concern that the measure has 
not been adequately tested; question as to whether the risk-adjustment 
methodology is sufficient, with one commenter questioning the ordinary 
least squares (OLS) approach; perception that the measure is not yet 
fully specified; concern that the measure is not NQF endorsed; and 
comments on the NQF endorsement process that is currently underway.
    Response: In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51619 
through 51627), we finalized the MSPB measure for inclusion in the 
Hospital IQR Program and addressed concerns with the measure's general 
construction, the degree of hospital control over performance on the 
measure, and its risk-adjustment. We continue to believe that the MSPB 
measure is appropriately constructed to capture Medicare spending 
surrounding a hospitalization. As we stated in the FY 2012 IPPS/LTCH 
PPS final rule, the measure incentivizes hospitals to work on 
redesigning care systems and coordinating with other providers of care, 
which can have a significant impact on the quality and efficiency of 
services provided to the Medicare beneficiaries they serve. We also 
continue to 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. 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.
    We will work to incorporate any suggestions from hospitals on how 
to improve the hospital-specific reports to make them more actionable.
    With regard to the use of the OLS regression, we note that it is 
consistent with the risk-adjustment model used for several CMS 
initiatives, including Medicare Advantage rate setting. We believe that 
the variant of the model used for MSPB is appropriate, because it 
allows for a different coefficient on each HCC in each major diagnostic 
category based on index admission. In this sense, the model uses 
categorical condition indicators to flexibly capture differences in 
spending by condition.
    We finalized the measure for inclusion in the Hospital VBP Program 
in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53592), and we addressed 
a number of public comments related to the measure in that rule. With 
regard to linking the MSPB measure to other quality metrics, we 
addressed the importance of measuring cost independently and emphasized 
that within the Hospital VBP Program, the MSPB measure is combined with 
other quality measures in order to calculate the TPS (77 FR 53586). 
With regard to the measure being fully specified, at the preceding 
citation, we re-emphasized that the measure was fully detailed in the 
FY 2012 IPPS/LTCH PPS proposed and final rules, and was then 
subsequently publicly vetted through a national provider call during an 
MSPB hospital data preview period. We have also since conducted two 
additional MSPB data previews, and we have not received substantive 
comments on the validity of the claims data used to calculate the 
measure. This measure had been extensively tested. We refer readers to 
the discussion of the reliability analysis in the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53589). We agree with commenters that NQF endorsement 
is valuable, though we note, as mentioned in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51619), that it is not required before adopting 
measures under the Hospital VBP Program. We are working with the NQF 
during the endorsement process that is currently in progress. We 
anticipate that we will receive the NQF's decision on endorsement in 
October of 2013.
    Comment: A few commenters expressed their belief that there was a 
lack of national data on the MSPB measure and a lack of transparency 
into the service types included in the measure. One commenter requested 
the impact of each ``adjustment factor'' including area wage, case mix, 
outlier, IME, and DSH, had on the pre-index, during-index, and post-
index spending categories during the MSPB episode. One commenter stated 
that, in addition to providing hospitals with confidential hospital-
specific reports that identify the highest-spending providers in each 
of their MSPB episodes, CMS should provide a report to each of those 
providers listed.
    Response: We appreciate the importance of data related to 
performance on this measure. We posted a Medicare spending breakdown by 
claim type file publicly, so that hospitals and other stakeholders 
could compare their Medicare payments for various service types to 
those in their state and the nation. We will consider further breaking 
down the inpatient spending that is attributed to a hospital into 
specific inpatient settings, such as acute inpatient, LTCH, IPF and 
IRF, as the commenter suggests. We also provide extensive data to 
hospitals in their hospital-specific reports. For a description of the 
hospital-specific data files, and the spending breakdown by claim type 
file, we refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53588). We will also explore the possibility of providing reports to 
those providers listed in hospitals' confidential hospital-specific 
reports, as the commenter suggests.
    With regard to ``adjustment factors,'' we believe that the 
commenter is referring to adjustments to inpatient payments, which are 
only one part of an MSPB episode. We remove area wage, IME, and DSH 
during the standardization process, so that geographic payment policy 
differences and other Medicare program goals are not reflected in 
hospitals' MSPB

[[Page 50691]]

amounts. Case-mix and outlier adjustments are not removed from the 
standardized amount used to calculate the MSPB measures, because the 
MS-DRG is used in risk adjustment and outlier payments represent costs 
to Medicare incurred due to the treatment provided by the hospital. The 
CMS standardization methodology may be accessed on the QualityNet Web 
site at: http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228772057350. Although the hospital-specific reports include only payment-
standardized MSPB numbers, data files available in QualityNet also 
include non-standardized payment amounts. We refer readers to the 
``Hospital-Specific Data Files Description'' link for further details 
of the MSPB hospital-specific data files available for download in 
QualityNet. We will consider reporting total outlier payments for an 
MSPB episode as an additional data point in hospitals' confidential 
hospital-specific reports.
    Comment: Some commenters expressed the opinion that it was 
difficult to improve performance on the MSPB measure because they 
believed that improvement was not scored based on comparison to a 
hospital's own historical performance but rather against a national 
median.
    Response: We wish to clarify that, consistent with improvement 
scoring for other Hospital VBP Program measures, improvement on the 
MSPB measure is based upon comparisons between the hospital's own 
performance during the baseline period and the performance period. The 
MSPB measure is structured as a ratio of the hospital's own MSPB amount 
to the national median MSPB amount, but improvement points are 
calculated by comparing the hospital's individual performance during 
the specified periods. For additional information on MSPB improvement 
points, we refer readers to the discussion of improvement scoring on 
the MSPB measure in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51655 
through 51656). We note that although the measure's implementation was 
delayed subsequent to the issuance of that final rule, we retained the 
scoring methodology when the measure was finalized in the FY 2013 IPPS/
LTCH PPS final rule for inclusion in the Hospital VBP Program for FY 
2015 and subsequent years.
    Comment: Some of the commenters suggested that the MSPB measure 
should be applied within the Physician Value Modifier Program 
concurrently.
    Response: We agree with the suggestion made by these commenters 
that this measure is appropriate for inclusion in the Medicare 
Physician Fee Schedule Program. Accordingly, we have proposed to 
include the MSPB amount in the cost composite portion of the physician 
value-based payment modifier, for the CY 2016 payment year (CY 2014 
performance period), in the CY 2014 Medicare Physician Fee Schedule 
proposed rule (78 FR 43493 through 43496). As we have stated in the 
past, alignment of incentives across programs is an important goal for 
us.
    Comment: Several of these commenters suggested that CMS delay 
implementation of the measure based on the concerns discussed above, 
including concern with measure reliability, risk-adjustment, degree of 
hospital control over spending, measure specification, linkage of 
spending to other quality measures, lack of NQF endorsement, lack of 
parallel incentives for physicians, and lack of performance data.
    Response: We responded above to these concerns, on which commenters 
based their recommendation that we delay implantation of the MSPB 
measure. We disagree with the suggestion that the MSPB measure's 
implementation should be further delayed. As noted above, we believe 
that the MSPB measure is appropriately risk-adjusted, that its 
reliability has been established, and that it incentivizes hospitals to 
exert their control of episode spending. We continue to believe that a 
measure of cost is integral in recognizing and incentivizing hospitals 
involved in providing high quality care to the beneficiaries they 
serve, at a lower cost to Medicare. We note that the MAP, convened by 
the NQF, identified measures of cost as a high-priority gap area for 
the Hospital VBP Program and supported the measure for inclusion in the 
Hospital IQR and Hospital VBP Programs in its February 2013 Pre-
Rulemaking Report. As we also noted above, the measure is currently 
under review for endorsement by the NQF.
    With regard to establishing parallel incentives, we have proposed a 
similar measure for inclusion in the Physician Value Modifier Program 
in the CY 2014 Physician Fee Schedule Proposed Rule (78 FR 43493 
through 43496). With regard to provision of performance data, the 
measure has been displayed on Hospital Compare since April 2012, and 
performance data was updated in December of 2012. In October 2013, we 
intend to publicly post CY 2012 performance data, which hospitals had 
the opportunity to review during a data preview period from May to June 
2013. We have provided detailed data to hospitals regarding their 
performance on this measure. As we stated in the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53586), we believe that implementation of this 
measure without further delay is an important step in improving quality 
of care for Medicare beneficiaries through provision of quality 
inpatient care, improving post-acute care delivery and follow-up, and 
reduction in the provision of unnecessary services and preventable 
readmissions.
    After consideration of the public comments we received, we are 
finalizing a 12-month performance period for the MSPB measure for the 
FY 2016 Hospital VBP Program of CY 2014, or January 1, 2014 through 
December 31, 2014, with a corresponding baseline period of CY 2012, or 
January 1, 2012 through December 31, 2012, as proposed.
    We received a few general comments on our performance period 
proposals.
    Comment: Commenters expressed concerns about the varied baseline 
and performance periods currently in operation under the Hospital VBP 
Program. Commenters argued that CMS should attempt to align performance 
and baseline periods across all Hospital VBP domains.
    Response: We thank commenters for this feedback. We have attempted 
to align performance and baseline periods to the fullest extent 
possible under the Hospital VBP Program, and for most domains, we have 
proposed to adopt baseline and performance periods aligned to the 
calendar year. As discussed further below, we have proposed to adopt 
baseline and performance periods of longer duration than the calendar 
year for certain Outcome measures, but we have made these proposals in 
order to maximize quality measure data reliability and to align those 
periods with the Hospital Compare Web site's reporting periods. We are 
aware that the various time periods involved in the Hospital VBP 
Program may be confusing for hospitals, and will continue to work with 
the provider community to ensure that participating hospitals fully 
understand the Hospital VBP Program.
    When we published the FY 2014 IPPS/LTCH PPS proposed rule, we 
inadvertently did not make FY 2016 performance and baseline period 
proposals for CLABSI, CAUTI, and SSI. We received a number of comments 
on this issue.
    Comment: Many commenters noted that CMS did not propose performance 
periods for these measures in the proposed rule and requested that we 
publish them as soon as possible. Commenters suggested that CMS defer

[[Page 50692]]

finalizing these measures until we issue a proposed rule with the 
proposed baseline and performance periods.
    Response: We thank commenters for noting this policy omission from 
the proposed rule. We have proposed to adopt a FY 2016 performance 
period of CY 2014, with a corresponding baseline period of CY 2012, for 
these measures in the CY 2014 OPPS/ASC proposed rule (78 FR 43659). We 
refer readers to that proposed rule for further discussion, and we will 
consider public comments on this proposal in the CY 2014 OPPS/ASC final 
rule with comment period.
    Final baseline and performance periods for FY 2016 (with the 
exception of the NHSN measures, described above, and the Outcome 
domain, discussed further below) are summarized in the following table.

 Finalized Performance and Baseline Periods for the FY 2016 Hospital VBP
   Program--Clinical Process of Care, Patient Experience of Care, and
                           Efficiency Domains
------------------------------------------------------------------------
           Domain                Baseline period     Performance period
------------------------------------------------------------------------
Clinical Process of Care....  January 1, 2012-      January 1, 2014-
                               December 31, 2012.    December 31, 2014.
Patient Experience of Care..  January 1, 2012-      January 1, 2014-
                               December 31, 2012.    December 31, 2014.
Efficiency..................  January 1, 2012-      January 1, 2014-
                               December 31, 2012.    December 31, 2014.
------------------------------------------------------------------------

e. Outcome Domain Performance Periods and Baseline Periods for the FY 
2017 through FY 2019 Hospital VBP Programs
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53598 through 53599) 
we finalized performance periods and baseline periods for the FY 2016 
mortality and AHRQ PSI composite measures. These periods are summarized 
in the table below.

  Finalized FY 2016 Performance Periods and Baseline Periods for 30-Day
                     Mortality and AHRQ PSI Measures
------------------------------------------------------------------------
           Measure               Baseline period     Performance period
------------------------------------------------------------------------
Mortality...................  October 1, 2010-June  October 1, 2012-June
                               30, 2011.             30, 2014.
AHRQ PSI composite..........  October 15, 2010-     October 15, 2012-
                               June 30, 2011.        June 30, 2014.
------------------------------------------------------------------------

    In light of the time needed to process measure data for the three 
30-day mortality and AHRQ PSI composite measures and our policy goal to 
collect enough data to generate the most reliable scores possible, in 
the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27613) we proposed to 
adopt performance periods for the three 30-day mortality and AHRQ PSI 
composite measures for the FY 2017 through FY 2019 program years. We 
also seek to increase transparency about performance of the Hospital 
VBP Program measures through use of Hospital Compare as a monitoring 
tool for hospitals to assess their performance on the Hospital VBP 
Program measures. We believe that aligning the Hospital VBP Program 
performance periods with the Hospital IQR Program reporting period 
duration would allow hospitals to review Hospital Compare measure rates 
when they are updated and incorporate this information into their 
quality improvement efforts, rather than having to wait until the 
Hospital VBP Program provides its scoring reports to hospitals. 
Further, we believe that aligning the Hospital IQR Program and the 
Hospital VBP Program in this manner will minimize the burden on 
participating hospitals by aligning the time periods during which they 
must monitor their performance on these measures.
    Therefore, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27613), we proposed to adopt the following performance and baseline 
periods for the three 30-day mortality and AHRQ PSI composite measures 
for the FY 2017 through FY 2019 Hospital VBP Programs. We noted that 
the performance periods proposed below for the AHRQ PSI composite 
measure reach 24 months at their maximum, compared to the 36 months 
proposed for the 30-day mortality measures. We proposed those durations 
for the AHRQ PSI measure in order to adopt performance periods that 
align with AHRQ's recommended data period for public reporting.

 Proposed Performance and Baseline Periods for 30-Day Mortality and AHRQ
                         PSI Composite Measures
------------------------------------------------------------------------
           Domain                Baseline period     Performance period
------------------------------------------------------------------------
                      FY 2017 Hospital VBP Program
------------------------------------------------------------------------
Outcome:
     Mortality......   October 1,    October 1,
                               2010-June 30, 2012.   2013-June 30, 2015
     AHRQ PSI.......   October 1,    October 1,
                               2010-June 30, 2012.   2013--June 30, 2015
------------------------------------------------------------------------
                      FY 2018 Hospital VBP Program
------------------------------------------------------------------------
Outcome:
     Mortality......   October 1,    October 1,
                               2009-June 30, 2012.   2013-June 30, 2016.
     AHRQ PSI.......   July 1,       July 1,
                               2010-June 30, 2012.   2014--June 30,
                                                     2016.
------------------------------------------------------------------------

[[Page 50693]]

 
                      FY 2019 Hospital VBP Program
------------------------------------------------------------------------
Outcome:
     Mortality......   July 1,       July 1,
                               2009-June 30, 2012.   2014-June 30, 2017.
     AHRQ PSI.......   July 1,       July 1,
                               2010-June 30, 2012.   2015--June 30,
                                                     2017.
------------------------------------------------------------------------

    We invited public comments on our proposal to adopt performance 
periods and corresponding baseline periods for these measures for the 
FY 2017 through FY 2019 Hospital VBP Programs.
    Comment: Commenters expressed support for the proposal to adopt 
lengthier performance periods for these Outcome measures for FY 2017 
through FY 2019, though some commenters were also concerned about 
performance periods that overlap between payment years.
    Response: We thank commenters for their support. We understand 
commenters' concerns about performance periods that overlap between 
payment years, but we view that overlap as unavoidable as long as we 
intend to adopt performance periods for these measures with a longer 
duration than 12 months, and as long as we intend to maintain a 
relatively consistent measure set between Program years. For example, 
while we could consider adopting measures with performance periods 
longer than 12 months in alternate program years in order to avoid 
overlap, we believe that this policy would result in substantial 
confusion in the provider community. We view overlapping performance 
periods as an acceptable compromise to enable increased performance 
period length and therefore increased measure data reliability.
    Comment: Some commenters raised continued objections to the 
finalized FY 2016 performance period and baseline period for the AHRQ 
PSI measure.
    Response: We thank commenters for their concerns. However, we 
finalized this policy in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53597) after considering public comments. We believe these comments to 
be beyond the scope of the policies addressed in this final rule.
    Comment: Some commenters argued that the proposed performance 
periods for these measures could increase the chances that a hospital 
would be excluded from the Hospital VBP Program due to immediate 
jeopardy citations, and suggested that, instead of aligning the 
Hospital VBP performance periods to Hospital IQR Program reporting 
periods, CMS consider making the Hospital IQR Program reporting periods 
shorter.
    Response: We thank commenters for their concerns. However, we 
believe that the possibly increased risks of a hospital being excluded 
from the Hospital VBP Program due to immediate jeopardy citations is 
outweighed by the data reliability we gain from collecting mortality 
and AHRQ PSI measures for longer periods.
    Comment: Some commenters believe that CMS had displayed incorrect 
dates for the proposed baseline and performance periods for FY 2017 
through FY 2019 for certain Outcome measures. Commenters noted that the 
baseline periods for FY 2018 and FY 2019 would begin in 2009, while the 
baseline period for FY 2017 would begin in 2010.
    Response: We believe commenters are referring to the second table 
displayed in the FY 2013 IPPS/LTCH PPS proposed rule at 78 FR 27613. 
However, we did not err in displaying the dates specified. When 
developing the performance and baseline period proposals for the 
proposed rule, we attempted to align performance and baseline periods' 
durations, beginning dates, and end dates as much as possible in order 
to ensure fair comparisons between the two periods for each year. 
Because we proposed performance and baseline periods of increasing 
length between FY 2017 and FY 2019, we proposed to begin baseline 
periods for the mortality measures earlier in FY 2018 and FY 2019 than 
FY 2017. As we stated in the proposed rule (78 FR 27613), we proposed 
this policy to meet our policy goal of collecting enough data to 
generate the most reliable measure scores possible. We view this policy 
as necessary in order to finalize a 36-month performance period for the 
mortality measures by FY 2019.
    However, since performance on the AHRQ PSI measure is only reported 
on Hospital Compare for a maximum of 24 months, we do not believe it is 
necessary to finalize the measure's performance and baseline periods 
for FY 2019 at this time. By declining to finalize the measure's FY 
2019 performance and baseline periods in this final rule, we will be 
able to adopt a more recent baseline period than was initially 
proposed. We intend to adopt these periods for the AHRQ PSI measure for 
FY 2019 in future rulemaking.
    Comment: Some commenters expressed opposition to the proposal to 
adopt lengthier performance periods for the mortality measures for FY 
2017 through FY 2019. Commenters expressed their continued belief that 
these measures are not adequately reliable and should be removed from 
the Hospital VBP Program altogether. Commenters argued that the 
measures do not meet the lower limit of moderate reliability, even with 
a 24-month performance period. Commenters were appreciative of the 
proposal to adopt a 36-month performance period for these measures, but 
noted that CMS had not provided an updated reliability analysis, and 
argued that CMS should instead explore proposing other outcome measures 
in future rulemaking.
    Response: We disagree. We believe that the mortality measures 
capture important quality data for purposes of the Hospital VBP 
Program. As we noted in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53591), we believe that the three 30-day mortality measures are 
sufficiently reliable for inclusion in the Hospital VBP Program, 
particularly in light of our finalized policy to set a 25 case minimum 
for these measures. We further believe that extending the performance 
and baseline periods for these measures to 36 months by FY 2019 
improves the measures' reliability beyond the range originally analyzed 
by Mathematica Policy Research in its 2011 study, which we note 
estimated reliability for these measures for a maximum of 24 months and 
did not take into account a 25 case minimum for these measures. 
Further, by aligning the measures' performance period with the duration 
of the reporting period for Hospital IQR data posted on Hospital 
Compare, we believe we are achieving more transparency with regard to 
hospitals' performance on these measures under the Hospital VBP Program 
because we are more closely matching the time periods involved in

[[Page 50694]]

current Hospital IQR public reporting with Hospital VBP performance.
    After consideration of the public comments we received, we are 
finalizing performance and baseline periods for the mortality and AHRQ 
PSI measures for FY 2017 through FY 2019 as proposed, with the 
exception of the AHRQ PSI measure's performance and baseline periods 
for FY 2019, as described above.
    Set out below are the finalized performance and baseline periods 
for the 30-day mortality measures for the Hospital VBP Program for FY 
2017 through FY 2019, and for the AHRQ PSI composite measure for FY 
2017 and FY 2018.

Finalized Performance and Baseline Periods for 30-day Mortality and AHRQ
                         PSI Composite Measures
------------------------------------------------------------------------
           Domain                Baseline Period     Performance Period
------------------------------------------------------------------------
                      FY 2017 Hospital VBP Program
------------------------------------------------------------------------
Outcome:
     Mortality......   October 1,    October 1,
                               2010-June 30, 2012.   2013-June 30, 2015.
     AHRQ PSI.......   October 1,    October 1,
                               2010-June 30, 2012.   2013-June 30, 2015.
------------------------------------------------------------------------
                      FY 2018 Hospital VBP Program
------------------------------------------------------------------------
Outcome:
     Mortality......   October 1,    October 1,
                               2009-June 30, 2012.   2013-June 30, 2016.
     AHRQ PSI.......   July 1,       July 1,
                               2010-June 30, 2012.   2014-June 30, 2016.
------------------------------------------------------------------------
                      FY 2019 Hospital VBP Program
------------------------------------------------------------------------
Outcome:
     Mortality......   July 1,       July 1,
                               2009-June 30, 2012.   2014-June 30, 2017.
------------------------------------------------------------------------

8. Performance Standards for the Hospital VBP Program
a. Background
    Section 1886(o)(3)(A) of the Act requires the Secretary to 
establish performance standards for the measures selected under the 
Hospital VBP Program for a performance period for the applicable fiscal 
year. The performance standards must include levels of achievement and 
improvement, as required by section 1886(o)(3)(B) of the Act, and must 
be established and announced not later than 60 days before the 
beginning of the performance period for the fiscal year involved, as 
required by section 1886(o)(3)(C) of the Act. Achievement and 
improvement standards are discussed more fully in the Hospital 
Inpatient VBP Program final rule (76 FR 26511 through 26513).
    In addition, when establishing the performance standards, section 
1886(o)(3)(D) of the Act requires the Secretary to consider appropriate 
factors, such as: (1) Practical experience with the measures, including 
whether a significant proportion of hospitals failed to meet the 
performance standard during previous performance periods; (2) 
historical performance standards; (3) improvement rates; and (4) the 
opportunity for continued improvement. In the FY 2013 IPPS/LTCH PPS 
final rule, (77 FR 53599 through 53604), we codified our interpretation 
of the Hospital VBP statute with respect to performance standards in 
our regulations at 42 CFR Sec.  412.165.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53599 through 
53604), we adopted performance standards for FY 2015 and FY 2016 
Hospital VBP Program measures. We also finalized our policy to update 
performance periods and performance standards for future Hospital VBP 
Program years via notice on our Web site or another publicly available 
Web site.
b. Performance Standards for the FY 2016 Hospital VBP Program Measures
    We refer readers to the Hospital Inpatient VBP Program final rule 
(76 FR 26511 through 26513) for a detailed discussion of the 
methodology we adopted for calculating performance standards with 
respect to the clinical process of care, patient experience of care, 
and outcome measures, and the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51654 through 51656) for a discussion of the methodology we adopted for 
the MSPB measure. We have defined the ``achievement threshold'' as the 
median, or 50th percentile, of all hospitals' performance on a measure 
during a baseline period (or during the performance period in the case 
of the MSPB measure) with respect to a fiscal year (42 CFR 412.160). In 
the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27614), we proposed to 
revise this definition, in order to clarify that while this is true for 
the majority of Hospital VBP Program measures, it does not apply to the 
MSPB measure. The performance standards for the MSPB measure are based 
on performance period data, as finalized in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51655). Accordingly, we proposed to revise the 
definition of ``achievement threshold'' at 42 CFR 412.160 to read: 
``Achievement threshold (or achievement performance standard) means the 
median (50th percentile) of hospital performance on a measure during a 
baseline period with respect to a fiscal year, for Hospital VBP Program 
measures other than the Medicare Spending per Beneficiary measure, and 
the median (50th percentile) of hospital performance on a measure 
during the performance period with respect to a fiscal year, for the 
Medicare Spending per Beneficiary measure.''
    We have defined the ``benchmark'' as the arithmetic mean of the top 
decile of all hospitals' performance on a measure during the baseline 
period (42 CFR 412.160). Similar to the codified definition of 
``achievement threshold'' above, this definition of ``benchmark'' does 
not apply to the MSPB measure. In the FY 2014 IPPS/LTCH PPS proposed 
rule (78 FR 27614), we proposed to revise the definition of 
``benchmark'' at 42 CFR 412.160 to read: ``Benchmark means the 
arithmetic mean of the top decile of hospital performance on a measure 
during the baseline period with respect to a fiscal year, for Hospital 
VBP Program measures other than the Medicare Spending per Beneficiary 
measure, and the arithmetic mean of the top decile of hospital 
performance on a measure during the performance period with respect to 
a fiscal year, for the

[[Page 50695]]

Medicare Spending per Beneficiary measure.'' The ``improvement 
threshold'' is an individual hospital's performance level on a measure 
during the baseline period with respect to a fiscal year,'' and that 
definition applies to all measures.
    We welcomed public comments on these proposed regulation text 
changes. However, we did not receive specific comments on the proposed 
changes. We are therefore finalizing the regulation text changes as 
proposed.
    We stated that we continue to believe that the finalized 
methodology for calculating performance standards is appropriate for 
the Hospital VBP Program, and we recognize that we have an obligation 
to calculate the numerical values for each of these standards 
accurately. However, we also explained our concern that if we display 
the numerical values of the performance standards in a particular 
rulemaking document, but then discover that we made a data or 
calculation error, the result might be that hospitals are held to 
inaccurate performance standards. Examples of the types of errors that 
could occur are inaccurate variables on Medicare claims, programming 
errors, excluding hospitals that should have been included from 
performance standards calculations, or other errors that result in 
inaccuracies. For example, if our quality measurement software 
incorrectly excluded a number of hospitals from a given measure's 
performance standards calculation, the resulting achievement thresholds 
and benchmarks could force participating hospitals to meet inaccurate 
performance standards, which could have unpredictable effects on 
hospitals' scores.
    We stated that we are also aware that hospitals rely on the 
performance standards that we publicly display in order to target 
quality improvement efforts, and do not believe that it would be fair 
to participating hospitals to update repeatedly our finalized 
performance standards if we were to identify multiple errors.
    We stated our belief that the best method to balance our obligation 
to publicly display accurate performance standards with the need to 
correct such performance standards if we subsequently discover data 
errors is to make a single correction to a given measure's performance 
standards for a fiscal year. Under this proposed policy, if we 
identified data problems, calculation issues, or other errors with a 
significant impact on performance standards, we would have the ability 
to update the measure's performance standards once for a fiscal year.
    Therefore, we proposed to interpret the finalized definitions of 
``achievement threshold'' and ``benchmark'' found under 42 CFR 412.160 
to not include the numerical values that result when the performance 
standards are calculated. Further, we proposed to update a measure's 
performance standards for a fiscal year once if we identify data 
issues, calculation errors, or other problems that would significantly 
change the displayed performance standards. However, as has been our 
practice, and to remain fully transparent with participating hospitals, 
we stated our intent to continue to display the performance standards' 
numerical values in rulemaking.
    We invited public comments on this proposed interpretation. 
However, we did not receive any public comments on this policy. We are 
therefore finalizing our proposal to interpret the finalized 
definitions of ``achievement threshold'' and ``benchmark'' found under 
Sec.  412.160 to not include the numerical values that result when the 
performance standards are calculated.
    We finalized FY 2016 performance standards for the three 30-day 
mortality measures and the AHRQ PSI composite measure in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53603) and are displaying them again in 
the first table below. The numerical values for the proposed FY 2016 
performance standards for the clinical process, outcome, and efficiency 
measures appear in the second table below, while numerical values for 
the proposed FY 2016 performance standards for the patient experience 
of care (HCAHPS survey) measure appear in the third table below. We 
note that the numerical values for the performance standards displayed 
below represent estimates at the time that the proposed rule was 
published based on what was the most recently-available data. In the FY 
2014 IPPS/LTCH PPS proposed rule (78 FR 27614), we stated that we 
intended to update the numerical values in the FY 2014 IPPS/LTCH PPS 
final rule. Because the MSPB measure's performance standards are based 
on performance period data, we are unable to provide numeric 
equivalents for the standards at this time. In the proposed rule, we 
provided historical performance standards, for information purposes. 
During the period of May 1, 2011 through December 31, 2011, the 
achievement threshold would have been a MSPB ratio of 0.99, which 
corresponds to a standardized, risk-adjusted MSPB amount of $18,079, 
and the benchmark would have been 0.82, which corresponds to an MSPB 
amount of $14,985. In this final rule, we are providing more recent 
historical performance standards, also for information purposes. During 
the period of January 1, 2012 through December 31, 2012, the 
achievement threshold would have been an MSPB ratio of 0.98, which 
corresponds to a standardized, risk-adjusted MSPB amount of $18,412, 
and the benchmark would have been 0.82, which corresponds to an MSPB 
amount of $15,311. We also noted that the performance standards for the 
NHSN-based CLABSI, CAUTI, and SSI measures, the AHRQ PSI composite 
measure, and the MSPB measure are calculated with lower values 
representing better performance, in contrast to other measures, on 
which higher values indicate better performance. As discussed above, 
the proposed performance standards displayed below for SSI are an 
equally weighted average of the measure's strata.

Finalized Performance Standards for Certain FY 2016 Hospital VBP Program
                         Outcome Domain Measures
------------------------------------------------------------------------
                                            Achievement
      Measure ID           Description       threshold       Benchmark
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
MORT-30-AMI...........  Acute Myocardial        0.847472        0.862371
                         Infarction
                         (AMI) 30-day
                         mortality rate.
MORT-30-HF............  Heart Failure           0.881510        0.900315
                         (HF) 30-day
                         mortality rate.
MORT-30-PN............  Pneumonia (PN)          0.882651        0.904181
                         30-day
                         mortality rate.
PSI-90................  Complication/           0.622879        0.451792
                         patient safety
                         for selected
                         indicators
                         (composite).
------------------------------------------------------------------------


[[Page 50696]]


   Proposed Performance Standards for the FY 2016 Hospital VBP Program
    Clinical Process of Care, Outcome, and Efficiency Domain Measures
------------------------------------------------------------------------
                                          Achievement
      Measure ID         Description       threshold        Benchmark
------------------------------------------------------------------------
                    Clinical Process of Care Measures
------------------------------------------------------------------------
AMI-7a...............  Fibrinolytic     0.88625........  1.00000
                        Therapy
                        Received
                        Within 30
                        Minutes of
                        Hospital
                        Arrival.
IMM-2................  Influenza        0.89947........  0.99036
                        Immunization.
PN-6.................  Initial          0.96429........  1.00000
                        Antibiotic
                        Selection for
                        CAP in
                        Immunocompeten
                        t Patient.
SCIP-Inf-1...........  Prophylactic     0.98942........  1.00000
                        Antibiotic
                        Received
                        Within One
                        Hour Prior to
                        Surgical
                        Incision.
SCIP-Inf-2...........  Prophylactic     0.98951........  1.00000
                        Antibiotic
                        Selection for
                        Surgical
                        Patients.
SCIP-Inf-3...........  Prophylactic     0.97971........  1.00000
                        Antibiotics
                        Discontinued
                        Within 24
                        Hours After
                        Surgery End
                        Time.
SCIP-Inf-4...........  Cardiac Surgery  0.96797........  0.99977
                        Patients with
                        Controlled 6AM
                        Postoperative
                        Serum Glucose.
SCIP-Inf-9...........  Urinary          0.96743........  1.00000
                        Catheter
                        Removed on
                        Postoperative
                        Day 1 or
                        Postoperative
                        Day 2.
SCIP-Card-2..........  Surgery          0.97561........  1.00000
                        Patients on
                        Beta-Blocker
                        Therapy Prior
                        to Arrival Who
                        Received a
                        Beta-Blocker
                        During the
                        Perioperative
                        Period.
SCIP-VTE-2...........  Surgery          0.98086........  1.00000
                        Patients Who
                        Received
                        Appropriate
                        Venous
                        Thromboembolis
                        m Prophylaxes
                        Within 24
                        Hours Prior to
                        Surgery to 24
                        Hours After
                        Surgery.
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
CAUTI................  Catheter-        0.826..........  0.000
                        Associated
                        Urinary Tract
                        Infection.
CLABSI...............  Central Line-    0.473..........  0.000
                        Associated
                        Blood Stream
                        Infection.
SSI..................  Surgical Site    0.737..........  0.000
                        Infection.
------------------------------------------------------------------------
                           Efficiency Measures
------------------------------------------------------------------------
MSPB-1...............  Medicare         Median Medicare  Mean of the
                        Spending per     Spending per     lowest decile
                        Beneficiary.     Beneficiary      Medicare
                                         ratio across     Spending per
                                         all hospitals    Beneficiary
                                         during the       ratios across
                                         performance      all hospitals
                                         period.          during the
                                                          performance
                                                          period
------------------------------------------------------------------------


      Proposed Performance Standards for the FY 2016 Hospital VBP Program Patient Experience of Care Domain
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
                     HCAHPS Survey Dimension                           Floor         threshold       Benchmark
                                                                     (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Communication with Nurses.......................................           53.33           77.59           85.98
Communication with Doctors......................................           61.22           80.33           88.59
Responsiveness of Hospital Staff................................           36.44           64.65           79.72
Pain Management.................................................           47.93           70.16           78.24
Communication about Medicines...................................           42.23           62.28           72.67
Hospital Cleanliness & Quietness................................           42.16           64.93           79.12
Discharge Information...........................................           62.85           84.45           90.26
Overall Rating of Hospital......................................           36.45           69.05           83.89
----------------------------------------------------------------------------------------------------------------

    We invited public comments on the proposed performance standards.
    Comment: One commenter suggested that CMS phase out the Hospital 
VBP Program's use of improvement points when calculating hospitals' 
TPSs. The commenter explained that the Hospital VBP Program's initial 
implementation made improvement points necessary to encourage 
historically poor-performing hospitals to improve by giving them an 
opportunity to earn a value-based incentive payment based on their 
improvement. Other commenters argued, however, that the Hospital VBP 
Program should instead offer only achievement points in order to stop 
rewarding hospitals for catching up after providing subpar care 
delivery in the past.

[[Page 50697]]

    Response: We thank commenters for this suggestion. However, the 
Hospital VBP statute requires that the performance standards include 
levels of both achievement and improvement. Our finalized scoring 
methodology awards points for improvement based on performance during 
the baseline period compared to performance during the performance 
period, and we continue to believe that this methodology enables us to 
incentivize hospitals both to achieve high performance on quality 
measures and to improve their performance over time. We will consider 
further revising our scoring methodology in the future.
    Comment: Commenters requested that CMS address how hospitals' 
measured performance will change under CMS' pay-for-performance 
programs when the transition to ICD-10-CM/PCS codes occurs on October 
1, 2014. Commenters argued that it would be unfair to compare baseline 
period data coded under one system to performance period data coded 
under another.
    Response: We intend to address this topic with respect to the 
Hospital VBP Program in future rulemaking.
    After consideration of the public comments we received, we are 
finalizing our FY 2016 performance standards for the Clinical Process 
of Care, Efficiency, and Patient Experience of Care domains as 
proposed, with the exception of the performance standards for SCIP-Inf-
4, described further above. In addition, we are finalizing a modified 
SSI measure performance standards calculation, as described above in 
section V.H.6.b. of the preamble of this final rule.
    Set out below are the finalized performance standards for the 
Clinical Process of Care, Outcome, Efficiency, and Patient Experience 
of Care Domains.

  Finalized Performance Standards for the FY 2016 Hospital VBP Program
    Clinical Process of Care, Outcome, and Efficiency Domain Measures
------------------------------------------------------------------------
                                          Achievement
      Measure ID         Description       threshold        Benchmark
------------------------------------------------------------------------
                    Clinical Process of Care Measures
------------------------------------------------------------------------
AMI-7a...............  Fibrinolytic     0.91154........  1.00000
                        Therapy
                        Received
                        Within 30
                        Minutes of
                        Hospital
                        Arrival.
IMM-2................  Influenza        0.90607........  0.98875
                        Immunization.
PN-6.................  Initial          0.96552........  1.00000
                        Antibiotic
                        Selection for
                        CAP in
                        Immunocompeten
                        t Patient.
SCIP-Inf-2...........  Prophylactic     0.99074........  1.00000
                        Antibiotic
                        Selection for
                        Surgical
                        Patients.
SCIP-Inf-3...........  Prophylactic     0.98086........  1.00000
                        Antibiotics
                        Discontinued
                        Within 24
                        Hours After
                        Surgery End
                        Time.
SCIP-Inf-9...........  Urinary          0.97059........  1.00000
                        Catheter
                        Removed on
                        Postoperative
                        Day 1 or
                        Postoperative
                        Day 2.
SCIP-Card-2..........  Surgery          0.97727........  1.00000
                        Patients on
                        Beta-Blocker
                        Therapy Prior
                        to Arrival Who
                        Received a
                        Beta-Blocker
                        During the
                        Perioperative
                        Period.
SCIP-VTE-2...........  Surgery          0.98225........  1.00000
                        Patients Who
                        Received
                        Appropriate
                        Venous
                        Thromboembolis
                        m Prophylaxes
                        Within 24
                        Hours Prior to
                        Surgery to 24
                        Hours After
                        Surgery.
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
CAUTI................  Catheter-        0.801..........  0.000
                        Associated
                        Urinary Tract
                        Infection.
CLABSI...............  Central Line-    0.465..........  0.000
                        Associated
                        Blood Stream
                        Infection.
SSI..................  Surgical Site
                        Infection.
                         Colon   0.668    0.000
                                 0.752    0.000
                        Abdominal
                        Hysterectomy
------------------------------------------------------------------------
                           Efficiency Measures
------------------------------------------------------------------------
MSPB-1...............  Medicare         Median Medicare  Mean of the
                        Spending per     Spending per     lowest decile
                        Beneficiary.     Beneficiary      Medicare
                                         ratio across     Spending per
                                         all hospitals    Beneficiary
                                         during the       ratios across
                                         performance      all hospitals
                                         period.          during the
                                                          performance
                                                          period
------------------------------------------------------------------------


     Finalized Performance Standards for the FY 2016 Hospital VBP Program Patient Experience of Care Domain
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
                     HCAHPS Survey dimension                           Floor         threshold       Benchmark
                                                                     (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Communication with Nurses.......................................           53.99           77.67           86.07
Communication with Doctors......................................           57.01           80.40           88.56

[[Page 50698]]

 
Responsiveness of Hospital Staff................................           38.21           64.71           79.76
Pain Management.................................................           48.96           70.18           78.16
Communication about Medicines...................................           34.61           62.33           72.77
Hospital Cleanliness & Quietness................................           43.08           64.95           79.10
Discharge Information...........................................           61.36           84.70           90.39
Overall Rating of Hospital......................................           34.95           69.32           83.97
----------------------------------------------------------------------------------------------------------------

c. Certain Performance Standards for the FY 2017, FY 2018, and FY 2019 
Hospital VBP Programs
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27616) we 
proposed to adopt the following performance standards for the three 30-
day mortality and AHRQ PSI composite measures for the FY 2017, FY 2018, 
and FY 2019 Hospital VBP Program years:

 Proposed Performance Standards for the Three 30-Day Mortality and AHRQ
         Composite Measures for the FY 2017 Hospital VBP Program
------------------------------------------------------------------------
                                            Achievement
      Measure ID           Description       threshold       Benchmark
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
MORT-30-AMI...........  Acute Myocardial        0.851458        0.871669
                         Infarction
                         (AMI) 30-day
                         mortality rate.
MORT-30-HF............  Heart Failure           0.881794        0.903985
                         (HF) 30-day
                         mortality rate.
MORT-30-PN............  Pneumonia (PN)          0.882986        0.908124
                         30-day
                         mortality rate.
PSI-90................  Complication/           0.580808        0.399880
                         patient safety
                         for selected
                         indicators
                         (composite).
------------------------------------------------------------------------


 Proposed Performance Standards for the Three 30-Day Mortality and AHRQ
         Composite Measures for the FY 2018 Hospital VBP Program
------------------------------------------------------------------------
                                            Achievement
      Measure ID           Description       threshold       Benchmark
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
MORT-30-AMI...........  Acute Myocardial        0.850916        0.873053
                         Infarction
                         (AMI) 30-day
                         mortality rate.
MORT-30-HF............  Heart Failure           0.883421        0.907656
                         (HF) 30-day
                         mortality rate.
MORT-30-PN............  Pneumonia (PN)          0.882860        0.907900
                         30-day
                         mortality rate.
PSI-90................  Complication/           0.585397        0.400502
                         patient safety
                         for selected
                         indicators
                         (composite).
------------------------------------------------------------------------


 Proposed Performance Standards for the Three 30-Day Mortality and AHRQ
         Composite Measures for the FY 2019 Hospital VBP Program
------------------------------------------------------------------------
                                            Achievement
      Measure ID           Description       threshold       Benchmark
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
MORT-30-AMI...........  Acute Myocardial        0.850671        0.873263
                         Infarction
                         (AMI) 30-day
                         mortality rate.
MORT-30-HF............  Heart Failure           0.883472        0.908094
                         (HF) 30-day
                         mortality rate.
MORT-30-PN............  Pneumonia (PN)          0.882334        0.907906
                         30-day
                         mortality rate.
PSI-90................  Complication/           0.585397        0.400502
                         patient safety
                         for selected
                         indicators
                         (composite).
------------------------------------------------------------------------

    We invited public comment on these proposed performance standards. 
However, we did not receive any comments specific to these proposed 
performance standards. We are therefore finalizing the performance 
standards as proposed, with the exception of the FY 2019 performance 
standards for the AHRQ PSI measure. As discussed further above in 
section V.H.7.e. of the preamble of this final rule, we intend to adopt 
the AHRQ PSI measure for FY 2019 in future rulemaking, and believe that 
by declining to finalize its performance periods and performance 
standards at this time, we may select a more recent baseline period for 
that measure for FY 2019. We note further that the performance 
standards for the mortality measures for FY 2017 through FY 2019 have 
not changed since they were displayed in the proposed rule.

[[Page 50699]]



 Finalized Performance Standards for the Three 30-Day Mortality and AHRQ
         Composite Measures for the FY 2017 Hospital VBP Program
------------------------------------------------------------------------
                                            Achievement
      Measure ID           Description       threshold       Benchmark
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
MORT-30-AMI...........  Acute Myocardial        0.851458        0.871669
                         Infarction
                         (AMI) 30-day
                         mortality rate.
MORT-30-HF............  Heart Failure           0.881794        0.903985
                         (HF) 30-day
                         mortality rate.
MORT-30-PN............  Pneumonia (PN)          0.882986        0.908124
                         30-day
                         mortality rate.
PSI-90................  Complication/           0.577321        0.397051
                         patient safety
                         for selected
                         indicators
                         (composite).
------------------------------------------------------------------------


 Finalized Performance Standards for the Three 30-Day Mortality and AHRQ
         Composite Measures for the FY 2018 Hospital VBP Program
------------------------------------------------------------------------
                                            Achievement
      Measure ID           Description       threshold       Benchmark
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
MORT-30-AMI...........  Acute Myocardial        0.850916        0.873053
                         Infarction
                         (AMI) 30-day
                         mortality rate.
MORT-30-HF............  Heart Failure           0.883421        0.907656
                         (HF) 30-day
                         mortality rate.
MORT-30-PN............  Pneumonia (PN)          0.882860        0.907900
                         30-day
                         mortality rate.
PSI-90................  Complication/           0.582626        0.398030
                         patient safety
                         for selected
                         indicators
                         (composite).
------------------------------------------------------------------------


 Finalized Performance Standards for the Three 30-Day Mortality and AHRQ
         Composite Measures for the FY 2019 Hospital VBP Program
------------------------------------------------------------------------
                                            Achievement
      Measure ID           Description       threshold       Benchmark
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
MORT-30-AMI...........  Acute Myocardial        0.850671        0.873263
                         Infarction
                         (AMI) 30-day
                         mortality rate.
MORT-30-HF............  Heart Failure           0.883472        0.908094
                         (HF) 30-day
                         mortality rate.
MORT-30-PN............  Pneumonia (PN)          0.882334        0.907906
                         30-day
                         mortality rate.
------------------------------------------------------------------------

9. FY 2016 Hospital VBP Program Scoring Methodology
a. General Hospital VBP Program Scoring Methodology
    In the Hospital Inpatient VBP Program final rule, we adopted a 
methodology for scoring clinical process of care, patient experience of 
care, and outcome measures. As noted in that rule, this methodology 
outlines an approach that we believe is well understood by patient 
advocates, hospitals, and other stakeholders because it was developed 
during a lengthy process that involved extensive stakeholder input, and 
was based on a scoring methodology we presented in a report to 
Congress. We also noted in that final rule that we had conducted 
extensive additional research on a number of other important 
methodology issues to ensure a high level of confidence in the scoring 
methodology (76 FR 26514). In addition, we believe that, for reasons of 
simplicity, transparency, and consistency, it is important to score 
hospitals using the same general methodology each year, with 
appropriate modifications to accommodate new domains and measures. We 
finalized a scoring methodology for the MSPB measure in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51654 through 51656).
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 28087), for the FY 
2015 Hospital VBP Program, we finalized our proposal to use these same 
scoring methodologies to score hospital performance for the FY 2015 
Hospital VBP Program. In that rule, we stated that we believe these 
scoring methodologies continue to appropriately capture hospital 
quality as reflected by the finalized quality measure sets. We also 
noted that readopting the finalized scoring methodology from prior 
program years represents the simplest and most consistent policy for 
providers and the public.
    We continue to believe that the finalized scoring methodology for 
the Hospital VBP Program is well understood by patient advocates, 
hospitals, and other stakeholders because it was developed during a 
lengthy process that involved extensive stakeholder input, and was 
based on a scoring methodology we presented in a report to Congress. As 
we stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53604), we 
believe that, for reasons of simplicity, transparency, and consistency, 
it is important to score hospitals using the same general methodology 
each year, with appropriate modifications to accommodate new domains 
and measures.
    Therefore, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27616 
through 27617), we proposed to readopt the finalized scoring 
methodology adopted for the FY 2015 Hospital VBP Program for the FY 
2016 Hospital VBP Program. We welcomed public comment on this proposal. 
However, we did not receive any public comments specific to the 
proposed scoring methodology. Therefore, we are finalizing the scoring 
methodology as proposed.
b. Domain Weighting for the FY 2016 Hospital VBP Program for Hospitals 
That Receive a Score on All Domains
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53582 through 
53592), we added the Efficiency domain to the Hospital VBP Program 
beginning with the FY 2015 Hospital VBP Program. We

[[Page 50700]]

also finalized our proposal for the following domain weights for the FY 
2015 Hospital VBP Program for hospitals that receive a score on all 
four proposed domains (77 FR 53605 through 53606):

 Final Domain Weights for the FY 2015 Hospital VBP Program for Hospitals
                Receiving a Score on All Proposed Domains
------------------------------------------------------------------------
                           Domain                             Weight  %
------------------------------------------------------------------------
Clinical Process of Care...................................           20
Patient Experience of Care.................................           30
Outcome....................................................           30
Efficiency.................................................           20
------------------------------------------------------------------------

    We stated that we believed this domain weighting appropriately 
reflects our priorities for quality improvement in the inpatient 
hospital setting and begins aligning with the National Quality 
Strategy's priorities. We believe that the domain weighting will 
continue to improve the link between Medicare payments to hospitals and 
patient outcomes, efficiency and cost, and the patient experience. We 
note that the weighting places the strongest relative emphasis on 
outcomes and the patient experience, which we view as two critical 
components of quality improvement in the inpatient hospital setting. We 
further note that the domain weighting, for the first time, 
incorporates a measure of efficiency and continues to provide 
substantial weight to clinical processes.
    As we stated in the Hospital Inpatient VBP Program final rule (76 
FR 26491), we believe that domains need not be given equal weight, and 
that over time, scoring methodologies should be weighted more towards 
outcomes, patient experience of care, and functional status measures 
(for example, measures assessing physical and mental capacity, 
capability, well-being and improvement). We took these considerations 
into account when developing the domain weighting proposal outlined 
below.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27617), we 
proposed domain weights for hospitals that receive a score in all 
proposed domains. We believe that the proposed domain weighting 
specified below will continue to improve the link between Medicare 
payments to hospitals and patient outcomes, efficiency and cost, and 
the patient experience. We note that the proposed domain weighting 
places the highest relative weight on measures of outcomes and 
continues to place significant weight on the patient experience and on 
efficiency, while maintaining clinical processes as an important 
component of the program's quality measurement.
    Therefore, we proposed the following domain weighting for the FY 
2016 Hospital VBP Program:

    Proposed Domain Weights for the FY 2016 Hospital VBP Program for
           Hospitals Receiving a Score on All Proposed Domains
------------------------------------------------------------------------
                           Domain                             Weight  %
------------------------------------------------------------------------
Clinical Process of Care...................................           10
Patient Experience of Care.................................           25
Outcome....................................................           40
Efficiency.................................................           25
------------------------------------------------------------------------

    We welcomed public comment on this proposed domain weighting.
    Comment: Commenters supported the proposal to place more emphasis 
on the Outcome domain compared to Clinical Process of Care domain. 
Commenters also recommended that CMS consider the relative magnitude of 
quality incentives across programs when developing our domain 
weighting.
    Response: We thank commenters for their support.
    Comment: Some commenters strongly supported significant domain 
weighting for the Patient Experience of Care domain, arguing that it is 
imperative that hospitals continue to focus on the patient's experience 
when developing quality improvement efforts. Commenters suggested that 
CMS consider retaining the 30 percent weight finalized for FY 2015's 
Patient Experience of Care domain for FY 2016 and future years.
    Response: We thank commenters for their support for substantial 
weighting for the Patient Experience of Care Domain. We agree that 
hospitals should be provided strong incentives to focus on the 
patient's experience of care during acute inpatient hospitalizations, 
and believe that our proposed weighting for the Patient Experience of 
Care domain for FY 2016 reflects that priority. We do not believe that 
the minor change to the Patient Experience of Care domain's weighting 
proposed for FY 2016 will diminish significantly the strong emphasis 
that hospitals place on the patient's experience during acute 
hospitalizations.
    Comment: Some commenters opposed the proposed domain weighting, 
arguing that the Patient Experience of Care domain received too much 
weight as proposed. Commenters cited several studies and articles and 
argued that highly satisfied patients often have worse health outcomes, 
and that emphasizing patient satisfaction has contributed to narcotics 
abuse. These commenters recommended that CMS reconsider this domain's 
weighting. Commenters also expressed concern about the proposal to 
weight the Patient Experience of Care domain more heavily than the 
Clinical Process of Care domain, arguing that Patient Experience of 
Care measures do not necessarily correlate with medical outcomes, and 
suggested that CMS more evenly balance the domain weighting given to 
those two domains. Commenters also suggested that the HCAHPS measure 
lacks sufficient risk-adjustment, and that the survey systematically 
disadvantages hospitals that take on complex and sicker patients.
    Response: We thank the commenters for their feedback. CMS and the 
HCAHPS Project Team are familiar with the studies cited. We are also 
aware of a number of studies published in peer-reviewed journals that 
have found that patient experience of care, as measured by the HCAHPS 
survey, is strongly and positively related to clinical process 
measures, outcomes, readmissions, and mortality. For brief reviews of 
these findings, we refer readers to: ``The Patient Experience and 
Health Outcomes.'' Matthew Manary, William Boulding, Richard Staelin, 
and Seth Glickman. New England Journal of Medicine, 368 (3): 201-203. 
2013 and ``What does the patient know about quality?'' Karen Luxford. 
International Journal for Quality in Health Care. 24 (5): 439-440. 
2012.
    With respect to the articles cited by the commenter, we note that 
other researchers have cited flaws in the approach, data and 
methodology employed in the Fenton, et al., study, which did not 
directly examine the HCAHPS Survey. The study by Lyu, et al. is 
premised upon the misunderstanding that CMS uses patient experience as 
the sole criterion for measuring and assessing hospital quality. In 
addition, their findings, based on examination of 31 hospitals, may 
insufficiently represent the over 3,000 hospitals that participate in 
the Hospital VBP Program and the approximately 4,000 hospitals that 
participate in the Hospital IQR Program.
    The focus of the Forbes magazine article \42\ the commenter cited 
is surveys of physicians, not of the inpatient hospital experience. The 
HCAHPS Survey asks inpatients how often doctors treated them with 
courtesy and respect, listened carefully to the patient,

[[Page 50701]]

and explained things in a way they could understand. HCAHPS does not 
identify or differentiate among the physicians who treated the patient. 
We are not aware of documented evidence or research that demonstrates 
that HCAHPS or other patient surveys have led hospitals or physicians 
to give patients ``exactly what they want,'' including medically 
unnecessary pain medications, in order to influence patients' responses 
to such surveys.
---------------------------------------------------------------------------

    \42\ Falkenberg, K., ``Why rating your doctor is bad for your 
health.'' Forbes: January 21, 2013.
---------------------------------------------------------------------------

    We believe that patient experience of care is a fundamental and 
intrinsically important aspect of hospital quality which merits its 
proposed weighting in the Hospital VBP Program TPS.
    As we stated in the Hospital Inpatient VBP final rule (76 FR 
26526), we believe that delivery of high-quality, patient-centered care 
requires us to carefully consider the patient's experience in the 
hospital inpatient setting. Moreover, as we stated in the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53606), we are aware of no data suggesting 
that patient characteristics result in bias in the HCAHPS patient-mix 
adjusted data used in the Hospital VBP Program.
    We thoroughly tested the HCAHPS patient-mix adjustment model before 
the national implementation of the HCAHPS Survey in 2006 and have 
checked it regularly since. We use a patient-mix adjustment, also known 
as case-mix adjustment, in a transparent manner in our standard 
patient-mix adjustment of HCAHPS scores, as explained on the official 
HCAHPS On-Line Web site, http://www.hcahpsonline.org, in our research 
documents, in the patient-mix adjustment coefficients that are posted 
on this Web site, and in our published research.
    The HCAHPS Survey includes an item that asks for patients' 
assessment of their overall health that we use in our standard patient-
mix adjustment of HCAHPS scores to account for patient acuity.
    While we continue to believe that this adjustment adequately 
captures patient acuity, in response to comments about HCAHPS in 
previous IPPS rules, we added an item to the HCAHPS Survey in January 
2013 that asks patients to assess their overall mental or emotional 
health. At this time, we are analyzing the effect of patients' overall 
mental or emotional health on HCAHPS scores. Based on the results of 
this analysis, we will determine whether we believe a further patient-
mix adjustment for mental or emotional health may be warranted.
    Therefore, we do not believe that the proposed weighting for the 
Patient Experience of Care domain is too high, and we believe that 
placing significant weighting on the Patient Experience of Care 
appropriately encourages hospitals to focus intently on this clinical 
area.
    Comment: Some commenters fully supported the proposed increase in 
the Efficiency domain weight, and a few of those commenters expressed 
support for an aggressive increase in its weight over time. MedPAC also 
supported the proposed domain weights.
    Response: We thank the commenters for their support, and we agree 
that shift in emphasis on efficiency is one important goal for the 
Hospital VBP Program.
    Comment: Many commenters opposed the increased weight for the 
Efficiency domain from 20 percent in FY 2015 to 25 percent for FY 2016. 
The commenters' opposition was based on concerns related to the MSPB 
measure and the fact that the domain is comprised of only one measure.
    Response: We responded to commenters' concerns with the MSPB 
measure in general in section V.H.7.d of the preamble to this final 
rule. With regard to the concern that the domain is comprised of only 
one measure, we acknowledge the potential for building a more robust 
efficiency measure set, as we stated in the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53585 through 53586), and we solicited and received public 
comments on how we might pursue that goal in this rule. We intend to 
ensure that any additional efficiency measures are fully developed, 
tested, included in the Hospital IQR Program, and posted on the 
Hospital Compare Web site before they are included in the Hospital VBP 
Program, in accordance with the program's statutory requirements. In 
the interim, we continue to believe that increased emphasis on 
efficiency is an important goal for the Hospital VBP Program, and that 
the efficiency domain weight should be increased accordingly.
    Comment: Some commenters opposed the proposed FY 2016 domain 
weighting, arguing that the Outcome, Patient Experience of Care, and 
Efficiency domains were accorded too much weighting as proposed. 
Commenters argued that the Clinical Process of Care domain should be 
given increased weight given those measures' long inclusion in both the 
Hospital IQR and Hospital VBP Programs. Other commenters argued that 
because of reliability concerns about certain Outcome measures, the 
proposed weight for the Outcome domain is inappropriate.
    Response: We disagree that we have placed too much weight on the 
Outcome, Patient Experience, and Efficiency domains. In the Hospital 
Inpatient VBP Program final rule (76 FR 26526), we stated our intent to 
consider placing greater weight on measures of outcomes than measures 
of clinical processes as we developed our domain weighting proposals 
for FY 2014, and we believe we have appropriately done so when 
proposing domain weights for FY 2014 and FY 2015. We believe it is 
appropriate to continue placing a strong emphasis on measures of 
clinical outcomes under the Hospital VBP Program. As described further 
above, we also believe it to be appropriate to place significant weight 
on the Patient Experience of Care and Efficiency domains.
    While we agree that Clinical Process of Care measures are important 
to quality measurement, we believe that placing emphasis on measures of 
Outcomes necessarily requires some reduction to the domain weight 
placed on Clinical Processes, in particular because the Clinical 
Process of Care domain was weighted as 70 percent of the TPS under the 
FY 2013 Hospital VBP Program.
    After consideration of the public comments we received, we are 
finalizing the FY 2016 domain weighting for hospitals receiving a score 
on all domains as proposed.
    Set out below are the finalized domain weights for hospitals that 
receive a score in all proposed domains.

    Finalized Domain Weights for the FY 2016 Hospital VBP Program for
           Hospitals Receiving a Score on All Proposed Domains
------------------------------------------------------------------------
                           Domain                             Weight  %
------------------------------------------------------------------------
Clinical Process of Care...................................           10
Patient Experience of Care.................................           25
Outcome....................................................           40
Efficiency.................................................           25
------------------------------------------------------------------------

c. Domain Weighting for the FY 2016 Hospital VBP Program for Hospitals 
Receiving Scores on Fewer Than Four Domains
    In prior program years, we finalized a policy that hospitals must 
have received domain scores on all finalized domains in order to 
receive a TPS. However, since the Hospital VBP Program has evolved from 
its initial two domains to an expanded measure set with additional 
domains, we considered whether it was appropriate to continue this 
policy.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53608 through 
53609), we finalized our proposal for a higher minimum number of cases 
for the three

[[Page 50702]]

30-day mortality measures for the FY 2015 Hospital VBP Program than was 
finalized for the FY 2014 Hospital VBP Program. We made this change in 
our policy in order to improve these measures' reliability given the 
relatively short performance period for these measures. However, we 
were concerned that the relatively higher minimum number of cases could 
result in a substantially larger number of hospitals being excluded 
from the Hospital VBP Program. We believe that we should make a 
concerted effort to include as many hospitals as possible in the 
program in order to offer quality incentives and encourage quality 
improvement.
    Therefore, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53606 
through 53607), we finalized our proposal that, for the FY 2015 
Hospital VBP Program and subsequent years, hospitals with sufficient 
data to receive at least two domain scores (that is, sufficient cases 
and measures to receive a domain score on at least two domains) will 
receive a TPS. We also finalized our proposal that, for hospitals with 
at least two domain scores, TPSs would be reweighted proportionately to 
the scored domains to ensure that the TPS is still scored out of a 
possible 100 points and that the relative weights for the scored 
domains remain equivalent to the weighting which occurs when there are 
scores in all four domains. We believe that this approach allows us to 
include relatively more hospitals in the Hospital VBP Program while 
continuing to focus on reliably scoring hospitals on their quality 
measure performance. In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27617 through 26718), we proposed to continue this approach for the FY 
2016 Hospital VBP Program and subsequent fiscal years for purposes of 
eligibility for the program. However, as detailed further below, we 
proposed to reclassify the Hospital VBP Program's quality measurement 
domains beginning with the FY 2017 Hospital VBP Program to align more 
closely with CMS' National Quality Strategy, and we sought public 
comments on how we should determine minimum numbers of cases and 
measures under that proposed policy.
    We invited public comment on this proposed reweighting for 
hospitals with sufficient data on at least two finalized domains. 
However, we did not receive any comments specific to this policy. We 
are therefore finalizing this policy as proposed.
d. Domain Reclassification and Domain Weighting for the FY 2017 
Hospital VBP Program
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53593 through 
53594), we outlined one possible set of measure classifications based 
on the National Quality Strategy. However, we did not finalize our 
proposal to adopt quality measurement domains based on the National 
Quality Strategy for the FY 2016 Hospital VBP Program, because we 
understood stakeholders to be concerned about our proposal to reshape 
the Hospital VBP Program's scoring methodology before hospitals had 
actual experience with the program and its value-based incentive 
payments.
    However, we now believe that hospitals have accumulated practical 
experience with all components of the Hospital VBP Program, including 
performance periods and payment periods. As a result of our extensive 
outreach efforts to hospitals and stakeholders, as well as the 
practical experience with the first year of the program, we also 
believe that hospitals and other stakeholders generally understand the 
program's operations and scoring methodology. Therefore, we believe 
that we have addressed commenters' concerns, summarized in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53594), that we should wait until 
hospitals have experienced the program fully before fundamentally 
reshaping its structure.
    We are attempting to align all of our quality improvement efforts 
with the NQS, particularly because it is a patient-centered approach 
that aligns public and private efforts. We are aware that NQF uses NQS-
based domains, and we also use those domains in development of other 
agency-specific efforts. We note further that stakeholders frequently 
request that HHS align its quality improvement efforts so that 
providers are not subjected to different measurement approaches, and we 
believe that adapting the Hospital VBP Program domain structure is one 
approach to achieving that goal. We believe that the longer we wait to 
adapt the Hospital VBP Program to the NQS domains, the more difficult 
it will be, and we believe we need a common framework as we begin 
alignment efforts between the Hospital IQR Program, the Hospital VBP 
Program, and the Medicare EHR Incentive Program. CMS's quality 
measurement strategic plan also centers on the NQS, and we believe that 
using these domains rewards hospitals for providing more efficient and 
more patient-centered care. The most recent Annual Progress Report to 
Congress addressing the NQS can be found on the Web site at: http://www.ahrq.gov/workingforquality/nqs/nqs2012annlrpt.pdf.
    Therefore, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27618 
through 27619), we proposed to align the Hospital VBP Program's quality 
measurement domains with the NQS' quality priorities, with certain 
modifications discussed further below. We proposed to adopt this 
realignment beginning with the FY 2017 Hospital VBP Program.
    We proposed to combine the priorities of Care Coordination and 
Patient and Caregiver Centered Experience of Care into one domain for 
purposes of aligning the Hospital VBP Program domains with the NQS 
priorities. Care Coordination aligns with the NQS priority stated as 
promoting effective communication and coordination of care. Patient and 
Caregiver Centered Experience of Care aligns with the NQS priority 
stated as ensuring that each person and family are engaged as partners 
in their care. We stated our belief that, in order to be engaged as 
partners, effective communication and coordination of care must 
coexist. This notion is further exemplified by one of the 10 principles 
of the NQS, found at http://www.ahrq.gov/workingforquality/nqs/principles.html, which notes that ``Person-centeredness and family 
engagement, including understanding and valuing patient preferences, 
will guide all strategies, goals, and health care improvement efforts. 
The most successful health care experiences are often those in which 
clinicians, patients, and their families work together to make 
decisions.'' We stated our belief that care coordination includes this 
shared decision-making among clinicians, patients, and their families, 
and further believe that a component of these important concepts can be 
captured with the HCAHPS measure.
    Therefore, we stated that we believe that placing the HCAHPS 
measure into the proposed combined domain below will continue to 
encourage hospitals to focus on improving the patient's experience 
during acute care hospitalizations and will enable us to continue 
providing incentives that focus on patient and caregiver experience and 
coordination of care. However, with the exception of the HCAHPS measure 
described above, we did not believe that any of the other proposed 
measures for the FY 2016 Hospital VBP Program, which would form the 
basis for the FY 2017 Hospital VBP Program's measure set, should be 
placed into the proposed combined Patient and Caregiver

[[Page 50703]]

Experience of Care/Care Coordination domain. We stated our intent to 
consider proposing to adopt measures of care coordination in the future 
as they become available.
    We stated that we may propose further refinements to the Hospital 
VBP Program domain structure in future years to accommodate the NQS' 
population health priority or other quality improvement priorities as 
appropriate, but did not propose to adopt a Population Health domain at 
this time.
    We noted that the proposed NQS-based domain structure combines 
measures of clinical processes and outcomes under the ``Clinical Care'' 
priority. In order to ensure that outcomes remain a principal focus of 
hospitals' quality improvement efforts, as well as to continue our 
effort to shift the program over time to include more measures of 
outcomes and efficiency, we proposed to stratify the NQS-based Clinical 
Care domain into ``Clinical Care--Outcomes'' and ``Clinical Care--
Process,'' which will enable us to provide significant weight to 
measures of outcomes and avoid diluting hospitals' focus on measures of 
outcomes.
    We noted further that the proposed NQS-based domains include 
``Efficiency and Cost Reduction,'' a domain priority that we believe is 
analogous to the current ``Efficiency'' domain finalized for the 
Hospital VBP Program, and a ``Safety'' domain. We placed measures of 
outcomes into both the Clinical Care--Outcome and Safety domains below 
and generally distinguished between the two by focusing on the 
measures' direct impact on patients. The measures we proposed to place 
into the Safety domain include measures of healthcare-associated 
infections and the AHRQ patient safety composite. We stated our belief 
that hospitals must continue to focus quality improvement efforts on 
these outcome safety measures, which track infection and safety events 
that pose direct harm to patients.
    Finally, as we stated in the Hospital Inpatient VBP Program final 
rule (76 FR 26491), we believe that domains need not be given equal 
weight, and that over time, scoring methodologies should be weighted 
more towards outcomes, patient experience of care, and functional 
status measures (for example, measures assessing physical and mental 
capacity, capability, well-being and improvement). We took these 
considerations into account when developing the domain weighting 
proposal outlined below. We stated our belief that the proposed domain 
weighting will continue to improve the link between Medicare payments 
to hospitals and patient outcomes, efficiency and cost, and the patient 
and care giver experience.
    We noted further that the proposed domain weighting below places 
significant weight on measures of clinical outcomes, efficiency, and 
the patient experience, while also prioritizing safety and clinical 
processes. We stated our belief that the proposed domain weighting 
appropriately balances the clinical quality priorities described by the 
NQS.
    Therefore, we proposed to adopt the following domains and domain 
weights for the FY 2017 Hospital VBP Program:

Proposed Domains and Domain Weights for the FY 2017 Hospital VBP Program
         for Hospitals Receiving a Score on All Proposed Domains
------------------------------------------------------------------------
               Domain                               Weight
------------------------------------------------------------------------
Safety..............................  15 percent.
Clinical Care.......................  35 percent.
     Clinical Care--Outcomes      25 percent.
     Clinical Care--Process.      10 percent.
Efficiency and Cost Reduction.......  25 percent.
Patient and Caregiver Centered        25 percent.
 Experience of Care/Care
 Coordination.
------------------------------------------------------------------------

    We welcomed public comments on this proposal.
    While we stated our belief there are advantages to aligning the 
Hospital VBP Program domains with the NQS domains, we also recognized 
that there may be advantages associated with maintaining consistency 
with previous years' domains. Accordingly, as an alternative to 
realigning the Hospital VBP Program's domain structure more closely 
with the NQS beginning with FY 2017, we also invited public comments on 
whether we should adopt the following domains and domain weighting, 
which would be consistent with the proposals outlined for FY 2016 
above:

   Alternative Domain Weights for the FY 2017 Hospital VBP Program for
           Hospitals Receiving a Score on All Proposed Domains
------------------------------------------------------------------------
                                                                Weight
                           Domain                            (percent) %
------------------------------------------------------------------------
Clinical Process of Care...................................           10
Patient Experience of Care.................................           25
Outcome....................................................           40
Efficiency.................................................           25
------------------------------------------------------------------------

    We also sought public comments on how we should assign proposed 
measures to the new NQS-aligned domains, if finalized for FY 2017, and 
sought public comments on the following domain assignments for proposed 
FY 2016 measures, which would form the initial basis for the FY 2017 
Hospital VBP Program's measure set:

------------------------------------------------------------------------
         Measure ID              Current domain       NQS-based domain
------------------------------------------------------------------------
AMI-7a......................  Clinical Process of   Clinical Care--
                               Care.                 Process.
IMM-2.......................  Clinical Process of   Clinical Care--
                               Care.                 Process.
PN-6........................  Clinical Process of   Clinical Care--
                               Care.                 Process.
SCIP-Inf-2..................  Clinical Process of   Clinical Care--
                               Care.                 Process.
SCIP-Inf-3..................  Clinical Process of   Clinical Care--
                               Care.                 Process.
SCIP-Inf-9..................  Clinical Process of   Clinical Care--
                               Care.                 Process.
SCIP-Card-2.................  Clinical Process of   Clinical Care--
                               Care.                 Process.
SCIP-VTE-2..................  Clinical Process of   Clinical Care--
                               Care.                 Process.

[[Page 50704]]

 
HCAHPS......................  Patient Experience    Patient and
                               of Care.              Caregiver Centered
                                                     Experience of Care/
                                                     Care Coordination.
CAUTI.......................  Outcome.............  Safety.
CLABSI......................  Outcome.............  Safety.
MORT-30-AMI.................  Outcome.............  Clinical Care--
                                                     Outcomes.
MORT-30-HF..................  Outcome.............  Clinical Care--
                                                     Outcomes.
MORT-30-PN..................  Outcome.............  Clinical Care--
                                                     Outcomes.
PSI-90......................  Outcome.............  Safety.
SSI.........................  Outcome.............  Safety.
MSPB-1......................  Efficiency..........  Efficiency and Cost
                                                     Reduction.
------------------------------------------------------------------------

    Comment: Many commenters expressed support for the proposal to 
adopt new quality domains based on the National Quality Strategy for FY 
2017 and future program years. Commenters further suggested that CMS 
consider carefully how to score Mortality and Process measures under 
the revised domain structure, arguing that the Outcome portion of the 
Total Performance Score should receive no more than 25 percent weight, 
while Processes should receive at least 45 percent. Other commenters 
argued that CMS placed too much emphasis on the Outcome measures under 
the new domain structure given their concerns about the measures' 
reliability, and argued that CMS should adopt a more balanced mix of 
process and outcome measures in the program.
    Response: We thank commenters for their support. We do not believe 
we placed too much domain weight on measures of Outcomes under the 
revised domain structure, as some commenters suggested. As we indicated 
in the Hospital Inpatient VBP Program final rule (76 FR 26491), we are 
attempting to move our quality programs ``as quickly as possible to 
using primarily outcome and patient experience measures.'' We believe 
that our proposed domain structure and domain weighting appropriately 
continues the program's transition from being based primarily on 
measures of clinical processes towards a focus on measures of outcomes 
and the patient experience.
    Comment: Commenters suggested that CMS consider the Hospital 
Readmissions Reduction Program as the Care Coordination domain for the 
Hospital VBP Program, particularly because CMS did not propose to 
include any measures in the Care Coordination domain.
    Response: We thank commenters for this suggestion. However, as 
described above in section V.H.6.b. of the preamble of this final rule, 
we do not believe it to be feasible under the statute to treat the 
Hospital Readmissions Reduction Program as a component of the Hospital 
VBP Program. We note further that we are prohibited by section 
1886(o)(2)(A) of the Act from selecting measures of readmissions for 
the Hospital VBP Program.
    Comment: Commenters argued that CMS should select measures that 
assess the hospital's role in Care Coordination given the Hospital VBP 
Program's focus on providing quality-based incentives to hospitals. 
Some commenters suggested that CMS work with QIOs to develop new 
measures of care coordination for use in the Hospital VBP Program.
    Response: We thank commenters for this feedback. We agree that care 
coordination, and specifically, care transition, is a vital aspect of 
health care providers' services and patients' experience of care. In 
order to measure and assess inpatients' experience with preparation for 
transition to post-acute care, we added the three-item Care Transition 
Measure to the HCAHPS Survey in January 2013. Once we have collected 
four quarters (12 months) of data on these items, we intend to publicly 
report results on the Hospital Compare Web site in the form of a Care 
Transition Composite measure. Whether, when, and how this information 
might be used in the Hospital VBP Program will be addressed in future 
rulemaking.
    We intend to continue working with stakeholders to develop new, 
robust quality measures for the Hospital VBP Program, including new 
measures of care coordination.
    After consideration of the public comments we received, we are 
finalizing our proposal to adopt new quality measurement domains based 
on the CMS National Quality Strategy for the FY 2017 Hospital VBP 
Program as proposed. We intend to propose more details about this 
policy in future rulemaking.
    We also sought comment on how we should address minimum numbers of 
cases and measures under sections 1886(o)(1)(C)(ii)(III) and (IV) of 
the Act if we finalize this domain structure for the FY 2017 Hospital 
VBP Program. If we adopted the NQS-based domains solely for purposes of 
constructing the TPS, we could retain the general case and measure 
minimums structure adopted for prior program years. However, given the 
requirement in section 1886(o)(1)(C)(iii) of the Act that the Secretary 
conduct an independent analysis of what numbers are appropriate, we are 
also considering if we should commission such an analysis for the NQS 
domains, as modified. We sought public comments on this issue. However, 
we did not receive any comments on this issue. We intend to address 
this issue in future rulemaking.
e. Disaster/Extraordinary Circumstance Exception \43\ Under the 
Hospital VBP Program
---------------------------------------------------------------------------

    \43\ We described this process in the FY 2014 IPPS/LTCH PPS 
proposed rule as a ``Disaster/Extraordinary Circumstances Waiver'' 
process.
---------------------------------------------------------------------------

    We are concerned that hospital performance under the Hospital VBP 
Program might be adversely impacted as a direct result of a significant 
natural disaster or other extraordinary circumstance. We are aware, for 
example, that Hurricane Sandy forced some hospitals in the New York-New 
Jersey-Connecticut area to close during the autumn of 2012, which 
impacted their ability to report quality measure data that will be used 
for both the FY 2014 and FY 2015 Hospital VBP Programs. We also 
recognize that hospitals that are closed during a portion of a 
performance period might still be eligible to receive a TPS and value-
based incentive payments based on their measured quality performance 
during the remaining portion of the performance period for a fiscal 
year.
    However, we also are aware that many hospitals that were affected 
by Hurricane Sandy nevertheless remained open both during and after the 
storm, and we are concerned more generally that these hospitals, as 
well as other hospitals that are able to remain open despite being 
impacted by a local disaster or other extraordinary circumstance, might 
experience a decline in performance as a direct result of remaining 
open. For example, a hospital might be able to demonstrate

[[Page 50705]]

that its performance on the HCAHPS survey was adversely impacted as a 
direct result of remaining open during or after a natural disaster if 
the hospital became overcrowded due to a neighboring hospital's 
closure, or understaffed due to the inability of staff to get to work. 
We believe that these types of unforeseen extraordinary circumstances 
could substantially affect the ability of the hospital to perform at 
the same level at which it might otherwise have performed if the 
natural disaster or extraordinary circumstance had not occurred, and we 
are concerned that using cases and claims from this period to generate 
the TPS might negatively, and unfairly, impact the value-based 
incentive payment amount that the hospital would otherwise receive.
    Currently, hospitals participating in the Hospital IQR Program may 
request that we grant an extension or waiver of one or more data 
submission deadlines in the event of extraordinary circumstances beyond 
the control of the hospital. However, we do not believe this process is 
entirely sufficient for the Hospital VBP Program. The Hospital IQR 
Program's extraordinary circumstances extensions/waiver process allows 
hospitals that have been granted an extension/waiver to receive the 
full annual percentage increase under the IPPS for the applicable 
fiscal year even though they did not submit data on measures in the 
same time, form, and manner required of other hospitals. To the extent 
that a hospital, as a result of receiving an extension or waiver under 
the Hospital IQR Program, does not report the minimum number of cases 
or measures under the Hospital VBP Program (as determined appropriate 
by the Secretary under sections 1886(o)(1)(C)(ii)(III) and (IV) of the 
Act), that hospital will be excluded from the Hospital VBP Program for 
the applicable fiscal year.
    However, the Hospital IQR Program extraordinary circumstance 
extension/waiver process does not address the situation we are 
concerned with here; namely, where a hospital is able to continue to 
report data on measures that are included in both the Hospital IQR 
Program and the Hospital VBP Program, but can demonstrate that its 
Hospital VBP measure rates are negatively impacted as a result of a 
natural disaster or other extraordinary circumstance and, as a result, 
the hospital receives a lower value-based incentive payment. Therefore, 
in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27619 through 27621), 
we proposed to adopt a Hospital VBP Program extraordinary circumstances 
exception process.
    In developing our proposed approach, we considered the feasibility 
of adopting an exception that would allow a hospital to not have the 
measure data submitted during the affected time period included in its 
measure scores. This type of exception policy would enable affected 
hospitals to continue to participate in the Hospital VBP Program for a 
given fiscal year if they continued to meet applicable measure and case 
minimums despite the fact that their TPS would not include data that is 
the subject of the exception. Therefore, this policy could prevent the 
possibility that a hospital's TPS is significantly, and negatively, 
affected by a natural disaster or other extraordinary circumstance, 
which we believed would alleviate our concerns.
    However, implementing this type of data exception process presents 
certain operational difficulties. While chart-abstracted measures 
generally are reported using a date of service that would enable us to 
correctly identify which data should be excluded, the same is not 
necessarily true of patient experience of care measure data because 
HCAHPS survey dates do not align with service dates; instead, they are 
dependent on the timing of the survey's completion after discharge.
    A further complication arises with certain claims-based measures. 
For example, the risk-adjustment methodology currently in use for the 
30-day mortality measures requires a fixed dataset for computation of 
all hospitals' risk-adjusted measure rates. Adding or removing data 
from the national claims set used to calculate a mortality measure's 
rates for a given time period therefore requires recalculation of all 
hospitals' measure rates, as the risk-profile used to adjust hospitals' 
measured performance for the time period would have changed. In 
addition, in light of our policy to generate a TPS for hospitals that 
receive scores on fewer than all domains, we were concerned that 
proposing to adopt an extraordinary circumstances exception process 
that would apply only to the clinical process of care domain data that 
we may relatively easily remove from scoring would be ineffective. We 
stated that we did not believe that creating an exception for only 
clinical process of care domain data would mitigate the effects of a 
disaster or other extraordinary circumstances on hospitals' TPSs under 
the Hospital VBP Program, particularly if hospitals' performance on all 
measures is affected significantly by those circumstances. An increase 
in measured mortality rates, for example, would not be mitigated by a 
clinical process of care-centered exception, and could penalize the 
hospital.
    Given the operational constraints discussed above, we stated our 
belief that the best way to implement an extraordinary circumstances 
exception process under the Hospital VBP Program is to interpret the 
minimum numbers of cases and measures requirement in sections 
1886(o)(1)(C)(ii)(III) and (IV) of the Act to enable us to not score 
(we used the term ``waive'' in the proposed rule) all applicable 
quality measure data from a performance period and, thus, exclude the 
hospital from the Hospital VBP Program for a fiscal year during which 
the hospital has experienced a disaster or other extraordinary 
circumstance.
    Under this policy, a hospital struck by a natural disaster or other 
extraordinary circumstance would be able to request a Hospital VBP 
Program disaster/extraordinary circumstance exception at the same time 
that it requests an extraordinary circumstance waiver under the 
Hospital IQR Program. The hospital would submit the Hospital IQR 
Program extension/waiver request form, including any available evidence 
of the impact of the extraordinary circumstances on the hospital's 
quality measure performance, and would note that it also seeks an 
exception from the Hospital VBP Program for the program year in which 
the same data could be used as performance period data to generate a 
TPS based on the measures included in the Hospital VBP Program. In the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51652), we finalized a 
requirement for Hospital IQR waivers that affected hospitals submit 
their requests within 30 days of the date that the extraordinary 
circumstance occurred. We stated our belief that this timeframe was 
appropriate for our proposed exception process for the Hospital VBP 
Program as it aligned with the current requirements under the Hospital 
IQR Program and forestalled the possibility of hospitals attempting to 
``game'' their Hospital VBP Program scores by requesting an exception 
after they receive their Percentage Payment Summary Reports for a given 
fiscal year.
    We stated our intent to review exception requests and, at our 
discretion based on our evaluation of the impact of the disaster/
extraordinary circumstances on the hospital's quality measure 
performance, provide a response to the hospital. We stated our intent 
to notify hospitals about our Hospital VBP Program exception decisions 
concurrent with decisions made under the Hospital IQR Program's waiver 
process.

[[Page 50706]]

    For these reasons, we proposed that the phrases ``minimum number of 
measures that apply to the hospital'' in section 1886(o)(1)(C)(iii) of 
the Act and ``minimum number of cases for the measures that apply to 
the hospital'' in section 1886(o)(1)(C)(iv) of the Act do not include 
any measures or cases that a hospital has submitted during a 
performance period for which it is granted a Hospital VBP Program 
disaster/extraordinary circumstance exception.
    We stated our intent to implement this policy in a limited fashion, 
and based on prior experience with the Hospital IQR Program, anticipate 
providing such exceptions only to a small number of hospitals. We did 
not intend to allow hospitals to use this proposed process to seek 
exclusion from the Hospital VBP Program solely because of comparatively 
poor performance under the program's scoring methodology; rather, we 
intended only to provide relief to hospitals whose performance suffered 
as a result of a disaster or other extraordinary circumstances.
    We invited public comments on this proposal. We stated that we were 
specifically interested in public comments on the structure of the 
proposed process, and if we should consider implementing the process 
differently.
    Comment: Many commenters supported the proposal to adopt a 
disaster/extraordinary circumstances exception process. Commenters were 
concerned, however, that 30 days might not be enough time for hospitals 
to determine if an exception is necessary, and suggested that CMS 
extend the request window to 60 or 90 days. Commenters also suggested 
that CMS decouple the Hospital VBP Program exception request from the 
Hospital IQR Program waiver process, noting that it may take longer 
than 30 days for hospitals to assess a disaster's impact on their 
measured performance. Commenters also suggested that CMS consider 
providing exceptions to hospitals whose paper medical records are 
destroyed during natural disasters.
    Response: We thank commenters for their input. As described further 
below, we intend to decouple the Hospital VBP Program's exception 
process from the Hospital IQR Program's waiver process, and to extend 
the deadline for Hospital VBP Program-specific exception requests.
    Comment: Some commenters suggested that CMS reconsider the 
structure of its proposed exception process. Commenters noted that some 
types of disasters or circumstances may not completely inhibit a 
hospital's reporting capability for long durations, and may simply 
require extended data reporting deadlines. Commenters recommended that 
CMS grant extensions of the data reporting deadlines without granting 
hospitals an exception from the entirety of the Hospital VBP Program. 
Commenters also referred us to letters submitted to CMS in May 2013 
explaining how Hurricane Sandy affected hospitals, and suggested that 
we conduct an assessment of Hospital VBP scores for FY 2014 and 2015 to 
determine whether they are lower than expected, and consider 
adjustments to scores if necessary.
    Response: We thank commenters for this feedback. However, we 
believe the type of exception envisioned by the commenters--that is, 
extensions of the data reporting deadlines--is already available under 
current Hospital IQR Program policy. Because the Hospital VBP Program 
generally uses data that was also submitted under the Hospital IQR 
Program, we believe that Hospital IQR data, even when submitted late in 
accordance with a Hospital IQR data reporting extension, can be scored 
under the Hospital VBP Program. We proposed the Hospital VBP Program-
specific exception process in order to avoid penalizing hospitals under 
the Hospital VBP Program that are able to report Hospital IQR Program 
data but whose measured performance suffers due to disasters or other 
circumstances beyond their control. We intend to accommodate extensions 
or waivers of data reporting deadlines under the Hospital IQR Program 
as circumstances warrant. We also intend to continue monitoring 
Hospital VBP scores, and will examine the issue of performance affected 
by Hurricane Sandy in the future.
    After consideration of the public comments we received, we are 
finalizing a policy under which we will consider, upon a hospital's 
request and after our review, providing an exception from a Hospital 
VBP Program year to hospitals affected by natural disasters or other 
extraordinary circumstances. Specifically, we are finalizing our 
proposal that the phrases ``minimum number of measures that apply to 
the hospital'' in section 1886(o)(1)(C)(iii) of the Act and ``minimum 
number of cases for the measures that apply to the hospital'' in 
section 1886(o)(1)(C)(iv) of the Act do not include any measures or 
cases that a hospital has submitted during a performance period for 
which it is granted a Hospital VBP Program disaster or extraordinary 
circumstance exception. We will evaluate a hospital's requests, along 
with supporting evidence provided by the hospital, and if we agree that 
the disaster or extraordinary circumstance significantly affected the 
hospital's performance under the Hospital VBP Program, we will grant an 
exception from a Hospital VBP Program year.
    However, we are not finalizing our proposal that these exception 
requests must be made at the same time as waiver requests under the 
Hospital IQR Program. We agree with commenters' stated concerns about 
the time necessary to understand how a disaster or extraordinary 
circumstance affects measured performance under the Hospital VBP 
Program. We therefore will require that disaster exception requests be 
submitted within 90 calendar days of the date that the natural disaster 
or other extraordinary circumstance occurred. We believe that this 
extended timeline for disaster exception requests is responsive to 
commenters' concerns and enables hospitals to evaluate fully the 
impacts of natural disasters or other extraordinary circumstances on 
their performance under the Hospital VBP Program.
10. Applicability of the Hospital VBP Program to Hospitals
a. Background
    Section 1886(o)(1)(C) of the Act specifies how the Hospital VBP 
Program applies to hospitals. Specifically, the term ``hospital'' is 
defined under section 1886(o)(1)(C)(i) of the Act as a ``subsection (d) 
hospital (as defined in section 1886(d)(1)(B [of the Act])).'' Section 
1886(o)(1)(C)(ii) of the Act sets forth a list of exclusions to the 
definition of the term ``hospital'' with respect to a fiscal year, 
including a hospital that is subject to the payment reduction under 
section 1886(b)(3)(B)(viii)(I) of the Act (the Hospital IQR Program), a 
hospital for which, during the performance period for the fiscal year, 
the Secretary has cited deficiencies that pose immediate jeopardy to 
the health or safety of patients, a hospital for which there are not a 
minimum number of measures that apply to the hospital for the 
applicable performance period for the fiscal year, and a hospital for 
which there are not a minimum number of cases for the measures that 
apply to the hospital for the performance period for the fiscal year.
    In addition, section 1886(o)(1)(C)(iv) of the Act states that in 
the case of a hospital that is paid under section 1814(b)(3) of the 
Act, the Secretary may exempt the hospital from the Hospital VBP 
Program if the State submits an

[[Page 50707]]

annual report to the Secretary describing how a similar program in the 
State for a participating hospital or hospitals achieves or surpasses 
the measured results in terms of patient health outcomes and cost 
savings established under the Hospital VBP Program. We interpret the 
reference to section 1814(b)(3) of the Act to mean those Maryland 
hospitals that are paid under section 1814(b)(3) of the Act and that, 
absent the ``waiver'' specified by section 1814(b)(3) of the Act, would 
have been paid under the IPPS.
b. Minimum Numbers of Cases and Measures for the FY 2016 Hospital VBP 
Program Outcome Domain
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53608 through 
53609), we finalized minimum numbers of cases and measures for the FY 
2015 Hospital VBP Program's Outcome domain. For the finalized 30-day 
mortality measures, we finalized a 25-case minimum for FY 2015. For the 
AHRQ PSI composite measure, we adopted AHRQ's methodology, which 
provides a score on the measure to any hospital with at least three 
cases on any underlying indicator. For the CLABSI measure, we adopted 
CDC's minimum case criteria, which calculates a standardized infection 
ratio for a hospital on the CLABSI measure if the hospital has 1 
predicted infection during the applicable period. We also finalized our 
policy to provide a TPS to hospitals with sufficient cases in at least 
two of the four finalized quality measure domains (77 FR 53607).
    In the CY 2012 OPPS/ASC final rule with comment period (76 FR 74532 
through 74534) we concluded, based on an independent analysis, that the 
minimum number of measures that a hospital must report in order to 
receive a score on the Outcome domain is two measures. We continue to 
believe that this minimum number is appropriate for the expanded 
Outcome domain because adding measure scores beyond the minimum number 
of measures has the effect of enhancing the domain score's reliability. 
Therefore, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27621 
through 27622), we proposed to retain the finalized minimum number of 
measures for the Outcome domain for the FY 2016 Hospital VBP Program.
    We invited public comment on these proposals. However, we did not 
receive any specific comments on the minimum number of measures for the 
Outcome domain. We are therefore finalizing this minimum number as 
proposed.
c. Hospitals Paid Under Section 1814(b)(3) of the Act
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53607 through 
53608), beginning with the FY 2014 Hospital VBP Program, we adopted a 
new procedure for submission of the report in order for a Maryland 
hospital to be exempt from the Hospital VBP Program for a fiscal year. 
Under this finalized procedure, if the State seeks an exemption with 
respect to a particular program year, it would need to submit a report 
that meets the requirements of section 1886(o)(1)(C)(iv) of the Act in 
a timeframe that allows it to be received by the Secretary on or before 
November 15 prior to the effective fiscal year (for example, the report 
seeking an exemption from the FY 2014 Hospital VBP Program would have 
to be received by the Secretary no later than November 15, 2012). We 
stated that we anticipate notifying the State, as well as each hospital 
for which the State has requested an exemption, of our decision whether 
to grant the request no later than 90 days following the exemption 
request deadline.
    We received an FY 2014 exemption request from the Maryland Health 
Services Cost Review Commission and the State of Maryland Department of 
Health and Mental Hygiene in November 2012, and the Secretary approved 
the exemption request on December 19, 2012.
    We determined that Maryland meets or exceeds the patient health 
outcomes and cost savings requirements for exemption from the FY 2014 
Hospital VBP Program. In terms of patient health outcomes, the Maryland 
Quality-Based Reimbursement (MQBR) Program focuses rewarding high 
quality care on hospital performance in similar clinical areas as the 
Hospital VBP Program (heart attack, heart failure, and pneumonia, 
surgical processes of care and infection control). In general, the 
relevant health outcomes for the State's hospitals cited in its request 
achieve or surpass the current national results for comparable quality 
process and closely related clinical outcomes. In terms of cost 
savings, both the Hospital VBP Program and the MQBR Program reward high 
performers in a revenue-neutral manner. In this way, Maryland has 
achieved cost savings under its quality programs that meet any 
documented savings under the Hospital VBP Program, thereby meeting the 
standard specified in section 1886(o)(1)(C)(iv) of the Act for 
hospitals paid under section 1814(b)(3) of the Act.
    We received a few general comments on our procedures for 
considering exemption requests for hospitals paid under section 
1814(b)(3) of the Act.
    Comment: One commenter argued that Maryland hospitals' performance 
on quality measures reported to CMS does not surpass national averages 
for Clinical Process of Care and Patient Experience of Care measures. 
The commenter further argued that Maryland should not receive an 
exemption from the Hospital VBP Program for any years under 
consideration at CMS because it is not meeting or exceeding national 
standards on quality measures.
    Response: We thank the commenter for the input. We determined that 
Maryland meets or exceeds the cost savings requirement for exemption 
from the FY 2014 Hospital VBP Program, based on the fact that both 
programs reward high performers in a revenue-neutral manner. In this 
way, Maryland has achieved cost savings under its quality programs that 
meet any documented savings under the Hospital VBP Program. In general, 
the relevant health outcomes for Maryland hospitals achieve or surpass 
the current national results for comparable quality process of care 
measures, and AMI, HF, and PN 30-day mortality rates included in the FY 
2014 Hospital VBP Program. Maryland hospitals are therefore exempt from 
the FY 2014 Hospital VBP Program.
    If we receive a timely exemption request for the FY 2015 Hospital 
VBP Program, we will evaluate Maryland hospitals in accordance with the 
standard specified in section 1886(o)(1)(C)(iv) of the Act for 
hospitals paid under section 1814(b)(3) of the Act.
    Comment: Commenters requested that CMS enable Maryland to combine 
the State's exemption requests from CMS' quality programs, including 
the Hospital Readmissions Reduction Program, the HAC Reduction Program, 
and the Hospital VBP Program, into a single request, and for CMS to 
approve a waiver request for a three-year period with annual reports 
submitted to CMS describing Maryland's program results and any 
modifications.
    Response: We thank commenters for this feedback and may consider 
this suggestion in the future.

I. Implementation of Hospital-Acquired Condition (HAC) Reduction 
Program for FY 2015

1. Background
a. Overview
    CMS is committed to promoting higher quality of care and improving 
outcomes for Medicare beneficiaries. Accordingly, as part of that 
effort, we have in recent years undertaken a

[[Page 50708]]

number of initiatives to reduce the number of hospital-acquired 
conditions (HACs) among Medicare beneficiaries. HACs are conditions 
that patients acquire while receiving treatment for another condition 
in an acute care health setting. HACs include hospital-acquired 
infections (HAIs) such as surgical site infections, as well as 
conditions such as foreign objects retained after surgery. HACs 
constitute an adverse event for the patient and a financial burden on 
the health care system. HACs, especially those stemming from medical 
errors, represent a leading cause of mortality in the United 
States.\44\ Deaths from HAIs alone are twice as high as those from HIV/
AIDS and breast cancer combined.\45\ Many common HACs can be prevented 
through the proper application of evidence-based guidelines. Yet, 
surveys reveal that 87 percent of hospitals have not followed such 
guidelines.\46\ Further, HACs constitute a significant economic burden 
on the health care system. For example, in 2009, the CDC estimated that 
preventable HAIs alone added nearly $6 billion to U.S. health care 
costs each year.\47\ Accordingly, we believe that our continued efforts 
to reduce HACs are vital to improving patients' quality of care and 
reducing complications and mortality, while simultaneously decreasing 
costs.
---------------------------------------------------------------------------

    \44\ Kohn L T, Corrigan J M., Donaldson MS (Institute of 
Medicine) To Err is Human: Building a Safer Health System. 
Washington, DC: National Academy Press, 2000.
    \45\ Binder, Leah F., The Leapfrog Group Testimony before the 
House of Representatives Committee of Oversight and Government 
Reform, April 16, 2008. Available at: http://www.leapfroggroup.org/policy_leadership/leapfrog_news/4732651.
    \46\ Id.
    \47\ Centers for Disease Control, The Direct Medical Costs of 
Healthcare Associated Infections in US Hospitals and the Benefits of 
Prevention, March, 2009. Available at: http://www.cdc.gov/hai/pdfs/hai/scott_costpaper.pdf.
---------------------------------------------------------------------------

    In section II.F. of the preamble of this final rule, we discuss 
prior and ongoing rulemakings to implement the provisions of section 
5001(c) of the Deficit Reduction Act (DRA) of 2005. Section 5001(c) of 
the DRA requires the Secretary to identify conditions by October 1, 
2007 that: (a) Are high cost or high volume or both; (b) result in the 
assignment of a case to a DRG that has a higher payment when present as 
a secondary diagnosis; and (c) could reasonably have been prevented 
through the application of evidence-based guidelines. An adjustment to 
the MS-DRG payment under the IPPS is made for identified HACs. This 
regulatory action has supported our efforts to encourage hospitals to 
reduce HACs.
    Our initiatives to reduce HACs continued in 2009, when we developed 
National Coverage Determinations (NCDs) for the Medicare Program to 
eliminate ``never events.'' These ``never events'' stemmed from a 2002 
report conducted by the NQF that listed 27 adverse events, listed as 
serious reportable events, that were both serious and largely 
preventable.\48\ Under these NCDs, we have specified that Medicare does 
not cover a particular surgical or other invasive procedure to treat a 
particular medical condition when a practitioner erroneously performs: 
(1) A different procedure altogether; (2) the correct procedure but on 
the wrong body part; or (3) the correct procedure but on the wrong 
patient.\49\
---------------------------------------------------------------------------

    \48\ National Quality Forum (NQF), Serious Reportable Events in 
Healthcare--2011 Update: A Consensus Report, Washington, DC: NQF 
(2011).
    \49\ Center for Medicare and Medicaid Services (CMS), National 
Coverage Determination (NCD) for, Surgical or Other Invasive 
Procedure Performed on the Wrong Body Part (140.7), Pub-100-3 
(2009); Surgical or Other Invasive Procedure Performed on the Wrong 
Patient (140.8), Pub 100-3 (2009); Wrong Surgery Performed on a 
Patient (140.9), Pub 100-3 (2009).
---------------------------------------------------------------------------

    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50196), we adopted 8 
HAC measures into the Hospital IQR Program for the FY 2012 payment 
determination. These quality measures comprise additional efforts to 
promote quality of care by reducing the number of HACs in an acute care 
health setting. We have been publicly reporting on these eight HAC 
measures successfully on the Hospital Compare Web site since September 
2010.
    As described above, the reduction of HACs is an important marker of 
quality of care and has a positive impact on both patient outcomes and 
costs of care. In accordance with section 1886(p) of the Act, the HAC 
Reduction Program aligns with our national strategy to improve health 
care quality by promoting the prevention of HACs, such as ``never 
events'' and HAIs. Our goal for the HAC Reduction Program is to 
heighten the awareness of HACs and reduce the number of incidences that 
occur through implementing the adjustments required by section 1886(p) 
of the Act. We believe that our efforts in using payment adjustments 
and our measurement authority will encourage hospitals to eliminate the 
incidence of HACs that could be reasonably prevented by applying 
evidence-based guidelines.
2. Statutory Basis for the HAC Reduction Program
    Section 3008 of the Affordable Care Act added section 1886(p) to 
the Act to provide an incentive for applicable hospitals to reduce 
HACs. Section 1886(p) of the Act requires the Secretary to make an 
adjustment to payments to ``applicable hospitals'' effective beginning 
on October 1, 2014 and for subsequent programs years. Section 
1886(p)(1) of the Act sets forth the requirements by which payments to 
``applicable hospitals'' will be adjusted to account for HACs with 
respect to discharges occurring during FY 2015 or later. The amount of 
payment shall be equal to 99 percent of the amount of payment that 
would otherwise apply to such discharges under section 1886(d) or 
1814(b)(3) of the Act, as applicable. Section 1886(p)(2)(A) of the Act 
defines ``applicable hospitals'' as subsection (d) hospitals that meet 
certain criteria. Section 1886(p)(2)(B)(i) of the Act defines these 
criteria and specifies that the payment adjustment would apply to an 
applicable hospital that ranks in the top quartile (25 percent) of all 
subsection (d) hospitals, relative to the national average, of 
conditions acquired during the applicable period, as determined by the 
Secretary. Section 1886(p)(2)(B)(ii) of the Act requires the Secretary 
to establish and apply a risk-adjustment methodology.
    Sections 1886(p)(3) and (p)(4) of the Act define ``hospital-
acquired conditions'' and ``applicable period'', respectively. The term 
``hospital-acquired condition'' means ``a condition identified in 
subsection 1886(d)(4)(D)(iv) of the Act and any other condition 
determined appropriate by the Secretary that an individual acquires 
during a stay in an applicable hospital, as determined by the 
Secretary.'' The term ``applicable period'' means, with respect to a 
fiscal year, a period specified by the Secretary.
    Section 1886(p)(5) of the Act requires that, prior to FY 2015 and 
each subsequent fiscal year, the Secretary provides the delivery of 
confidential reports to applicable hospitals with respect to HACs of 
the applicable hospital during the applicable period. Section 
1886(p)(6)(A) of the Act sets forth the reporting requirements by which 
the Secretary would make information available to the public regarding 
HACs for each applicable hospital. Section 1886(p)(6)(B) of the Act 
requires the Secretary to ensure that an applicable hospital has the 
opportunity to review, and submit corrections for, the information to 
be made public with respect to the HACs of the applicable hospital 
prior to such information being made public. Section 1886(p)(6)(C) of 
the Act requires that, once corrected, the HAC information be posted on 
the Hospital Compare Web

[[Page 50709]]

site on the Internet in an easily understandable format.
    Section 1886(p)(7) of the Act limits administrative and judicial 
review of certain determinations made pursuant to section 1886(p) of 
the Act. These determinations include what qualifies as an applicable 
hospital, the specifications of a HAC, the Secretary's determination of 
an applicable period, the provision of confidential reports submitted 
to the applicable hospital, and the information publically reported on 
the Hospital Compare Web site.
3. Implementation of the HAC Reduction Program
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27622 through 
27636), we proposed the general framework for implementation of the HAC 
Reduction Program for the FY 2015 implementation. We included the 
following proposals for the program: (a) The relevant definitions 
applicable to the program; (b) the payment adjustment under the 
program; (c) the measure selection and conditions for the program, 
including a risk-adjustment and scoring methodology; (d) performance 
scoring; (e) the process for making hospital-specific performance 
information available to the public, including the opportunity for a 
hospital to review the information and submit corrections; and (f) 
limitation of administrative and judicial review.
    In this FY 2014 IPPS/LTCH PPS final rule, we are establishing the 
rules governing the payment adjustment under the HAC Reduction Program 
at Subpart I of 42 CFR Part 412 (Sec. Sec.  412.170 and 412.172). We 
also are amending existing Sec.  412.150 (the section that describes 
the basis and scope of Subpart I of Part 412, which contains the 
regulations governing adjustments to the base operating DRG payment 
amounts under the IPPS for inpatient operating costs) to incorporate 
the basis and scope of Sec. Sec.  412.170 and 412.172 for the HAC 
Reduction Program. We discuss each of the regulatory provisions under 
the appropriate subject area below.
    Comment: Numerous commenters supported the HAC Reduction Program. 
One commenter supported the program because it addresses aims outlined 
in the National Quality Strategy. Other commenters supported the 
program because it requires public reporting of HAC data. Another 
commenter supported the program but requested clarification regarding 
the quality controls that will be in place to assure consistent and 
accurate coding.
    Response: We appreciate the commenters' support. With respect to 
quality controls to assure consistent and accurate coding, we note that 
the American Health Information Management Association (AHIMA) has 
promulgated Standards of Ethical Coding that require accurate coding 
that includes the reporting of all health care data elements (for 
example, diagnosis and procedure codes, the POA indicator, and 
discharge status) required for external reporting purposes (for 
example, reimbursement and other administrative uses, population 
health, quality and patient safety measurement, and research) 
completely and accurately, in accordance with regulatory and 
documentation standards and requirements and applicable official coding 
conventions, rules, and guidelines. In addition, Medicare program 
integrity initiatives closely monitor for inaccurate coding, as well as 
coding inconsistent with medical record documentation.
    Comment: Several commenters did not generally support the HAC 
Reduction program. These commenters asked CMS to delay implementing the 
program in FY 2015 in order to further refine the program and stated 
that the program does not adequately assess or differentiate hospital 
performance.
    Response: We believe that the measures selected and scoring 
methodology allow adequate differentiation of hospital performance, 
such that the payment reduction for the top quartile of hospitals can 
begin with FY 2015.
    Comment: One commenter believed that hospitals will need 
significant clinical and administrative resources to implement the HAC 
Reduction Program and execute the steps necessary to reduce or 
eliminate HACs.
    Response: The conditions being assessed for this program have 
either been targeted by the existing nonpayment program, or have been 
in the Hospital IQR Program for a number of years. Therefore, we 
believe that hospitals are already aware of and are taking steps to 
reduce these conditions.
a. Definitions
    In accordance with the provisions of section 1886(p) of the Act, in 
the FY 2014 IPPS/LTCH PPS proposed rule, we proposed to include, under 
proposed Sec.  412.170, definitions for the terms ``hospital-acquired 
condition,'' ``applicable hospital,'' and ``applicable time period'' 
(78 FR 27623).
     Hospital-acquired condition. In accordance with the 
definition of ``hospital-acquired condition'' in section 1886(p)(3) of 
the act, we would include a definition of the term in the regulations 
to read: ``Hospital-acquired condition is a condition as described in 
section 1886(d)(4)(D)(iv) of the Act and any other condition determined 
appropriate by the Secretary that an individual acquires during a stay 
in an applicable hospital, as determined by the Secretary.''
    We also refer readers to section II.F. of the preamble of this 
final rule where we discuss the HACs that have been identified and 
selected by the Secretary through FY 2013 in accordance with the 
provisions of section 1886(d)(4)(D)(iv) of the Act as established by 
section 5001(c) of the DRA of 2005.
     Applicable Hospital. Section 1886(p)(2)(A) of the Act 
specifies that, for the purpose of the HAC Reduction Program, an 
``applicable hospital'' is a subsection (d) hospital that meets certain 
criteria. 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 fifty States 
or the District of Columbia'', subject to certain exceptions. We also 
note that, for purposes of determining applicable hospitals under the 
HAC Reduction Program, subsection (d) hospitals include hospitals paid 
under a waiver under section 1814(b)(3) of the Act (that is, Maryland 
hospitals). Section 1886(p)(2)(B) of the Act specifies that ``with 
respect to a subsection (d) hospital, [a hospital is considered to be 
an applicable hospital if] . . . the subsection (d) hospital is in the 
top quartile of all subsection (d) hospitals, relative to the national 
average, of hospital acquired conditions during the applicable period, 
as determined by the Secretary.'' Therefore, in the FY 2014 IPPS/LTCH 
PPS proposed rule we proposed to define an ``applicable hospital'' as 
``a hospital described in section 1886(d)(1)(B) of the Act (including a 
hospital in Maryland that is paid under section 1814(b)(3) of the Act 
and that, absent the waiver specified by section 1814(b)(3) of the Act, 
would have been paid under the hospital inpatient prospective payment 
system) so long as the hospital meets the criteria specified under 
Sec.  412.172(e)'' (78 FR 27623).
    We noted that while all subsection (d) hospitals, including 
hospitals paid under section 1814(b)(3) of the Act, would be used to 
determine which hospitals are ``applicable hospitals,'' as required by 
section 1886(p)(2)(B) of the Act, we identified several types of 
hospitals that would not be subject to the provisions of the HAC 
Reduction Program. A subsection (d) hospital as defined in section 
1886(d)(1)(B) of the Act does not include hospitals and hospital units 
excluded from the IPPS, such as LTCHs, cancer hospitals, children's 
hospitals, IRFs, IPFs.

[[Page 50710]]

Therefore, hospitals and hospital units that are excluded from the IPPS 
would not be considered when determining ``applicable hospitals'' nor 
would they be determined to be ``applicable hospitals'' subject to the 
payment adjustment under the HAC Reduction Program.
    Similarly, CAHs would not be considered when determining 
``applicable hospitals,'' nor would they be determined to be 
``applicable hospitals'' subject to the payment adjustment under the 
HAC Reduction Program because they do not meet the definition of a 
``subsection (d) hospital.'' CAHs are separately defined under section 
1886(mm) of the Act and are paid under a reasonable cost methodology 
under section 1814(l) of the Act. An Indian Health Services hospital 
enrolled as a Medicare provider meets the definition of a subsection 
(d) hospital and, therefore, would be considered in determining 
``applicable hospitals'' and would be considered to be an ``applicable 
hospital'' under the HAC Reduction Program. In addition, hospitals that 
are SCHs, although they may be paid under a hospital-specific rate 
instead of the Federal rate under the IPPS, are subsection (d) 
hospitals and, therefore, would be included in determining ``applicable 
hospitals'' and would be considered to be an applicable hospital under 
the HAC Reduction Program. Hospitals located in the Territories, 
including Puerto Rico, are not subsection (d) hospitals. Section 
1886(d)(9)(A) of the Act separately defines a ``subsection (d) Puerto 
Rico hospital'' as a hospital that is located in Puerto Rico and that 
``would be a subsection (d) hospital . . . if it were located in one of 
the 50 States.'' However, because they are not located in ``one of the 
fifty States,'' Puerto Rico hospitals are not subsection (d) hospitals 
and, therefore, would not be included in determining ``applicable 
hospitals,'' nor would they be considered to be an ``applicable 
hospital'' under the HAC Reduction Program.
    Finally, hospitals paid under the authority of section 1814(b)(3) 
of the Act are located in Maryland, which is ``one of the fifty 
States'' as described under section 1886(d)(1)(B) of the Act. 
Therefore, these Maryland hospitals are subsection (d) hospitals and 
would be included in determining ``applicable hospitals'' and, unless 
the Secretary exempts them from the application of the payment 
adjustment under the HAC Reduction Program under the authority of 
section 1886(p)(2)(C) of the Act, would be considered to be 
``applicable hospitals'' under the HAC Reduction Program.
    We invited public comments on whether clarification is required for 
additional types of hospitals.
    Comment: Several commenters addressed the proposed definition of 
``applicable hospitals''. Most commenters supported the proposed 
definition. One commenter specifically supported excluding CAHs from 
the definition of applicable hospitals. However, another commenter 
suggested expanding the definition of applicable hospital to include 
CAHs and Maryland and U.S. Territory hospitals. One commenter suggested 
that CMS collect and report data for most of the hospitals in a timely 
manner and include hospitals in Maryland, the U.S. Territories, and 
CAHs.
    Response: We appreciate the commenters' support and acknowledge the 
commenter's suggestion for expanding the definition of an applicable 
hospital. However, as stated above, section 1886(p)(2)(A) of the Act 
specifies that, for the purpose of the HAC Reduction Program, an 
``applicable hospital'' is a subsection (d) hospital that meets certain 
criteria. CAHs do not meet the definition of a ``subsection (d) 
hospital.'' CAHs are separately defined under section 1886(mm) of the 
Act and are paid under a reasonable cost methodology under section 
1814(l) of the Act. We also provided information regarding Maryland 
hospitals, which are paid under the authority of section 1814(b)(3) of 
the Act. As we describe above, because these hospitals are located in 
Maryland, which is ``one of the fifty States'' as described under 
section 1886(d)(1)(B) of the Act, these Maryland hospitals are 
subsection (d) hospitals and would be included in determining 
``applicable hospitals'' and, unless the Secretary exempts them from 
the application of the payment adjustment under the HAC Reduction 
Program under the authority of section 1886(p)(2)(C) of the Act, would 
be considered to be ``applicable hospitals'' under the HAC Reduction 
Program. With regard to hospitals in Puerto Rico and the U.S. 
Territories, as we stated above, hospitals located in the Territories, 
including Puerto Rico, are not subsection (d) hospitals because they 
are not located in ``one of the fifty States.''
    After consideration of the public comments we received, we are 
finalizing our proposal to codify the definition of ``applicable 
hospital'' at Sec.  412.170 without modification.
     Applicable Time Period. In accordance with the proposal 
and discussion in section V.I.3.d. of the preamble of the FY 2014 IPPS/
LTCH PPS proposed rule regarding the proposed performance scoring 
methodology for proposed measures for selected conditions and a risk-
adjustment methodology under the HAC Reduction Program, we proposed to 
define the ``applicable period'' as, with respect to a fiscal year, the 
2-year period (specified by the Secretary) from which data are 
collected in order to calculate the Total HAC Score for the Hospital-
Acquired Condition Reduction Program.
    We invited public comments on this proposed definition.
    Comment: A few commenters addressed the proposed definition of 
``applicable time period.'' One commenter opposed the definition for 
applicable time period because of general opposition to the scoring 
methodology proposed for the HAC Reduction Program. Other commenters 
opposed the definition because of different reporting periods for the 
measures in the HAC Reduction Program versus other reporting programs. 
The commenters suggested that CMS align the duration of performance 
periods for the Hospital IQR Program, the Hospital VBP Program, and the 
HAC Reduction Program using 2 years of data for PSI measures and 1 year 
of data for NHSN measures. Another commenter requested that the data be 
submitted quarterly.
    Response: We appreciate the commenters' feedback and suggestions. 
The Secretary retains the statutory authority to determine the 
applicable period for the HAC Reduction Program. We strive, to the 
extent possible, to align reporting periods within our programs, 
acknowledging that some provider burden exists with reporting in 
multiple programs. However, given the varying policy, statutory, and 
data collections differences among each program, such exact alignment 
is not always feasible. For the HAC Reduction Program, we proposed and 
are finalizing a Total HAC score using two domains or sets of measures 
to determine the payment adjustment. We believe using 2 years of data 
for both domains would balance the needs of the program and allow for 
sufficient time to process the claims data and calculate the measures 
to meet the program implementation timeline. Further, we believe that 
the longer performance period on the NHSN measures is better for 
reliability. Finally, we note that the Hospital VBP Program has the 
restriction of needing to announce performance standards 60 days prior 
to the beginning of the performance period, which may necessitate, in 
some cases, shorter

[[Page 50711]]

performance periods in the Hospital VBP Program. As these programs grow 
in future years, we will explore aligning the performance periods to 
the extent possible.
    After consideration of the public comments we received, we are 
finalizing our proposal to codify the definition of ``applicable time 
period'' at Sec.  412.170 without modification.
b. Payment Adjustment under the HAC Reduction Program, Including 
Exemptions
(1) Basic Payment Adjustment
    Section 1886(p)(1) of the Act sets forth the requirements by which 
payments to ``applicable hospitals'' will be adjusted to account for 
HACs with discharges beginning on October 1, 2014. Section 1886(p)(1) 
of the Act specifies that the amount of payment shall be equal to 99 
percent of the amount of payment that would otherwise apply to such 
discharges under section 1886(d) or 1814(b)(3) of the Act, as 
applicable. As specified in the statute, this payment adjustment is 
calculated and made after payment adjustments under sections 1886(o) 
and 1886(q) of the Act, the Hospital VBP Program and the Hospital 
Readmissions Reduction Program respectively, are calculated and made. 
(We note that the Hospital VBP Program is discussed in section V.H. of 
the preamble of this final rule and the Hospital Readmissions Reduction 
Program is discussed in section V.G. of the preamble of this final 
rule.) Section 1886(p)(2)(A) of the Act defines ``applicable 
hospitals'' as subsection(d) hospitals that meet certain criteria. 
Section 1886(p)(2)(B)(i) of the Act defines these criteria and 
specifies that the payment adjustment would apply to an applicable 
hospital that ranks in the top quartile (25 percent) of all subsection 
(d) hospitals, relative to the national average, of conditions acquired 
during the applicable period, as determined by the Secretary. 
Therefore, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27624), we 
proposed to specify in proposed Sec.  412.172(b) that, ``For applicable 
hospitals, beginning with discharges occurring during FY 2015, the 
amount of payment under this section [proposed Sec.  412.172], or 
section 1814(b)(3) of the Act, as applicable, for such discharges shall 
be equal to 99 percent of the amount of payment that would otherwise 
apply to such discharges under this section [proposed Sec.  412.172], 
or section 1814(b)(3) of the Act. This amount of payment will be 
determined after the application of the payment adjustment under the 
Hospital Readmissions Reduction Program under Sec.  412.154, and the 
adjustment made under the Hospital Value-Based Purchasing Program under 
Sec.  412.162, and section 1814(l)(4) but without regard to this 
section 1886(p) of the Act)'' (78 FR 27624).
    We invited public comments on this proposal.
    Comment: Several commenters addressed the proposed payment 
adjustment under the HAC Reduction Program. Most commenters supported 
the proposal to use financial incentives to reduce the number of HACs. 
One commenter stated that the payment adjustment is required under 
section 3008 of the Affordable Care Act. Another commenter supported 
the proposal but further requested application of the adjustment to MS-
DRG payment amounts and overall consistency in payment adjustments 
administered under the Hospital Readmissions Reduction Program and the 
Hospital VBP Program. Other commenters opposed the basic payment 
adjustment. Some commenters stated that it was inappropriate to 
penalize one fourth of the nation's hospitals with a payment adjustment 
simply because they fall in the top quartile. Another commenter stated 
that tying payments to HACs may not encourage high-quality care. 
Another commenter suggested that CMS consider modification to the 
proposed 1-percent penalty applied to the top 25 percent of hospitals 
with the worst HAC rates, but treat the 25th and 26th percentile 
hospitals differently by graduating the penalty.
    Response: We appreciate the commenters' support and agree with the 
commenter that the payment adjustment is required under section 3008 of 
the Affordable Care Act. As stated previously, our goal for the HAC 
Reduction Program is to heighten the awareness of HACs and reduce the 
number of incidences that occur through implementing the adjustments 
required by section 1886(p) of the Act. We believe that our efforts in 
using payment adjustments and our measurement authority will encourage 
hospitals to eliminate the incidence of HACs that could be reasonably 
prevented by applying evidence-based guidelines. We note that, in 
accordance with section 1886(q)(1) of the Act, the hospital 
readmissions reduction program adjustment is applied to the base 
operating DRG payment amount, which is defined at section 1886(q)(2) of 
the Act to exclude certain payments under subsection (d). Similarly, in 
accordance with sections 1886(o)(7)(A) and 1886(o)(7)(B) of the Act, 
the Hospital VBP Program applies adjustments to the based operating DRG 
payment amount, which is defined at section 1886(o)(7)(D) of the Act to 
exclude certain payments under subsection (d). For the HAC Reduction 
Program, no such statutory exclusion exists and section 1886(p)(1) of 
the Act states that the payment for applicable hospitals ``shall be 
equal to 99 percent of the amount of payment that would otherwise 
apply.'' Therefore, we are unable to accept the commenters' 
recommendations to change the application of the payment adjustment. We 
will address this issue of the actual application of the payment 
adjustment to hospital payments more specifically next year in the FY 
2015 IPPS/LTCH PPS rule.
    Comment: A few commenters commented on the waivers for hospitals 
located in areas that experience disasters or other extraordinary 
circumstances. One commenter suggested that CMS establish a formal 
waiver process for disaster or other extraordinary circumstances, 
including possible changes to the applicable periods for affected 
hospitals.
    Response: We appreciate the comments on establishing a potential 
exemption process for the HAC Reduction Program for hospitals located 
in areas that experience disasters or other extraordinary 
circumstances. We did not make any proposals related to disasters or 
other extraordinary circumstances for the HAC Reduction Program in the 
proposed rule; therefore, we consider this comment out of the scope of 
the proposed rule. However, we are reviewing this issue and may 
consider such a proposal in future rulemaking. If we do, we intend to 
focus on several policy and operational considerations in developing a 
disaster exemption process for the HAC Reduction Program, including the 
feasibility of aligning this process across other similar programs.
    Comment: One commenter expressed concern regarding the penalty for 
25 percent of hospitals. The commenter believed it may be appropriate 
for the HAC Reduction Program to use a fixed performance target so that 
total penalties will decrease if overall HAC rates lower significantly.
    Response: We understand the commenter's concerns. However, as we 
stated earlier, because section 1886(p)(1) of the Act states that the 
payment for applicable hospitals ``shall be equal to 99 percent of the 
amount of payment that would otherwise apply,'' we are unable to accept 
the commenter's recommendations to change the application of the 
payment adjustment.

[[Page 50712]]

    After consideration of the public comments we received, we are 
finalizing our proposal to codify the payment adjustment at Sec.  
412.172(b) without modification.
(2) Applicability to Maryland Hospitals
    Section 1886(p)(2)(c) of the Act specifies that the Secretary may 
exempt hospitals paid under 1814(b)(3) ``from the application of this 
subsection if the State which is paid under such section submits an 
annual report to the Secretary describing how a similar program in the 
state for a participating hospital or hospitals achieves or surpasses 
the measured results in terms of patient health outcomes and cost 
savings established under this subsection.'' Accordingly, a program 
established by the State of Maryland that could serve to exempt 
hospitals in the State from the HAC Reduction Program would focus on 
hospitals operating under the waiver provided by section 1814(b)(3) of 
the Act, that is, those hospitals that would otherwise have been paid 
by Medicare under the IPPS, absent this provision. As we describe in 
section V.I.3. of the preamble of this final rule, because hospitals 
paid under section 1814(b)(3) of the Act are subsection (d) hospitals, 
they would be included in determining ``applicable hospitals'' (subject 
to the payment adjustment under the HAC Reduction Program), and unless 
the Secretary exempts these hospitals from the application of payment 
adjustments under the HAC Reduction Program under the authority of 
section 1886(p)(2)(C) of the Act, they are considered to be 
``applicable hospitals'' (subject to the payment adjustments in the HAC 
Reduction Program) under the HAC Reduction Program.
    In the FY 2014 IPPS/LTCH PPS proposed rule, we proposed to 
establish criteria for evaluation to determine whether Maryland should 
be exempted from the application of the payment adjustments under the 
HAC Reduction Program for a given fiscal year (78 FR 27624). Under 
proposed Sec.  412.172(c), we proposed to specify that ``CMS will 
determine whether to exempt Maryland hospitals that are paid under 
section 1814(b)(3) of the Act and not under the hospital inpatient 
prospective payment system . . . .'' and that, absent the provisions of 
section 1814(b)(3) of the Act, to make payment under section 1886(d) of 
the Act exempt from the application of payment adjustments under the 
HAC Reduction Program, provided that the State submits an annual report 
to the Secretary describing how a similar program to reduce hospital 
acquired conditions in that State achieves or surpasses the measured 
results in terms of health outcomes and cost savings for the HAC 
Reduction Program as applied to hospitals described in section 
1886(d)(1)(B) of the Act. We proposed to specify in the proposed 
regulations that ``CMS will establish criteria for evaluation of 
Maryland's annual report to the Secretary to determine whether Maryland 
will be exempted from the application of payment adjustments under this 
program for a given fiscal year.'' We also proposed to specify that 
``Maryland's annual report to the Secretary and request for exemption 
from the Hospital-Acquired Condition Reduction Program must be 
resubmitted and reconsidered annually.'' We proposed that, for FY 2015, 
Maryland would submit a preliminary report to us by January 15,\,\ 2014 
and a final report to us by June 1, 2014.
    We noted that our proposed criteria to evaluate Maryland's program 
is for FY 2015, the first year of the payment adjustment under the HAC 
Reduction Program, and that our evaluation criteria may change through 
notice and comment rulemaking as this program evolves.
    We invited public comments on our proposals.
    Comment: Several commenters supported the Maryland waiver proposal 
for the HAC Reduction program. One commenter believed the clear 
prevention guidelines that exist with its State hospital-acquired 
condition program will help Maryland's hospitals focus on key areas of 
harm and that recent revisions to the methodology will enable providers 
to continue making improvements in the program.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to codify the payment adjustment pertaining to 
hospitals paid under section 1814(b)(3) of the Act (certain Maryland 
hospitals) at Sec.  412.172(c), without modification.
c. Measure Selection and Conditions, Including a Proposed Risk-
Adjustment Scoring Methodology
(1) General Selection of Proposed Measures
    In the FY 2014 IPPS/LTCH PPS proposed rule, we proposed measures 
and a scoring methodology for the HAC Reduction Program (78 FR 27625 
through 27628). We believe that it is important to set forth such 
scoring methodologies for each individual HAC measure, in order for the 
public to understand how the measures discussed and finalized in this 
year's rulemaking relate to the performance methodology used to 
determine the applicable hospitals subject to the payment adjustment 
under the HAC Reduction Program.
(2) Measure Selection and Scoring Methodology
    We proposed initially to adopt eight measures for the FY 2015 
determination under the HAC Reduction Program. Several of these 
measures are already part of the Hospital IQR Program and are reported 
on the Hospital Compare Web site. We noted that all measures proposed 
for the HAC Reduction Program follow the criteria established by the 
DRA of 2005 in that they consist of high-volume or high-cost conditions 
that could be prevented by the use of evidence-based guidelines (we 
refer readers to section II.F. of the preamble of this final rule for 
further information).
    In the FY 2014 IPPS/LTCH PPS proposed rule, we proposed the measure 
selection and methodology used to determine the Total HAC Score (78 FR 
27629 through 27633). For measure scoring under the HAC Reduction 
Program, we proposed to group the measures into separate domains 
(Domain 1 and Domain 2) to calculate a Total HAC Score in order to 
determine the payment adjustment. For measure selection under Domain 1, 
we discussed a proposed and alternative approach, and sought to 
finalize a policy based upon public comment received regarding these 
approaches. For a detailed discussion of the measure selection and 
methodology proposed for the HAC Reduction Program, including a list of 
measures proposed for the Program, we refer readers to section V.I. of 
the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27625 through 27632).
    We invited public comments on the measures proposed for the HAC 
Reduction Program, including whether the proposed or alternative 
approach for Domain 1 would better serve the HAC Reduction Program.
    Comment: Numerous commenters addressed the proposed measures for 
the HAC Reduction Program. Several commenters, who also supported the 
HAC Reduction Program generally, also supported all measures proposed 
for the HAC Reduction Program.
    Other commenters provided feedback covering one of the following 
areas: Domain 1 measure methodology and proposed inclusion in the HAC 
Reduction Program; Domain 2 measure methodology and proposed inclusion 
in the HAC Reduction Program; or general

[[Page 50713]]

measure feedback on the HAC Reduction Program.
    In regard to Domain 1, commenters provided several suggestions on 
the proposal and alternative approach in which either six individual 
AHRQ PSI measures or a single AHRQ PSI-90 composite were to be used as 
part of calculating the Total HAC score. In regard to the six 
individual AHRQ PSI measures proposed under Domain 1, commenters 
appreciated this approach because these measures did not overlap with 
the CDC measures in Domain 2. Further, commenters stated that the 
measures proposed for Domain 1 addressed several key areas of patient 
safety, including addressing ``never events'' and aligning with the 
National Quality Strategy domain of patient safety. One commenter 
specifically supported the proposed Domain 1 approach to include 
iatrogenic pneumothorax rate in the HAC Reduction Program because it 
was highly preventable with ultrasound guidance and encouraged 
appropriate use of ultrasound for placement of venous catheters. 
Another commenter further suggested that if CMS adopted PSI-3 in Domain 
1, CMS should exclude pressure ulcers that were undetectable at 
admission.
    Some commenters' support of the Domain 1 proposal varied, depending 
on preference for each of the PSI measures themselves. Some commenters 
supported the proposed Domain 1 approach, subject to the removal of one 
or more measures. Other commenters did not support the proposed Domain 
1 approach because they opposed one or more measures in the domain. For 
example, one commenter opposed PSI-7 because current research suggests 
it has poor sensitivity and poor positive predictive value in 
determining CLABSI. However, that commenter supported the proposed 
Domain 1 approach without inclusion of that measure. Another commenter 
stated that PSI-3 relies on ICD-9-CM diagnosis codes, which may not 
provide complete information, and leads to underreporting of pressure 
ulcers. This commenter did not generally support the Domain 1 proposal 
because this measure existed in the domain. Other commenters suggested 
removal of PSI-3 because it only covered Stage 3 and 4 pressure ulcers.
    Several commenters opposed one or more of the Domain 1 measures 
proposed for the HAC Reduction Program because they did not believe the 
measures were properly reviewed by the MAP in the manner required by 
the pre-rulemaking process that CMS must follow prior to proposing 
rules. Some commenters opposed PSI-3, PSI-6, and PSI-10 because they 
were not MAP-reviewed. Another commenter did not support PSI-90 because 
the MAP did not review each component of the composite measure 
individually. One commenter suggested that all measures be endorsed 
with clear prevention guidelines. Another commenter stated that CMS did 
not provide MAP with sufficient notice on implementation to allow for 
meaningful input for the HAC Reduction Program and proposed measures.
    One commenter suggested additional revisions to the PSI measures. 
This included the following changes: For PSI-3 (pressure ulcer rate), 
the commenter recommended exclusion of nascent pressure ulcers 
undetectable at admission; for PSI-5, the commenter recommended 
exclusion of hardware or devices intentionally left in the body; for 
PSI-6, the commenter recommended exclusions for lines placed under 
emergency conditions; and for PSI-12, the commenter recommended 
exclusions for patients with diagnosis of cancer, brain tumors, or 
trauma which are at higher risk of embolus. The commenter objected to 
PSI-15 because of a lack of coding guidelines to define accidental 
puncture.
    For the PSI-90 proposed Domain 1 alternative, commenters supported 
the composite because the composite received NQF endorsement and MAP 
review. In addition, one commenter preferred the composite because it 
included PSI-13 and PSI-14 which are indicators related to sepsis 
management. Another commenter favored this approach because PSI-90 is 
included in the Hospital VBP Program. Another commenter suggested 
additional measures to the Domain 1 alternative. For example, one 
commenter suggested adding PSI-4 along with the preferred PSI-90 
composite.
    The greatest concern for the proposed alternative Domain 1 PSI-90 
composite related to overlapping with Domain 2 measures in the 
calculation of the Total HAC Score, and overlapping with measures in 
the Hospital VBP Program. Some commenters stated that because some of 
the measures in the PSI-90 composite are also used for the Hospital VBP 
Program, hospitals would be penalized more than once for the same 
preventable HAC. Other commenters suggested that CMS remove the 
overlapping measures from the PSI-90 composite or retire overlapping 
measures from the Hospital VBP Program. Other commenters expressed 
concerns regarding the inclusion of PSI-90 as the measure results are 
complicated and skew individual hospitals' results.
    However, for either the proposed or alternative Domain 1 proposal, 
some commenters did not support using any AHRQ PSI measures. Commenters 
cited these measures are only tested for reliability on CMS claims 
data, not all-payer data. Other commenters stated that the proposed PSI 
measures focus primarily on surgical care, have false positive rates, 
and the proposed risk adjustment in the HAC Reduction is insufficient 
to mitigate that bias. Other commenters urged CMS to develop measures 
and not use the PSI measures, and added that all measures should be in 
the Hospital IQR Program prior to inclusion in the HAC Reduction 
Program. One commenter stated that AHRQ, the measure developer of the 
PSI measures, indicated in an update that AHRQ PSI measures are not 
appropriate for payment programs.
    For the Domain 2 CDC measures, several commenters supported the CDC 
measures. Commenters stated generally that the HAI measures are 
statistically more reliable than PSIs at the hospital level. Many 
commenters stated a preference for chart-abstracted over claim based 
data measures. MedPAC stated that the success of each HAC measure 
selected will depend on hospitals using evidence-based care processes, 
a statistically reliable data method, and a consistent date source. 
MedPAC then recommended CDC HAI data because they met such criteria. 
Other commenters suggested renaming CAUTI and CLABSI or adding 
additional exclusions to the measures. Another commenter suggesting 
retaining CLABSI and CAUTI measures for the HAC Reduction Program and 
retiring them from the Hospital VBP Program. Some supported the 
proposed Domain 2 proposed approach because of its importance in 
measuring nosocomial infections. Other commenters supported the Domain 
2 proposed measures, but expressed concern about the burden to the 
industry and the nature of the measures. Another commenter suggested 
that CMS work with AHRQ, CDC, and ONC to improve electronic reporting 
of these measures to remove subjectivity.
    Other commenters supported the inclusion of MRSA and clostridium 
difficile (CDI) into the HAC Reduction Program for FY 2017. One 
commenter stated that inclusion of the CDI measure in the HAC Reduction 
Program potentially may motivate hospitals to improve patient care and 
outcomes, and signals our important commitment to reducing CDIs in 
hospitals and raising awareness about the disease.

[[Page 50714]]

    However, some commenters opposed one or more of the Domain 2 
measures. One commenter stated that the Domain 2 measures will unfairly 
penalize large and teaching hospitals. Other commenters did not support 
inclusion of MRSA or CDI in FY 2017. The commenters stated that the 
measures have low reliability, may be impacted by providers not within 
the hospital, and the testing vehicles used may have influenced results 
creating unfair comparisons between hospitals. Another commenter 
requested that CMS provide clarification on the specifications for 
these measures and added that CMS exclude community-acquired MRSA. 
Another commenter stated that the SSI measure was more appropriate for 
the Hospital VBP Program than the HAC Reduction Program. One commenter 
opposed using only health care-associated infection measures as they 
are not a true indicator of hospital performance.
    Still other commenters did not support either Domain 1 or Domain 2 
measures proposed for the HAC Reduction program. One commenter stated 
that the measures are overly complex, methodologically challenged, and 
need further refinement. A few commenters asked that CMS provide 
additional alternatives for the program and extend the comment period. 
Some commenters suggested that CMS delay the finalization of the 
implementation of the HAC Reduction Program and collaborate with 
provider and consumer communities to improve the selection of HAC 
program measures. Other commenters requested that additional impact 
data be provided to stakeholders prior to implementation of the 
program. Another commenter opposed a payment adjustment for HACs when 
such HACs are not reasonably preventable through evidence based 
guidelines, or based on randomized, well-designed, prospective, and 
nonbiased studies developed by specialty medical organizations. This 
commenter believed that, under these circumstances, a payment 
adjustment should not occur in any payment setting. Other commenters 
stated that the AHRQ PSI measures cannot be calculated, are claims-
based measures, and require additional tools for use by hospitals.
    Response: We appreciate all of the numerous comments and 
suggestions on the measures proposed for the HAC Reduction Program, and 
value this feedback. We have reviewed and considered every comment. To 
those commenters who supported one or more measures proposed for the 
HAC Reduction Program, we appreciate their support.
    We emphasize that the measures proposed for this program aim to 
increase patient safety. Therefore, we stress that patient safety 
remains the primary objective to the measures proposed and ultimately 
selected under the HAC Reduction Program.
    We note that several commenters raised concerns with using claims-
based measures in the HAC Reduction Program. However, we believe that 
PSI measures proposed for Domain 1 are suitable for use in the HAC 
Reduction Program. We acknowledge stakeholders' preference to use 
chart-abstracted measures, such as those found under Domain 2, but 
stress that both types of measures possess advantages. For example, 
claims data cover a larger population in the hospital and can provide 
signals where quality improvement may need to occur. Claims data, which 
are collected for payment purposes, are also readily available, while 
registry data, as also pointed out by several commenters, are costly to 
collect and present a potentially greater administrative and financial 
burden on hospitals. Therefore, we believe the use of such claim-based 
measures, such as the AHRQ PSIs proposed in Domain 1, are suitable for 
the HAC Reduction Program because they are already collected for use 
and widely accepted by States and other health care purchasers for 
payment purposes. We note that the MAP reviewed all finalized measures 
for the HAC Reduction Program. For Domain 1, the MAP supported the 
direction of the PSI-90 composite for the HAC Reduction Program. We 
note that we are not finalizing the other measures mentioned by the 
commenters.
    In response to one commenter stating that AHRQ PSI measures are 
unsuitable for a payment program, we consulted with AHRQ on this issue. 
AHRQ stated that new evidence has been developed, which changes some of 
the information on which this commenter likely previously relied. AHRQ 
is in the process of reevaluating the measures and updating the 
documents to reflect the changes.
    In regard to those commenters who objected to one or more of the 
proposed Domain 1 measures, we acknowledge that commenters wanted 
additional exclusions or clarifications to the measures proposed for 
the HAC Reduction Program. However, we believe that such exclusions are 
not warranted at this time. For example, we are aware that PSI-3 
(pressure ulcer rate) captures Stage 3 and 4 pressure ulcers only, and 
does not capture all data, such as Stage 1 and 2. However, we stress 
that no other publically available data source captures these events, 
which comprise a critical area of patient safety. Further, with respect 
to additional exclusions for PSI-3, we note that PSI-3 already excludes 
patients admitted from nursing facilities, patients who had a pressure 
ulcer present on admission (including an ulcer of a lower stage that 
progressed after admission), and patients who stayed 4 or fewer days in 
the hospital. Therefore, we believe that such exclusions should already 
address the concerns raised by commenters.
    For PSI-5, some commenters raised concern that exclusions should be 
clearly added for hardware or other items placed purposely in the body. 
However, we note that the AHA's Coding Clinic for ICD-9-CM addressed 
this issue. The codes that drive this indicator (998.4 and 998.7) 
account for at least 90 percent of flagged cases, and are limited to 
foreign bodies ``accidentally left during procedure.'' The Coding 
Clinic (First Quarter 1989, 2009, and 2011) has instructed coders that 
this code (998.4) should only be used when a foreign body has been 
accidentally left behind at the end of the procedure; foreign bodies 
that are discovered and retrieved in the operating room, or 
deliberately left behind, are not assigned code 998.4 or 998.7. 
Therefore, such circumstances would not be counted under this measure.
    For PSI-6, several commenters raised concern over the denominator 
used in the measure. We have consulted AHRQ on this issue and 
appreciate its assistance. For PSI-6, we acknowledge that the 
denominator of PSI 6 reflects the fact that many different procedures 
are associated with a nonzero risk of iatrogenic pneumothorax and note 
that not all of these procedures are consistently coded in 
administrative data sets. One viable strategy for preventing 
complications such as iatrogenic pneumothorax, CLABSI, and CAUTI is to 
reduce discretionary use of the procedures that place patients at risk 
and recognize and reward all hospital efforts to prevent undesired 
complications such as iatrogenic pneumothorax, including safer 
selection of patients for high-risk procedures as well as safer 
performance of these procedures. Further, we note that preventability 
remains a concern. However, exclusions are reexamined and adjusted on 
an annual basis. Further, the denominator of PSI 6 already excludes all 
trauma cases and most cases with urgent or emergent thoracic or cardiac 
procedures. In addition, other factors, such as

[[Page 50715]]

malnutrition, obesity, and chronic lung disease, are included in risk-
adjustment.
    We note that some commenters raised validity and coding concerns 
with underreporting with some of the PSI components of PSI-90 as well 
as the individual PSI measures. According to recent and prior studies 
by the Agency for Healthcare Research and Quality, there is little 
evidence of underreporting of diagnoses, and a high degree of true 
positives (90 percent sensitivity) with respect to diagnoses used for 
the AHRQ measures. We believe that, regardless of data source (claims/
administrative or chart/EHR), focusing on outcomes of interest, such as 
those represented in the PSI-90 composite, leads providers to focus 
more on prevention, which is the goal of the HAC Reduction Program.
    Regarding commenters' concern with false positive results with AHRQ 
measures, we do note that some indicators of the composite presented a 
false positive rate on initial evaluation (for example, PSI 12). 
However, subsequent efforts to refine specifications or improve ICD-9-
CM codes led to documented reductions in false positive rates. Moving 
forward, with assistance from AHRQ, we will continually evaluate and 
refine the measure as part of our continuous improvement process to 
further alleviate this concern.
    We acknowledge coding trepidations raised by commenters. However, 
many of the concerns raised by commenters can be alleviated with proper 
coding. For example, for PSI-15, some commenters expected enterotomies 
to be excluded (in the case of patients with small bowel obstruction) 
and added that the measure lacked specificities as to what has been 
punctured or lacerated. However, according to explicit guidance from 
the AHA's Coding Clinic for ICD-9-CM (Second Quarter 2007 and First 
Quarter 2010), ``expected'' enterotomies are not coded with code 998.2. 
By definition, this code is limited to ``accidental'' punctures and 
lacerations that are not ``intrinsic'' or ``inherent'' in a major 
procedure. Therefore, we maintain that proper coding and education on 
such coding will address stakeholders' concerns.
    We designed the HAC Reduction Program to include currently 
available, risk-adjusted measures that are reflective of hospital 
performance. All of the measures proposed were either: Recommended for 
inclusion by the NQF Measures Application Partnership either on their 
own or as part of a composite, or represent 1 of the 12 HACs that have 
been identified by the Secretary and which are referenced in section 
1886(p) of the Act for the HAC Reduction Program. We refer readers to 
the MAP Pre-Rulemaking Report: 2013 Recommendations on Measures Under 
Consideration by HHS, February 2013, pp 145-153, for further 
detail.\50\ As the number of risk-adjusted HAC measures increases over 
time, we will continue to conduct research on the impact of adding 
additional and/or different measures to the program.
---------------------------------------------------------------------------

    \50\ Available at: https://www.qualityforum.org/Publications/
2013/02/MAP_Pre-Rulemaking_Report__-February_2013.aspx.
---------------------------------------------------------------------------

    Some commenters opposed one or more of the Domain 1 measures 
because they lacked MAP review or NQF endorsement. Other commenters 
wanted additional time for more public engagement. However, we believe 
that both the pre-rulemaking and rulemaking process provides ample 
opportunity for public involvement. Second, we note that the MAP 
reviewed all measures for the HAC Reduction Program. For Domain 1, the 
MAP supported PSI-5, PSI-15, PSI-12 in December, 2012 as well as the 
PSI-90 composite. NQF also endorsed these measures. We do acknowledge 
the comments that PSI-3, PSI-6, and PSI-10 were not on the measure 
under consideration list (MUC) in December 2012. However, PSI-3 and 
PSI-6 were part of the PSI-90 composite which the MUC list did include 
and which was discussed by the MAP in December 2012. For PSI-10, we 
considered this measure for the HAC Reduction Program after the MUC 
list had posted, and immediately arranged review of the measure with 
the MAP in an ad hoc process. With regard to concerns that some 
measures, such as PSI-3 and PSI-6, were not NQF-endorsed, we spoke to 
AHRQ on this issue. AHRQ clarified that these measures did not fail NQF 
endorsement, as commenters stated, but, rather, have not yet been 
submitted to NQF for endorsement. However, AHRQ is considering doing so 
in the near future. Further, we note that section 1886(p)(3) of the Act 
does not require NQF endorsement for a condition to be considered for 
the HAC Reduction Program. Rather, section 1886(p)(3) of the Act 
defines a ``hospital-acquired condition'' to means a condition 
identified for purposes of subsection (d)(4)(D)(iv) and any other 
condition determined appropriate by the Secretary that an individual 
acquires during a stay in an applicable hospital, as determined by the 
Secretary. The conditions covering PSI-3 and PSI-6, as well as all 
other conditions proposed for the HAC Reduction Program, meet the 
statutory definition under section 1886(p)(3) of the Act and, 
therefore, were properly considered for the HAC Reduction Program.
    We acknowledge that the PSI-90 alternative is also contained in the 
Hospital VBP Program. However, we believe that this measure, covering 
HACs, comprise some of the most critical of patient safety areas. 
Several commenters, many from Medicare beneficiaries themselves, 
overwhelming supported our efforts to reduce HAIs and these measures. 
Therefore, we believe that the importance of these measures to patient 
safety, coupled with the numerous comments asking for measure 
alignment, justifies the use of PSI-90 in more than one program. 
However, we will, in the future, monitor the HAC Reduction Program and 
the measures selected for it and revise the measures as needed.
    We further understand that some commenters are concerned with a 
double payment adjustment with the use of PSI-90 because a condition 
overlaps with the CDC NHSN CLABSI measure that we are finalizing for 
Domain 2. However, we further stress that the HAC Reduction Program and 
the Hospital VBP Program are separate hospital reporting programs with 
different purposes and policy goals. For example, the HAC Reduction 
Program is a penalty program that reduces payments to hospitals for 
excess HACs to increase patient safety in hospitals. On the other hand, 
the Hospital VBP Program is an incentive program that redistributes 
reductions made to the base operating DRG payment amount, based on 
certain performance measures. Therefore, although we acknowledge that 
the measures exist in more than one program, the measures are used and 
calculated for very distinct purposes. Accordingly, as stated above, we 
believe that the critical importance of these measures to patient 
safety warrants the inclusion in both programs. We will, in the future, 
monitor the HAC Reduction program and analyze the impact of our 
measures selection, including any unintended consequences with having a 
measure in more than one program, and will revise the program if 
needed.
    For Domain 2, we appreciate the support shown for these measures, 
including the favorable recommendations made by MedPAC. We acknowledge 
commenters' concern that some provider burden is required in using 
these measures, but note that the majority of commenters supported 
these measures for the HAC Reduction Program. We also have consulted 
with the CDC on the public comments for the proposed Domain 2 measures 
and appreciate the assistance provided.

[[Page 50716]]

    With regard to additional modifications to CAUTI, we note that NQF 
reviewed the measure and took into account the concerns about 
unintended consequences and preventability. However, following detailed 
discussions of these concerns, the NQF endorsed the CAUTI measure for 
use in acute care hospitals and other health care facility types. We 
understand the potential for unintended consequences and concerns about 
preventability of this measure, but stress that these issues were 
discussed thoroughly by the NQF committee that considered and 
ultimately endorsed the measure.
    We also do not believe renaming CLAUTI and CLABSI is warranted. The 
NHSN CAUTI measure endorsed by the NQF, namely the Catheter-Associated 
Urinary Tract Infection (CAUTI) Outcome Measure (0138), 
includes in its scope both symptomatic urinary tract infection (SUTI) 
and asymptomatic bacteremic UTI (ABUTI). For that reason, ``symptomatic 
urinary tract infections due to an indwelling urinary catheter'' does 
not accurately describe the NHSN measure. Second, the NHSN CLABSI 
measure endorsed by the NQF, namely the Central-Line Associated 
Bloodstream Infection Measure (0139), does not include in its 
scope skin and soft tissue infections at the catheter insertion site. 
For that reason, ``infection due to a central venous catheter'' does 
not accurately describe the NHSN measure.
    With respect to some commenters' concerns about MRSA and CDI 
reporting, we note that the LabID event measures do not require 
screening of all patients and do enable differentiation between 
community- and health care-associated LabID events. Therefore, we do 
not believe that an additional exclusion for community-acquired MRSA is 
required at this time.
    Finally, some commenters raised concerns that the Domain 2 measures 
do not adequately measure hospital performance. We note that 
measurement of healthcare-associated infections has been a mainstay of 
infection prevention for over 30 years in the United States, and the 
data are widely used by providers, policymakers, and the public to 
measure hospital performance and drive changes in patient care 
practices that make a difference in performance. Therefore, we disagree 
that quality measurement does not adequately measure hospital 
performance.
    We believe that the HAC Reduction Program exists, in part, to 
encourage quality improvement in the acute inpatient setting, and we 
believe that patient safety measures, such as the AHRQ PSI-90 measure 
and the CDC NHSN measures, comprise important metrics on which 
hospitals should focus their quality improvement efforts. While we 
acknowledge the commenters' concerns about the composite measure's 
complexity, we note that the composite is NQF-endorsed, and being 
utilized in both public reporting and pay for performance initiatives. 
Furthermore, the PSI-90 composite measure consists of underlying safety 
indicators on which hospitals should focus their attention. We 
encourage hospitals that are unsure how to improve their performance on 
the AHRQ PSI measure or on any other measure finalized for the HAC 
Reduction Program to utilize the quality improvement resources that 
CMS, AHRQ, and CDC have made available to assist hospitals with 
improvement in these areas (that is, QIOs, PSOs, QI toolkits, and NHSN 
State-based prevention initiatives and member meetings).
    Comment: Several commenters expressed concern about the 
disproportionate impact on teaching hospitals and other large hospitals 
because they treat more complex patients with more comorbidities.
    Response: We acknowledge the commenters' concern with the potential 
negative impact to large and teaching hospitals. As discussed further 
under section V.I.3.d. of the preamble of this final rule, we believe 
that the scoring changes made to the HAC Reduction Program will 
alleviate that concern. However, we will continue to examine and 
analyze the issue and will consider releasing additional analysis in 
future rulemaking.
    Comment: One commenter opposed inclusion of AHRQ PSI-5 because it 
is included in the AHRQ PSI-90 composite.
    Response: We appreciate the commenter's feedback. However, we would 
like to clarify that PSI-5 is not part of the PSI-90 composite.
    Comment: One commenter suggested a third approach for Domain 1. The 
commenter suggested including Domain 1 PSIs with the addition of PSI-4, 
which is part of the Hospital IQR Program, and PSI-8, PSI-13, and PSI-
14.
    Response: We appreciate the commenter's suggestion and will 
consider it in future rulemaking.
    Comment: Several commenters suggested additional measures for the 
HAC Reduction Program. One commenter suggested adding iatrogenic 
pneumothorax with paracentesis and thoracentesis for future IPPS 
rulemaking. Other commenters recommended the addition of SSIs following 
hip and knee arthroplasty because there is a need to control high 
infection rates and subsequent managed care costs following post hip 
and knee replacement surgery. Another commenter requested a measure for 
the HAC Reduction Program on C-section births. One commenter asked CMS 
to consider identifying particular organisms of infection to better 
address quality issues such as multidrug resistant organism infections. 
One commenter suggested that, in an effort to reduce hospital 
infections, other areas of the hospital, such as the ice machines, 
should be considered for quality measurement.
    Response: We appreciate the commenters' feedback and suggestions 
and will consider these measures in future rulemaking.
    Comment: Some commenters recommended that overlapping measures with 
the Hospital VBP Program be removed from the Hospital VBP Program. 
Another commenter asked that the measure adoption cycles for the HAC 
Reduction Program and the Hospital VBP Program be aligned.
    Response: The statute does not prohibit use of the same measures in 
both the HAC Reduction Program and the Hospital VBP Program. 
Furthermore, these two programs have different scoring methodologies 
and completely different incentive structures for different types of 
performance on these measures. By including certain measures under more 
than one program, we seek to emphasize topics of critical importance 
for quality improvement in the inpatient hospital setting, and to 
patient safety. We believe it is appropriate to provide incentives for 
hospitals to avoid HACs under more than one program. However, we intend 
to continue working to improve and align our quality improvement 
programs, and will consider whether we should attempt to minimize 
measure duplication between programs in the future.
    Comment: One commenter expressed concern about mixing measures 
based on all-payer data with those based on Medicare claims data.
    Response: We appreciate the commenter's feedback. However, we do 
not believe any biases or inaccuracies are introduced to the program by 
basing the Total HAC Score on measures that use all-payer data, and 
measures that use Medicare data.
    Comment: One commenter believed that CMS should use measures with 
valid and reliable results and clear and concise definitions toward 
areas of quality improvement.
    Response: We appreciate the commenter's feedback. We believe that

[[Page 50717]]

the measures selected for the HAC Reduction Program do meet these 
criteria. The measures finalized for FY 2015 have been MAP-reviewed and 
NQF-endorsed.
    Comment: One commenter expressed concerns regarding the proposed 
methodology and recommended modifications to avoid unintended 
consequences. The commenter believed the options are difficult to 
comprehend as there is a lack of data and urged CMS to extend the 
comment period and release data files for an accurate analysis of 
scoring methodologies and an accurate analysis of measure selection.
    Response: We will consider hosting educational provider calls to 
further explain the scoring methodology for the program, and will 
design the confidential reports in a manner that provides step-by-step 
explanations of the scoring. We note that data for the PSI-90 measure 
and the CAUTI and CLABSI measures are currently publicly available on 
the Hospital Compare Web site. Additionally, we will be making updated 
information available to the public on the individual indicators in 
PSI-90 in an upcoming release on the Hospital Compare Web site.
    After consideration of the public comments we received, we are 
adopting the PSI-90 composite for Domain 1 and the CDC measures for 
Domain 2 (CAUTI and CLABSI for FY 2015, SSI for FY 2016, and MRSA and 
C-Difficile for FY 2017). We believe that, given that PSI-90 has been 
both NQF-endorsed and fully MAP-supported for the HAC Reduction 
Program, it is more suitable. We also believe that the PSI-90 measure, 
as a composite measure of patient safety, appropriately encourages 
robust hospital attention to patient safety events.
(3) Applicable Time Period
    In the FY 2014 IPPS/LTCH PPS proposed rule, we proposed a 2-year 
applicable period to collect data that would be used to calculate the 
Total HAC Score (78 FR 27628). For Domain 1 (AHRQ measures), we 
proposed a 2-year data period to calculate the measures based on 
recommendations from AHRQ, the measure developer. In addition, an 
analysis by Mathematica Policy Research, a CMS contractor,\51\ shows 
that, with a 24-month data period, 50 to 90 percent of hospitals attain 
a moderate or high level of reliability for the proposed AHRQ measures. 
We believe that the proposed 24-month data period described below would 
provide hospitals and the general public the most current data 
available. The proposed 24-month data period also would allow time to 
complete the complex calculation process for these measures, to perform 
comprehensive quality assurance to enhance the accuracy of measure 
results, and to disseminate confidential reports on hospital-level 
results to individual hospitals.
---------------------------------------------------------------------------

    \51\ Mathematica Policy Research (November 2011). Reporting 
period and reliability of AHRQ, CMS 30-day and HAC Quality 
Measures--Revised. Available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-.pdf.
---------------------------------------------------------------------------

    For FY 2015, we proposed to use the 24-month period from July 1, 
2011 through June 30, 2013 as the applicable time period for the AHRQ 
measures. The claims for all Medicare FFS beneficiaries discharged 
during this period would be included in the calculation of measure 
results for FY 2015. This includes claims data from the 2011, 2012, and 
2013 Inpatient Standard Analytic Files (SAFs). The national and 
hospital-specific rates for PSI-6, PSI-12, and PSI-15 are available on 
the Hospital Compare Web site. The hospital level PSI-90 composite 
bucket also is available on the Hospital Compare Web site.\52\
---------------------------------------------------------------------------

    \52\ Available at: http://www.medicare.gov/hospitalcompare/About/HOSInfo/RCD.aspx#ssi.
---------------------------------------------------------------------------

    The CDC measures are currently collected and calculated on a 
quarterly basis. However, for purposes of the HAC Reduction Program, we 
proposed to use 2 years of data to calculate the Domain 2 score so 
Domain 1 and Domain 2 are calculated using 24 months of data. For FY 
2015, we proposed to use calendar years 2012 and 2013 for the HAC 
Reduction Program.
    Comment: A few commenters addressed the proposed definition of 
``applicable time period.'' One commenter opposed the definition for 
applicable time period because of general opposition to the scoring 
methodology proposed for the HAC Reduction Program. Other commenters 
opposed the definition because of different reporting periods for the 
measures in the HAC Reduction Program versus other reporting programs 
and suggested that CMS align the duration of performance periods for 
the Hospital IQR Program, the Hospital VBP Program, and the HAC 
Reduction Program using 2 years of data for PSI measures and 1 year of 
data for NHSN measures.
    Response: We appreciate the commenters' feedback and suggestions. 
The Secretary maintains the statutory authority to determine the 
applicable period for the HAC Reduction Program. We strive, to the 
extent possible, to align reporting periods within our programs, 
acknowledging that some provider burden exists with reporting in 
multiple programs. However, given the varying policy, statutory, and 
data collections differences between each program, such exact alignment 
is not always feasible. For the HAC Reduction program, we proposed and 
are finalizing a Total HAC score using two domains or sets of measures 
to determine the payment adjustment. We believe that using 2 years of 
data for both domains would balance the needs of the program and allow 
for sufficient time to process the claims data and calculate the 
measures to meet the program implementation timeline. Further, we 
believe that the longer performance period on the NHSN measures is 
better for reliability. Finally, we note that the Hospital VBP Program 
has certain restrictions (announcing performance standards 60 days 
prior to the beginning of the performance period and beginning a 
performance period no sooner than 1 year after a measure is publicly 
reported on the Hospital Compare Web site) which may result in 
different performance periods in the Hospital VBP Program than what is 
used in other programs. As these programs grow and are implemented in 
future years, we will examine the possibility of aligning the 
performance periods to the extent possible.
    After consideration of the public comments we received, we are 
finalizing our proposal to codify the definition of ``applicable time 
period'' at Sec.  412.170 without modification.
(4) Measure Calculations
    In the FY 2014 IPPS/LTCH PPS proposed rule, we proposed measure 
calculations for the AHRQ PSI measures under Domain 1 and the CDC NHSN 
measures under Domain 2. Measure calculations for the AHRQ PSI measures 
included using ICD-9-CM diagnosis and/or procedure codes for the 
primary diagnosis and, for the secondary diagnosis, POA value 
associated with the secondary diagnosis on the claim. We also proposed 
to extend the requirement under the FY 2008 IPPS final rule, requiring 
that all hospitals paid under the IPPS report on whether a diagnosis is 
present on admission (72 FR 47201) to subsection (d) Maryland hospitals 
paid under the waiver at section 1814(b)(3) of the Act. (We refer 
readers to section II. F.3. of the preamble of this final rule for a 
discussion of the POA coding requirement for Maryland hospitals.) In 
addition, we proposed that the same rules under the Hospital IQR 
Program be applied to determine how the AHRQ PSI and CDC NSHN measures 
are

[[Page 50718]]

applied and calculated and proposed to expand both of the populations 
for the CDC NHSN CAUTI and CLABSI measures to care provided in areas 
outside of the ICU in the future (78 FR 27628). For further details on 
these proposals for the HAC Reduction Program, we refer readers to 
section V.I. of the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27628). 
For the Hospital IQR Program, we refer readers to section IX.A. of the 
preamble of the final rule.
    Comment: One commenter recommended limiting CAUTI and CLABSI to 
ICUs for the HAC program because there are major risks of 
underreporting and surveillance/assessment bias in self-reporting of 
hospitals. The commenter believed that because the validity of CLABSI 
and CAUTI in non-ICU locations remains uncertain, the measure be 
restricted to ICU locations until and further validation research is 
performed.
    Response: We appreciate the commenter's feedback. In the future, we 
do intend to expand the CDC NHSN measures to non-ICU locations. The 
Hospital IQR Program will begin collecting non-ICU data for CLABSI and 
CAUTI beginning January 2015. For further detail, we refer readers to 
the section IX.A. of the preamble of this final rule for information 
regarding expanding the CAUTI and CLABSI measure to non-ICU locations 
under the Hospital IQR Program.
    Comment: One commenter supported the expansion of CLABSI and CAUTI 
beyond the ICUs.
    Response: We appreciate the commenter's support. As stated above, 
we refer readers to the section IX.A. of the preamble of this final 
rule for information regarding expanding the CAUTI and CLABSI measures 
to non-ICU locations under the Hospital IQR Program.
    Comment: One commenter recommended delaying the implementation of 
the proposed approach until validated data submission to NHSN is in 
place. The commenter believed this new process of data submission was 
unclear and that there is a need for precise NHSN definitions. The 
commenter suggested revising the NHSN definitions with more firm 
definitions which will cause less to be subject to interpretation and 
result in more accurate reporting.
    Response: We appreciate the commenter's suggestion. We have 
received feedback from CDC on this issue. Numerous data validation 
efforts already are underway or have been completed for HAI data that 
were submitted to NHSN. The CDC then reports these data to us for the 
Hospital IQR Program. These efforts include our validation of the 2012 
CLABSI data and State health departments' validation of CLABSI data 
submitted to NHSN as part of mandatory HAI reporting within their 
jurisdictions. We have plans in place to validate data across all of 
the HAIs required for reporting in 2013, and the CDC plans to expand 
its HAI Data Validation Guidance and Toolkits for States to use for 
validation of all NHSN HAIs reported in 2013. Changes made to HAI 
criteria and definitions for reporting HAIs to NHSN in 2013 were posted 
in protocols before January 1, 2013, so users would know in advance 
what guidance to follow. These changes were made to eliminate much of 
the subjectivity in determining whether an HAI exists per NHSN 
surveillance definitions. Although the CDC recognizes these changes 
could potentially shift the number of reported HAIs in 2013, this 
potential shift was evaluated and not expected to be significant.
    Comment: One commenter believed that the lower level of reliability 
for claims-based measures is not sufficient to use in a pay for 
performance program. The commenter recommended that CMS apply the same 
reliability benchmark as it does for chart-abstracted measures.
    Response: We appreciate the commenter's feedback and support of the 
reliability benchmark that we use for chart-abstracted measures. Both 
claims and chart-based data are valid methods for gathering data for 
quality measurement and quality improvement. Claims data cover a larger 
population in the hospital and can provide signals of where quality 
improvement may need to occur. Chart-based data provide more clinical 
detail and, therefore, more specificity, but often cover a limited 
population. Claims data, which are collected for payment purposes, are 
readily available, while registry data are costly to collect and have a 
potentially high burden on the hospital. However, both types of data 
comprise important tools in the assessment of HAIs. Both the claims-
based PSIs and the chart-based HAI measures have met NQF criteria for 
scientific acceptability, which include validity and reliability; 
therefore, we believe they are suitable for use in the HAC Reduction 
Program.
    Comment: One commenter stated that measures calculated from claims-
based data are dependent on coding processes. The commenter provided an 
example that PSI-3 captured data may be incomplete if it is based 
solely on physician documentation because nurses may have more 
information. The commenter added that claims-based measures may not 
fully account for all patient risk factors.
    Response: We have received feedback from AHRQ on this issue and 
appreciate the commenter's and AHRQ's feedback. First, we want to 
stress that CMS has no other data source that currently captures 
pressure ulcers for subsection (d) hospitals. We find that these events 
comprise a serious patient health safety issue in need of quality 
improvement.
    We note that underreporting of pressure ulcers has improved over 
time, because if a hospital does not document a pressure ulcer when it 
is POA, then it takes the risk of being penalized later in the 
hospitalization when the pressure ulcer is clearly documented and it 
may appear to be acquired in the hospital (when it actually was not).
    We further add that we and our Federal partners, including AHRQ, 
consistently strive to maintain high quality measurement and have 
reviewed alternatives. For example, the National Database of Nursing 
Quality Indicators offers a promising alternative, but its measure is 
based on a quarterly prevalence survey of all eligible patients, and 
therefore it does not reflect the risk of acquiring a pressure ulcer 
during an incident hospitalization. Therefore, we believe that the PSI-
3 measure remains a suitable measure for the HAC Reduction Program.
    However, because we have opted to finalize the alternative PSI-90 
proposal at this time, we are not finalizing PSI-3. We stress that in 
the future, given the critical patient safety area this measure 
encompasses, and numerous stakeholder comments supporting the pressure 
ulcer measure, we may consider this measure in future rulemaking for 
the HAC Reduction Program.
    After consideration of the public comments received, we are 
finalizing the measure calculations proposed for the PSI 90 composite 
measure for Domain 1 and the measure calculations proposed for the CDC 
measures for Domain 2. Measure calculations for the AHRQ PSI measures 
included using ICD-9-CM diagnosis and/or procedure codes for the 
primary diagnosis and, for the secondary diagnosis, the POA value 
associated with the secondary diagnosis on the claim. We also are 
finalizing that subsection (d) Maryland hospitals paid under the waiver 
at section 1814(b)(3) of the Act must also report on whether a 
diagnosis is present on admission as discussed in section II.F.3. of 
the preamble of this rule. We are finalizing that the same rules under 
the Hospital IQR Program be applied to determine how the AHRQ PSI and 
CDC NSHN measures are applied and calculated.

[[Page 50719]]

We note that the Hospital IQR Program is finalizing expanded collection 
for the non-ICU population (78 FR 27628). We intend to propose use of 
these data for the HAC Reduction Program in the future.
(5) Measure Risk-Adjustment Methodology
    Section 1886(p)(2)(B)(ii) of the Act requires the Secretary to 
establish and apply an appropriate risk-adjustment methodology with 
respect to determining the top quartile of subsection (d) hospitals 
with respect to HACs subject to the 1 percent payment adjustment. In 
the FY 2014 IPPS/LTCH PPS proposed rule, we proposed to use the 
existing measure-level risk-adjustment that is already part of the 
methodology for the individual measures being proposed for Domains 1 
and 2 in order to fulfill this requirement (78 FR 27629). We proposed 
to codify the use of this methodology under proposed Sec.  412.172(d). 
First, with the exception of PSI 5, all of the proposed PSI measures 
are risk-adjusted and reliability-adjusted. Specifically, risk factors 
such as the patient's age, gender, comorbidities, and complications 
would be considered in the calculation of the measure rates so that 
hospitals serving a large proportion of sicker patients would not be 
unfairly penalized. We believe that such risk-adjustment is 
appropriate, pursuant to section 1886(p) of the Act. We noted that the 
PSI-5 measure (foreign object left in body) is not risk-adjusted. 
However, a foreign object left in the body constitutes an adverse event 
that should never occur. Therefore, such adverse events cannot be risk-
adjusted because these events should not occur, regardless of patient-
related or hospital-related characteristics.
    We invited public comments on the proposed risk-adjustment 
methodology.
    Comment: One commenter was pleased that the measures proposed for 
the HAC Reduction Program will be risk-adjusted to account for factors 
such as the patient's age, gender, and comorbidities. The commenter 
stated that this feature will ensure that hospitals servicing a large 
proportion of sicker patients will not be unfairly penalized.
    Response: We appreciate the commenter's support.
    Comment: One commenter supported the inclusion of the PSI measures 
in the HAC Reduction Program even though the commenter stated there are 
limitations. The commenter suggested that CMS refine the measures in 
the future to have a better predictive ability and risk adjustment.
    Response: We appreciate the commenter's feedback and support. We 
note that our measures continually undergo maintenance to determine the 
need for updated specifications, and to monitor for trends and any 
relevant risk-adjustment changes needed for the measures.
    Comment: One commenter expressed concern regarding the proposal to 
add additional components to the HAC Reduction program without fully 
understanding the impact of appropriate risk adjustment. The commenter 
requested additional information on how this will be incorporated into 
the Hospital VBP Program.
    Response: We will examine the impact of the additional risk-
adjusted measures in the program, and propose refinements to the 
program if necessary. The Hospital VBP Program is a separate program 
with a separate scoring methodology from the HAC Reduction Program. We 
refer readers to section V.H. of this final rule for information about 
the scoring of specific measures for purposes of the Hospital VBP 
Program.
    Comment: Several commenters provided comments regarding risk-
adjustment for the HAC program. One commenter requested confirmation 
that the risk-adjustment factors listed in the specifications for the 
various measures will be used for the HAC reduction program. Several 
commenters believed that the risk-adjustment methodology will penalize 
teaching and large hospitals. One commenter suggested that the risk-
adjustment methodology take into account patient location and primary 
language.
    Response: We confirm that we are using the risk-adjustment factors 
listed in specifications for the AHRQ and CDC measures selected for 
this program. We note that the risk-adjustment methodology for these 
measures meets NQF endorsement criteria. We do not believe that the 
current risk-adjustment factors for the measures in and of themselves 
unfairly penalize teaching and large hospitals, but will monitor this. 
Should changes to the risk-adjustment models for the measures be 
adopted during NQF endorsement maintenance processes, CMS will adopt 
these changes as soon as possible.
    After consideration of the public comments we received, we are 
finalizing our proposal relating to the risk-adjustment methodology 
without modification.
d. Criteria for Applicable Hospitals and Performance Scoring
    In the FY 2014 IPPS/LTCH PPS proposed rule, we proposed a scoring 
methodology similar to the achievement scoring methodology currently 
used under the Hospital VBP Program (78 FR 27629). We proposed to 
implement a methodology for assessing the top quartile of applicable 
hospitals for HACs based on performance standards, where we would score 
each hospital based on whether they fall in the top quartile for each 
applicable measure and where in the top quartile they fall. In 
addition, we proposed to calculate a Total HAC Score for each hospital 
by summing the hospital's performance score on each measure within a 
domain to determine a score for each domain, then multiplying each 
domain score by a proposed weight (Domain 1-AHRQ Patient Safety 
Indicators 50 percent, Domain 2-CDC NHSN Measures 50 percent), and 
adding together the weighted domain scores to determine the Total HAC 
Score. For further detail of the general scoring methodology proposed 
for the HAC Reduction Program, we refer readers to the FY 2014 IPPS/
LTCH PPS proposed rule (78 FR 27629 through 27633).
    With respect to a subsection (d) hospital, we proposed that CMS 
would identify the top quartile of all hospitals that are subsection 
(d) hospitals with respect to their rate of HACs during the applicable 
period (proposed Sec.  412.172(e)(1)). We proposed that CMS would use 
Total HAC Scores to identify applicable hospitals and would identify 
the 25 percent of hospitals with the highest Total HAC Scores as 
applicable hospitals (proposed Sec.  412.172(e)(2)). In addition, we 
proposed that CMS would calculate the Total HAC Score by weighing 
Domain 1 score plus Domain 2 equally at 50 percent (proposed Sec.  
412.172(e)(3)).
    We proposed that hospital performance under section 1886(p) of the 
Act would be based on a Total HAC Score, which combines a hospital's 
results for Domains 1 and 2. For Domain 1, we presented a proposed and 
alternative set of measures and provided an overall description of how 
the measures in the Domain 1 proposed approach would be handled in a 
Total HAC Score. We further proposed several rules that would be used 
to calculate AHRQ measures, including specific rules pertaining to both 
the proposed and alternative approach for Domain 1. For further detail 
on these proposals, we refer readers to the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27629 through 27633).
    For Domain 2, we proposed a method to calculate the CDC NHSN 
measures for Domain 2, which would use the SIR. For further details on 
this proposal, we refer readers to the FY 2014 IPPS/LTCH PPS

[[Page 50720]]

proposed rule (78 FR 27630 through 27633).
    Because of the differences among the measures proposed for the HAC 
Reduction Program and the distribution of measure results, simply 
adding up the measure results to calculate the domain or Total HAC 
Scores would make the scores less meaningful to hospitals and the 
general public. As a result, we proposed that points be assigned to 
hospitals' performance for each measure (78 FR 27630). For all proposed 
measures for the HAC Reduction Program, with the exception of PSI 5, we 
proposed several rules to determine the number of points assigned to a 
measure that is within the top (or worse performing) quartile. We refer 
readers to the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27630 through 
27632) for a detailed description of the rules explaining the points 
assigned to the measures for the HAC Reduction Program.
    For Domain 2, we proposed: how we would obtain measures results for 
the CDC NHSN measures; how we would treat ICUs and an ICU's waiver; and 
how we would calculate Domain 2 with incomplete data. We proposed 
several rules to explain how we would calculate and use the CDC NHSN 
measures in the Domain 2 scoring methodology. For further details on 
these proposals, we refer readers to the FY 2014 IPPS/LTCH PPS proposed 
rule (78 FR 27630 through 27633).
    We proposed a Total HAC Score where Domain 1 and Domain 2 would be 
weighed equally (78 FR 27629). We described how complete data would 
factor into the calculation of the Total HAC Score, and what would 
occur if complete data was not available in one or more domains. We 
also described differences between the Domain 1 proposed and 
alternative approach. For further detail on these proposals, we refer 
readers to the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27629 through 
27633).
    We invited public comments on this proposed scoring methodology. In 
addition, we invited public comments on alternate methodologies for 
scoring hospitals and determining most accurately those hospitals that 
are in the top quartile for the selected HACs. For example, instead of 
awarding points for each measure only to those hospitals that fall in 
the top quartile for that specific measure, an alternative option would 
be to award points to each hospital for each measure in deciles from 
the best performing hospital to the worst performing hospital. Another 
example would be to award points in deciles for each measure between 
the median rate for a particular measure and the rate of the worst 
performing hospital. We sought to identify hospitals that are in the 
top quartile for all of the HACs combined and invited public comments 
on approaches to best identify this group of hospitals.
    Comment: One commenter recommended that CMS develop a third domain 
for calculating total HAC scores made up of two additional measures: 
(1) NQF 0753 Procedure-Specific Surgical Site Infections; and 
(2) a measure of medication reconciliation or a proxy measure for 
medication error prevention since both are high-volume or significant 
patient safety events.
    Response: We appreciate the commenter's feedback and may consider 
the suggestion in future rulemaking.
    Comment: A number of commenters addressed the proposed scoring 
methodology for the HAC Reduction Programs. The comments fell in one of 
three categories. The first group of commenters supported the scoring 
proposal for the HAC Reduction Program.
    The second group of commenters did not support the scoring 
proposal. One commenter in this group stated that the proposed scoring 
methodology was confusing. Other commenters opposed the scoring 
proposal because they believed it would unreasonably penalize teaching 
and large hospitals. Some commenters stated that the scoring 
methodology gives undue weight to very rare events and may 
disproportionately impact a small subset of hospitals more likely to 
treat these types of patients. These commenters further concluded that 
the scoring proposal would not sufficiently assess hospital 
performance. Specifically, they expressed concern that the proposed 
performance scoring methodology awards points to hospitals with 
performance that is statistically the same as the national average and, 
in some cases, to hospitals performing above the average due to their 
placement in the top quartile. Other commenters objected to the 
methodology creating artificial thresholds in determining the top 
quartile for each measure, and then again in assessing the Total HAC 
Scores. These commenters suggested that CMS revise the methodology to 
account for statistical differences, increase score differentiation 
between hospitals, and address challenges brought on by such artificial 
thresholds. They also recommend that CMS delay implementing the program 
until further enhancements occur. One commenter requested that CMS 
release additional information so that facilities can replicate the 
methodology that will be employed. Other commenters stated that the 
PSI-90 alternative composite measure scores for CLABSI in Domain 1, 
which also represents a condition scored by the CDC NHSN CLABSI measure 
in Domain 2.
    The third group of commenters suggested changes and provided 
alternatives to the scoring proposal. One commenter believed that the 
PSI-90 measures in Domain 1 should be weighed individually rather than 
as a composite. Some commenters opposed weighing Domain 1 at 50 percent 
and suggested weighing Domain 2 measures higher. Another commenter 
suggested that CMS only use one domain for the first year, in order to 
become more familiar with the program.
    MedPAC recommended using only CDC measures for the HAC Reduction 
program. Another commenter suggested eliminating the two domains 
altogether. The commenter asked CMS to test the weighting effects of 
the measures and identify ways in which the weights may shift as more 
NHSN measures are introduced. The commenter believed that the NHSN and 
PSI composite measures should be equally weighted and that PSI-5 should 
be scored similarly to the other PSIs. Several commenters reiterated 
that PSI-5 should be equally weighed with the other PSIs.
    One commenter stated the current scoring process may not accurately 
assess poor performance across all measures. The commenter suggested 
that CMS not assign points to hospitals with no events, or those with 
less than expected events, just to meet the 25-percent threshold. 
Rather, the commenter believed that CMS should use an index rather than 
a rank order approach for the top quartile hospitals at the measure 
level. The commenter further suggested that CMS assess the unintended 
consequences of the proposed scoring methodologies for the HAC 
Reduction Program.
    Response: We thank all of the commenters who provided comments, 
suggestions, and feedback on the scoring methodology. We appreciate the 
comments from those commenters who supported the scoring proposal and 
the HAC Reduction Program in general.
    For those commenters who did not support the scoring proposal, or 
who provided suggested revisions for the scoring methodology for the 
HAC Reduction Program, we thank you for the invaluable feedback. We 
reviewed all comments and suggestions, and, as explained further below, 
agree that we need to change some aspects of the scoring methodology.

[[Page 50721]]

    However, at the outset, we disagree with some comments made on the 
proposed scoring methodology. First, we disagree with the comments 
citing confusion over the scoring methodology. As stated in other parts 
of this preamble, we chose this particular scoring methodology to align 
with the scoring methodology used in the Hospital VBP Program. This 
approach sought to reduce confusion associated with multiple scoring 
methodologies. Because the HAC Reduction Program does not contain 
specific statutory directives on scoring methods, as found with other 
programs, we believe aligning the HAC Reduction Program scoring 
methodology with the Hospital VBP Program scoring methodology will 
reduce confusion, given stakeholders' prior experience with the 
Hospital VBP Program. We do acknowledge the newness of the HAC 
Reduction Program, and, as with any new program, the time needed to 
gain familiarity. However, we believe that adopting similar scoring to 
that used in the Hospital VBP Program, in conjunction with the 
education and outreach available on the HAC Reduction Program, will 
likely alleviate any confusion that may inadvertently arise.
    Second, we do not believe in delaying the HAC Reduction Program. As 
stated further below, we made several revisions to the scoring 
methodology that addresses the majority of stakeholder concerns, 
including undue weight for rare events, the potential impact to large 
and teaching hospitals, and the potential for artificial thresholds. 
Further, the HAC Reduction Program directly addresses an area of 
critical importance--the safety of our beneficiaries in an acute care 
setting. Therefore, we believe that any delay to this program would not 
benefit the public. Accordingly, although we intend to monitor the 
program and make adjustments to the HAC Reduction Program as the 
program evolves, we do not intend to delay the program. Rather, we 
believe that, in the interest of public safety, this program should be 
implemented as soon as possible.
    Third, to those commenters who believed that the scoring 
methodology would penalize hospitals that are statistically the same as 
the national average, or even better than the national average, we 
disagree. Section 1886(p) of the Act states that the payment adjustment 
applies to the top quartile of hospitals, relative to the national 
average of hospital acquired conditions. Our proposed scoring 
methodology does not lead to the likelihood that hospitals performing 
at or above the national average would be subject to the payment 
adjustment.
    However, we acknowledge the potential impact to large and teaching 
hospitals with the proposed scoring methodology. The potential impact 
to large and teaching hospitals comprised the majority of opposition to 
the scoring methodology for the HAC Reduction Program. We further 
acknowledge comments relating to the equal weights proposed in the rule 
for the two domains as well as opposition to using the 75th percentile 
as the benchmark for scoring on individual measures. For example, 
several commenters stated that hospitals may be unfairly penalized for 
rare events given such scoring. Other commenters, specifically MedPAC, 
suggested that we weigh Domain 2 measures higher and even suggested 
solely Domain 2 measures for the entire HAC Reduction Program. Other 
commenters stated that the benchmark proposed (75th percentile) would 
not accurately assess the worst performing hospitals with respects to 
HACs.
    Following consideration of the public comments received, we agree 
that Domain 2 measures should be weighed higher and are finalizing a 
scoring change where Domain 1 is weighed at 35 percent and Domain 2 is 
weighed at 65 percent. The support for Domain 2 measures in general, 
coupled with multiple recommendations to provide more weight to Domain 
2 measures, specifically those from MedPAC, has led us to conclude that 
such scoring changes are necessary. We also considered public comments 
relating to the 75th percentile benchmark proposed, and agree that a 
change to the minimum benchmark for scoring each measure is necessary. 
As discussed further below, we are finalizing a scoring methodology 
where points will be assigned for each measure in deciles between the 
score of the best performing hospital and the worst performing 
hospital.
    This scoring change to the domain weights does not indicate that we 
agree with comments suggesting either the single domain approach or the 
elimination of the AHRQ PSI-measures from the HAC Reduction Program. 
Rather, we maintain the AHRQ PSI measures play a vital role in patient 
safety and comprise an integral part of the HAC Reduction Program. As 
stated in section V.I.3.c.. of the preamble of this final rule, we are 
finalizing the alternative PSI-90 for Domain 1. The selection of PSI-90 
over the proposed approach eliminates several concerns regarding 
weighing PSI-5 differently from other measures, as well as general 
comments disagreeing with the use of the individual AHRQ PSI measures. 
The PSI-90 composite measure received support from the MAP and 
endorsement from the NQF for the HAC Reduction Program. We acknowledge 
comments that wanted PSI-90's components weighed individually in 
scoring for the HAC Reduction Program. However, the MAP supported and 
the NQF endorsed this measure as a composite; therefore, we believe 
that the measure must be scored as such. We further believe that 
adopting the AHRQ PSI composite measure provides strong incentives for 
hospitals to ensure that patients are not harmed by the medical care 
they receive, which is a critical consideration for quality 
improvement. Despite comments to the contrary, we maintain that not 
using the AHRQ PSI-90 composite in the HAC Reduction Program may have a 
negative impact on a hospital's quality performance. We believe that 
the PSI measure, as a composite measure of patient safety, 
appropriately encourages robust hospital attention to patient safety 
events.
    As explained earlier in this preamble, the CDC measures received 
positive support from a number of commenters, including MedPAC. 
Therefore, we believe there is ample support to use these measures in 
the HAC Reduction Program.
    We believe that the HAC Reduction Program exists, in part, to drive 
quality improvement in the acute inpatient setting, and we believe 
strongly that patient safety measures, such as the AHRQ PSI-90 measure 
and the CDC NHSN measures, comprise important metrics on which 
hospitals should focus their quality improvement efforts. While we 
sympathize with commenters about the composite measure's complexity, we 
note that the measure consists of underlying safety indicators on which 
hospitals should focus their attention. We encourage hospitals that are 
unsure how to improve their performance on the AHRQ PSI measure or on 
any other measure finalized for the HAC Reduction Program to contact 
their QIO for assistance.
    Next, as also stated earlier, we acknowledge that some conditions 
included in the PSI-90 measure of Domain 1 are also conditions included 
with the CDC NHSN measures of Domain 2. While we are aware that some 
commenters objected to the possibility of subjecting hospitals to 
``double jeopardy'' by scoring the CLABSI measure in both domains, we 
note that this measure covers a topic of critical importance to quality 
improvement in the inpatient hospital setting and to patient safety. We 
intend

[[Page 50722]]

to continue evaluating and working to improve our quality improvement 
programs, and will consider whether we should attempt to avoid any such 
measure duplication in the future.
    However, we believe that a scoring change that assigns more weight 
to the CDC NHSN measures and assigns points along a scale from the best 
performing hospital's score to the worst performing hospital's score, 
rather than beginning at the 75th percentile, alleviates several 
commenters' concerns, including those made by MedPAC. First, we believe 
that the scoring change providing Domain 2 greater weight will 
decreases the impact to large and teaching hospitals from the proposed 
method where weights were equally distributed between the domains. 
Second, the scoring change, both from the change in weighting and the 
change in the scoring methodology, also more accurately reflects the 
variation in performance on measures. Therefore, such changes address 
comments that the proposed scoring methodology does not adequately 
assess the worst performing hospitals with respect to HACs. Finally, we 
believe that such scoring changes will also reduce any potential 
artificial cut-off points for the measures suggested by the commenters, 
given the fact that we are using the entire distribution of the 
measures in the scoring.
    Regarding the request for additional data, the data used to 
calculate the scoring for this program will be provided to each 
hospital as outlined in the review and correction section of this 
preamble. In the future, as we reassess and further analyze the HAC 
Reduction program, we may present additional findings, data, and 
analysis in future rulemaking.
    Comment: Several commenters raised concerns about multiple 
penalties being assessed with the scoring methodology proposed. For the 
alternative domain 1 approach, commenters stated that the measures 
contained in the AHRQ PSI-90 composite overlap with the CDC HAI 
measures of Domain 2, resulting in the same measures being counted 
twice in the Total HAC Score.
    Commenters also raised concerns that the scoring for the HAC 
Reduction program overlaps with the Hospital VBP program, which could 
potentially result in penalties being assessed in more than one 
program. One commenter stated that the criteria used for evaluating 
hospitals in the HAC Reduction program for Domain 2 are almost 
identical to the criteria used in the outcome domain in the Hospital 
VBP Program. Therefore, the commenter suggested that because both 
programs are so similar, there is potential to penalize hospitals 
twice.
    Response: We appreciate the concerns raised by the commenters and 
acknowledge that we do have the same measures in both the Hospital VBP 
Program and the HAC Reduction Program. As stated earlier with regard to 
measure selection, the HAC Reduction Program and the Hospital VBP 
Program are separate hospital reporting programs with different 
purposes and policy goals. For example, the HAC Reduction Program is a 
penalty program that reduces payments to hospitals for excess HACs to 
increase patient safety in hospitals. The Hospital VBP Program is an 
incentive program that redistributes reductions made to the base 
operating DRG payment amount, based on certain performance measures. 
Therefore, although we acknowledge that measures appear in both 
programs, the measures are used and calculated for very distinct 
purposes. We also add that the measures in both programs relate to 
HACs, an area which numerous commenters stressed should be included in 
every program because it comprised a critical area of patient safety. 
Therefore, we maintain that the safety of Medicare beneficiaries, 
coupled with the overwhelming requests by stakeholder to align all 
programs, justify the use of these measures in the HAC Reduction 
program. However, we will, in the future, monitor the HAC Reduction 
Program, the measures selected for it, and the scoring methodology, and 
revise them as needed.
    In this FY 2014 IPPS/LTCH PPS final rule, based upon consideration 
of comments received, we are finalizing the following modified scoring 
methodology. As we proposed in the proposed rule (78 FR 27629), we are 
finalizing a scoring methodology similar to the achievement scoring 
methodology for the individual measures that is currently used under 
the Hospital VBP Program. However, in response to public comments, the 
scoring will begin at the minimum value for each measure rather than 
the 75th percentile, as originally proposed. The finalized methodology 
will assess the top quartile of applicable hospitals for HACs based on 
the Total HAC Score. However, based on comments received requesting 
that we give greater weight to Domain 2 measures, we are finalizing a 
different weight for each Domain than originally proposed. As provided 
in this final rule, we will calculate a Total HAC Score for each 
hospital by using the hospital's performance score on each measure 
within a domain to determine a score for each domain, then multiplying 
each domain score by the following weights: Domain 1-(AHRQ PSI-90), 35 
percent; and Domain 2-(CDC NHSN Measures), 65 percent; and combining 
the weighted domain scores to determine the Total HAC Score. We will 
use each hospital's Total HAC Score to determine the top quartile of 
subsection (d) hospitals (applicable hospitals) that will be subject to 
the payment adjustment beginning with discharges on or after October 1, 
2014.
    With respect to a subsection (d) hospital, we will identify as 
proposed the top quartile of all hospitals that are subsection (d) 
hospitals with respect to their rate of HACs during the applicable 
period (Sec.  412.172(e)(1)). As proposed, we will use a Total HAC 
scores to identify applicable hospitals and will identify the 25 
percent of hospitals with the highest Total HAC scores as applicable 
hospitals (Sec.  412.172(e)(2)). In addition, we will calculate the 
Total HAC score by weighing Domain 1 at 35 percent plus Domain 2 at 65 
percent (Sec.  412.172(e)(3)). As stated above, we have modified the 
proposed weighing scheme of 50 percent in each Domain to respond to 
public comments asking us to give more weight to Domain 2 CDC NHSN 
measures.
    As discussed earlier, we are finalizing the PSI-90 composite 
measure for Domain 1. As proposed, because hospitals may not have 
complete data for every AHRQ indicator in the composite measure for 
this Domain 1 measure, we are finalizing the same methodology used for 
the Hospital VBP Program to determine the minimum number of indicators 
with complete data to be included in the calculation of the Domain 
measure.
    We are finalizing the following rules we proposed to determine the 
number of AHRQ indicators to be included in the calculation for a 
hospital's Domain 1 score. In this discussion, ``complete data'' refers 
to whether a hospital has enough eligible discharges to calculate a 
rate for a measure. Complete data for the AHRQ PSI-90 composite measure 
means the hospital has three or more eligible discharges for at least 
one component indicator. Specifically--
    If a hospital does not have ``complete data'' for the PSI-90 
composite, we will not calculate a Domain 1 score for that hospital.
    If a hospital has ``complete data'' for at least one indicator for 
the AHRQ PSI-90 composite, we will calculate a Domain 1 score.
    The calculation of the SIR for the CDC measures requires the 
facility have >1 predicted HAI event. The predicted number of events is 
calculated using the national HAI rate and the observed number of the 
specific HAIs. In the

[[Page 50723]]

event an SIR cannot be calculated because the facility has <1 predicted 
infection, Domain 1 scores exclusively will be used to calculated a HAC 
score. In other words, we will exclude from the overall HAC score 
calculation any measure for which an SIR cannot be calculated for the 
reason set out above.
    Because of the differences among the measures proposed for the HAC 
Reduction Program and the distribution of measure results, simply 
adding up the measure results to calculate the domain or Total HAC 
Scores will make the scores less meaningful to hospitals and the 
general public. As a result, in this FY 2014 IPPS/LTCH PPS final rule, 
points will be assigned to hospitals' performance for each measure (78 
FR 27630). This approach aligns with the Hospital VBP Program for 
measuring hospital achievement. In particular, the Hospital VBP Program 
assigns up to 10 points for each measure based on a hospital's 
performance result for that measure for a given time period. We note 
that, for the HAC Reduction Program, unlike the Hospital VBP Program 
where a higher score means better performance, the more points a 
hospital receives on a measure corresponds with a poorer score. For the 
HAC Reduction Program, as we proposed, for this final rule we are using 
a slightly different methodology for scoring points, depending on the 
specific measure (Table C). Specifically--
     For the AHRQ Patient Safety for Selected Condition (PSI 
90) composite in Domain 1, point assignment will be based on a 
hospital's score for the composite measure.
     We will assign 1 to 10 points to the hospital for the PSI-
90 composite measure.
     For the CDC NHSN measures in Domain 2, point assignment 
for each measure will be based on the SIR for that measure.
     For each SIR, we will assign 1 to 10 points to the 
hospital for each measure (CAUTI and CLABSI for FY 2015).
     The Domain 2 score will consist of the average of points 
assigned to the SIR (CAUTI and CLABSI for FY 2015).

                           Table C--Calculation of Domain 1 and 2 Measures for FY 2015
----------------------------------------------------------------------------------------------------------------
                                                                                      Individual measure score
          Measure name             Measure result               Scenario                      (points)
----------------------------------------------------------------------------------------------------------------
Domain 1 PSI 90 ***............  Weighted average    Composite value..............  1-10.
                                  of rates of
                                  component
                                  indicators.
Domain 2 CDC NHSN CAUTI CLABSI.  Standard Infection  SIR..........................  1-10 (see Figure A).
                                  Ratio (SIR).
----------------------------------------------------------------------------------------------------------------
*** These measure rates are risk-adjusted and reliability-adjusted.

    For all measures finalized for the HAC Reduction Program, we will 
use the following rules, as we proposed, to determine the number of 
points assigned to a measure. Base on the distribution for PSI 90 rates 
for all the hospitals, we will divide the results into percentiles in 
increments of 10 with the lowest percentile ranges meaning better 
performance. Hospitals with PSI-90 rates within the lowest tenth 
percentile will be given one point; those with PSI-90 rates within the 
second lowest percentile range (between the 10th and 20th percentile) 
will be given 2 points, etc.

        Figure A--Point Assignment for Hospital A's PSI-90 Score
------------------------------------------------------------------------
     If Hospital A's PSI-90 rate falls into this       Then assign this
                     percentile                        number of points
------------------------------------------------------------------------
1st-10th............................................                   1
11th-20th...........................................                   2
21st-30th...........................................                   3
31st-40th...........................................                   4
41st-50th...........................................                   5
51st-60th...........................................                   6
61st-70th...........................................                   7
71st-80th...........................................                   8
81-90th.............................................                   9
91st-100th..........................................                  10
------------------------------------------------------------------------

    For Domain 2, as proposed, we will obtain measure results that 
hospitals submitted to the CDC NHSN for the Hospital IQR Program. The 
CDC HAI measures capture adverse events that occurred within intensive 
care units (ICUs), including pediatric and neonatal units. For the 
Hospital IQR Program, hospitals that elected to participate in the 
reporting program (that is, had an active IQR pledge), but did not have 
ICUs, can apply for an ICU waiver so that they will not be subject to 
the 2-percent payment reduction for nonsubmission of quality reporting 
data.
    In the second quarter of 2012, among the 3,321 IPPS hospitals with 
an active IQR pledge for data submission, 377 (or 10.1 percent) applied 
and received an ICU waiver. At the same time, 2,939 hospitals (88.5 
percent) of the IPPS hospitals did not have an ICU waiver and submitted 
data for the CDC HAI CLABSI measure, while 4 hospitals (0.1 percent) 
that had no ICU waiver failed to submit data to the NHSN. For the same 
quarter, of the 3,321 IPPS hospitals with an active IQR pledge, 2,935 
(88.4 percent) that did not have an ICU waiver submitted data for the 
CDC HAI CAUTI measure, whereas 8 hospitals (0.2 percent) did not submit 
data. Because data availability for the two CDC HAI measures impact the 
score for Domain 2 and eventually the Total HAC Score, we aim to 
encourage hospitals with an ICU that did not submit data to begin data 
submission, and to reward hospitals that have already submitted data to 
continue data submission for all the CDC HAI measures. To this end, as 
we proposed, we are finalizing the following rules (Figure B):
     If a hospital has an ICU waiver for the CDC HAI measures, 
we will use only the Domain 1 score to calculate its Total HAC Score.
     If a hospital does not have an ICU waiver for a CDC HAI 
measure:
    [cir] If the hospital does not submit data for the CDC HAI 
measures, we will assign 10 points to that measure for that hospital.
    [cir] If the hospital does submit data for at least one CDC NHSN 
measure:
    [ssquf] If there are ``complete data'' (that is, enough adverse 
events to calculate the SIR) for at least one measure, we will use 
those data to calculate a Domain 2 score and use the hospital's Domain 
1 and Domain 2 scores to calculate the Total HAC Score.
    [ssquf] If there are not enough adverse events to calculate the SIR 
for any of the measures, we will use only the hospital's Domain 1 score 
to calculate its Total HAC Score.

[[Page 50724]]

[GRAPHIC] [TIFF OMITTED] TR19AU13.017

    As discussed earlier, if a hospital has enough data to calculate 
PSI 90 for Domain 1 and ``complete data'' for at least one measure in 
Domain 2, the scores of the two domains will contribute to the Total 
HAC Score at 35

[[Page 50725]]

percent for Domain 1 and 65 percent at Domain 2. However, if a hospital 
does not have enough data to calculate PSI 90 for Domain 1 but it has 
``complete data'' for at least one measure in Domain 2, its Total HAC 
Score will depend entirely on its Domain 2 score. Similarly, if a 
hospital has ``complete data'' to calculate PSI 90 in Domain 1 but none 
of the measures in Domain 2, its Total HAC Score will be based entirely 
on its Domain 1 score. If the hospital does not have ``complete data'' 
to calculate PSI 90 for Domain 1 or any of the measures in Domain 2, we 
will not calculate a Total HAC Score for this hospital.
e. Reporting Hospital-Specific Information, Including the Review and 
Correction of Information
(1) Confidential Reports to Applicable Hospitals
    Section 1886(p)(5) of the Act requires the Secretary to provide 
confidential reports to the applicable hospitals with respect to HACs. 
To meet the requirements under section 1886(p)(5) of the Act, in the FY 
2014 IPPS/LTCH PPS proposed rule, we proposed that confidential reports 
for the HAC Reduction Program contain information related to claims-
based measure data for the PSI measures, the domain score for each 
domain, and the Total HAC Score (78 FR 27633). We note that we proposed 
to use chart-abstracted measures in the HAC Reduction Program, and such 
information will be contained in the reports hospitals currently 
receive as part of the Hospital IQR Program and can be reviewed and 
corrected through the process specified for that program. We believe 
that this method would reduce the burden on hospitals, by alleviating 
the need to correct data present in two different programs. However, we 
welcomed any public comments and suggestions on this proposal.
    Comment: One commenter supported the proposal to provide hospitals 
with confidential reports and allow them the opportunity to submit 
corrections to HAC-related data prior to assessing a payment 
adjustment.
    Response: We appreciate the commenter's support to our proposal on 
confidential reports.
    After consideration of the public comments we received, we are 
finalizing our proposal regarding confidential reports provided under 
the HAC Reduction program without modification.
(2) Availability of Information to the Public
    Section 1886(p)(6)(A) of the Act requires the Secretary to ``make 
information available to the public regarding HAC rates of each 
subsection (d) hospital'' under the HAC Reduction Program. Section 
1886(p)(6)(C) of the Act requires the Secretary to post the HAC 
information for each applicable hospital on the Hospital Compare Web 
site in an easily understood format. Section 1886(p)(6)(B) of the Act 
also requires the Secretary to ``ensure that an applicable hospital has 
the opportunity to review, and submit corrections for, the HAC 
information to be made public for each hospital.''
    To meet the requirements under section 1886(p)(6)(C) of the Act, in 
the FY 2014 IPPS/LTCH PPS proposed rule, we proposed that the following 
information would be made public on the Hospital Compare Web site 
relating to the HAC Reduction Program: (1) Hospital scores with respect 
to each measure; (2) each hospital's domain specific score; and (3) the 
hospital's Total HAC Score (78 FR 27633). However, because this is a 
new program, we invited public comments and suggestions on other 
information to be posted on the Hospital Compare Web site.
    Comment: Several commenters supported the public reporting of HAC 
data. One commenter generally supported public reporting and continued 
availability of HAC data for third party use. Other commenters 
supported full transparency of medical error reporting and strongly 
believed that the general public must have access to hospital safety 
measures for making informed decisions about hospital care. One 
commenter suggested that government funding be withheld to any hospital 
that would not publish their medical errors as part of a public Web 
site. The commenter added that patients should have reliable 
information in which to choose doctors and hospitals. One commenter 
supported full transparency of all medical error data.
    Response: We appreciate all the commenters' recognition and support 
of the information we plan to publically report. We remain committed to 
fostering transparency for the public we serve and providing accurate 
data to hospitals to improve quality and increase patient safety.
    Comment: One commenter recommended that all quality measures be in 
the Hospital IQR Program for 1 year before being considered for 
performance programs.
    Response: Although it is not required for this program, the 
measures we are finalizing for the HAC Reduction Program for FY 2015 
have all been in the Hospital IQR Program for at least 1 year, and have 
been publicly reported.
    Comment: One commenter did not support publically reporting AHRQ 
PSI data.
    Response: We appreciate the commenter's feedback. We believe that 
public reporting of PSI data is critical because we are using PSI-90 as 
part of calculating the Total HAC Score, which will be used to 
determine the payment adjustment under the HAC Reduction Program. We 
also already report these data on the Hospital Compare Web site. 
Therefore, in order to foster transparency and further provide safety 
information to the public in order to assist them with their healthcare 
decisions, we believe public reporting of the PSI-90 data is warranted. 
We are aware of stakeholders' concerns regarding the use of claims-
based measures. However, we maintain that because such claim 
information is suitable to determine payment under the Medicare 
program, it is also suitable to be reported to the public. We stress 
that we have provided a review and correction process to hospitals to 
revise data if hospitals recognize errors within their submitted data. 
We also are willing to assist hospitals with outreach and education in 
order to ensure they submit accurate claims information.
    After consideration of the public comments we received, we are 
finalizing that the following will be publically reported: (1) Hospital 
scores with respect to each measure; (2) each hospital's domain 
specific score; and (3) the hospital's Total HAC Score.
(3) Review and Correction of Information
    Section 1886(p)(6)(B) of the Act requires the Secretary to ensure 
that each hospital has the opportunity to review and submit corrections 
for the information to be made available to the public with respect to 
each hospital under section 1886(p)(6)(A) of the Act prior to such 
information being made available to the public. In the FY 2014 IPPS/
LTCH PPS proposed rule, we proposed that hospitals be allowed to review 
and correct the following information as part of the HAC Reduction 
Program prior to it being made available to the public: The claims-
based measure rates in Domain 1; the point allocations for the measures 
in each domain; the domain scores; and the Total HAC Score (78 FR 
27633).
    For the FY 2015 HAC Reduction Program, we proposed to use 
individual HAC measures consisting of CDC HAI measures as well as 
claims-based measures. Further, we proposed for the HAC Reduction 
Program that hospitals have an opportunity to review and correct chart-
abstracted data and claims-

[[Page 50726]]

based data for each measure through the processes discussed below. 
These individual measures will be used to calculate the domain and 
Total HAC Score, which will determine those applicable hospitals within 
the top quartile, or those hospitals with the highest number of HACs. 
We also proposed that hospitals have the opportunity to review and 
submit corrections on its Domain and Total HAC Score for the HAC 
Reduction Program, which is also described below.
    Comment: Several commenters supported the review and correction 
process proposed for the HAC Reduction Program.
    Response: We appreciate the commenters' support and feedback.
    Comment: One commenter suggested that CMS provide ample data for 
hospitals to fully review the program details, including hospital 
results and data files with tables to illustrate results by hospital 
and quartile type.
    Response: We considered several factors in deciding the amount of 
information that we would provide to hospitals for the review and 
correction process. These factors include confidentiality of 
information, our resources, and feasibility for hospital providers to 
process the data. For the purposes of the HAC Reduction Program data, 
we have decided to provide as much information that is pertinent to the 
calculation of the Domain and Total HAC Scores so that hospitals can 
verify the accuracy of these calculations. Providing extensive data 
information would be more than necessary in hospitals' effort to review 
their Total HAC Score. To protect sensitive patient information, and to 
avoid burden and confusion to hospitals, we are careful not to include 
data elements that are not relevant for the review and correction 
process. Furthermore, providing all subsection (d) and Maryland 
hospitals with data requested by some commenters will require a large 
amount of resources, infrastructure changes and exert significant 
financial burden on these hospitals and on taxpayers. We have already 
provided hospitals with discharge level information about patient 
comorbidities, demographic characteristics, and dates of service that 
are pertinent to the calculation of the claims-based measures, and will 
continue to do so.
    Therefore, we believe that the proposed review and correction 
policies are adequate. We are working to identify new methods to 
provide hospitals with accurate and timely data to improve their care 
delivery processes to reduce HACs and increase patient safety in the 
acute care setting. We encourage hospitals and other health care 
providers to provide us with recommendations for this effort.
(a) Chart-Abstracted Measures (Domain 2--CDC HAI Measures)
    In the FY 2014 IPPS/LTCH PPS proposed rule, we proposed to use the 
same process that hospitals currently have to review and correct data 
submitted on the Hospital IQR Program chart-abstracted measures to 
review and correct chart-abstracted measures in Domain 2 under the HAC 
Reduction Program (78 FR 27633). Under this proposed process, hospitals 
would continue to have the opportunity to review and correct data they 
submit on all Hospital IQR Program chart abstracted measures, whether 
or not the measure was adopted as a measure for the HAC Reduction 
Program. We proposed to use the Hospital IQR Program's data submission, 
review, and correction processes, which would allow for review and 
correction of data on a continuous basis as data are being submitted 
for the Hospital IQR Program, which in turn would allow hospitals to 
correct data used to calculate the Total HAC Score for those hospitals 
that participate in both the Hospital IQR Program and the HAC Reduction 
Program. We believe that this process would satisfy the requirement in 
section 1886(p)(6) of the Act to allow hospitals to review and submit 
corrections for information that will be made public with respect to 
each hospital. Under the Hospital IQR Program, hospitals currently have 
an opportunity to submit, review, and correct any of the chart-
abstracted information for the full 4\1/2\ months following the last 
discharge date in a calendar quarter. Hospitals can begin submitting 
data on the first discharge day of any reporting quarter. Hospitals are 
encouraged to submit data early in the submission schedule to identify 
errors and resubmit data before the quarterly submission deadline. 
Users may view and make corrections to the data that they submit 
starting immediately following submission. The data are populated into 
reports that are updated immediately with all data that have been 
submitted successfully. Hospitals are able to view a report each 
quarter which shows the numerator, denominator, and percentage of total 
for each Clinical Measure Set and Stratum. That report contains the 
hospital's performance on each measure set/stratum submitted quarterly 
by CDC on behalf of hospitals to CMS' QIO Clinical Warehouse. We 
believe that 4\1/2\ months is sufficient time for hospitals to be able 
to submit, review data, make corrections to the data, and view their 
percentage of total, or measure rate, on each Clinical Measure Set/
Strata for use in both the Hospital IQR Program and the HAC Reduction 
Program. In addition, because this process is familiar to most 
hospitals, use of this existing framework reduces the burden that could 
have been placed on hospitals that participate in the Hospital IQR 
Program if they had to learn a new process for submitting chart-
abstracted data for the HAC Reduction Program. Subsequent to the period 
during which hospitals could review and correct data and measure rates 
for chart-abstracted measures as specified, they would have no further 
opportunity to correct such data or measure rates. We proposed that 
once the hospital had an opportunity to review and correct quarterly 
data related to chart-abstracted measures submitted in the Hospital IQR 
Program, we would consider that the hospital had been given the 
opportunity to review and correct the data for the HAC Reduction 
Program. We proposed to use these data to calculate the measure scores 
for purposes of the HAC Reduction Program, and these measure scores 
would be used to calculate domain and Total HAC Scores for the HAC 
Reduction Program without further review and correction. We invited 
public comments on this proposal.
    Comment: One commenter supported the review and correction process 
for chart-abstracted measures.
    Response: We appreciate the commenter's support.
    After consideration of the public comments we received, we are 
finalizing our proposal relating the review and correction process for 
chart-abstracted measures without modification.
(b) Claims-Based Measures (Domain 1 AHRQ PSI Measures)
    For purposes of the HAC Reduction Program for FY 2015, in the FY 
2014 IPPS/LTCH PPS proposed rule, we proposed to calculate Domain 1 
measure rates using the 2-year applicable period for the FY 2015 
payment determination that spans from July 1, 2011 through June 30, 
2013 and apply the minimum number of discharges criteria shown in Table 
B for each hospital as proposed (78 FR 27634). We intend to make this 
information available to the public, consistent with the requirements 
of section 1886(p)(6)(B) of the Act, as will be specified in further 
detail as part of the FY 2015 rulemaking process, in addition to 
posting this information on the Hospital Compare Web site in a 
subsequent release.
    We proposed to provide hospitals an opportunity to review and 
submit

[[Page 50727]]

corrections for claim-based measures using a process similar to the 
process currently used for posting results on the Hospital Compare Web 
site, which is also the process currently used in the Hospital 
Readmissions Reduction Program. We also proposed the details regarding 
the process for hospitals to review and submit corrections to their 
data score prior to making this information available to the public on 
the Hospital Compare Web site.
    For FY 2015, for the HAC Reduction Program, we proposed to deliver 
confidential reports and accompanying confidential discharge level 
information to hospitals as defined in section V.I.3.d. of the preamble 
of the proposed rule. These reports would be delivered in hospitals' 
secure QualityNet accounts. The information in the confidential reports 
and accompanying confidential discharge-level information would be 
calculated using the claims information we had available approximately 
90 days after the last discharge date in the applicable period, which 
is when we would create the data extract for the calculations. The 
discharge-level information accompanying the Domain 1 PSI measure rates 
would include the risk factors for the discharges that factor into the 
calculation of these measures, dates of admission and discharge, 
discharge characteristics, and other information relevant to the 
measure calculations, that is, exclusions. Our intent in providing this 
information is twofold: (1) To facilitate hospitals' verification of 
the Domain 1 PSI measure calculations we provide during the review and 
correction period based upon the information we had available at the 
time our data extract was created; and (2) to facilitate hospitals' 
quality improvement efforts with respect to the PSI measures.
    The review and correction process we proposed for claims-based 
measures in Domain 1 would not include submitting additional 
corrections related to the underlying claims data we used to calculate 
the measures for Domain 1, or adding new claims to the data extract we 
used to calculate the measures used in Domain 1. This is because it is 
necessary to take a static ``snapshot'' of the claims in order to 
perform the calculations. For purposes of this program, we would 
calculate the measures in Domain 1 using a static snapshot (data 
extract) taken at the conclusion of the 90-day period following the 
last date of discharge used in the applicable period. We recognize that 
under our current timely claims filing policy, hospitals have up to 1 
year from the date of discharge to submit a claim to us. However, in 
using claims data to calculate measures for this program, we proposed 
to create data extracts using claims in CMS' Common Working File (CWF) 
90 days after the last discharge date in the applicable period which we 
will use for the calculations. For example, if the last discharge date 
in the applicable period for a measure is June 30, 2013, we would 
create the data extract on September 30, 2013, and use that data to 
calculate the claims based measures for that applicable period. 
Hospitals would then receive the Domain 1 Score in their confidential 
reports and accompanying discharge-level information, and they would 
have an opportunity to review and submit corrections for the 
calculations of the measures in Domain 1. As we stated above, hospitals 
would not be able to submit corrections to the underlying claims 
snapshot used for the Domain 1 measure calculations after the extract 
date, and also would not be able to add claims to this data set. 
Therefore, we would consider hospitals' claims data to be complete for 
purposes of calculating the Domain 1 for the HAC Reduction Program at 
the conclusion of the 90-day period following the last date of 
discharge used in the applicable period. We considered a number of 
factors in determining that a 90-day ``run-out'' period is appropriate 
for purposes of calculating claims based measures. First, we seek to 
provide timely quality data to hospitals for the purpose of quality 
improvement and to the public for the purpose of transparency. Next, we 
seek to make payment adjustments to hospitals based on their 
performance on measures as close in time to the performance period as 
possible. Finally, with respect to claims-based measures, we seek to 
have as complete a data set as possible, recognizing that hospitals 
have up to 1 year from the date of discharge to submit a claim under 
CMS' timely claims filing policy. After the data extract is created, it 
takes several months to incorporate other data needed for the 
calculations (particularly in the case of risk-adjusted, and/or 
episode-based measures). We then need to generate and check the 
calculations, as well as program, populate, and deliver the 
confidential reports and accompanying data to be delivered to 
hospitals. We also are aware that hospitals would prefer to receive the 
calculations to be used for the HAC Reduction Program as soon as 
possible. Because several months lead time is necessary after acquiring 
the data to generate these claims-based calculations, if we were to 
delay our data extraction point to 12 months after the last date of the 
last discharge in the applicable period, we would not be able to 
deliver the calculations to hospitals sooner than 18 to 24 months after 
the last discharge. We believe this would create an unacceptably long 
delay both for hospitals and for us to deliver timely calculations to 
hospitals for quality improvement and transparency, and, ultimately, 
timely HAC adjustment factors for purposes of this program. Therefore, 
we proposed to extract the data needed to calculate the Domain 1 for 
this program 90 days after the last date of discharge for the 
applicable period so that we can balance the need to provide timely 
program information to hospitals with the need to calculate the claims 
based measures using as complete a data set as possible. We noted that, 
under the proposed process, hospitals would retain the ability to 
submit new claims and corrections to submitted claims for payment 
purposes in line with CMS' timely claims filing policies. However, we 
emphasized that the administrative claims data used to calculate the 
Domain 1 measures and the resulting Domain Score reflect the state of 
the claims at the time of extraction from CMS' Common Working File. 
Under the proposed process, a hospital's opportunity to submit 
corrections to the calculation of the Total HAC Score ends at the 
conclusion of the review and correction period.
    Comment: One commenter supported the proposal.
    Response: We appreciate the commenter's support.
    After consideration of the public comments we received, we are 
finalizing our proposal relating to the review and correction process 
of the claims-based measures with the clarification that we are 
finalizing the AHRQ-PSI-90 composite claims based measure for Domain 1.
(c) Total HAC Score
    In the FY 2014 IPPS/LTCH PPS proposed rule, we proposed to provide 
hospitals with a period of 30 days to review and submit corrections for 
their Total HAC Scores for the HAC Reduction Program (78 FR 27635). 
This 30-day period would begin when the hospitals' confidential reports 
and accompanying discharge-level information are posted to their 
QualityNet accounts. This proposed requirement will enable us to 
evaluate correction requests and provide decisions on those requests in 
a timely manner.
    We believe that this proposed review and corrections process will 
ensure that hospitals are able to fully and fairly review their domain 
and Total HAC

[[Page 50728]]

Score. We view the review and corrections process as a means to ensure 
that the information posted on the Hospital Compare Web site is 
accurate. We invited public comments on the proposed review and 
corrections process for the HAC Reduction Program. Based on previous 
experience with public reporting of measures under the Hospital IQR 
Program, and review and correction processes currently in place for the 
Hospital Readmission Reduction Program and the Hospital VBP Program, we 
believe this 30-day period allows enough time for hospitals to review 
their data and notify us of calculation errors, and for us to 
incorporate appropriate corrections to the HAC calculations prior to 
making the data available to the public. We proposed that the Total HAC 
Score would be made available to the public via the Hospital Compare 
Web site after the review and correction period. During the review and 
correction period, hospitals should notify us of suspected errors in 
their Total HAC Score using the technical assistance contact 
information provided in their confidential reports.
    During the 30-day review and correction process for the Total HAC 
Score, if a subsection (d) hospital suspects that discrepancies exist 
in our application of the HAC scoring methodology (assignment of points 
to measures, domain scoring, domain weighting), it should notify us 
during the review and correction period using the technical support 
contacts provided in the hospital's confidential report. We would 
investigate the validity of each submitted correction and notify 
hospitals of the results. If we confirm that we made an error in 
creating the data extract or in calculating the Total HAC Score, we 
would correct the calculations, issue new confidential reports to 
affected subsection (d) hospitals, and then publicly report the 
corrected Total HAC Score. However, if the errors take more time than 
anticipated to correct, we would notify hospitals that corrected HAC 
Scores will be made available through delivery of confidential reports 
followed by a second 30-day review and correction period, subsequent 
publication, and posting on the Hospital Compare Web site. In addition, 
we proposed that any corrections to a hospital's Total HAC Score would 
then be used to recalculate a hospital's quartile under section 
1886(p)(2)(B)(i) of the Act in order to determine the hospital's 
adjustment factor in accordance with section 1886(p)(2)(B)(ii) of the 
Act.
    We stated that this proposed process would fulfill the statutory 
requirements at section 1886(p)(2)(B), section 1886(p)(6)(B), and 
section 1886(p)(6)(C) of the Act. We stated that we further believe 
that the proposed process would allow hospitals to review and correct 
their total HAC Scores.
    We proposed to codify this review and correction process at 
proposed Sec.  412.172(f). In summary, we would specify that CMS would 
make information available to the public regarding HAC rates of all 
hospitals described in section 1886(d)(1)(B) of the Act, including 
hospitals in Maryland paid under section 1814(b)(3) of the Act, under 
the HAC Reduction Program (proposed paragraph (f)). To ensure that a 
hospital has the opportunity to review and submit corrections for its 
HAC rates for the applicable conditions for a fiscal year that are used 
to determine its total hospital acquired conditions score, we would 
specify that CMS will provide each hospital with confidential hospital-
specific reports and discharge level information used in the 
calculation of its total hospital acquired conditions score (proposed 
paragraph (f)(2)). Hospitals would have a period of 30 days after 
receipt of the information provided to review and submit corrections 
for the hospital-acquired conditions domain score for each condition 
that is used to calculate the Total HAC score for the fiscal year 
(proposed paragraph (f)(2)). The administrative claims data used to 
calculate a hospital's total hospital acquired conditions score for the 
conditions for a fiscal year would not be subject to review and 
correction (proposed paragraph (f)(3)). CMS would post the total 
hospital-acquired condition score for the applicable conditions for a 
fiscal year for each applicable hospital on the Hospital Compare Web 
site (proposed paragraph (f)(4)).
    Comment: One commenter suggested that CMS provide a minimum of 60 
days to review and correct the Total HAC Score.
    Response: We appreciate the commenter's suggestion. We are adopting 
the same review and correction process and timeframes already used for 
the Hospital Readmissions Reduction Program and Hospital VBP Program. 
We will provide hospitals with an opportunity to preview their Total 
HAC Score for 30 days prior to posting on the Hospital Compare Web 
site. This process meets the statutory requirement in section 
1886(p)(6)(B) of the Act which requires the Secretary to ensure that a 
subsection (d) hospital has the opportunity to review and submit 
corrections with respect to the hospital prior to such information 
being made public. Aside from the statutory requirements, we also 
considered hospital experience with the measure and data production 
timeline in proposing the 30-day preview period. In terms of hospital 
experience with the measures, while the HAC Reduction Program is new, 
subsection (d) hospitals are already familiar with some of these 
measures given their inclusion in the Hospital IQR Program. Because 
hospitals are working with measures in which they have some prior 
experience from the Hospital IQR Program, and because the timeframe 
aligns with the 30-day preview period already in place for the Hospital 
Readmissions Reduction Program and the Hospital VBP Program, we believe 
that a 30-day preview period is sufficient for hospitals to review and 
correct their information on their Total HAC Score. In terms of the 
data production timeline, the complexity of these measures and the 
required calculations will involve a significant amount of programming 
resources. Therefore, we cannot extend the preview period to more than 
30 days. Moreover, if hospitals find data problems that we determine to 
be attributable to our calculation or programming errors, we will need 
adequate time between mid-July and the end of September to: (1) 
Recalculate the Total HAC Score; (2) regenerate and redisseminate 
corrected results to hospitals in time for payment adjustment in early 
October (the beginning of the subsequent fiscal year); and (3) publicly 
report the Total HAC Score on the Hospital Compare Web site to meet the 
statutory reporting requirements under section 1886(p)(6) of the Act. 
Accordingly, we cannot change the review and correction timeframe to 60 
days.
    After consideration of the public comments we received, for the 
review and correction process, we are finalizing the policies of 
providing subsection (d) hospitals with: (1) Confidential reports and 
accompanying discharge-level information (this includes information 
related to claims-based measure data for the PSI measures, the domain 
score for each domain, and the Total HAC Score); (2) publically 
reporting hospital scores with respect to each measure, each hospital's 
domain specific score; and the hospital's Total HAC Score on the 
Hospital Compare Web site; and (3) a period of 30 days to review and 
correct their claims-based measures in Domain 1, the point allocations 
for the measures in each domain, the domain score, and the Total HAC 
Score.

[[Page 50729]]

f. Limitation on Administrative and Judicial Review
    Section 1886(p)(7) of the Act provides that there will be no 
administrative or judicial review under Section 1869 of the Act, under 
Section 1878 of the Act, or otherwise for any of the following:
     The criteria describing an applicable hospital under 
section 1886(p)(2)(A) of the Act.
     The specification of hospital acquired conditions under 
section 1886(p)(3) of the Act.
     The specification of the applicable period under section 
1886(p)(4) of the Act.
     The provision of reports to applicable hospitals under 
section 1886(p)(5) of the Act.
     The information made available to the public under section 
1886(p)(6) of the Act.
    In the FY 2014 IPPS/LTCH PPS proposed rule, we proposed to include 
these statutory provisions under proposed Sec.  412.172(g) (78 FR 27636 
and 27759). We note that section 1886(p)(6) of the Act requires the 
Secretary to make information available to the public regarding HAC 
scores of each applicable hospital under the HAC Reduction Program. 
Section 1886(p)(6)(B) of the Act also requires the Secretary to ensure 
that an applicable hospital has the opportunity to review, and submit 
corrections for, the information to be made available to the public, 
prior to that information being made public. We believe that the review 
and correction process explained above will provide hospitals with the 
opportunity to correct data prior to its release on the Hospital 
Compare Web site.
    Comment: One commenter stated that limited judicial and 
administrative review exists with respect to what qualifies as an 
applicable hospital, the specifications of a HAC, the determination of 
an applicable period, and what information is publically reported. 
Therefore, the commenter recommended that CMS provide additional data, 
information, and analysis of the HAC Reduction Program in order for 
commenters to provide meaningful comment on the HAC Reduction Program 
and adequately replicate CMS' findings with regard to the program.
    Response: We appreciate the commenter's suggestion. However, in 
this year's rule, we have provided information and rationale on the 
qualifications of an applicable hospital, the specifications of the 
HAC, the determination of an applicable period, and the information 
that shall be reported to the public. Therefore, we believe that 
commenters can and did provide meaningful comment on the HAC Reduction 
Program. In the future, as we reassess and further analyze the HAC 
Reduction Program, we may, if significant, present additional findings, 
data, and analysis in future rulemaking.
    After consideration of the public comments we received, we are 
finalizing our proposals, including the regulatory text at Sec.  
412.172(g), relating to the limitations on administrative and judicial 
review.

J. Payments for Direct Graduate Medical Education (GME) Costs 
(Sec. Sec.  412.105 and 413.75 Through 413.83

1. Background
    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 full-
time equivalent (FTE) 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 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 a payment adjustment 
known as the indirect medical education (IME) adjustment 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 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 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, through 
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 direct GME in 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 based on the FTE count for 
IME during that cost reporting period is applied effective for 
discharges occurring on or after October 1, 1997. Dental and podiatric 
residents are not included in this statutorily mandated cap.
    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. 
Regulations implementing these changes are discussed in the November 
24, 2010 final rule (75 FR 72133) and the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53416).
2. Inclusion of Labor and Delivery Days in the Calculation of Medicare 
Utilization for Direct GME Purposes and for Other Medicare Purposes
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53411), we discussed 
Medicare's policies with respect to the treatment of labor and delivery 
services in the calculation of the Medicare DSH payment adjustment. We 
noted that, in the FY 2010 IPPS/LTCH PPS final rule (74 FR 43899 
through 43901), we made a change to include, in the disproportionate 
patient percentage (DPP) calculation of the Medicare DSH payment 
adjustment, all patient days associated with patients occupying labor 
and delivery beds once the patient has been admitted to the hospital as 
an

[[Page 50730]]

inpatient, regardless of whether the patient days are associated with 
patients who occupied a routine bed prior to occupying an ancillary 
labor and delivery bed. We stated that we made the change because the 
costs associated with labor and delivery patient days of patients who 
are admitted as inpatients are generally payable under the IPPS.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53413), we finalized 
a policy extending our current approach of including labor and delivery 
patient days in the DPP of the Medicare DSH payment adjustment to our 
rules for bed counting for purposes of both the IME payment adjustment 
and the Medicare DSH payment adjustment. We stated that if a patient 
day is counted for DSH payment purposes because the services furnished 
are generally payable under the IPPS, the bed in which the services are 
furnished also should be considered to be available for IPPS-level 
care. To implement this policy, we amended the regulations at 42 CFR 
412.105(b)(4) to remove from the list of excluded beds those beds 
associated with ``ancillary labor/delivery services.'' This change was 
effective for cost reporting periods beginning on or after October 1, 
2012.
    In response to our proposal in the FY 2013 IPPS/LTCH proposed rule 
to include labor and delivery bed days as available bed days for DSH 
and IME payment adjustment purposes, commenters noted that if these 
days are considered inpatient days, they also should be considered 
patient days for purposes of allocating direct GME payments. However, 
the Medicare cost report currently does not allow for labor and 
delivery patient days to be counted in the direct GME patient load. In 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53413), we stated that we 
would undertake further review to determine whether it was necessary to 
make any changes in the manner in which patient days are reported on 
the Medicare cost report and whether these labor and delivery patient 
days should be excluded from or included in the calculation of the 
Medicare patient load.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27637), we stated 
that we had analyzed the calculation of the Medicare patient load and 
the cost reporting implications. Direct GME payments are calculated 
using three variables: the hospital's per resident amount; the number 
of FTE residents a hospital is training subject to its FTE cap and the 
rolling average; and the hospital's Medicare patient load. ``Medicare 
patient load'' is defined at 42 CFR 413.75(b) as ``with respect to a 
hospital's cost reporting period, the total number of hospital 
inpatient days during the cost reporting period that are attributable 
to patients for whom payment is made under Medicare Part A divided by 
total hospital inpatient days. In calculating inpatient days, inpatient 
days in any distinct part of the hospital furnishing a hospital level 
of care are included and nursery days are excluded.'' We agree with the 
commenters who stated that because labor and delivery days are 
considered inpatient days for DSH purposes, they also should be 
considered inpatient days for purposes of determining the Medicare 
share for direct GME payments. We believe that the best way to 
calculate a hospital's Medicare patient load or the ``Medicare 
utilization'' (the term we will use for the remainder of this section) 
is to include all of the hospital's inpatient days. Consistent with the 
inpatient day counting rules for DSH as clarified in the FY 2010 IPPS/
RY 2010 LTCH PPS final rule (74 FR 43899 through 43901), in the FY 2014 
IPPS/LTCH PPS proposed rule (78 FR 27637), we proposed that patient 
days associated with maternity patients who were admitted as inpatients 
and were receiving ancillary labor and delivery services at the time 
the inpatient routine census is taken, will be included in the Medicare 
utilization calculation, regardless of whether the patient actually 
occupied a routine bed prior to occupying an ancillary labor and 
delivery bed and regardless of whether the patient occupies a 
``maternity suite'' in which labor, delivery, recovery, and postpartum 
care all take place in the same room. We understand that including 
labor and delivery inpatient days in the Medicare utilization ratio 
invariably would reduce direct GME payments because the denominator of 
the ratio, which includes the hospital's total inpatient days, would 
usually increase at a higher rate than the numerator of the ratio. 
However, because the Medicare utilization ratio is a comparison of a 
hospital's total Medicare inpatient days to its total inpatient days, 
we believe that revising the ratio to include labor and delivery days 
is appropriate because they are inpatient days and, therefore, should 
be counted as such. Therefore, we proposed that, effective for cost 
reporting periods beginning on or after October 1, 2013, for purposes 
of applying the Medicare utilization ratio, we would include labor and 
delivery inpatient days in the numerator (to the extent that there are 
any labor and delivery inpatient days associated with Medicare 
beneficiaries), and all labor and delivery inpatient days (associated 
with all inpatients of the hospital) in the denominator. In order to 
implement the proposed change, we noted that we would need to amend the 
applicable cost report worksheets and instructions (in particular, 
Worksheet S-3, Part I) to allow for the inclusion of labor and delivery 
inpatient days in the Medicare utilization ratio on the Medicare cost 
report.
    In addition to direct GME, which uses the ratio of Medicare 
inpatient days to total inpatient days to determine payment, we stated 
that the proposal also impacts other Medicare policies where either the 
number of inpatient days or a ratio of Medicare inpatient days to total 
inpatient days is used to determine eligibility or payment. Regarding 
eligibility, for example, including labor and delivery days as 
inpatient days could affect a hospital's eligibility for SCH status. A 
hospital can be classified as an SCH if it is located more than 35 
miles from other like hospitals or is located in a rural area (as 
defined at Sec.  412.64 of the regulations) and meets one of the 
conditions listed in the regulations at Sec.  412.92(a). In determining 
whether a nearby hospital is a like hospital, CMS compares the total 
inpatient days of the SCH applicant hospital with the total inpatient 
days of the nearby hospital. If the total inpatient days of the nearby 
hospital are greater than 8 percent of the total inpatient days 
reported by the SCH applicant hospital, the nearby hospital is 
considered a like hospital for purposes of evaluating the applicant 
hospital's eligibility for SCH status. Therefore, including labor and 
delivery days as inpatient days may impact the count of inpatient days 
for both the SCH applicant hospital and the nearby hospital and may 
affect the applicant hospital's eligibility for SCH status.
    In summary, we proposed to include labor and delivery days as 
inpatient days in the Medicare utilization calculation and for other 
Medicare purposes, effective for cost reporting periods beginning on or 
after October 1, 2013. However, we stated that this proposal would not 
impact Medicare payments calculated on a reasonable cost basis for 
routine inpatient services, which are apportioned in accordance with 42 
CFR 413.53(a)(1).
    Comment: Many commenters objected to the inclusion of labor and 
delivery days in the Medicare utilization ratio absent a Congressional 
mandate to do so. Commenters asserted that labor and delivery days have 
no relevance to Medicare because only a minute percentage of U.S. 
births are covered by Medicare, and their inclusion would 
inappropriately dilute a hospital's

[[Page 50731]]

Medicare share. The commenters stressed that the inclusion of labor and 
delivery days would disproportionately affect production of generalist 
practitioners of medicine and surgeons and teaching hospitals that 
depend on substantial volumes of obstetrics/gynecology, family 
medicine, and pediatric services, which could also lead to a physician 
workforce shortage across the board. Many commenters also requested 
that CMS reverse its FY 2010 decision on including labor and delivery 
inpatient days for DSH purposes and its FY 2013 decision on including 
labor and delivery beds for IME and DSH purposes. One commenter 
requested a comprehensive analysis of the impact of including labor and 
delivery days across IME, DSH, and direct GME rather than implementing 
the inclusion piecemeal because there might be unintended consequences 
when changes are made to parts rather than the whole.
    Response: As noted above, the ``Medicare patient load'' (``Medicare 
utilization'' used interchangeably) is defined in regulations at 42 CFR 
413.75(b), as follows: The total number of hospital inpatient days 
during the cost reporting period that are attributable to patients for 
whom payment is made under Medicare Part A divided by total hospital 
inpatient days. The volume of labor and delivery services paid under 
the Medicare program, regardless of whether it is as low as asserted by 
the commenters, does not alter the fact that these services are covered 
by Medicare and many patients receiving these services are admitted as 
inpatients and are receiving an IPPS-level of care. We do not believe 
it would be appropriate to adopt a policy to exclude patient days from 
a hospital's number of inpatient days based on the volume of services 
paid for by Medicare. The issue at hand is the calculation of a 
hospital's Medicare utilization, and the determination of what 
constitutes an inpatient day, in making such a calculation. Whether 
inpatient days are attributable exclusively to Medicare beneficiaries 
is not at issue, and the commenters' assertion that labor and delivery 
days have no relevance to Medicare and, therefore, should be excluded 
from the Medicare utilization ratio has no bearing on how Medicare's 
direct GME payments are calculated in the formula specified in the law. 
The definition of ``Medicare patient load'' at section 1886(h)(3)(C) of 
the Act does not specify inclusions or exclusions in the inpatient day 
count based on volume. An inpatient day has historically been counted 
in the Medicare utilization calculation for direct GME purposes in 
situations where a maternity patient admitted as an inpatient occupied 
a routine bed at some time before going to the ancillary labor and 
delivery room or receiving labor and delivery services at the time of 
the routine census (Provider Reimbursement Manual-I (PRM-I), Section 
2205.2). Therefore, it is an established policy that even if the number 
of inpatient days applicable to the maternity patients who occupied a 
routine bed before going to the labor and delivery room was low, both 
the Medicare and total inpatient days of these maternity patients have 
been included in the determination of the Medicare utilization 
calculation (in the denominator, and even in the numerator in the rare 
circumstance that the maternity patient is a Medicare beneficiary due 
to disability). Consequently, it is equally appropriate to include in 
the Medicare utilization calculation the inpatient days pertaining to 
the maternity patients who have been admitted as inpatients, but have 
not yet occupied a routine bed because they proceed directly to receive 
ancillary labor and delivery services, and are in the ancillary labor 
and delivery room at the time the inpatient routine census is taken. 
(We also note that the inpatient day is counted for that maternity 
patient only in the routine unit, and not in the routine unit and again 
in the ancillary labor and delivery room; this avoids counting 2 days 
for the same patient (PRM-I, Sections 2205 and 2205.2). However, 
because 42 CR 412.105(b) prescribes counting of available beds, the 
ancillary labor and delivery bed, for the time occupied by a particular 
maternity inpatient, and while unoccupied, would be counted as an 
available bed in addition to the routine bed occupied later by the 
maternity inpatient (FY 2013 IPPS/LTCH PPS final rule (77 FR 53413)). 
Furthermore, it is CMS' general policy to treat inpatient days and beds 
consistently. That is why we believe that because labor and delivery 
days are considered inpatient days for DSH purposes, and the beds are 
considered available inpatient beds for IME and DSH purposes, the labor 
and delivery inpatient days also should be considered inpatient days 
for purposes of determining the Medicare share for direct GME payments.
    We also note that a hospital's total number of inpatients includes 
pediatric patients, who would rarely be Medicare patients, yet their 
patient days, and the inpatient days of all other non-Medicare 
patients, are included in the Medicare utilization ratio. Furthermore, 
direct GME payments are made to hospitals for all types of residency 
programs, including obstetrics/gynecology and pediatrics specialty 
programs, which train physicians to treat primarily the non-Medicare 
population. Therefore, we believe that the commenters' concerns that 
the inclusion of labor and delivery inpatient days in the Medicare 
utilization ratio would have a harmful effect on the physician 
workforce are unfounded. Accordingly, we continue to believe that 
patient days associated with maternity patients who are admitted as 
inpatients and are receiving ancillary labor and delivery services at 
the time the inpatient routine census is taken, regardless of whether 
the patient actually occupied a routine bed prior to occupying an 
ancillary labor and delivery bed and regardless of whether the patient 
occupies a ``maternity suite'' in which labor, delivery, recovery, and 
postpartum care all take place in the same room, should be included in 
the Medicare utilization calculation.
    Comment: Several commenters argued that the inclusion of labor and 
delivery days in the Medicare utilization calculation is inconsistent 
with CMS' longstanding policy regarding services that are not typically 
covered by Medicare. The commenters cited CMS' policy on healthy 
newborn days which, for DSH purposes, are included in the patient day 
count but excluded from the bed day count (68 FR 45417). The commenters 
asserted that the rationale behind that policy is that Medicare does 
not typically cover these services while Medicaid does. Therefore, the 
commenters believed that CMS should exclude labor and delivery bed days 
from the IME intern and resident to bed (IRB) ratio and for DSH bed-day 
counting purposes but should continue to include labor and delivery 
patient days for calculating the disproportionate patient percentage 
(DPP). In addition, the commenters stated that the exclusion of bed 
days from these calculations is consistent with CMS' longstanding 
definition of beds in the cost report.
    Response: We disagree with the commenters' statement that inclusion 
of labor and delivery days in the Medicare utilization calculation is 
inconsistent with CMS' longstanding policy regarding services that are 
not typically covered by Medicare. In the circumstance, albeit rare, 
that the maternity patient is disabled and qualifies for Medicare, the 
labor and delivery services of that maternity patient would be covered 
by Medicare. Therefore, the frequency of Medicare coverage is not at 
issue, and the days associated with the maternity inpatient would be 
included in both the

[[Page 50732]]

numerator and the denominator of the Medicare patient load calculation. 
We further believe that the commenters are confusing CMS' (previously 
HCFA's) longstanding policy regarding the inclusion of patient days 
associated with healthy newborns in the Medicaid fraction of the DSH 
DPP calculation. CMS' policy of including healthy newborn days in the 
patient day count of the Medicaid fraction of the DSH DPP calculation 
is unique to DSH because of the way the days to be used in the Medicaid 
fraction are defined by law. Initially, after the enactment of the 
Consolidated Omnibus Reconciliation Act (COBRA) of 1985, HCFA's policy 
was not to count healthy newborn days in determining a hospital's 
Medicaid percentage, based on the fact that healthy newborn beds are 
not included in the bed size determination. However, not long 
afterward, we reconsidered the language at section 
1886(d)(5)(F)(vi)(II) of the Act, which specifically states with 
respect to the Medicaid fraction of the DPP that the numerator consists 
of ``the number of the hospital's patient days for such period which 
consist of patients who (for such days) were eligible for medical 
assistance under a State plan approved under title XIX, but who were 
not entitled to benefits under part A of this title, and the 
denominator of which is the total number of the hospital's patient days 
for such period.'' (Emphasis added.) Because healthy newborns may be 
``eligible'' for coverage by Medicaid, HCFA changed its policy and 
began to include patient days associated with healthy newborns in the 
Medicaid fraction of the Medicare DSH DPP. However, the treatment of 
nursery days and beds has no bearing on the treatment of patient days 
associated with maternity patients who are receiving ancillary labor 
and delivery services at the time the inpatient routine census is 
taken, yet who are admitted as inpatients, and therefore, the 
associated days should be included in the count of inpatient days. We 
continue to believe that patient days associated with such maternity 
patients should be included in the calculation of Medicare patient load 
defined at Sec.  413.75(b), regardless of whether these patients 
occupied an inpatient routine bed prior to receiving the ancillary 
labor and delivery services at the time of the census because they are 
admitted as inpatients and they are receiving IPPS-level acute care.
    Comment: One commenter suggested that even though there is 
consistency in considering labor and delivery days to be inpatient days 
for direct GME purposes, along with consideration of those days to be 
inpatient days for DSH and IME purposes, the application of such a 
policy for direct GME purposes as compared to DSH and IME purposes is 
different, because for DSH and IME, Medicare utilization is not 
directly tied to determining reimbursement. Rather, the commenter 
stated that it is used to determine if certain hospitals would qualify 
for those payments.
    Response: The commenter is correct that the ramifications of 
inpatient status are different for IME, DSH, and direct GME payments, 
respectively, because each has a different statutory payment formula. 
Nevertheless, as stated previously, the measure by which patient days 
are counted is the determination of whether the patient is admitted as 
an inpatient and those services furnished are at an IPPS-level of care. 
This applies whether or not the calculation involved determines an 
actual payment amount or whether it is used to determine eligibility 
for additional payment. As we explained in the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53413), if a patient day is counted for DSH payment 
purposes because the services furnished are generally payable under the 
IPPS, the bed in which the services are furnished also should be 
considered to be available for IPPS-level care. Therefore, it follows 
that if the days in question are indeed inpatient, they should also be 
counted as inpatient days for other purposes, such as inclusion in the 
calculation of a hospital's Medicare utilization ratio, or 
determination of eligibility for SCH status. In addition, regarding the 
commenter's assertion that Medicare utilization is not directly tied to 
reimbursement for DSH and IME, while we note that the DSH and IME 
formulas are not paid based on a hospital's Medicare utilization, as 
with direct GME, these payments are dependent on, and are made, for 
each Medicare inpatient discharge from a hospital.
    Comment: One commenter was concerned about the impact of including 
labor and delivery days in the Medicare utilization calculation on the 
payments for meaningful use of electronic health records under the 
Medicare and Medicaid EHR Incentive Programs. As many labor and 
delivery days are for Medicaid patients, in theory, such a proposal 
might result in an increase in Medicaid utilization and a decrease in 
Medicare utilization and, therefore may have no significant impact on 
hospitals eligible for both Medicare and Medicaid meaningful use 
reimbursement. The commenter noted that the Medicaid meaningful use 
reimbursement calculation is essentially a ``one-time'' calculation 
using historical data, spread over 3 years in most States, while the 
Medicare utilization is recalculated each year. Therefore, this 
proposed policy may result in a reduction in Medicare meaningful use 
reimbursement with no increase in Medicaid reimbursement. If CMS does 
finalize this policy, the commenter requested that the labor and 
delivery days be excluded from the Medicare utilization calculated to 
determine meaningful use reimbursement.
    Response: We understand the commenter's concern regarding the 
potential effect of including labor and delivery inpatient days in the 
hospital's number of total inpatient days, and the calculation of the 
incentive payments for meaningful use of certified EHR technology under 
Medicare, but we are not commenting in this Medicare IPPS final rule on 
the ramifications, if any, on Medicaid payment. However, regardless of 
the impact on a particular hospital, because labor and delivery 
inpatients are, in fact, inpatients, we continue to believe that these 
inpatient days should be included in the determination of a hospital's 
total number of inpatient days. Furthermore, we note that in the final 
rule for Stage 1 of the EHR Incentive Program (75 FR 44453), we stated 
that ``we proposed to determine the number of Medicare Part A and Part 
C inpatient bed [sic] days using the same data sources and methods for 
counting those days that we may employ in determining Medicare's share 
for purposes of making payments for direct graduate medical education 
costs. . . .'' Therefore, we note that there is already consistency 
between Medicare's policies regarding inpatient days for EHR and direct 
GME.
    Comment: Some commenters pointed out that the labor and delivery 
beds are unique in that even though the bed might be occupied by a 
patient, that patient may not be ``ready'' to be admitted as an 
inpatient. These commenters requested clarification of our proposal on 
whether or not to include in the patient day count the scenario where 
the patient is occupying a labor and delivery bed but is under 
observation status. They also wanted confirmation that the counting of 
beds as inpatient beds would only occur after the patient's admission 
as an inpatient.
    Response: Patients under observation status are outpatients; they 
are not admitted as inpatients. As we noted in the FY 2010 IPPS/RY 2010 
LTCH PPS final rule (74 FR 43900) and the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53412), our policy for counting labor and delivery patient 
days does not allow for the inclusion of days of labor and delivery 
patients who are not admitted

[[Page 50733]]

to the hospital as inpatients. For example, if a woman presents at a 
hospital for labor and delivery services, but is determined by medical 
staff to be in false labor and is sent home without ever being admitted 
to the hospital as an inpatient, any days associated with such services 
furnished by the hospital would not be included in the DPP for purposes 
of the calculation of the Medicare DSH payment adjustment. This same 
policy would apply with regard to inpatient days in the Medicare 
utilization ratio, and any time spent in the hospital prior to 
admission as an inpatient would not be counted toward the determination 
of an inpatient day. With regard to the counting of beds, the 
regulations at 42 CFR 412.105(b)(4) explicitly exclude ``beds otherwise 
countable under this section used for outpatient observation 
services,'' and therefore, the bed in a unit or ward that is otherwise 
occupied to provide a level of care that would be payable under the 
IPPS would be counted as available generally while it is unoccupied, or 
occupied with a patient admitted as an inpatient.
    Comment: Another commenter observed that CMS' proposal does not 
take into account two different types of labor and delivery beds that 
are in place at some hospitals. The commenter noted that there are 
labor and delivery beds that are used for postpartum purposes and there 
are those that are used for delivery only. In addition, some hospitals 
with traditional labor and delivery beds have adopted the policy of 
setting aside a recovery room in the hospital's obstetrical unit for 
the mother and baby once the mother is committed to delivery, even 
though she may still be in a traditional labor and delivery room. The 
commenter pointed out that CMS did not address how to avoid the double 
counting of these two types of beds during the same time period.
    Response: We refer readers to the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53413) where we responded to a similar comment and clarified our 
policy regarding the bed count for various types of labor and delivery 
beds. We disagree with the commenter that there would be ``double 
counting'' of post-partum and ancillary labor and delivery beds for the 
same mother. Rather, under our existing policies, we include all beds 
in a unit that is providing services that are generally payable under 
the IPPS because we believe such beds to be available for IPPS-level 
acute care hospital services. Specifically, postpartum beds have 
historically been included in the definition of an available inpatient 
bed and, therefore, are already included in the routine adult and 
pediatric services bed count on line 1 of Worksheet S-3, Part I (68 FR 
45420). Moreover, the definition of an available inpatient bed has been 
revised to eliminate the exclusion for ancillary labor and delivery 
beds because they are available for IPPS-level acute care hospital 
services. That is, effective for cost reporting periods beginning on or 
after October 1, 2012, beds in distinct ancillary labor and delivery 
rooms, when occupied by an inpatient receiving IPPS-level acute care 
hospital services or when unoccupied, are considered to be part of a 
hospital's inpatient available bed count in accordance with 42 CFR 
412.105(b) (77 FR 53411 through 53413). However, we understand that 
hospital practices may vary with regard to the types of beds used for 
the various stages of labor and delivery. To the extent that some 
hospitals set aside beds in the ancillary labor and delivery unit for 
recovery purposes, separate from the beds that are used for actual 
labor and delivery services, we would agree that these beds are not 
permanently maintained for inpatient use and would not be considered 
available for IPPS-level care.
    Comment: One commenter noted that the cost report now separates 
labor and delivery room days for DSH purposes, and does not include 
them in the calculation of Medicare utilization. Because the days in 
question will not be included in the days used for apportionment (for 
payment calculated on a reasonable cost basis), the commenter 
questioned whether the cost report would be revised to reflect the new 
policy. The commenter also requested clarification on whether labor and 
delivery days would be used for pass-through costs for nursing and 
allied health education programs, and whether or not the new policy 
would apply to existing SCHs or only to hospitals seeking SCH status 
once the proposal is finalized. The commenter recommended only applying 
the new policy to new SCH applicants due to the administrative burden 
of applying the policy to all existing SCHs.
    Response: We appreciate the commenter's information regarding the 
need for changes to the Medicare hospital cost report and the cost 
reporting instructions. As noted the FY 2014 IPPS/LTCH PPS proposed 
rule (78 FR 27637), we plan to amend the applicable cost report 
worksheets and instructions (in particular, Worksheet S-3, Part I) to 
be able to include labor and delivery inpatient days in the Medicare 
utilization ratio on Worksheet E-4. As mentioned in the FY 2014 IPPS/
LTCH PPS proposed rule (78 FR 27637), this change regarding inclusion 
of labor and delivery inpatient days in the Medicare utilization ratio 
would not impact Medicare payments calculated on a reasonable cost 
basis for routine inpatient services, which are apportioned in 
accordance with 42 CFR 413.53(a)(1). Therefore, this change regarding 
labor and delivery patient days would not affect the policy currently 
in place for determining nursing and allied health education pass-
through payments. In addition, this change applies for cost reporting 
periods beginning on or after October 1, 2013. Therefore, this policy 
would apply to hospitals seeking SCH status after the effective date of 
this rule. However, if CMS or the Medicare contractor reviews the 
status of an existing SCH after October 1, 2013, the new policy 
regarding inclusion of inpatient labor and delivery days would also 
apply.
    After consideration of the public comments we received, we are 
finalizing our proposed policy, without modification, to include 
patient days associated with maternity patients who have been admitted 
as inpatients and are receiving ancillary labor and delivery services 
at the time the inpatient routine census is taken, regardless of 
whether the patient actually occupied a routine bed prior to occupying 
an ancillary labor and delivery bed and regardless of whether the 
patient occupies a ``maternity suite'' in which labor, delivery, 
recovery, and postpartum care all take place in the same room, in the 
Medicare utilization calculation for cost reporting periods beginning 
on or after October 1, 2013. This final policy does not impact Medicare 
payments calculated on a reasonable cost basis for routine inpatient 
services, which are apportioned in accordance with 42 CFR 413.53(a)(1).
3. Notice of Closure of Teaching Hospitals and Opportunity To Apply for 
Available Slots
a. Background
    Section 5506 of the Affordable Care Act authorizes the Secretary to 
redistribute residency cap slots after a hospital that trained 
residents in an approved medical residency program(s) closes. 
Specifically, section 5506 amended the Act by adding a subsection (vi) 
to section 1886(h)(4)(H) and modifying the language at section 
1886(d)(5)(B)(v) to instruct the Secretary to establish a process to 
increase the FTE resident caps for other hospitals based upon the FTE 
resident caps in teaching hospitals that closed ``on or after a date 
that is 2 years before the

[[Page 50734]]

date of enactment'' (that is March 23, 2008). In the CY 2011 OPPS/ASC 
final rule with comment period issued in the Federal Register on 
November 24, 2010 (75 FR 72212), we established regulations and an 
application process for qualifying hospitals to apply to CMS to receive 
direct GME and IME FTE resident cap slots from a hospital that closed. 
The procedures we established apply both to teaching hospitals that 
closed after March 23, 2008, and on or before August 3, 2010, and to 
teaching hospitals that closed after August 3, 2010. We made 
clarifications and revisions to the policy regarding applications under 
section 5506 in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53434 
through 53477).
b. Notice of Closure of Teaching Hospitals
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27637), we 
provided notice to the public of the closure of a teaching hospital, 
and of the initiation of another round of the section 5506 application 
and selection process. This round was the fourth round of the section 
5506 (``Round 4'') application and selection process, which announced 
the closure of Peninsula Hospital Center in Far Rockaway, NY, and 
applications were due to CMS no later than July 25, 2013.
    In a notice published in the Federal Register on May 31, 2013 (CMS-
1459-N, 78 FR 32663), CMS announced the closure of two additional 
hospitals, Infirmary West Hospital in Mobile, AL, and Montgomery 
Hospital in Norristown, PA, and initiated the fifth round of the 
section 5506 (``Round 5'') application and selection process. Round 5 
applications are due to CMS no later than August 29, 2013 (CMS-1459-CN, 
78 FR 39730).
    In addition, we have learned of the closure of two more teaching 
hospitals, Cooper Green Mercy Hospital, in Birmingham, AL, and Sacred 
Heart Hospital, in Chicago, IL. The purpose of this notice is to notify 
the public of the closure of these teaching hospitals, and to initiate 
another round of the application and selection process described in 
section 5506 of the Affordable Care Act. This round will be the sixth 
round (``Round 6'') of the application and selection process. The 
following closed teaching hospitals are part of the Round 6 application 
process under section 5506:

----------------------------------------------------------------------------------------------------------------
                                                                                                 Direct GME cap
                                                                                   IME Cap       (including +/-
                                                     CBSA                      (including +/-    MMA Section 422
 Provider No.    Provider name    City and state     code   Terminating date  MMA Sec. 422 \1\     \1\ and ACA
                                                                                 adjustment)    Section 5503 \2\
                                                                                                  adjustments)
----------------------------------------------------------------------------------------------------------------
010137.......  Cooper Green      Birmingham, AL..    13820  January 1, 2013.  35.45-5.80        35.45-9.21
                Mercy Hospital.                                                section 422       section 422
                                                                               decrease =        decrease =
                                                                               29.65 \3\.        26.24.\4\
140151.......  Sacred Heart      Chicago, IL.....    16974  July 20, 2013...  4.00............  4.00-2.60
                Hospital.                                                                        section 5503
                                                                                                 decrease =
                                                                                                 1.40.\5\
----------------------------------------------------------------------------------------------------------------
\1\ Section 422 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Public Law
  108-173, redistributed unused residency slots effective July 1, 2005.
\2\ Section 5503 of the Affordable Care Act, Public Law 111-148, redistributed unused residency slots effective
  July 1, 2011.
\3\ Cooper Green Mercy Hospital's 1996 IME FTE cap is 35.45. Under section 422 of the MMA, the hospital received
  a decrease of 5.80 to its IME FTE cap: 35.45-5.80 = 29.65.
\4\ Cooper Green Mercy Hospital's 1996 direct GME FTE cap is 35.45. Under section 422 of the MMA, the hospital
  received a decrease of 9.21 to its direct GME FTE cap: 35.45-9.21 = 26.24.
\5\ Sacred Heart Hospital's 1996 direct GME FTE cap is 4.00. Under section 5503 of the Affordable Care Act, the
  hospital received a decrease of 2.60 to its direct GME FTE cap: 4.00-2.60 = 1.40.

c. Application Process for Available Resident Slots
    The application period for hospitals to apply for slots under 
section 5506 is set at 90 days following notification to the public of 
a hospital closure. Therefore, hospitals wishing to apply for and 
receive slots from the above hospitals' FTE resident caps under Round 6 
must submit applications directly to the CMS Central Office no later 
than October 31, 2013. Unlike in the first 2 rounds of section 5506, 
under this round, hospitals are not required to submit applications to 
their respective CMS Regional Office. The mailing address for the CMS 
Central Office is included on the application form. Applications must 
be received, not postmarked, by October 31, 2013. After an applying 
hospital sends a hard copy of a section 5506 application to the CMS 
Central Office mailing address, we strongly encourage it to send an 
email to: [email protected]. In the email, the hospital 
should state: ``I am sending this email to notify CMS that I have 
mailed a hard copy of a section 5506 application to CMS.'' An applying 
hospital should not attach an electronic copy of the application to the 
email. The email only serves to notify CMS Central Office that a hard 
copy application has been mailed to CMS Central Office.
    In the CY 2011 OPPS/ASC final rule with comment period (75 FR 
72212), we did not establish a deadline by when CMS would issue the 
final determinations to hospitals that receive slots under section 5506 
of the Affordable Care Act. However, we will review all applications 
for Round 6 slots received by the October 31, 2013 deadline, and will 
notify applicants of our determinations as soon as possible.
    We refer readers to the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dgme.html 
for a copy of the application form (Section 5506 CMS Application Form) 
that hospitals must use to apply for slots under section 5506. We also 
refer readers to this same Web site to access a copy of the CY 2011 
OPPS/ASC final rule with comment period (75 FR 72212), a copy of the FY 
2013 IPPS/LTCH PPS final rule (CMS-1488-F, 77 FR 53434 through 53447), 
and a list of additional section 5506 guidelines for an explanation of 
the policy and procedures for applying for slots, and the 
redistribution of the slots under sections 1886(h)(4)(H)(vi) and 
1886(d)(5)(B)(v) of the Act.
4. Payments for Residents Training in Approved Residency Programs at 
CAHs
a. Background
    Recently, we have received questions regarding how CMS would make 
payment for residency training occurring in a CAH. In the past, we have 
advised that (1) CAHs may be paid directly under the CAH payment 
methodology (that is, 101 percent of the reasonable costs of the CAH in 
accordance with sections 1814(l) and 1834(g) of the Act), or (2) CAHs 
could

[[Page 50735]]

function as nonhospital settings and therefore, as such, a hospital may 
be paid if it incurred the costs of training occurring in the CAH as 
provided under section 1886(d)(5)(B)(iv) of the Act for IME and section 
1886(h)(4)(E) of the Act for direct GME.
    Section 5504 of the Affordable Care Act, titled ``Counting Resident 
Time in Non-Provider Settings,'' amended the Act in connection with 
``cost reporting periods beginning on or after July 1, 2010,'' for 
direct GME, and for discharges on or after July 1, 2010 for IME, to 
permit hospitals to count the time that a resident trains in activities 
related to patient care in a nonprovider site in its FTE count if the 
hospital incurs the costs of the residents' salaries and fringe 
benefits for the time that the resident spends training in the 
nonprovider site. In connection with those periods and discharges, if 
more than one hospital incurs the residency training costs in a 
nonprovider setting, under certain circumstances, section 5504 of the 
Affordable Care Act allows each hospital to count a proportional share 
of the training time that a resident spends training in that setting, 
as determined by a written agreement between the hospitals. When 
Congress enacted section 5504 of the Affordable Care Act, it retained 
the statutory language which provides that a hospital can only count 
the time so spent by a resident under an approved medical residency 
training program in its FTE count if that one single hospital by itself 
``incurs all, or substantially all, of the costs for the training 
program in that setting.'' Congress made that longstanding substantive 
standard and requirement applicable to ``cost reporting periods 
beginning before July 1, 2010'' for direct GME, and to ``discharges 
occurring on or after October 1, 1997, and before July 1, 2010'' for 
IME (Sections 1886(d)(5)(B)(iv)(I) and 1886(h)(4)(E)(i) of the Act).
    Section 5504 of the Affordable Care Act also changed the manner in 
which the Act refers to sites outside the hospital in which residents 
train. Specifically, section 5504(a)(4) of the Affordable Care Act, 
amended the Act by adding at the end of section 1886(h)(4)(E) a 
sentence that specifically identified such ``outpatient settings'' as 
``nonprovider setting[s].'' That is, prior to the enactment of the 
Affordable Care Act, section 1886(h) of the Act did not include a 
specific term, but rather used the phrase, ``without regard to the 
setting'' in which the residents train, and now, with amendments from 
the Affordable Care Act, the Act specifically refers both to the 
phrase, ``without regard to the setting'' and to the phrase ``time 
spent in a nonprovider setting.'' (We invite readers to compare section 
1886(h)(4)(E)(i) of the Act as of 2010 with sections 1886(h)(4)(E)(i) 
and 1886(h)(4)(E)(ii) of the Act as of 2011.)
    We also note that prior to the amendment in section 5504(b) of the 
Affordable Care Act, section 1886(d)(5)(B)(iv) of the Act relating to 
IME referenced training in a ``nonhospital'' setting. This remains true 
after the enactment of the Affordable Care Act for ``discharges 
occurring on or after October 1, 1997 and before July 1, 2010.'' (We 
refer readers to section 1886(d)(5)(B)(iv)(I) of the Act.) However, 
effective for ``discharges occurring on or after July 1, 2010,'' the 
IME statutory language refers to training in a ``nonprovider'' setting. 
(We refer readers to section 5504(b) of the Affordable Care Act and 
section 1886(d)(5)(B)(iv)(II) of the Act.)
    We acknowledge that, prior to the effective date of section 5504 of 
the Affordable Care Act (July 1, 2010), in the preamble of rules and in 
other policy discussions, we have used both the term ``nonhospital'' 
and ``nonprovider'' interchangeably in the context of allowing a 
hospital to count residents training at locations outside the hospital. 
We amended the regulations at Sec.  412.105(f)(1)(ii)(E) for IME and 
Sec.  413.78(g) for direct GME to reflect the changes made by section 
5504 of the Affordable Care Act to explicitly use the term 
``nonprovider'' instead of ``nonhospital'' setting (although we note 
that some references to ``nonhospital'' inadvertently remained, and we 
are correcting those references in the regulation text accordingly in 
this final rule). Section 413.78(g) is explicitly made applicable only 
to ``cost reporting periods beginning on or after July 1, 2010,'' 
whereas earlier cost reporting periods are governed by other preceding 
paragraphs of Sec.  413.78.
b. Residents in Approved Medical Residency Training Programs That Train 
at CAHs
    Section 4201 of the BBA of 1997 (Pub. L. 105-33) amended section 
1820 of the Act to create facilities called ``Critical Access 
Hospitals'' (CAHs). Following the enactment of the BBA, but before the 
enactment of the Affordable Care Act, we were asked if and how CMS 
would pay for residents that rotate to a CAH for some portion of the 
residency training program when another hospital pays for the costs of 
the training at the CAH. To answer this question, we considered that a 
CAH is a unique facility that, by definition, is not always a hospital. 
That is, section 1861(e) of the Act states that ``the term `hospital' 
does not include, unless the context otherwise requires, a critical 
access hospital (as defined in section 1861(mm)(1)).'' Because a CAH is 
generally not considered a ``hospital'' under section 1861(e) of the 
Act, we concluded that a CAH could be treated as a nonhospital site for 
GME purposes. If a CAH could be treated as a nonhospital site for GME 
purposes, we also concluded that if another hospital (such as an IPPS 
hospital that is subject to payment under section 1886(h) of the Act or 
an IPPS-excluded hospital), incurred the costs of training the FTE 
residents for the portion of the time that they train at the CAH, and 
met the requirements of the regulations at Sec.  413.78(d) through (f), 
the hospital could claim the FTE residents training at the CAH for IME 
and/or direct GME purposes.
    We recently determined that, as a result of the amendments made by 
section 5504 of the Affordable Care Act, we should reevaluate our 
policy regarding whether payment can be made to a hospital that incurs 
the costs of the FTE residents training at a CAH.
    Section 1861(u) of the Act states that a ``provider of services'' 
is ``a hospital, critical access hospital, skilled nursing facility, 
comprehensive outpatient rehabilitation facility, home health agency, 
hospice program, or . . . a fund.'' Therefore, while section 1861(e) of 
the Act states that a CAH is excluded from the definition of 
``hospital'' unless the context requires otherwise, a CAH is a 
``provider.''
    Because section 5504(a) of the Affordable Care Act amended sections 
1886(d)(5)(B)(iv)(II) and 1886(h)(4)(E) of the Act on a prospective 
basis to specifically identify the setting in which time spent by 
residents training outside of the hospital setting may be counted for 
both direct GME and IME purposes, a hospital's ability to count 
residents not training in the hospital is now limited to only those 
settings that are ``nonproviders.'' Although the term ``nonprovider'' 
is not defined in the statute, we believe it is reasonable to define 
the term as meaning those settings that do not meet the definition of 
``provider'' at section 1861(u) of the Act.
    Accordingly, because a CAH is defined as a provider in the statute, 
in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27639), we proposed 
that, effective for portions of cost reporting periods occurring on or 
after October 1, 2013, a hospital may not claim the time FTE residents 
are training at a CAH for IME and/or direct GME purposes. However, 
under policies that were

[[Page 50736]]

applicable prior to October 1, 2013, and that continue to apply on and 
after October 1, 2013, a CAH may incur the costs of training the FTE 
residents for the time that the FTE residents rotate to the CAH, and 
receive payment based on 101 percent of its Medicare reasonable costs 
under Sec.  413.70 of the regulations. We also noted that, consistent 
with the regulations at Sec.  413.24(d)(7), a CAH may not include as an 
allowable cost the portion of any training costs associated with the 
time that a resident is not training at the CAH.
    Comment: Commenters urged CMS not to finalize its proposal but 
rather to continue to allow teaching hospitals to count residency 
training time at CAHs for direct GME and IME payment purposes if the 
teaching hospitals incur the costs of the residents' salaries and 
fringe benefits while the residents are training at the CAH. Commenters 
stated that not allowing hospitals to count residency training time at 
CAHs is inconsistent with CMS' current regulations, CMS' regulations 
implementing section 5504 of the Affordable Care Act, and the 
legislative intent of section 5504 of the Affordable Care Act.
    Commenters stated that the terms ``nonhospital'' and 
``nonprovider'' have been used interchangeably by CMS and that it is 
inappropriate for the Agency to suddenly assign different meanings to 
those terms. Commenters stated that CMS cannot pretend that a 
distinction between those terms and the implication of using one term 
versus the other has always been clear and well-defined. Commenters 
stated that, ``it also casts some doubt on the agency's conclusion as 
part of the proposed rule that the Congress intended to exclude 
residents' rotation to CAHs by choosing to use the term `nonprovider' 
rather than `nonhospital' in section 5504.''
    Commenters stated that in the final rule implementing section 5504 
of the Affordable Care Act (the CY 2011 OPPS/ASC final rule with 
comment period (75 FR 72134)), the use of the term ``nonhospital'' 
versus ``nonprovider'' was not addressed. One commenter stated that in 
that final rule, CMS stated that a nonprovider site means a setting 
that is not a provider-based facility or organization as defined at 
Sec.  413.65 of the regulations, yet CMS made no mention in that final 
rule of the definition of ``provider of services'' at section 1861(u) 
of the Act. The commenter stated that if CMS believed a valid 
distinction existed between ``nonprovider'' and ``nonhospital,'' it 
would have provided definitions of these two terms in that final rule. 
Instead of discussing any distinction between the two terms, CMS 
focused on the determination of whether a facility is one that is 
primarily engaged in patient care. The commenter stated that clearly 
CAHs are facilities that are primarily engaged in patient care and, 
therefore, should be included as a nonprovider setting under section 
5504 of the Affordable Care Act.
    Commenters stated that the intention of section 5504 of the 
Affordable Care Act was not to exclude CAHs from nonprovider site 
training, but rather to reduce the administrative burden associated 
with counting residency training time in settings engaged in patient 
care outside of the IPPS hospital setting and to increase flexibility 
in GME rules that support primary care residency training programs in 
outpatient and community-based settings located in rural and 
underserved areas. Commenters referenced the Senate Finance Committee's 
``Chairman's Mark of the America's Health Future Act of 2009,'' and 
stated the purpose of section 5504 of the Affordable Care Act was to 
count all residency training time for direct GME payment purposes 
``without regard to where the activities are performed'' if the 
hospital pays for the residents' salaries and fringe benefits 
associated with the training time and also to count all patient care 
time for IME payment purposes in a nonhospital setting if the hospital 
or entities participating in the residency training program continue to 
incur the resident salaries and fringe benefits of the residents while 
they are training in the nonhospital setting. One commenter stated, 
``through CMS's varied use of the word `hospital', many family medicine 
programs in small communities were, in fact, harmed by interpretations 
of BBA 1997, the specific obstacle targeted by Section 5504.'' 
Commenters stated that the purpose of section 5504 of the Affordable 
Care Act was to correct the error and not to prevent CAHs from 
collaborating with urban facilities for residency training programs. 
Commenters stated that the language included in section 5504 of the 
Affordable Care Act indicates that the drafters were using the terms 
``nonprovider'' and ``nonhospital'' interchangeably. Commenters stated 
the sentence in section 5504 of the Affordable Care Act reads: ``Any 
hospital claiming under this subparagraph for time spent in a 
`nonprovider setting','' and that the sentence needs to be read in 
coordination with the previous paragraph that indicates the hospital 
should be able to count residency training time ``without regard to the 
setting in which the activities are performed, if a hospital incurs the 
costs of the stipends and fringe benefits of the resident during the 
time the resident spends in that setting.'' Commenters stated that 
reading these sentences consecutively, and in the context of one 
another, indicates that Congress was using the terms ``nonprovider'' 
and ``nonhospital'' interchangeably. Commenters reasoned that the term 
``nonprovider'' should not be interpreted as a qualifier to the phrase 
``without regard to the setting'' but rather as language affirming the 
intent of Congress ``. . . to reimburse those facilities incurring the 
costs associated with training residents outside of a metropolitan 
hospital setting.'' Another commenter noted that the language added 
under section 1886(h)(4)(E) of the Act includes the language ``without 
regard to the setting'' and does not focus on the difference between 
nonprovider setting and nonhospital settings. One commenter recommended 
two alternative options to CMS' proposal. The commenter stated that CMS 
could refer to section 1861(e) of the Act which states that a CAH is 
not a hospital ``unless the context requires otherwise.'' The commenter 
stated this statutory language permits CMS to consider CAHs as 
hospitals for the purposes of GME reimbursement. The commenter stated a 
second option would be for CMS to define the term ``nonprovider'' for 
purposes of section 5504 of the Affordable Care Act. The commenter 
further stated that in doing so, CMS would have the authority to 
include CAHs as nonproviders for purposes of section 5504 of the 
Affordable Care Act.
    Response: As we stated in the FY 2014 IPPS/LTCH PPS proposed rule 
(78 FR 27639), we acknowledge that in the past CMS has used the terms 
``nonhospital'' and ``nonprovider'' interchangeably. We regret that we 
did not include this clarification in the CY 2011 OPPS/ASC final rule 
with comment period (75 FR 72134) in which we implemented section 5504 
of the Affordable Care Act. We are taking the opportunity to explain 
the revised statutory language, and provide a prospective policy 
change, in this FY 2014 rulemaking process. The language added by 
section 5504 of the Affordable Care Act specifically refers to a 
``nonprovider'' setting. Although the term ``nonprovider'' is not 
defined in the statute, as we proposed, we believe it is reasonable to 
define the term as meaning those settings that do not meet the 
definition of ``provider'' at section 1861(u) of the Act. Therefore, 
because CAHs are explicitly included in the

[[Page 50737]]

definition of ``provider of services'' for purposes of Title XVIII 
under section 1861(u) of the Act, we do not believe we have the 
discretion to regard a CAH as something other than a provider for 
purposes of determining whether a hospital can count residency training 
time at a CAH. For this same reason, despite one commenter's assertion 
that because CAHs are facilities that are ``engaged primarily in 
patient care,'' they should be considered nonprovider settings under 
section 5504 of the Affordable Care Act, we believe it is reasonable to 
define the term ``nonprovider'' as meaning those settings that do not 
meet the definition of ``provider'' at section 1861(u) of the Act, and 
therefore, we cannot ignore the fact that a CAH is defined as such 
under section 1861(u) of the Act. We also strongly disagree with the 
commenter's suggestion that the phrase at section 1886(h)(4)(E) of the 
Act, ``without regard to the setting in which the activities are 
performed,'' may be read so loosely as to refer to CAHs. While it is 
true that Congress intended, as the commenter noted, to facilitate 
training in settings other than the traditional inpatient hospital, 
historic conference report language also clearly indicates that this 
provision is intended to encourage training in ambulatory settings, 
such as clinics, physician offices, and other community-based settings, 
and not other inpatient facilities. The Conference committee report 
accompanying Public Law 99-509 indicates that ``[s]ince it is difficult 
to find sufficient other sources of funding [than hospitals and 
Medicare] for the costs of such training [that is, training in 
freestanding primary care settings such as family practice clinics or 
ambulatory surgery centers], assignments to these settings are 
discouraged. It is the Committee's view that training in these settings 
is desirable, because of the growing trend to treat more patients out 
of the inpatient hospital setting and because of the encouragement it 
gives to primary care'' (emphasis added)). (H.R. Rep. No. 99-727, 99th 
Cong., 1st Sess., 70 (1986.) Furthermore, we believe that the last 
sentence of section 1886(h)(4)(E) of the Act, ``Any hospital claiming 
under this subparagraph for time spent in a nonprovider setting shall 
maintain and make available to the Secretary records regarding the 
amount of such time and such amount in comparison with amounts of such 
time in such base year as the Secretary shall specify'' (emphasis 
added), clearly indicates that the entire provision at section 
1886(h)(4)(E) of the Act is referring to the requirements for counting 
residents training in nonprovider settings, and as we reiterate 
throughout this preamble, we do not believe CAHs can be considered 
nonprovider settings.
    In addition, we note that in the CY 2011 OPPS/ASC final rule with 
comment period (75 FR 72135), we defined a ``nonprovider site'' as ``a 
setting that does not qualify as a provider-based facility or 
organization in accordance with the criteria in the regulations at 42 
CFR 413.65.'' Therefore, as discussed above, under the policy finalized 
in this rule, an IPPS hospital cannot count residency training time at 
a CAH or a facility or organization that is provider-based to a CAH. 
For example, if a CAH has a provider-based RHC, even though an RHC is 
not included in the definition of ``provider of services'' at section 
1861(u) of the Act, an IPPS hospital cannot claim residency training 
time at that provider-based RHC. However, we note that the CAH-based 
RHC could separately claim and receive payment for direct GME costs it 
incurs, as discussed in the regulations at 42 CFR 405.2468(f). We do 
not agree that considering CAHs to be ``hospitals'' under section 
1861(e) of the Act in the context of section 5504 of the Affordable 
Care Act, as one commenter suggested, would provide any benefit, 
because under 42 CFR 413.78(b), one hospital may not count the time 
spent training at another hospital for IME or direct GME purposes. 
Therefore, under this regulation, an IPPS hospital is precluded from 
counting residents training at a CAH ``hospital,'' even if the IPPS 
hospital incurs the costs of training those residents. We also do not 
believe that we have the authority to adopt a separate definition for 
``nonprovider'' for purposes of GME. The definition of ``provider of 
services'' for purposes of Title XVIII already exists in the statute, 
and as such, we believe the statute requires that we consider any 
entity not included in that definition a ``nonprovider.''
    Comment: One commenter stated that it supported CMS' proposal. 
However, the commenter also stated that a CAH which is located in a 
medically underserved area and has a rotation with a teaching hospital 
could affect the provision of care to that area. Specifically, the 
commenter expressed concern that a CAH could pay for the residency 
training that occurs at the CAH and be reimbursed based on 101 percent 
of reasonable costs for that training but such an arrangement could be 
difficult for both the CAH and the teaching hospital because of 
contractual arrangements that would need to occur between the CAH and 
the hospital. Many commenters stated that they were concerned the 
proposed policy would reduce training in rural and underserved areas, 
thereby affecting primary care and community-based residency training 
programs such as family medicine, many of which have the mission to 
train residents to serve in these areas. Commenters expressed concern 
that the proposal would ultimately reduce the supply of physicians in 
these areas because many residents practice where they train. One 
commenter made reference to a publication from the Robert Graham Center 
for Academic Medicine, which they stated shows that the return on 
investment for training residents in rural areas is high. Commenters 
stated that providing care in rural areas requires collaboration among 
rural entities such as CAHs and IPPS hospitals so as to facilitate 
recruiting and retaining physicians in rural areas. One commenter 
stated that because Minnesota is the State with the third highest 
number of CAHs in the country and because facilities in Minnesota 
already struggle to recruit physicians, the proposed rule would 
disproportionately affect residency programs in Minnesota and be 
harmful to the CAHs and IPPS hospitals that coordinate residency 
training programs. Another commenter stated that Iowa hospitals are 
concerned that if a teaching hospital needs to train residents at a CAH 
to fully use its cap, not permitting hospitals to count residency 
training time at CAHs would mean that CAHs will not be able to train 
residents because hospitals will be incentivized to rotate residents 
through a teaching hospital or other non-CAH setting. The commenter 
stated that if a CAH wants to train residents, it would have to incur 
the costs of training those residents and a teaching hospital could be 
at risk of losing cap because of not fully utilizing its cap. One 
commenter provided information on the Wisconsin Academy of Rural 
Medicine and the Wisconsin Rural Training Track Collaborative, which 
aim to promote training and increase the supply of physicians in rural 
Wisconsin as well as improve the health of communities located in rural 
Wisconsin. The commenter stated the Affordable Care Act focused on 
training and referral programs in rural areas by increasing the funding 
for Area Health Education Centers and establishing the Rural Physician 
Training Grant. The commenter stated CMS' proposal ``. . . threatens to 
reverse the great good that may come about through the focus

[[Page 50738]]

on training, recruitment, and retention in the PPACA for rural 
communities.'' Commenters also stated that some CAHs may be too small 
to support residency training programs on their own and that some CAHs 
may not be in a financial position to incur the costs associated with 
residency training programs. Commenters added that CAHs support a 
policy that allows teaching hospitals to be reimbursed for residency 
training that occurs at CAHs because CAHs want to make sure that IPPS 
hospitals continue rotating residents to CAHs.
    In addition, one commenter stated that IME payments are patient 
care payments which compensate teaching hospitals for providing 
specialized care that is not provided at other facilities. The 
commenter stated that if a teaching hospital rotates residents to a 
CAH, the hospital's IME payments should not change because the teaching 
hospital will continue to provide these specialized services even if 
they rotate some of their residents to a CAH. The commenter also noted 
that, for direct GME payment purposes, if a teaching hospital pays the 
costs of the residents' salaries and fringe benefits for the time they 
are training at the CAH, the teaching hospital should be able to 
receive direct GME payments for that training time.
    Response: It is not clear that not allowing hospitals to claim the 
time of FTE residents training at CAHs for direct GME and IME payment 
would have a negative impact on residency training in rural areas. The 
proposed rule did not in any way propose to change the training 
arrangements that CAHs may have with other providers, including IPPS 
hospitals. That is, we did not propose that CAHs are required to 
support or sponsor residency training programs on their own. Rather, 
CAHs may continue to function as participating institutions for 
purposes of training residents in a single or multiple residency 
training programs. Regarding the comments asserting that CAHs face 
challenges incurring costs associated with residency training, we note 
that whatever allowable costs the CAH would incur would be paid for 
based on Medicare's share of 101 percent of those reasonable costs. We 
do not believe that treating CAHs as providers limits growth in 
residency training programs in rural areas. On the contrary, the policy 
of treating CAHs as providers has the potential to promote additional 
residency training in rural areas because CAHs are not restricted by 
the FTE resident caps, as IPPS hospitals are, and therefore, assuming 
appropriate education and accreditation standards are adhered to, there 
is no limit on the number of residents training at a CAH for which 
Medicare will provide reimbursement when the CAH incurs the costs of 
training the residents at the CAH. Furthermore, by having the CAH count 
residency training time at the CAH, instead of the IPPS hospital 
counting that time towards its cap, an IPPS hospital that is training 
over its cap could now receive Medicare payment for FTE residents that 
were previously causing it to exceed its cap. Additional cap space 
could also provide an incentive for an IPPS hospital training below its 
cap to start a new residency training program or expand an existing 
residency training program.
    Regarding the potential reduction in IME payments to teaching 
hospitals paid under the IPPS if hospitals can no longer count 
residency training time at CAHs, we disagree with the commenter's 
assertions. We believe that, generally, teaching hospitals' IME 
payments will not change. Many teaching hospitals are currently 
training over their caps. As referenced above, by allowing the CAH to 
incur and be paid for the portion of the residency costs associated 
with training at the CAH, instead of the teaching hospital counting 
that time, a teaching hospital could substitute that FTE resident time 
with other residents training in its hospital or other nonprovider 
sites, and maintain generally the same intern and resident-to-bed ratio 
and level of IME payment. Under this scenario, teaching hospitals could 
continue to receive IME payments for FTE residents training up to the 
hospitals' caps and the hospitals would no longer have to incur 
additional costs associated with FTE residents training over the 
hospital's caps. If a teaching hospital is currently training below its 
caps, allowing the CAH to incur and be paid for the portion of the 
residency costs associated with training at the CAH could give the 
teaching hospital more space under its cap and provide an incentive for 
the teaching hospital to either start a new residency training program 
or expand an existing residency training program. We also note that to 
the extent that IPPS IME payments are made in recognition of the higher 
indirect patient care costs that teaching hospitals incur, CMS' 
payments to the CAH would also inherently reflect applicable indirect 
patient care costs because payment to a CAH is based on 101 percent of 
Medicare's share of the CAH's reasonable costs for treating patients, 
including the costs which are a result of the CAH's involvement with an 
approved residency training program.
    Comment: Commenters expressed concern regarding potential impacts 
on teaching health centers and rural training tracks. Commenters asked 
whether calculation of the rural track FTE limitation would be 
affected. One commenter stated that 9 out of 26 rural training tracks 
involve CAHs. In addition, an unknown number of other integrated rural 
training tracks or rurally-located programs, including one in Yakima, 
WA, rely on CAHs as training sites. The commenter also noted that while 
osteopathic programs currently do not use rural training tracks, it is 
anticipated they will use them in the future. The commenter stated that 
these rural track programs, in addition to allopathic and osteopathic 
programs which include more limited rotations to CAHs, would be 
negatively impacted if CAHs are not considered nonprovider settings.
    Response: Our proposal does not preclude a CAH from participating 
as a rural site in a rural training track(s) (a residency training 
program in which an urban teaching hospital sends its residents to 
train at a rural site for more than one-half of the total duration of 
the residency training program). The regulations for rural training 
tracks at Sec.  413.79 require that the rural component of the training 
occur at either a rural hospital or rural nonhospital site. We believe 
that CAHs are captured within the universe of rural facilities. That 
is, as part of an accredited rural training track program, an urban 
hospital may rotate residents to a CAH and/or other facilities located 
in the rural area for greater than 50 percent of the duration of the 
entire program. Because there is no impact on CAHs' participation in 
rural training tracks, there is no effect on the calculation of the FTE 
limitation provided to urban hospitals that participate in training 
residents in a rural track program(s).
    Comment: One commenter recommended that CMS require hospitals to 
clearly identify any CAH rotations on their rotation schedules. The 
commenter recommended that if there are any future changes to the 
Intern and Resident Information System (IRIS), these changes should 
include a provider-type identification for all rotations, which would 
include off-site rotations to CAHs. The commenter stated that the 
proposed rule indicates that in order for Medicare to pay for rotations 
at a CAH, the CAH has to incur the costs for the time the resident is 
training at the CAH. The commenter asked whether the CAH needs a 
written agreement with the sponsoring hospital that indicates the 
amount the CAH has to pay the hospital for the rotation or whether the 
CAH would need to have

[[Page 50739]]

its own agreement with the entity operating the residency training 
program and pay that entity directly. The commenter asked how the cost 
of the rotation to the CAH should be quantified, whether the costs 
would include the salary and fringe benefits of the resident, or 
whether other costs such as supervision costs would also be included.
    Response: We agree that it would be extremely helpful if a 
hospital's rotation schedule would clearly designate the location of 
the rotation sites, regardless of whether the rotations are to CAHs, 
clinics, doctors' offices, or other settings. This would help the 
Medicare contractor determine the hospital's FTE count accurately. We 
appreciate the comment concerning IRIS and we will consider the 
commenter's recommendation for any future IRIS changes. Regarding the 
commenter's questions about written agreements, a CAH is not a 
nonprovider setting and, therefore, it is not required to have a 
written agreement with a hospital for the purpose of receiving payment 
for its GME costs under 42 CFR 413.70. CAHs are generally reimbursed 
based on 101 percent of their reasonable costs for the cost they incur 
associated with inpatient and outpatient services. Therefore, the costs 
that a CAH itself (either directly or through payment to a medical 
school or a hospital that first incurs the costs such as salaries) 
incurs associated with training residents in an approved residency 
training program would be reimbursed based on Medicare's share of that 
reasonable cost. These costs include the costs associated with training 
residents in an approved medical residency training program, such as 
resident salaries and fringe benefits, the portion of the teaching 
physician's salaries associated with GME activities, and other direct 
GME costs. In order to facilitate accurate payment of its GME or any 
other costs, the CAH would be required to have source documentation for 
these costs that would be available to the Contractor upon audit.
    After consideration of the public comments received, we are 
finalizing our proposed policy without modification to state that 
effective for portions of cost reporting periods beginning on or after 
October 1, 2013, a hospital may not claim the time FTE residents are 
training at a CAH for IME and/or direct GME purposes. However, under 
policies that were applicable prior to October 1, 2013, and that 
continue to apply on and after October 1, 2013, a CAH may incur the 
costs of training the FTE residents for the time that the FTE residents 
rotate to the CAH, and receive payment based on 101 percent of its 
Medicare reasonable costs under Sec.  413.70 of the regulations. A CAH 
may not include as an allowable cost the portion of any training costs 
associated with the time that a resident is not training at the CAH. We 
also are revising the regulations at Sec.  413.78(g) to replace the 
term ``nonhospital'' with the term ``nonprovider.''
5. Expiration of Inflation Update Freeze for High Per Resident Amounts 
(PRAs)
    The Balanced Budged Refinement Act (BBRA) of 1999 (Pub. L. 106-113) 
amended section 1886(h)(2) of the Act to establish a methodology for 
the use of a national average per resident amount (PRA) in computing 
direct GME payments for cost reporting periods beginning on or after 
October 1, 2000, and on or before September 30, 2005. The BBRA 
established a ``floor'' for hospital-specific PRAs at 70 percent of the 
locality-adjusted national average PRA. In addition, the BBRA 
established a ``ceiling'' that limited the annual adjustment to a 
hospital-specific PRA if the PRA exceeded 140 percent of the locality-
adjusted national average PRA. Section 511 of the Benefits Improvement 
and Protection Act (BIPA) of 2000 (Pub. L. 106-554) further amended 
section 1886(h)(2) of the Act by increasing the floor established by 
the BBRA to 85 percent of the locality-adjusted national average PRA, 
for cost reporting periods beginning in FY 2002. For purposes of 
calculating direct GME payments, each hospital-specific PRA is compared 
to the floor and ceiling to determine whether the hospital-specific PRA 
should be revised. Section 711 of the Medicare Modernization Act of 
2003 (Pub. L. 108-173) amended section 1886(h)(2)(D)(iv)(I) of the Act 
by freezing the annual CPI-U updates to hospital-specific PRAs for 
those PRAs that exceed the ceiling for FYs 2004 through 2013. The 
implementing regulations for these statutory provisions are located at 
42 CFR 413.77(d).
    As we did in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27639), 
we are providing notice here that the ``freeze'' for PRAs that exceed 
the ceiling expires beginning in FY 2014. That is, for cost reporting 
periods beginning on or after October 1, 2013, the usual full CPI-U 
update, as determined under 42 CFR 413.77(c)(1), would apply to all 
PRAs for direct GME payment purposes.
    Comment: Several commenters supported the expiration in FY 2014 of 
the ``freeze'' for PRAs that exceed the ceiling.
    Response: We appreciate the commenters' support. However, we did 
not propose any changes related to this provision; we merely provided 
notification regarding it.
    Outside the Scope of the Proposed Rule Comments. We received a 
comment regarding pass-through payment under 42 CFR 413.85 for 
hospital-operated pharmacy residency programs and a comment stating 
that GME cuts will adversely impact the physician workforce and reduce 
access to care, particularly to specialty care. Because we did not 
propose any changes regarding payments under 42 CFR 413.85, nor did we 
specifically propose any provisions related to reductions in GME 
payments, we consider these comments outside the scope of the proposed 
rule, and we are not responding to them.

K. Rural Community Hospital Demonstration Program

1. Background
    Section 410A(a) of 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 pays rural community hospitals under a reasonable 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), 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 specified 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: Alaska, Idaho, 
Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota, 
Utah, and

[[Page 50740]]

Wyoming. (Source: U.S. Census Bureau, Statistical Abstract of the 
United States: 2003).
    CMS originally solicited applicants for the demonstration in May 
2004; 13 hospitals began participation with cost reporting periods 
beginning on or after October 1, 2004. In 2005, 4 of these 13 hospitals 
withdrew from the program and converted to CAH status. This left nine 
hospitals participating at that time. In 2008, we announced a 
solicitation for up to six 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 payment methodology with the hospital's 
first cost reporting period starting on or after July 1, 2008. At that 
time, 13 hospitals were participating in the demonstration.
    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 hospital 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.) In CY 2011, one hospital that was among the original 
set of hospitals that participated in the demonstration withdrew from 
the demonstration. These actions left 7 of the originally 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.
    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. Further, the Affordable Care Act requires, 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 to 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 Public Law 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 Public Law 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 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).
    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 that 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 
determined that each of these new hospitals would begin participating 
in the demonstration with its first cost reporting period beginning on 
or after April 1, 2011.
    Three of these 19 hospitals declined participation prior to the 
start of the cost reporting periods for which they would have begun the 
demonstration. In addition to the 7 hospitals that were selected in 
either 2004 or 2008, the new selection led to a total of 23 hospitals 
in the demonstration. So far, during CY 2013, one additional hospital 
among the set selected in 2011 has withdrawn from the demonstration, 
similarly citing a relative financial advantage to returning to the 
customary SCH payment methodology, such that there are now 22 hospitals 
participating in the demonstration.
    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 nine 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

[[Page 50741]]

program. As we discussed in the FYs 2005 through 2013 IPPS final rules 
(69 FR 49183; 70 FR 47462; 71 FR 48100; 72 FR 47392; 73 FR 48670; 74 FR 
43922, 75 FR 50343, 76 FR 51698, and 77 FR 53449, 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, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27639 
through 27643), we proposed to continue to use the methodology we 
finalized in FY 2013 to calculate a budget neutrality adjustment factor 
to the FY 2014 national IPPS rates.
    In general terms, in each of these previous years, we used 
available cost reports for the participating hospitals to derive an 
estimate of the additional costs attributable for the demonstration. 
Prior to FY 2013, we used finalized, or settled, cost reports, as 
available, and ``as submitted'' cost reports for hospitals for which 
finalized cost reports were not available. Annual market basket 
percentage increase amounts provided by the CMS Office of the Actuary 
reflecting the growth in the prices of inputs for inpatient hospitals 
were applied to these cost amounts. In the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53452), we used ``as submitted'' cost reports (for cost 
reporting periods ending in CY 2010) for each hospital participating in 
the demonstration in estimating the costs of the demonstration. In 
addition, in FY 2013, we incorporated different update factors (the 
market basket percentage increase and the applicable percentage 
increase, as applicable, to several years of data as opposed to solely 
using the market basket percentage increase) for the calculation of the 
budget neutrality offset amount. Finally, in each of the previous 
years, an annual update factor provided by the CMS Office of the 
Actuary reflecting growth in the volume of inpatient operating services 
was also applied. For the budget neutrality calculations in the IPPS 
final rules for FYs 2005 through 2011, the annual volume adjustment 
applied was 2 percent; for the IPPS final rules for FYs 2012 and 2013, 
it was 3 percent. For a detailed discussion of our budget neutrality 
offset calculations, we refer readers to the IPPS final rule applicable 
to the fiscal year involved.
    In general, for FYs 2005 through 2009, we based the budget 
neutrality offset estimate on the estimated cost of the demonstration 
in an earlier given year. For these periods, we derived that estimated 
cost by subtracting the estimated amount that would otherwise be paid 
without the demonstration in an earlier given year from the estimated 
amount for the same year that would be paid under the demonstration 
under the reasonable cost-based methodology authorized by section 410A 
of Public Law 108-173. (We note that section 410A of Public Law 108-173 
was later amended by the Affordable Care Act.) The reasonable cost-
based methodology authorized by section 410A of Public Law 108-173, as 
amended, is hereafter referred to as the ``reasonable cost 
methodology.'' (We ascertained the estimated amount that would be paid 
in an earlier given year under the reasonable cost methodology and the 
estimated amount that would otherwise be paid without the demonstration 
in an earlier given year from ``as submitted'' cost reports that were 
submitted by the hospitals prior to the inception of the 
demonstration.) We then updated the estimated cost described above to 
the current year by multiplying it by the market basket percentage 
increases applicable to the years involved and the applicable annual 
volume adjustment. For the FY 2010 IPPS/RY 2010 LTCH PPS final rule, 
data from finalized cost reports reflecting the participating 
hospitals' experience under the demonstration were available. 
Specifically, the finalized cost reports for the first 2 years of the 
demonstration, that is, cost reports for cost reporting years beginning 
in FYs 2005 and 2006 (CYs 2004, 2005, and 2006) were available. These 
data showed that the actual costs of the demonstration for these years 
exceeded the amounts originally estimated in the respective final rules 
for the budget neutrality adjustment. In the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule, we included in the budget neutrality offset amount an 
amount in addition to the estimate of the demonstration costs in that 
fiscal year. This additional amount was based on the amount that the 
costs of the demonstration for FYs 2005 and 2006 exceeded the budget 
neutrality offset amounts finalized in the IPPS rules applicable for 
those years.
    Following upon the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we 
have continued to propose a methodology for calculating the budget 
neutrality offset amount to account for both the estimated 
demonstration costs in the upcoming fiscal year and an amount by which 
the actual demonstration costs corresponding to an earlier, given year 
(which would be known once we have finalized cost reports for that 
year) exceeded the budget neutrality offset amount finalized in the 
corresponding year's IPPS final rule. However, we noted that because of 
a delay affecting the settlement process for cost reports for IPPS 
hospitals occurring on a larger scale than merely for the 
demonstration, we were unable to finalize this component of the budget 
neutrality offset amount accounting for the amount by which the actual 
demonstration costs in a given year exceeded the budget neutrality 
offset amount finalized in the corresponding year's IPPS final rule for 
cost reports of demonstration hospitals dating to those beginning in FY 
2007.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53449 through 
53453), we adopted changes to the methodology for calculating the 
budget neutrality offset amount in an effort to further improve and 
refine it. We noted that the revised methodology varied, in part, from 
that finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51698 
through 51705). Specifically, in adopting refinements to the 
methodology, our objective was to simplify the calculation so that it 
included as few steps as possible. In addition, we incorporated 
different update factors (the market basket percentage increase and the 
applicable percentage increase, as applicable, to several years of data 
as opposed to solely using the market basket percentage increase) for 
the calculation of the budget neutrality offset amount. We stated that 
we believed this approach would maximize the precision of our 
calculation because it would more closely replicate payments made with 
and without the demonstration. We refer readers to the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53449 through 53453) for a detailed 
discussion of the methodology we used for FY 2013. We noted that, 
although we were making changes to certain aspects of the budget 
neutrality offset amount calculation for FY 2013, several core 
components of the methodology would remain unchanged. For example, we 
continued to include in the budget neutrality offset amount methodology 
the estimate of the demonstration costs for the upcoming fiscal year 
and the amount by which the actual demonstration costs corresponding to 
an earlier year (which would be determined once we have finalized cost 
reports for that year) exceeded the budget neutrality offset amount 
finalized in the corresponding year's IPPS final rule. However, 
finalized cost reports for the hospitals participating in the 
demonstration were not available for FYs 2007, 2008, 2009, and 2010 at 
the time of development of the FY 2013 IPPS/LTCH PPS final rule. 
Therefore, we were unable to finalize this component of the budget 
neutrality

[[Page 50742]]

offset calculation. We stated in the final rule that we expected 
settled cost reports for all of the demonstration hospitals that 
participated in the applicable fiscal year (FYs 2007, 2008, 2009, and 
2010) to be available prior to the FY 2014 IPPS/LTCH PPS proposed rule.
2. FY 2014 Budget Neutrality Offset Amount
    For the reasons discussed in the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53449 through 53453), we proposed in the FY 2014 IPPS/LTCH PPS 
proposed rule to continue to use the methodology finalized in the FY 
2013 IPPS/LTCH PPS final rule to calculate a budget neutrality 
adjustment factor to be applied to the FY 2014 national IPPS payment 
rates. As we stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53451), we revised our methodology in that final rule to further 
improve and refine the calculation of the budget neutrality offset 
amount and to simplify the methodology so that it includes only a few 
steps. Consistent with the methodology finalized in the FY 2013 IPPS/
LTCH PPS final rule, the proposed methodology for calculating the 
estimated FY 2014 demonstration cost for the participating hospitals 
was as follows:
    Step 1: For each of the participating hospitals, we proposed to 
identify the general reasonable cost amount calculated under the 
reasonable cost methodology for covered inpatient hospital services (as 
indicated on the ``as submitted'' cost report for the hospital's cost 
reporting period ending in CY 2011). The general reasonable cost amount 
calculated under the reasonable cost methodology is hereafter referred 
to as the ``reasonable cost amount.'' As we explained in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53451), we believe that a way to 
streamline our methodology for calculating the budget neutrality offset 
amount would be to use cost reports with the same status and from the 
same time period for all hospitals participating in the demonstration. 
Because ``as submitted'' cost reports ending in CY 2011 are the most 
recent available cost reports, we believe they would be an accurate 
predictor of the costs of the demonstration in FY 2014 because they 
give us a recent picture of the participating hospitals' costs.
    Because section 410A of Public Law 108-173 stipulates swing-bed 
services are to be included among the covered inpatient hospital 
services for which the demonstration payment methodology applies, we 
proposed to include the cost of these services, as reported on the cost 
reports for the hospitals that provide swing-bed services, within the 
general total estimated FY 2011 reasonable cost amount for covered 
inpatient hospital services under the demonstration. As indicated 
above, we proposed to use ``as submitted'' cost reports for the 
hospital's cost reporting period ending in CY 2011 for this 
calculation.
    We proposed to sum the two above-referenced amounts to calculate 
the general total estimated FY 2011 reasonable cost amount for covered 
inpatient hospital services for all participating hospitals.
    We proposed to multiply this sum (that is, the general total 
estimated FY 2011 reasonable cost amount for covered inpatient hospital 
services for all participating hospitals) by the FYs 2012, 2013, and FY 
2014 IPPS market basket percentage increases, which are formulated by 
the CMS Office of the Actuary. In the proposed rule, we used the then 
current estimate of the FY 2014 IPPS market basket percentage increase 
provided by the CMS Office of the Actuary. We proposed to use the final 
FY 2014 IPPS market basket percentage increase in the final rule. We 
also proposed to then multiply the product of the general total 
estimated FY 2011 reasonable cost amount for all participating 
hospitals and the market basket percentage increases applicable to the 
years involved by a 3-percent annual volume adjustment for the years 
2012 through 2014--the result would be the general total estimated FY 
2014 reasonable cost amount for covered inpatient hospital services for 
all participating hospitals.
    We proposed to apply the IPPS market basket percentage increases 
applicable for FYs 2012 through 2014 to the FY 2011 reasonable cost 
amount described above to model the estimated FY 2014 reasonable cost 
amount under the demonstration. We proposed to use the IPPS market 
basket percentage increases because we believe that these update 
factors appropriately indicate the trend of increase in inpatient 
hospital operating costs under the reasonable cost methodology for the 
years involved. The 3-percent annual volume adjustment was stipulated 
by the CMS Office of the Actuary and was proposed because it is 
intended to accurately reflect the tendency of hospitals' inpatient 
caseloads to increase. We acknowledged the possibility that inpatient 
caseloads for small hospitals may fluctuate, and proposed to 
incorporate into the estimate of demonstration costs a factor to allow 
for a potential increase in inpatient hospital services.
    Step 2: For each of the participating hospitals, we proposed to 
identify the general estimated amount that would otherwise be paid in 
FY 2011 under applicable Medicare payment methodologies for covered 
inpatient hospital services (as indicated on the ``as submitted'' cost 
report for cost reporting periods ending in CY 2011) if the 
demonstration was not implemented. Similarly, as in Step 1, for the 
hospitals that provide swing-bed services, we proposed to identify the 
estimated amount that generally would otherwise be paid for these 
services (as indicated on the ``as submitted'' cost report for cost 
reporting periods ending in CY 2011) and include it in the total FY 
2011 general estimated amount that would otherwise be paid for covered 
inpatient hospital services without the demonstration. We proposed to 
sum these two amounts in order to calculate the estimated FY 2011 total 
payments that generally would otherwise be paid for covered inpatient 
hospital services for all participating hospitals without the 
demonstration.
    We proposed to multiply the above amount (that is, the estimated FY 
2011 total payments that generally would otherwise be paid for covered 
inpatient hospital services for all participating hospitals without the 
demonstration) by the FYs 2012 through 2014 IPPS applicable percentage 
increases. This methodology differs from Step 1, in which we proposed 
to apply the market basket percentage increases to the sum of the 
hospitals' general total FY 2011 estimated reasonable cost amount for 
covered inpatient hospital services. We believe that the IPPS 
applicable percentage increases are appropriate factors to update the 
estimated amounts that generally would otherwise be paid without the 
demonstration. This is because IPPS payments would constitute the 
majority of payments that would otherwise be made without the 
demonstration and the applicable percentage increase is the factor used 
under the IPPS to update the inpatient hospital payment rates. 
Hospitals participating in the demonstration would be participating 
under the IPPS payment methodology if they were not in the 
demonstration. Then we proposed to multiply the product of the 
estimated FY 2011 total payments that generally would otherwise be made 
without the demonstration and the IPPS applicable percentage increases 
applicable to the years involved by a 3-percent annual volume 
adjustment for FYs 2012 through 2014. The result would be the general 
total estimated FY 2014 costs that would otherwise be paid

[[Page 50743]]

without the demonstration for covered inpatient hospital services to 
the participating hospitals.
    Step 3: We proposed to subtract the amount derived in Step 2 
(representing the sum of estimated amounts that generally would 
otherwise be paid to the participating hospitals for covered inpatient 
hospital services for FY 2014 if the demonstration was not implemented) 
from the amount derived in Step 1 (representing the sum of the 
estimated reasonable cost amount that generally would be paid under the 
demonstration to all participating hospitals for covered inpatient 
hospital services for FY 2014). We proposed that the resulting 
difference would be the estimated amount for which an adjustment to the 
national IPPS rates would be calculated.
    For the proposed rule, the resulting difference was $46,515,865. 
This estimated amount was based on the specific assumptions identified 
regarding the data sources used, that is, ``as submitted'' recently 
available cost reports. Also, we noted that if updated data became 
available prior to the FY 2014 final rule, we would use them to the 
extent appropriate to estimate the costs of the demonstration program 
in FY 2014. Therefore, we stated that this estimated budget neutrality 
offset amount might change in the final rule, depending on the 
availability of updated data.
    In addition, similar to previous years, we proposed to include in 
the budget neutrality offset amount the amount by which the actual 
demonstration costs corresponding to an earlier given year (which would 
be determined once we had finalized cost reports for that year) 
exceeded the budget neutrality offset amount finalized in the 
corresponding year's IPPS final rule. Because of delays affecting the 
settlement process for cost reports for IPPS hospitals occurring on a 
larger scale than merely for the demonstration, we were unable to 
determine prior to publication of the FY 2014 IPPS/LTCH PPS proposed 
rule the specific component of the budget neutrality offset amount 
accounting for the amount by which the actual demonstration costs in a 
given year exceeded the budget neutrality offset amount finalized in 
the corresponding year's IPPS final rule for cost reports of 
demonstration hospitals dating to those beginning in FY 2007. Similar 
to previous years, we proposed that if settled cost reports for all of 
the demonstration hospitals that participated in the applicable fiscal 
year (FY 2007, 2008, 2009, or 2010) were available prior to the FY 2014 
IPPS/LTCH PPS final rule, we would include in the budget neutrality 
offset amount any additional amounts by which the final settled costs 
of the demonstration for the year (FY 2007, 2008, 2009, or 2010) 
exceeded the budget neutrality offset amount applicable to such year as 
finalized in the respective year's IPPS final rule. (The final settled 
costs of the demonstration for a year would be calculated by 
subtracting the total amount that would otherwise be paid under the 
applicable Medicare payment systems without the demonstration for the 
year from the amount paid to those hospitals under the reasonable cost 
methodology for such year.)
    We did not receive any public comments on the budget neutrality 
offset methodology proposed in the FY 2014 IPPS/LTCH PPS proposed rule. 
Therefore, we are finalizing the methodology we proposed in the FY 2014 
IPPS/LTCH PPS proposed rule (78 FR 27639 through 27643). In addition, 
as proposed, we are using updated data not available at the time the 
proposed rule was developed to calculate the budget neutrality 
adjustment amount for the demonstration for FY 2014. As discussed 
above, we have completed Steps 1, 2, and 3 using ``as submitted'' cost 
reports for the participating hospitals' cost reporting periods ending 
in CY 2011. (The rationale for using this set of cost reports is the 
same as stated in the FY 2014 IPPS/LTCH proposed rule (78 FR 27642).) 
In this FY 2014 IPPS/LTCH PPS final rule, we are now finalizing the 
calculation of the budget neutrality adjustment amount for FY 2014, 
based on updated data that has become available since the publication 
of the proposed rule. The following are the updated data used to 
determine this budget neutrality adjustment factor for FY 2014 for the 
final rule:
     We have removed data pertaining to the hospital that 
withdrew from the demonstration in CY 2013 from the estimated costs for 
FY 2014 with the demonstration and absent the demonstration. Thus, the 
estimate of costs for FY 2014 pertains to 22 participating hospitals.
     For Step 1 discussed above, we are using the final FY 2014 
IPPS market basket percentage increase (which is identified in section 
V.A. of this final rule) instead of the proposed market basket 
percentage increase that was used in the proposed rule, to determine 
the estimated FY 2014 reasonable cost amount for covered inpatient 
hospital services under the demonstration for the 22 participating 
hospitals.
     Similarly, for Step 2, we are using the final FY 2014 
applicable percentage increase (which is identified in section V.A. of 
the preamble of this final rule) instead of the applicable percentage 
increase that was used in the proposed rule, to determine the estimated 
amount that would otherwise be paid to the participating hospitals in 
FY 2014 for covered inpatient hospital services without the 
demonstration.
    Using the budget neutrality offset methodology finalized above and 
the updated data discussed above, the final resulting difference 
between the estimated reasonable cost amount for the 22 participating 
hospitals for FY 2014 under the demonstration and the estimated amount 
that would otherwise be paid in FY 2014 without the demonstration is 
$46,549,861.
    In addition, we note that the complete set of finalized cost 
reports for cost reporting periods beginning in FY 2007 has become 
available since the publication of the FY 2014 IPPS/LTCH PPS proposed 
rule. As we proposed in the FY 2014 IPPS/LTCH PPS proposed rule, we 
have calculated the amount by which the actual costs of the 
demonstration for FY 2007, as shown in the finalized cost reports for 
the hospitals that participated in the demonstration during FY 2007, 
exceeded the budget neutrality offset amount that was finalized in the 
FY 2007 IPPS final rule. This amount--$6,039,880--is derived from 
finalized cost reports for cost reporting periods beginning in FY 2007 
for the 9 hospitals that participated in the demonstration during that 
year. (Finalized cost reports for all participating hospitals are not 
yet available for FYs 2008, 2009, 2010, or 2011. We anticipate that 
these finalized cost reports will be available prior to publication of 
the FY 2015 IPPS/LTCH PPS proposed rule).
    Therefore, the final total budget neutrality offset amount that 
will be applied to the FY 2014 IPPS rates is $52,589,741. This is the 
sum of two separate components: (1) The difference between the total 
estimated FY 2014 reasonable cost amount to be paid under the 
demonstration to the 22 participating hospitals for covered inpatient 
hospital services, and the total estimated amount that would otherwise 
be paid to the participating hospitals in FY 2014 without the 
demonstration ($46,549,861); and (2) the amount by which the actual 
costs of the demonstration for FY 2007, as shown in the finalized cost 
reports for the hospitals that participated in the demonstration during 
FY 2007, exceeded the budget neutrality offset amount that was 
finalized in the FY 2007 IPPS final rule ($6,039,880). We discuss the 
final payment rate adjustment that is required to ensure the budget 
neutrality of the demonstration

[[Page 50744]]

program for FY 2014 (the budget neutrality adjustment factor) in 
section II.A. of the Addendum of this final rule.

L. Hospital Emergency Services Under EMTALA: Technical Change (Sec.  
489.24(f))

    In a final rule issued in the Federal Register on May 16, 2012 (77 
FR 29002 through 29031), we made changes to a number of regulations 
under 42 CFR Chapter IV governing the Medicare and Medicaid programs to 
achieve regulatory reforms under Executive Order 13563 on Improving 
Regulation and Regulatory Review and the Department's Plan for 
Retrospective Review of Existing Rules. In the May 16, 2012 final rule 
(77 FR 29021), we stated that, in response to comments from the public 
recommending that we discontinue our use of the term ``recipient'' 
under Medicaid, we made a nomenclature change to replace ``recipient'' 
with ``beneficiary'' throughout 42 CFR Chapter IV in order to conform 
our regulations to our current use of the term ``beneficiary.'' 
However, we inadvertently replaced ``recipient'' with ``beneficiary'' 
in the title of the regulations at 42 CFR 489.24(f), which now reads 
``Beneficiary hospital responsibilities.'' The regulations at 42 CFR 
489.24(f) specifically discuss the responsibilities of a hospital with 
specialized capabilities to accept the appropriate transfer of an 
individual as required by the Emergency Medical Treatment and Labor 
Act. The use of the word ``recipient'' in the title of 42 CFR 489.24(f) 
is appropriate because the regulations are discussing the requirements 
of the ``receiving'' hospital. The term ``recipient'' in this context 
is not referring to a Medicare or Medicaid patient, but rather to the 
hospital. Therefore, in the FY 2014 IPPS/LTCH PPS proposed rule, we 
proposed to replace the word ``beneficiary'' with the word 
``recipient'' so that the section heading of paragraph (f) of 42 CFR 
489.24 is corrected to read as it did prior to the nomenclature change. 
The corrected regulation text at 42 CFR 489.24(f) would read 
``Recipient hospital responsibilities.''
    We did not receive any public comments on our proposed change to 42 
CFR 489.24(f) to replace the word ``beneficiary'' with the word 
``recipient.'' Therefore, we are adopting as final without modification 
our proposed change. The final title of the regulation reads ``(f) 
Recipient hospital responsibilities.''

M. Hospital Routine Services Furnished Under Arrangements

    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51711 through 
51714), we included a provision that limits the circumstances under 
which a hospital may furnish services to Medicare beneficiaries ``under 
arrangement.'' Under the revised policy, therapeutic and diagnostic 
services are the only services that may be furnished under arrangements 
outside of the hospital to Medicare beneficiaries. ``Routine services'' 
(that is, bed, board, and nursing and other related services) must be 
furnished in the hospital. Under this revised policy, routine services 
furnished to Medicare beneficiaries as inpatients in the hospital are 
considered services furnished by the hospital. If these services are 
furnished outside of the hospital, the services are considered to be 
furnished ``under arrangement.'' As we stated in the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53453 through 53454), we have become aware that a 
number of hospitals affected by this policy need additional time to 
restructure existing arrangements and establish necessary operational 
protocols to comply with the requirement that therapeutic and 
diagnostic services are the only services that may be furnished outside 
of the hospital to Medicare beneficiaries ``under arrangement,'' and 
that ``routine services'' must be furnished in the hospital.
    In the FY 2013 IPPS/LTCH PPS final rule, we stated that while we 
believe the policy to be correct and consistent with the statutory 
language, because a number of hospitals were actively pursuing 
compliance that involved building construction or restructuring, we 
postponed the effective date of the requirement to give hospitals 
additional time to comply with the provision. In the FY 2013 IPPS/LTCH 
PPS final rule, we changed the implementation date of the requirement 
to be effective for cost reporting periods beginning on or after 
October 1, 2013. We stated that we expected that, during FY 2013, 
hospitals would have completed the work needed to ensure compliance 
with the requirement.
    While we still believe that our policy is correct and consistent 
with the statutory language, we are aware that a number of hospitals 
are still actively pursuing compliance with the requirement through 
major building construction to be completed in 2014. Therefore, we 
believe it is appropriate to further postpone the effective date of 
this requirement to give those hospitals additional time to comply. In 
the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27643 through 27644), we 
proposed to change the implementation date of the requirement to be 
effective for services provided on or after January 1, 2015 (instead of 
effective with cost reporting periods beginning on or after October 1, 
2013). Because there are hospitals in the midst of significant building 
projects that, when completed, will enable the hospital to provide 
routine services in compliance with the requirements of this revised 
policy, we believe it is appropriate to further delay the effective 
date. We stated that we expect that, with the additional time before 
the revised ``under arrangement'' policy becomes effective, hospitals 
will complete the work needed to ensure compliance with the new 
requirement. Effective for services provided on or after January 1, 
2015, all hospitals would need to be in full compliance with the 
revised policy for services furnished under arrangement. As we stated 
in the proposed rule, we will continue to work with affected hospitals 
to communicate the requirement established by this provision, and to 
provide continued guidance regarding compliance with the provision.
    Comment: Most commenters reiterated comments made last year in 
response to the proposal to delay the effective date of the services 
under arrangement policy (77 FR 53453 through 53454) and comments made 
in response to CMS' proposal in the FY 2012 IPPS/LTCH PPS proposed rule 
(76 FR 25964 through 25965). Some commenters were thankful for the 
delay; however, all commenters wanted the policy rescinded or, at the 
least, wanted a grandfathering provision included for those hospitals 
that were providing routine services under arrangement at the time of 
our original proposal in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 
25964 and 25965).
    PPS-excluded cancer hospitals that are co-located with IPPS 
hospitals are most affected by the proposed policy and, along with the 
alliance representing these hospitals, made further comments that 
repeated their objections to this policy raised in last year's rule. 
These commenters expressed concern that it could compromise patient 
care, that the policy is a reversal of CMS' guidance the hospitals 
received while each hospital was seeking co-located status, that there 
is no statutory mandate or policy rationale, that it is not needed to 
guard against inappropriate use of services under arrangement, and that 
it is administratively burdensome and costly to Medicare as well as the 
cancer hospitals. Two of the cancer hospitals

[[Page 50745]]

and the alliance further commented that if CMS ``refused'' to rescind 
the policy or add a grandfathering provision, CMS must allow these 
hospitals to operate under their ``back-end'' proposal. They believed 
that their proposal would allow the hospital to continue moving 
patients to its host hospital for particular services, without 
discharging the patient, as is currently done. The commenters added 
that after the patient is formally discharged, each hospital would 
separately bill Medicare for the services it provided the discharged 
patient.
    Response: The commenters' concerns with the services under 
arrangement policy reiterate public comments received on the FY 2012 
IPPS/LTCH PPS proposed rule and the FY 2013 IPPS/LTCH PPS proposed 
rule. We refer the commenters to the responses provided in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51711 through 51714) and the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53453 through 53454) where those 
comments were addressed.
    In response to the commenters' ``virtual discharge'' proposal, the 
proposal is unacceptable from a CoP perspective because the co-located 
hospital and the cancer hospital are two separately certified hospitals 
for purposes of Medicare participation. Therefore, moving the patient 
from the cancer hospital to the co-located IPPS hospital would require 
the patient to be discharged. To address hospitals' concerns that 
discharging the patient from the cancer hospital to the IPPS hospital 
could have a detrimental effect on patient care, as we stated in 
response to comments in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53453 through 53454), the hospital may want to consider merging the 
cancer hospital into the host hospital, rather than keeping them as two 
separately certified hospitals, which could alleviate those concerns.
    After consideration of the public comments we received and for the 
reasons set forth in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51711 
through 51714), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53453 
through 53454), and the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27643 and 27644), we are finalizing our proposal to change the 
effective date of the revised policy. Therefore, effective for services 
provided on or after January 1, 2015, routine services provided in the 
hospital to its inpatients 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, and only 
therapeutic and diagnostic items and services may be furnished under 
arrangement outside of the hospital. Services identified at section 
1861(b)(1) and section 1861(b)(2) of the Act may not be furnished under 
arrangements.

VI. 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. The IPPS for capital-related costs was 
initially implemented in the Federal fiscal year (FY) 1992 IPPS final 
rule (56 FR 43358), in which we established a 10-year transition period 
to change the payment methodology for Medicare hospital inpatient 
capital-related costs from a reasonable cost-based methodology to a 
prospective methodology (based fully on the Federal rate).
    FY 2001 was the last year of the 10-year transition period 
established to phase in the IPPS for hospital inpatient capital-related 
costs. For cost reporting periods beginning in FY 2002, capital IPPS 
payments are based solely on the Federal rate for 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, 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).

    In addition, under Sec.  412.312(c), hospitals also may receive 
outlier payments under the capital IPPS for extraordinarily high-cost 
cases that qualify under the thresholds established for each fiscal 
year.

B. Additional Provisions

1. Exception Payments
    The regulations at Sec.  412.348 provide for certain exception 
payments under the capital IPPS. The regular exception payments 
provided under Sec. Sec.  412.348(b) through (e) were available only 
during the 10-year transition period. For a certain period after the 
transition period, eligible hospitals may have received additional 
payments under the special exceptions provisions at Sec.  412.348(g). 
However, FY 2012 was the final year hospitals could receive special 
exceptions payments. For additional details regarding these exceptions 
policies, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51725).
    Under Sec.  412.348(f), 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. 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).
2. New Hospitals
    Under the capital IPPS, Sec.  412.300(b) of the regulations defines 
a new hospital as a hospital that has operated (under previous or 
current ownership) for less than 2 years and lists examples of 
hospitals that are not considered new hospitals. In accordance with 
Sec.  412.304(c)(2), under the capital IPPS a new hospital is paid 85 
percent of its allowable Medicare inpatient hospital 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 2012 IPPS/LTCH PPS final rule 
(76 FR 51725) for additional information on payments to new hospitals 
under the capital IPPS.
3. 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. Capital IPPS 
payments to hospitals located in Puerto Rico are

[[Page 50746]]

computed based on a blend of 25 percent of the capital IPPS Puerto Rico 
rate and 75 percent of the capital IPPS Federal rate. For additional 
details on capital IPPS payments to hospitals located in Puerto Rico, 
we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725).

C. Other Changes for FY 2014--Adjustment To Offset the Cost of the 
Policy Proposal on Admission and Medical Review Criteria for Hospital 
Inpatient Services Under Medicare Part A

    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27650 through 
27651), we discussed our proposal that would clarify that a beneficiary 
becomes a hospital inpatient when formally admitted following a 
physician order for hospital inpatient admission, and that would also 
clarify when we believe hospital inpatient admissions are reasonable 
and necessary based on how long beneficiaries have spent, or are 
reasonably expected to spend, in the hospital as inpatients. Under this 
proposal, Medicare's external review contractors would presume that 
hospital inpatient admissions are reasonable and necessary for 
beneficiaries who require more than 1 Medicare utilization day (defined 
by encounters crossing 2 ``midnights'') in the hospital receiving 
medically necessary services after inpatient admission. Similarly, we 
would generally presume that services spanning less than 2 midnights 
and not involving services designated by CMS as inpatient-only should 
have been provided on an outpatient basis, unless there is clear 
physician documentation in the medical record supporting the 
physician's order and expectation that the beneficiary required care 
spanning at least 2 midnights even though that did not ultimately 
transpire. In general, after consideration of public comments, we are 
adopting this proposal as final in this final rule. For a complete 
discussion of our proposed inpatient admission guidelines and the 
policy we are adopting in this final rule, including our time-based 
benchmark and presumption of medical necessity for hospital inpatient 
services based on the beneficiary's length of stay as part of our 
medical review criteria for payment of hospital inpatient services 
under Medicare Part A, we refer readers to section XI.C. of the 
preamble of this final rule.
    As discussed in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27651) and in section XI.C.4. of the preamble of this final rule, our 
actuaries estimated that our proposed policy would increase IPPS 
expenditures by approximately $220 million. These additional 
expenditures result from an expected net increase in hospital inpatient 
encounters due to some encounters spanning more than 2 midnights moving 
to the IPPS from the OPPS, and some encounters of less than 2 midnights 
moving from the IPPS to the OPPS. In making this projection, the 
actuaries analyzed Medicare claims data for extended hospital 
outpatient encounters and shorter stay hospital inpatient encounters, 
and estimated the number of encounters that are expected to shift from 
outpatient to inpatient and vice versa (that is, the number that are 
expected to shift from inpatient to outpatient). These estimated shifts 
of encounters represent a significant portion of the total encounters 
paid under the IPPS. Our actuaries estimated that this projected net 
increase in inpatient encounters would increase IPPS expenditures by 
approximately $220 million. In light of the widespread impact on the 
IPPS of our proposed policy and the systemic nature of the issue, in 
the FY 2014 IPPS/LTCH PPS proposed rule, we stated our belief that it 
is appropriate to propose to use our exceptions and adjustments 
authority under section 1886(d)(5)(I)(i) of the Act to offset the 
estimated $220 million in additional IPPS expenditures associated with 
this proposed policy by proposing to apply a -0.2 percent adjustment to 
the operating IPPS standardized amount, the hospital-specific rates, 
and the Puerto Rico-specific standardized amount. (For additional 
information on our actuarial estimate, we refer readers to section 
XI.C.4. of the preamble of this final rule.)
    Consistent with the proposal to apply a -0.2 percent adjustment to 
the operating national and Puerto Rico-specific standardized amounts 
and the hospital-specific rates, we stated our belief that it is also 
appropriate, under the Secretary's broad authority under section 
1886(g) of the Act, to propose to reduce the national capital Federal 
rate and Puerto Rico-specific capital rate by 0.2 percent (an 
adjustment factor of 0.998) to offset the estimated increase in capital 
IPPS expenditures associated with the projected increase in inpatient 
encounters that is expected to result from our proposed inpatient 
admission guidelines (78 FR 27651). Because hospitals receive an 
operating IPPS payment and also a capital IPPS payment for each 
discharge, we stated that we believe it would be appropriate to reduce 
payments under both the operating and capital IPPS to fully offset the 
projected increase in expenditures associated with these inpatient 
discharges. (We refer readers to section V.N. of the preamble of the 
proposed rule and section XI.C. of the preamble of this final rule for 
a complete discussion of our proposed and final inpatient admission 
guidelines and medical review criteria, including our time-based 
benchmark and presumption of medical necessity for hospital inpatient 
services based on the beneficiary's length of stay as part of our 
medical review criteria for hospital inpatient services under Medicare 
Part A.)
    While we did not receive any comments that specifically addressed 
our proposal to make the -0.2 percent adjustment to the national 
capital Federal rate and Puerto Rico-specific capital rate, in section 
XI.C.4. of the preamble of this final rule, we discuss the public 
comments we received on our proposal to make a -0.2 percent adjustment 
to the operating IPPS standardized amount, the hospital-specific rates, 
and the Puerto Rico-specific standardized amount to offset the 
estimated $220 million in additional IPPS expenditures associated with 
the projected increase in inpatient encounters that is expected to 
result from our final inpatient admission guidelines. As we state in 
section XI.C.4. of the preamble of this final rule, our actuaries 
continue to estimate that there will be approximately $220 million in 
additional expenditures resulting from the net increase in hospital 
inpatient encounters due to some encounters spanning more than 2 
midnights moving to the IPPS from the OPPS, and some encounters of less 
than 2 midnights moving from the IPPS to the OPPS. After consideration 
of the public comments we received, which we discuss in section XI.C.4. 
of the preamble of this final rule, under the Secretary's broad 
authority under section 1886(g) of the Act, we are finalizing the 
proposed 0.2 percent reduction (that is, an adjustment factor of 0.998) 
to the national capital Federal rate and the Puerto Rico-specific 
capital rate to offset the estimated increase in capital IPPS 
expenditures associated with the projected increase in inpatient 
encounters that is expected to result from the inpatient admission 
guidelines policy we are adopting in this final rule. As noted above, 
this is the same adjustment that we are finalizing to the standardized 
amount, the hospital-specific rates, and the Puerto Rico-specific 
standardized amount. Because hospitals receive an operating IPPS 
payment and also a capital IPPS payment for each discharge, we continue 
to believe it is appropriate to

[[Page 50747]]

reduce payments under both the operating and capital IPPS to fully 
offset the projected increase in expenditures associated with these 
inpatient discharges.

D. Annual Update for FY 2014

    The annual update to the capital PPS Federal and Puerto Rico-
specific rates, as provided for at Sec.  412.308(c), for FY 2014 is 
discussed in section III. of the Addendum to this final rule.
    We note that, in section II.D. of the preamble of this final rule, 
we present a discussion of the MS-DRG documentation and coding 
adjustment, including previously finalized policies and historical 
adjustments, as well as the recoupment adjustment to the standardized 
amounts under section 1886(d) of the Act that we are finalizing for FY 
2014 pursuant to the amendments made to section 7(b)(1)(B) of Public 
Law 110-90 by section 631 of the ATRA. As we explained in the FY 2014 
IPPS/LTCH PPS proposed rule (78 FR 27652), because section 631 of the 
ATRA requires CMS to make a recoupment adjustment only to the operating 
IPPS standardized amount, we did not propose a similar adjustment to 
the national or Puerto Rico capital IPPS rates (or to the operating 
IPPS hospital-specific rates or Puerto Rico-specific standardized 
amount). This approach is consistent with our historical approach 
regarding the application of the recoupment adjustment authorized by 
section 7(b)(1)(B) of Public Law 110-90. In that same proposed rule (78 
FR 27505), we also discussed additional prospective adjustments for the 
MS-DRG documentation and coding effect through FY 2010 authorized under 
section 1886(d)(3)(A)(vi) of the Act, and stated that, after further 
consideration of the MedPAC analysis of claims data, if we were to 
apply an additional prospective adjustment for the cumulative MS-DRG 
documentation and coding effect through FY 2010, we believe the most 
appropriate additional adjustment is -0.55 percent, rather than the 
adjustment proposed in prior rulemaking of -0.8 percent. While we did 
not propose an additional prospective adjustment in FY 2014 for the 
cumulative MS-DRG documentation and coding effects through FY 2010 at 
the time of the proposed rule, we solicited comments on the issue of 
applying a prospective adjustment to the operating IPPS standardized 
amount (and hospital-specific rates) for the cumulative MS-DRG 
documentation and coding effect through FY 2010.
    Consistent with our historical approach, in the FY 2014 IPPS/LTCH 
PPS proposed rule (78 FR 27652), we stated that, because the cumulative 
documentation and coding effect through FY 2010 results in 
inappropriately high capital IPPS payments, if we were to apply a 
prospective adjustment to the operating IPPS standardized amount and 
the hospital-specific rates to remove this effect, we would also do so 
for the national capital IPPS Federal rate. Therefore, if we attributed 
a portion of the proposed -0.8 percent recoupment adjustment to the 
operating IPPS standardized amount for FY 2014 to the prospective 
adjustment, we would also make an appropriate adjustment to the 
national capital IPPS Federal rate under the Secretary's broad 
authority under section 1886(g) of the Act. (We also noted that the 
capital IPPS Puerto Rico rate (and operating IPPS Puerto Rico-specific 
standardized amount) would not be affected as we previously found no 
significant additional MS-DRG documentation and coding effect through 
FY 2010 for Puerto Rico that would warrant any additional adjustment 
(77 FR 53279 and 53457).)
    In section II.D.7. of the preamble of this final rule, we 
summarize, and respond to, public comments that we solicited as to 
whether any portion of the aforementioned -0.8 percent recoupment 
adjustment to the operating IPPS standardized amount should be reduced 
and instead applied as a prospective adjustment to the operating IPPS 
standardized amount (and hospital-specific rates) for the cumulative 
MS-DRG documentation and coding effect through FY 2010. As discussed in 
that same section, after consideration of public comments, CMS is not 
allocating any portion of the -0.8 percent recoupment adjustment in FY 
2014 as a prospective adjustment to account for FY 2010 documentation 
and coding effects. Therefore, consistent with our proposal, we are not 
making an additional documentation and coding adjustment to the FY 2014 
national or Puerto Rico capital IPPS rates.

VII. Changes for Hospitals Excluded from the IPPS

A. Rate of Increase in Payments to Excluded Hospitals for FY 2014

    Historically, certain 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) of the regulations) 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 
certain 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. 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 42 CFR 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.
    Certain hospitals excluded from a prospective payment system, 
including children's hospitals and 11 cancer hospitals, continue to be 
subject to the rate-of-increase ceiling based on the hospital's own 
historical cost experience. 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.
    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 and RNHCIs. 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 number of providers being paid 
based on reasonable cost subject to a ceiling, including 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. Therefore, for FY 2014 and subsequent fiscal 
years, as we stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27653), we would continue to use the percentage increase in the IPPS 
operating market basket to update the

[[Page 50748]]

target amounts for these cancer hospitals, children's hospitals, and 
RNHCIs for the reasons discussed in the FY 2006 IPPS final rule.
    In addition, because we also proposed in the FY 2014 IPPS/LTCH PPS 
proposed rule to revise and rebase the IPPS operating market to a FY 
2010 base year, we proposed to use the percentage increase in the FY 
2010-based IPPS operating market basket to update the target amounts 
for children's hospitals, the 11 cancer hospitals, and RNHCIs for FY 
2014 and subsequent fiscal years. As described in section IV. of the 
preamble of this final rule, we are finalizing our proposal (as 
presented in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27561 
through 27572)) to revise and rebase the IPPS operating market basket 
to a FY 2010 base year. As we did not receive any public comments on 
our proposal to use the percentage increase in the FY 2010-based IPPS 
operating market basket to update the target amounts for children's 
hospitals, the 11 cancer hospitals, and RNHCIs for FY 2014 and 
subsequent fiscal years, we are finalizing this proposal as well. 
Accordingly, for FY 2014 and subsequent fiscal years, the rate-of-
increase percentage to be applied to the target amount for these cancer 
hospitals, children's hospitals, and RNHCIs is the percentage increase 
in the FY 2010-based IPPS operating market basket.
    For the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27652 and 
27653), based on IHS Global Insight, Inc.'s 2013 first quarter 
forecast, we estimated that the FY 2010-based IPPS operating market 
basket update for FY 2014 was 2.5 percent (that is, the estimate of the 
market basket rate-of-increase). We proposed that if more recent data 
became available for the final rule, we would use them to calculate the 
IPPS operating market basket update for FY 2014. For this final rule, 
based on IHS Global Insight, Inc.'s 2013 second quarter forecast (which 
is the most recent data available), we calculated the FY 2010-based 
IPPS operating market basket update for FY 2014 to be 2.5 percent. 
Thus, the FY 2014 rate-of-increase percentage that is applied to the FY 
2013 target amounts in order to calculate the final FY 2014 target 
amounts for children's hospitals, the 11 cancer hospitals, and RNHCIs 
is 2.5 percent, in accordance with the applicable regulations at 42 CFR 
413.40.
    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 update changes to the Federal payment rates for LTCHs under 
the LTCH PPS for FY 2014. The annual updates for the IRF PPS and the 
IPF PPS are issued by the agency in separate Federal Register 
documents.

B. Report on 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 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 receives the NPR, if its 
operating costs are in excess of the ceiling, the hospital may file a 
request for an adjustment payment. After the fiscal intermediary or MAC 
receives the hospital'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 180 days 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 2012.
    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 2012. As indicated above, the adjustments made 
during FY 2012 only pertain to cost reporting periods ending in years 
prior to FY 2011. Total adjustment payments given to excluded hospitals 
during FY 2012 are $3,457,953. 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
----------------------------------------------------------------------------------------------------------------
Children's......................................................               2        $785,960        $540,658
Cancer..........................................................               1      19,193,933       2,818,076
Religious Nonmedical Health Care Institution (RNHCI)............               1         194,363          99,219
                                                                 -----------------------------------------------
    Total.......................................................  ..............  ..............       3,457,953
----------------------------------------------------------------------------------------------------------------

C. Critical Access Hospitals (CAHs): Changes to the Conditions of 
Participation

1. Background
    Sections 1820 and 1861(mm) of the Act, as amended by section 4201 
of the Balanced Budget Act (BBA) of 1997, replaced the Essential Access 
Community Hospitals and Rural Primary Care Hospitals (EACH/RPCH) 
program with the Medicare Rural Hospital Flexibility Program (MRHFP), 
under which a qualifying facility can be designated as a CAH. CAHs 
participating in the MRHFP must meet the conditions for designation by 
the State and be certified by the Secretary in accordance with section 
1820 of the Act. Further, in accordance with section 1820(e)(3) of the 
Act, a CAH must meet other criteria that the Secretary specifies.
    The regulations that codify the conditions of participation (CoPs) 
to implement the statutory requirements of section 1820 are codified at 
42 CFR Part 485, Subpart F.
2. Proposed and Final Policy Changes
    As we discussed in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27653 through 27654), we have received a number of questions from 
stakeholders in the CAH provider community

[[Page 50749]]

relating to whether CAHs are required to furnish acute care inpatient 
services under the CAH CoPs. Our interpretation is that CAHs must 
provide acute care inpatient services, and in the proposed rule (78 FR 
27653 through 27654 and 27486), we proposed revisions to clarify and 
restate this requirement. In particular, we proposed to add paragraph 
(b)(1)(ii) to 42 CFR 485.635 as clarification that a CAH must provide 
acute care inpatient services. We stated that we expected that these 
services would be provided as appropriate to a CAH's resources and as 
appropriate to meet the needs of its patients.
    In the proposed rule, we discussed our review of data for 1,230 of 
the existing 1,328 CAHs \53\ using the July 2010 through June 2011 cost 
reports, and found that 99 percent of CAHs are regularly providing 
acute care inpatient services and are in compliance with the 
requirements under the CAH CoPs. However, we indicated that the data 
regarding the remaining 1 percent, together with the questions we had 
received, suggested that there may be some service gaps. We further 
stated that we believe that a few CAHs would benefit from clarification 
that CAHs must furnish acute care inpatient services.
---------------------------------------------------------------------------

    \53\ Produced by the Cecil G. Sheps Center for Health Services 
Research at the University of North Carolina under a Cooperative 
Agreement with the Federal ORHP.
---------------------------------------------------------------------------

    As set forth in section 1820 of the Act, the CAH program was 
established to improve access to hospital and other health services for 
rural residents of a State. We believe that the statutory requirements 
related to the provision of emergency care and acute care inpatient 
services, including those at section 1820(c)(2)(B) of the Act, suggest 
that a CAH must furnish these acute care inpatient services, albeit, in 
a more limited fashion than would be expected of a hospital. Hospitals 
are subject to a different set of CoPs, found in 42 CFR Part 482.
    In the proposed rule, we stated that we recognize that, given its 
resources and the needs of the community it serves, a CAH may not be 
actively treating inpatients at all times. Indeed, the Act fully 
recognizes the variable nature of a CAH's inpatient census, as it 
provides specific contingency language for the staffing requirements 
under section 1820(c)(2)(B)(iv) of the Act. We noted that a CAH is not 
specifically required to maintain a minimum average daily census (ADC) 
of inpatients receiving inpatient acute care services or a minimum 
number of certified inpatient beds. We indicated that we are aware that 
there are significant seasonal variations in the inpatient occupancy 
rates as well as variations that are a function of the size of the 
community in which a CAH is located. We also stated that we recognize 
the need for inpatient acute care services to be furnished in the best 
setting for the patient. However, we stated that while it may be true 
that CAHs generally are not able to handle patients requiring complex, 
specialized inpatient services, such as those services provided by 
trauma centers, or cardiac surgery centers, CAHs should be able to 
handle a range of patient needs requiring admission. We stated that we 
believe it is not in the best interest of patients for them to 
routinely be transferred to a more distant hospital if instead their 
care can be provided locally without compromising quality.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27486), we also 
wished to clarify the relationship between a CAH's written policies and 
the services it offers. The regulations at 42 CFR 485.635(a) require a 
CAH to furnish health care services in accordance with appropriate 
written policies. Among other items, the CAH must describe its 
procedures for emergency medical services and its procedures for 
inpatient services. We explained that we would expect CAHs to be 
appropriately prepared to provide the services described in their 
policies and procedures. For example, we would expect a CAH's policies 
and procedures to be reflected in the number of certified beds, 
appropriate equipment, and available staffing (whether as employees or 
through arrangements or agreements). We also stated that we would 
expect to see a relationship between CAHs' policies and procedures and 
the actual services furnished, as appropriate to the needs of 
individual patients. To further clarify the interrelated standards at 
Sec.  485.635(a) and (b) of the regulations, we proposed to amend the 
regulatory language at Sec.  485.635(b), as noted below, and we 
proposed to revise the language under the standard for ``Patient care 
policies'' under Sec.  485.635(a)(3)(vii) to remove the conditional 
phrase ``If a CAH furnishes inpatient services.'' By proposing to 
remove this conditional phrase, we stated that we would eliminate 
regulatory language that could be creating ambiguity where none was 
intended. We stated that the elimination of this language would clarify 
that CAHs are required to provide acute care inpatient services. We 
also stated that our revision would align the standard with the 
structure of neighboring standards under Sec.  485.635(a).
    Comment: One commenter thanked CMS for the continued emphasis on 
expanding access to critical health care services to all rural 
beneficiaries. The commenter believed that the CAH program has 
dramatically expanded access to critical health care services in rural 
areas for all rural residents. Another commenter noted that, often, the 
CAH provider is the foundation of all health care services in the 
community.
    Response: We appreciate the positive feedback regarding the CAH 
program. We are mindful of the fact that the CAH program was 
established to improve access for rural residents to essential health 
care services, including hospital services. We believe the clarifying 
changes that we are finalizing in this rule will maintain the integrity 
of the CAH program and ensure continued access to these critical 
services, including acute care inpatient services.
    Comment: One commenter stated that section 1820(c)(2)(B) of the 
Act, which sets forth criteria for designation as a CAH, does not 
include a requirement that CAHs provide inpatient acute care services. 
The commenter questioned CMS' authority and underlying reasoning for 
proposing the regulatory changes. Another commenter asked why CMS would 
consider adding one of the defining features of a ``hospital,'' namely, 
inpatient care, given that the definition of a hospital at section 
1861(e) of the Act provides that a CAH is not always considered a 
hospital.
    Response: While we acknowledge that section 1820(c)(2)(B) of the 
Act does not expressly require CAHs to provide inpatient acute care 
services, we note that section 1820(e)(3) of the Act authorizes the 
Secretary to require other criteria for a facility to be certified as a 
CAH. As set forth in section 1820 of the Act, the CAH program was 
established to improve access to hospital and other health services for 
rural residents of a State. We believe that the statutory requirements 
related to the provision of emergency care and acute care inpatient 
services, including those at section 1820(c)(2)(B) of the Act, suggest 
that a CAH must furnish these acute care inpatient services, albeit, in 
a more limited fashion than would be expected of a hospital. We further 
acknowledge that section 1861(e) of the Act specifies that the term 
``hospital'' does not always include a CAH. At the same time, we note 
that section 1861(e) of the Act qualifies this statement with the 
phrase ``unless the context otherwise requires.'' For purposes of 
determining what services should be furnished by a CAH, we have 
concluded that the context

[[Page 50750]]

requires CAHs to furnish inpatient acute care services.
    Comment: One commenter noted that CMS' interpretive guidelines 
state that the ``CAH must provide outpatient and emergency room 
services as direct services at the CAH campus through the use of CAH 
personnel.'' Further, the commenter stated, the interpretive guidelines 
allow for a CAH to ``choose the level of services to be offered . . . 
[and that a] CAH is not required to offer outpatient services 24/7 
except for emergency room services.'' In addition, the commenter stated 
that the interpretive guidelines only state that the CAH's ``outpatient 
services must be integrated with inpatient services, as appropriate to 
the outpatient services offered.''
    Response: We appreciate the commenter's questions. The guidance 
noted by the commenter related to the furnishing of services at Sec.  
485.635(b), which, under an earlier version of the regulation, were to 
have been provided by the CAH directly, by its own employees, rather 
than through an arrangement. As such, it would not have been 
appropriate to have viewed the guidance as identifying an exclusive 
list of services that a CAH must provide. Rather, the provision 
identified only those services that a CAH was required to provide 
directly.
    In any event, we note that the interpretive guidelines referenced 
in the comment are outdated. The above referenced guidelines were 
applicable to a prior version of Sec.  485.635(b) that addressed 
services that CAHs were then required to provide as ``direct 
services,'' that is, services provided by CAH employees (and not 
through an arrangement). We note that, in an effort to reduce burden on 
CAHs, we amended Sec.  485.635(b) in the May 16, 2012 final rule, 
``Medicare and Medicaid Programs; Reform of Hospital and Critical 
Access Hospital Conditions of Participation,'' that sought to reduce 
outmoded and unnecessarily burdensome regulations, and to increase the 
ability of CAHs to devote more resources to providing high quality 
patient care (77 FR 29034). In that final rule, we removed the 
requirement under Sec.  485.635(b) for these services to be provided 
directly by CAH employees. We issued revised interpretative guidelines 
in S&C13-20 on March 15, 2013, and updated the State Operations Manual 
accordingly via Transmittal No. 84, issued on June 7, 2013. With the 
publication of this final rule, we will further update the 
interpretative guidelines for CAHs.
    Comment: One commenter asked how CMS intended to monitor CAHs' 
compliance with the proposed requirement to provide inpatient services. 
The commenter was concerned that a requirement to provide inpatient 
acute care services would be enforced arbitrarily or that it might 
create a ``slippery slope'' leading to a misguided approach, such as a 
future requirement for a minimum average daily census (ADC). The 
commenter acknowledged CMS' commentary in the proposed rule that listed 
several reasons why maintaining a minimum ADC would not be desirable. 
At the same time, the commenter believed that CMS had not specified a 
compliance mechanism in the proposed rule.
    Response: As we stated in the FY 2014 IPPS/LTCH PPS proposed rule 
(78 FR 27653 through 27654), a CAH is not specifically required to 
maintain a minimum ADC of inpatients receiving inpatient acute care 
services or a minimum number of certified inpatient beds. We are aware 
that there are significant seasonal variations in the inpatient 
occupancy rates as well as variations that are a function of the size 
of the community in which a CAH is located. We agree with the commenter 
that requiring a minimum daily census would not allow for the seasonal 
and regional variability within the CAH system. We also recognize the 
need for inpatient acute care services to be furnished in the best 
setting for the beneficiary. For these reasons, we did not propose a 
minimum ADC requirement.
    However, while it may be true that CAHs generally are not able to 
handle patients requiring complex, specialized inpatient services, such 
as those services provided by trauma centers or cardiac surgery 
centers, CAHs should be able to handle a range of needs for 
beneficiaries requiring admission, particularly in the case of patients 
who present to the CAH seeking emergency services. As stated above, we 
believe it is not in the best interest of CAH patients requiring 
admission to be routinely transferred to a more distant hospital if 
their care can be provided by the CAH locally without compromising 
quality. We anticipate developing more detailed guidance that would 
consider the volume of emergency services provided by a CAH, along with 
the volume of transfers to hospitals, compared to inpatient CAH 
admissions through the emergency department. While we do not envision 
developing specific formulas for minimum inpatient admissions, we do 
believe this approach would enable identification of cases for further 
scrutiny where there is a significant disproportion between the 
emergency services and the inpatient services a CAH provides. We 
believe our proposal facilitates beneficiary care on both an individual 
and a population level.
    Comment: One commenter agreed with CMS that CAHs and all rural 
facilities should maintain an accurate listing of the services they 
offer. The commenter acknowledged that patients in rural areas rely on 
accurate and timely notices of the services available at their local 
hospital. The commenter encouraged all CAHs to maintain and regularly 
update their written policies as they relate to services available in 
their facility.
    Response: We appreciate the commenter's remarks and encouragement 
to CAHs to maintain and regularly update their written policies as they 
relate to services available in their facility. The regulations at 42 
CFR 485.635(a) require a CAH to furnish health care services in 
accordance with appropriate written policies. Among other items, the 
CAH must describe its procedures for emergency medical services and its 
procedures for inpatient services. Therefore, we expect CAHs to be 
appropriately prepared to provide the described services. For example, 
a CAH's policies and procedures should be reflected in the number of 
certified beds, appropriate equipment, and available staffing (whether 
as employees or through arrangements or agreements). Similarly, we 
would expect CAHs to, in fact, be providing the same services outlined 
in their policies and procedures, as appropriate to the needs of 
individual patients.
    Comment: A few commenters urged that greater consideration be given 
to this proposed change in policy; one commenter described the proposal 
as a major departure from the CAH CoPs that have been in place for the 
past 20 years. The commenters suggested that the proposed change could 
thwart the provision of health care services to rural and frontier 
communities. The commenter noted that, particularly in the West, 
inpatient volumes are decreasing as hospitals better manage patients' 
disease processes and care. Another commenter expressed concern that a 
requirement to furnish acute care inpatient services could have a major 
impact on the operational capacity and necessary workforce needs of 
many CAHs.
    One commenter remarked that the CoPs, as written, have given CAH 
providers an option to change as time goes on to meet the needs of 
their communities. The commenter opposed an express requirement for 
CAHs to furnish inpatient services and expressed concern that, as the 
health care system evolves, the providers in a community

[[Page 50751]]

continue to be able to respond to and meet the needs of its residents. 
Another commenter stated that provision that restricts or dictates how 
services are provided in these communities would necessarily limit 
innovations designed to meet the goals of the ``Triple Aim.'' The 
commenter also stated that proposals to reduce CAH payments or revoke 
status for current CAHs would do significant damage to the gains made 
since the establishment of this program in 1997.
    Response: We share the commenters' concern for ensuring access to 
health care services in rural and frontier communities. At the same 
time, as we have stated, we have received a number of questions from 
stakeholders in the CAH provider community relating to whether CAHs are 
required to furnish acute care inpatient services under the CAH CoPs. 
As we stated in the proposed rule and as noted above, the data analysis 
that we conducted suggest that 99 percent of CAHs are regularly 
providing acute care inpatient services and are in compliance with such 
requirements. However, the data regarding the remaining 1 percent, 
along with the questions we have received, suggest that there may be 
some service gaps. We believe our proposed language to explicitly 
require CAHs to furnish inpatient acute care services would address 
these gaps in service.
    In light of the fact that 99 percent of CAHs are already providing 
inpatient acute care services, we do not agree that the establishment 
of an express requirement for CAHs to provide inpatient services 
represents a major change to the CAH program. Moreover, we note that 
none of the commenters submitted evidence or specific examples 
demonstrating how finalizing a general requirement for CAHs to provide 
acute care inpatient services could have a major impact upon or thwart 
the provision of health care services to rural and frontier 
communities. In the event that a CAH decides that it is no longer able 
to comply, or that the circumstances no longer warrant compliance, with 
all of the CAH requirements, such a facility may wish to engage in a 
dialogue with CMS to explore its options, including avenues other than 
the CAH program, for continued participation in the Medicare program. 
For example, if it does not meet the CAH CoPs, a CAH could convert to a 
certified Medicare hospital.
    We disagree with the comment that a requirement for CAHs to furnish 
inpatient acute care services is inconsistent with the goals of the 
``Triple Aim,'' which calls for better care for individuals, better 
health for populations, and lower cost through improvement (without any 
harm to individuals). The CAH program was established to improve access 
for rural residents to essential health care services and, 
particularly, hospital services. Hospital services include acute care 
inpatient services, and, when a CAH does not provide them, the 
individuals residing in that rural community may be at risk. Indeed, 
once a facility has been designated and certified as a CAH, that 
facility is expected to provide services as a CAH, and it is entrusted 
with the reliance of the general public and of the local community. We 
recognize that, given its resources and the needs of the community it 
serves, a CAH may not be actively treating inpatients at all times. As 
stated above, we believe it is not in the best interest of a CAH's 
beneficiaries to be routinely transferred to a more distant hospital if 
instead their care could be provided locally without compromising 
quality.
    Finally, we note that because we did not make any proposals in this 
section to change CAH payments, we believe the comments concerning 
payments to CAHs are outside the scope of the proposed rule. Therefore, 
for the reasons discussed above, we are finalizing the provisions at 
Sec.  485.635(a) and (b), as proposed.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27654), we 
proposed further changes at Sec.  485.635(c), regarding ``Services 
provided through agreements or arrangements.'' We are removing 
paragraph (c)(1)(i) under Sec.  485.635 requiring CAHs to furnish 
inpatient hospital care services through agreements or arrangements; 
redesignating the existing language of paragraph (b)(1) as paragraph 
(b)(1)(i); and adding a new paragraph (b)(1)(ii) under the standard 
``Patient services'' that more clearly requires CAHs to furnish acute 
care inpatient services. (Because we are removing paragraph (c)(1)(i), 
we are redesignating existing paragraphs (c)(1)(ii) through (c)(1)(iv) 
as paragraphs (c)(1)(i) through (c)(1)(iii), respectively.)
    We regard the services furnished in accordance with Sec.  
485.635(c) as other additional services, which a CAH may also provide 
through agreements or arrangements. Notwithstanding these 
clarifications and revisions, in accordance with section 1820(d) of the 
Act, each CAH member of a Rural Health Network will still be required 
to have an agreement with at least one full-service acute care hospital 
member of the network regarding patient referral and transfer.
    We did not receive any public comments on our proposal to make the 
above-described changes at Sec.  485.635(c). Therefore, we are 
finalizing these changes as proposed.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27654), we also 
proposed a technical change at Sec.  485.620(a), the section addressing 
the ``Number of Beds'' standard. Specifically, we proposed to remove 
the phrase ``after January 1, 2004,'' a prospective effective date 
established in the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173) and which was 
subsequently restated in regulation at Sec.  485.620(a) (69 FR 49215). 
The effective date of January 1, 2004 has passed and the revised 
maximum bed limit of 25 continues to apply. We did not receive any 
public comments on this proposed technical revision at Sec.  
485.620(a). Therefore, we are finalizing the technical revision without 
change.

VIII. Changes to the Long-Term Care Hospital Prospective Payment System 
(LTCH PPS) for FY 2014

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 
Act, effective for cost reporting periods beginning on or after October 
1, 2002.
    Section 1886(d)(1)(B)(iv)(I) of the Act defines a 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

[[Page 50752]]

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, we 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 from payments under the TEFRA system to payments 
under the LTCH PPS. 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, unless a 
LTCH made a one-time election to be paid based on 100 percent of the 
Federal rate. Beginning with LTCHs' 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).
    We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51733 through 51743) for a chronological summary of the main 
legislative and regulatory developments affecting the LTCH PPS through 
the annual update cycles prior to the FY 2013 rulemaking cycle.
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
    Under the existing regulations at Sec. 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 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 short-stay outlier 
(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).

[[Page 50753]]

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 health care 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 2014

1. Background
    Section 123 of the BBRA requires that the Secretary implement a PPS 
for LTCHs (that is, a per discharge system with a diagnosis-related 
group (DRG)-based patient classification system reflecting the 
differences in patient resources and costs). Section 307(b)(1) of the 
BIPA modified the requirements of section 123 of the BBRA by requiring 
that the Secretary examine ``the feasibility and the impact of basing 
payment under such a system [the long-term care hospital (LTCH) PPS] on 
the use of existing (or refined) hospital DRGs that have been modified 
to account for different resource use of LTCH patients, as well as the 
use of the most recently available hospital discharge data.''
    When the LTCH PPS was implemented for cost reporting periods 
beginning on or after October 1, 2002, we adopted the same DRG patient 
classification system (that is, the CMS DRGs) that was utilized at that 
time under the IPPS. As a component of the LTCH PPS, we refer to 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, 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.)
    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 2014 we did not create or delete any MS-DRGs, and 
as such we continue to have a total of 751 MS-DRG groupings for FY 
2014. 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. Below we provide a general summary of our 
existing methodology for determining the MS-LTC-DRG relative weights.
    In a departure from the IPPS, and as discussed in greater detail 
below in section VIII.B.3.f. of this preamble, we are continuing to 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).) Under our existing methodology, we account for 
adjustments to payments for 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 
make 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 relative 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 VIII.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

[[Page 50754]]

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 diagnosis and procedure codes 
considered for MS-DRG assignment was limited to nine and six, 
respectively. However, for claims submitted on the 5010 format 
beginning January 1, 2011, we increased 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).
    Under HIPAA transactions and code sets regulations at 45 CFR Parts 
160 and 162, covered entities must comply with the adopted transaction 
standards and operating rules specified in Subparts I through S of Part 
162. Among other requirements, by January 1, 2012, covered entities 
were required to use the ASC X12 Standards for Electronic Data 
Interchange Technical Report Type 3--Health Care Claim: Institutional 
(837), May 2006, ASC X12N/005010X223, and Type 1 Errata to Health Care 
Claim: Institutional (837) ASC X12 Standards for Electronic Data 
Interchange Technical Report Type 3, October 2007, ASC X12N/
005010X233A1 for the health care claims or equivalent encounter 
information transaction (45 CFR 162.1102).
    HIPAA requires covered entities to use the applicable medical data 
code set requirements when conducting HIPAA transactions (45 CFR 
162.1000). Currently, upon the discharge of the patient, the LTCH must 
assign appropriate diagnosis and procedure codes from the most current 
version of the Internal Classification of Diseases, Ninth Revision, 
Clinical Modification (ICD-9-CM). 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.11. of this 
preamble for additional information on the annual revisions to the ICD-
9-CM codes.)
    On October 1, 2014, covered entities must begin using the ICD-10-CM 
and ICD-10-PCS coding systems (45 CFR 162.1102(c)). We have been 
discussing the conversion to the ICD-10-CM and the ICD-10-PCS coding 
systems for many years. In prior rules published in the Federal 
Register (for example, in the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50122 through 50128)), we discussed the implementation date for the 
conversion to the ICD-10-CM and ICD-10-PCS coding systems. We refer 
readers to section II.G.11. of this preamble for additional information 
on the implementation of the ICD-10-CM and ICD-10-PCS systems.
    To create the MS-DRGs (and by extension, the MS-LTC-DRGs), base 
DRGs were subdivided according to the presence of specific secondary 
diagnoses designated as complications or comorbidities (CCs) into one, 
two, or three levels of severity, 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 or 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 
relative 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 2014
    As specified by our regulations at Sec.  412.517(a), which require 
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, 2013, through September 30, 2014 (FY 2014) 
consistent with the changes to specific MS-DRG classifications 
presented in section II.G. of this preamble (that is, GROUPER Version 
31.0). Therefore, the MS-LTC-DRGs for FY 2014 presented in this final 
rule are the same as the MS-DRGs that are being used under the IPPS for 
FY 2014. In addition, because the MS-LTC-DRGs for FY 2014 are the same 
as the MS-DRGs for FY 2014, the other changes that affect MS-DRG (and

[[Page 50755]]

by extension MS-LTC-DRG) assignments under Version 31.0 of the GROUPER 
discussed in section II.G. of the preamble of this final rule, 
including the changes to the MCE software and the ICD-9-CM coding 
system, are also applicable under the LTCH PPS for FY 2014.
3. Development of the FY 2014 MS-LTC-DRG Relative Weights
a. General Overview of the Development of the MS-LTC-DRG Relative 
Weights
    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 (67 FR 55984). 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.
    The basic methodology used to develop the MS-LTC-DRG relative 
weights generally continues to be consistent with the general 
methodology established when the LTCH PPS was implemented in the August 
30, 2002 LTCH PPS final rule (67 FR 55989 through 55991), with the 
exception of some modifications of our historical procedures for 
assigning relative weights in cases of zero volume and/or 
nonmonotonicity resulting from the adoption of the MS-LTC-DRGs. (For 
details on the modifications to our historical procedures for assigning 
relative weights in cases of zero volume and/or nonmonotonicity, we 
refer readers to 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).) Under the LTCH PPS, relative weights for each MS-LTC-
DRG are a primary element used to account for the variations in cost 
per discharge and resource utilization among the payment groups (Sec.  
412.515). To ensure that Medicare patients classified to each MS-LTC-
DRG have access to an appropriate level of services and to encourage 
efficiency, we calculate a relative weight for each MS-LTC-DRG that 
represents the resources needed by an average inpatient LTCH case in 
that MS-LTC-DRG. For example, cases in 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 2014
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53462 through 
53467), we presented our policies for the development of the MS-LTC-DRG 
relative weights for FY 2013. The basic methodology we used to develop 
the FY 2013 MS-LTC-DRG relative weights was the same as the methodology 
we used to develop the FY 2012 MS-LTC-DRG relative weights in the FY 
2012 IPPS/LTCH PPS final rule and was consistent with the general 
methodology established when the LTCH PPS was implemented in the August 
30, 2002 LTCH PPS final rule (67 FR 55989 through 55991). In the FY 
2014 IPPS/LTCH PPS proposed rule (78 FR 27658 through 27664), we 
proposed to continue to apply our established methodology to develop 
the FY 2014 MS-LTC-DRG relative weights for FY 2014, which includes 
application of established policies related to the data, the hospital-
specific relative value (HSRV) methodology, the treatment of severity 
levels in the MS-LTC-DRGs, low-volume and no-volume MS-LTC-DRGs, 
adjustment for nonmonotonicity, and the steps for calculating the MS-
LTC-DRG relative weights with a budget neutrality factor. Below we 
present the methodology that we continue to use to determine the MS-
LTC-DRG relative weights for FY 2014, which is consistent with the 
methodology presented in the FY 2013 IPPS/LTCH PPS final rule.
    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 (72 FR 
26882 through 26884). Consistent with Sec.  412.517(b), and as we 
proposed, we continue to apply our established two-step budget 
neutrality methodology, which is based on the current year MS-LTC-DRG 
classifications and relative weights. We are continuing to apply our 
established two-step budget neutrality methodology such that the annual 
update to the MS-LTC-DRG classifications and relative weights for FY 
2014 are based on the FY 2013 MS-LTC-DRG classifications and relative 
weights established in Table 11 listed in section VI. of the Addendum 
to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53716 through 53717). 
(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).)
c. Data
    For the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27658 through 
27659), to calculate the MS-LTC-DRG relative weights for FY 2014, we 
obtained total charges from FY 2012 Medicare LTCH bill data from the 
December 2012 update of the FY 2012 MedPAR file, which were the best 
available data at that time, and used the proposed Version 31.0 of the 
GROUPER to classify LTCH cases. Consistent with our existing 
methodology, we also proposed that if more recent data became 
available, we would use those data and the finalized Version 31.0 of 
the GROUPER in establishing the FY 2014 MS-LTC-DRG relative weights in 
the final rule. Consistent with our proposal, to calculate the MS-LTC-
DRG relative weights for FY 2014 in this final rule, we obtained total 
charges from the FY 2012 Medicare LTCH bill data from the March 2013 
update of the FY 2012 MedPAR file, which are the best available data, 
and used the finalized Version 31.0 of the GROUPER to classify LTCH 
cases.
    As proposed and consistent with our historical methodology, 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. Furthermore, consistent with our historical 
practice, we excluded Medicare Advantage (Part C) claims, which are now 
included in the MedPAR files, in the calculations for the relative 
weights under the LTCH PPS that are used to determine payments for 
Medicare fee-for-service claims. Specifically, as we proposed, we did 
not use 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). Accordingly, in 
the development of the FY 2014 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 2013 update of the FY 2012 MedPAR file, as 
well as any Medicare Advantage claims.

[[Page 50756]]

d. Hospital-Specific Relative Value (HSRV) Methodology
    By nature, LTCHs often specialize in certain areas, such as 
ventilator-dependent patients and treatment of infections and wound 
care. Some case types (MS-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 continue to use a hospital-specific 
relative value (HSRV) methodology to calculate the MS-LTC-DRG relative 
weights for FY 2014. We believe this method removes this hospital-
specific source of bias in measuring LTCH average charges (67 FR 
55985). Specifically, under this methodology, we reduce the impact of 
the variation in charges across providers on any particular MS-LTC-DRG 
relative weight by converting each LTCH's charge for a case to a 
relative value based on that LTCH's average charge.
    Under the HSRV methodology, we standardize charges for each LTCH by 
converting its charges for each case to hospital-specific relative 
charge values and then 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, we continue to 
standardize charges for each case by first dividing the adjusted charge 
for the case (adjusted for SSOs under Sec.  412.529 as described in 
section VIII.B.3.g. (Step 3) of this preamble) 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 different categories of MS-
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 are 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). As we proposed, we are continuing to utilize these same three 
categories of MS-LTC-DRGs for purposes of the treatment of severity 
levels in determining the MS-LTC-DRG relative weights for FY 2014. (We 
provide in-depth discussions of our policy regarding weight-setting for 
low-volume MS-LTC-DRGs in section VIII.B.3.f. of the preamble of this 
final rule and for no-volume MS-LTC-DRGs, under Step 5 in section 
VIII.B.3.g. of this preamble.)
    Furthermore, in determining the FY 2014 MS-LTC-DRG relative 
weights, when necessary, as we proposed, we are making adjustments to 
account for nonmonotonicity, as discussed in greater detail below in 
Step 6 of section VIII.B.3.g. of this preamble. We refer readers to the 
discussion in the FY 2010 IPPS/RY 2010 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 for 
purposes of determining the FY 2014 MS-LTC-DRG relative weights, as we 
proposed, we are continuing to employ the quintile methodology for low-
volume MS-LTC-DRGs, such that we group the ``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 2014 MS-LTC-DRG relative weights in this final rule, in cases where 
the initial assignment of a low-volume MS-LTC-DRG to quintiles results 
in nonmonotonicity within a base-DRG, in order to ensure appropriate 
Medicare payments, consistent with our historical methodology, as we 
proposed, we are making adjustments to the treatment of low-volume MS-
LTC-DRGs to preserve monotonicity, as discussed in detail below in 
section VIII.B.3.g. (Step 6) of this preamble.
    In this final rule, using LTCH cases from the March 2013 update of 
the FY 2012 MedPAR file (which is currently the best available data), 
we identified 281 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 56 MS-LTC-DRGs (281/5 = 56 with one MS-LTC-
DRG as the remainder). As we proposed, 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. Based on the data available for this final 
rule, the number of MS-LTC-DRGs with less than 25 cases is not evenly 
divisible by 5. Therefore, as noted in the proposed rule, consistent 
with our historical approach, we used the average charge of

[[Page 50757]]

the low-volume quintile to determine which of the low-volume quintiles 
contain the additional low-volume MS-LTC-DRG. Specifically for this 
final rule, after organizing the MS-LTC-DRGs by ascending order by 
average charge, as we proposed, we assigned the first fifth (1st 
through 56th) of low-volume MS-LTC-DRGs (with the lowest average 
charge) into Quintile 1. The MS-LTC-DRGs with the highest average 
charge cases were assigned into Quintile 5. Because the average charge 
of the 57th low-volume MS-LTC-DRG in the sorted list was closer to the 
average charge of the 56th low-volume MS-LTC-DRG (assigned to Quintile 
1) than to the average charge of the 58th low-volume MS-LTC-DRG 
(assigned to Quintile 3), we assigned it to Quintile 1 (such that 
Quintile 1 contains 57 low-volume MS- LTC-DRGs before any adjustments 
for nonmonotonicity, as discussed below). This resulted in 4 of the 5 
low-volume quintiles containing 56 MS-LTC-DRGs (Quintiles 2, 3, 4 and 
5) and the other low-volume quintile containing 57 MS-LTC-DRGs 
(Quintile 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 2014.
    Accordingly, in order to determine the FY 2014 relative weights for 
the MS-LTC-DRGs with low volume, as we proposed, we are using the five 
low-volume quintiles described above. We determined a relative weight 
and (geometric) average length of stay for each of the five low-volume 
quintiles using the methodology that we applied to the MS-LTC-DRGs (25 
or more cases), as described below in section VIII.B.3.g. of this 
preamble. As we proposed, we assigned the same relative weight and 
average length of stay to each of the low-volume MS-LTC-DRGs that make 
up an individual low-volume quintile. We note that, as this system is 
dynamic, it is possible that the number and specific type of MS-LTC-
DRGs with a low volume of LTCH cases will vary in the future.
    Furthermore, 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 2014 MS-LTC-DRG Relative Weights
    In this final rule, as we proposed, we determined the FY 2014 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 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).) In summary, to determine the FY 2014 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 2014 relative weights by first removing 
statistical outliers and cases with a length of stay of 7 days or less 
(Steps 1 and 2 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 2014 
MS-LTC-DRG relative weights. We note that, as we discussed in section 
VIII.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 2013 update of 
the FY 2012 MedPAR file.
    Step 1--Remove statistical outliers.
    The first step in the calculation of the FY 2014 MS-LTC-DRG 
relative weights is to remove statistical outlier cases. Consistent 
with our historical relative weight methodology, as we proposed, we are 
continuing to define statistical outliers as cases that are outside of 
3.0 standard deviations from the mean of the log distribution of both 
charges per case and the charges per day for each MS-LTC-DRG. These 
statistical outliers are 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 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 2014 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 2014 MS-LTC-DRG relative weights, as we proposed, 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 2014 MS-
LTC-DRG relative weights, consistent with our historical relative 
weight methodology, as we proposed, 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).
    As we proposed, 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 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.

[[Page 50758]]

    Counting SSO cases as full discharges with no adjustment in 
determining the FY 2014 MS-LTC-DRG relative weights would lower the FY 
2014 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 are adjusting 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 2014 MS-LTC-DRG relative weights on an 
iterative basis.
    Consistent with our historical relative weight methodology, as we 
proposed, we calculated the FY 2014 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 2014 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) is 
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 (from above) were then multiplied by the 
hospital-specific case-mix indexes. The 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 2014 relative weight for MS-LTC-DRGs with no 
LTCH cases.
    As we stated above, we determined the FY 2014 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 2013 update 
of the FY 2012 MedPAR file for this final rule). Using these data, we 
identified the 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 2012 and, therefore, no 
charge data were available for these MS-LTC-DRGs. Therefore, 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, as 
we proposed, 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 2014 relative weights for the MS-LTC-
DRGs with no LTCH cases in the March 2013 update of the FY 2012 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 2014, we identified 235 MS-LTC-DRGs 
for which there are 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 235 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 516 
(751 - 235= 516) MS-LTC-DRGs for which we were able to determine 
relative weights based on FY 2012 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 235 ``no volume'' MS-LTC-DRGs, with the exception of the 8 
``transplant'' MS-LTC-DRGs and the 2 ``error'' 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, we cross-walked the no-volume MS-LTC-DRG to a 
MS-LTC-DRG for which there were LTCH cases in the March 2013 update of 
the FY 2012 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 2014. (For more 
details 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 2014, 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 2014. 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-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

[[Page 50759]]

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 2014. (As we noted above, in 
the infrequent case where nonmonotonicity involving a no-volume MS-LTC-
DRG resulted, 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-DRGs to which each was cross-walked (that is, the cross-walked 
MS-LTC-DRGs) for FY 2014 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 2014 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 2014 provided in Table 13B.
    Example: There were no cases in the FY 2012 MedPAR file used for 
this final rule for MS-LTC-DRG 61 (Acute Ischemic Stroke with Use of 
Thrombolytic Agent with MCC). We determined that MS-LTC-DRG 70 
(Nonspecific Cerebrovascular 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 0.8212 for FY 2014 to MS-LTC-
DRG 61 (obtained from 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 2014, consistent with our historical relative 
weight methodology, as we proposed, we are establishing the MS-LTC-DRG 
relative weight 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 2014 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 secondary diagnosis 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 secondary diagnosis 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 MS-DRG is subdivided 
into either two levels or the base MS-DRG is not subdivided. The two-
level subdivisions could consist of the MS-DRG with CC/MCC and the MS-
DRG without CC/MCC. Alternatively, the other type of two-level 
subdivision may consist of the MS-DRG with MCC and the MS-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 2014 MS-LTC-DRG relative weights in 
this final rule, consistent with our historical methodology, as we 
proposed, 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 was 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 2014 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 2014 budget neutrality factor.
    In accordance with the regulations at Sec.  412.517(b) (in 
conjunction with Sec.  412.503), 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. (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 and 26882).)
    The MS-LTC-DRG classifications and relative weights are updated 
annually based on the most recent available LTCH claims data to reflect 
changes in relative LTCH resource use (Sec.  412.517(a) in conjunction 
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

[[Page 50760]]

estimated aggregate payments under the LTCH PPS would not be affected 
(that is, decreased or increased). Consistent with that provision, as 
we proposed, we updated the MS-LTC-DRG classifications and relative 
weights for FY 2014 based on the most recent available LTCH data, and 
applied a budget neutrality adjustment in determining the FY 2014 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), as we 
proposed, we are continuing to use 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 2014, 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 2014 (the first step 
of our budget neutrality methodology), we used the following three 
steps: (1.a.) we used the most recent available LTCH claims data (FY 
2012) and grouped them using the FY 2014 GROUPER (Version 31.0) and the 
recalibrated FY 2014 MS-LTC-DRG relative weights (determined in steps 1 
through 6 of the Steps for Determining the FY 2014 MS-LTC-DRG Relative 
Weights above) to calculate the average CMI; (1.b.) we grouped the same 
LTCH claims data (FY 2012) using the FY 2013 GROUPER (Version 30.0) and 
FY 2013 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 2013 (determined in Step 1.b.) by the average CMI 
for FY 2014 (determined in Step 1.a.). In determining the MS-LTC-DRG 
relative weights for FY 2014, each recalibrated MS-LTC-DRG relative 
weight was multiplied by 1.11579 (determined in Step 1.c.) 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 
2014 MS-LTC-DRG classifications and relative weights) are equal to 
estimated aggregate LTCH PPS payments before reclassification and 
recalibration (that is, the FY 2013 MS-LTC-DRG classifications and 
relative weights). Accordingly, consistent with our existing 
methodology, we used FY 2012 discharge data to simulate payments and 
compared estimated aggregate LTCH PPS payments using the FY 2013 MS-
LTC-DRGs and relative weights to estimate aggregate LTCH PPS payments 
using the FY 2014 MS-LTC-DRGs and relative weights. Specifically, for 
this final rule, as discussed previously in section VIII.B.3.c. of this 
preamble, we used LTCH claims data from the March 2013 update of the FY 
2012 MedPAR file, as these are the best available data at this time.
    For this final rule, we determined the FY 2014 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 2014 and GROUPER Version 31.0 (as described above); (2.b.) we 
simulated estimated total LTCH PPS payments using the FY 2013 GROUPER 
(Version 30.0) and the FY 2013 MS-LTC-DRG relative weights in Table 11 
of the Addendum to the FY 2013 IPPS/LTCH PPS final rule available on 
the Internet (76 FR 53716); 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 2013 GROUPER (Version 30.0) and the FY 2013 
MS-LTC-DRG relative weights (determined in Step 2.b.) by the estimated 
total LTCH PPS payments using the FY 2014 GROUPER (Version 31.0) and 
the normalized MS-LTC-DRG relative weights for FY 2014 (determined in 
Step 2.a.). In determining the FY 2014 MS-LTC-DRG relative weights, 
each normalized relative weight was multiplied by a budget neutrality 
factor of 0.9955629 (determined in Step 2.c.) in the second step of the 
budget neutrality methodology to determine the budget neutral FY 2014 
relative weight for each MS-LTC-DRG.
    Accordingly, in determining the FY 2014 MS-LTC-DRG relative weights 
in this final rule, consistent with our existing methodology, we 
applied a normalization factor of 1.11579 and a budget neutrality 
factor of 0.9955629 (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, five-sixths of the 
geometric mean length of stay (used to identify SSO cases under Sec.  
412.529(a)), and the ``IPPS Comparable Thresholds'' (used in 
determining SSO payments under Sec.  412.529(c)(3)), for FY 2014 (and 
reflect both the normalization factor of 1.11579 and the budget 
neutrality factor of 0.9955629).

C. LTCH PPS Payment Rates for FY 2014

1. Overview of Development of the LTCH Payment Rates
    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 used to update the LTCH 
PPS standard Federal rate for FY 2014, that is, effective for LTCH 
discharges occurring on or after October 1, 2013 through September 30, 
2014.
    For further details on the development of the FY 2003 standard 
Federal rate when the LTCH PPS was initially implemented, we refer 
readers to the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 
56037). For subsequent updates to the LTCH PPS standard Federal rate as 
implemented under Sec.  412.523(c)(3), 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); FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44021 
through 44030); FY 2011 IPPS/LTCH PPS final rule (75 FR 50443 through 
50444); FY 2012 IPPS/LTCH PPS final rule (76 FR 51769 through 51773); 
and FY 2013 IPPS/LTCH PPS final rule (77 FR 53479 through 53481).
    The update to the LTCH PPS standard Federal rate for FY 2014 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 2014 are discussed below, including the reduction 
to the annual update for LTCHs that fail to submit quality reporting 
data for fiscal year FY 2014 as required by the statute (as discussed 
below in section VIII.C.2.c. of this preamble). Furthermore, as 
discussed below in section VIII.C.3. of this preamble, for FY 2014, in 
addition to the update factor, under the second year of the 3-year 
phase-in under the current regulations at Sec.  412.523(d)(3), as we

[[Page 50761]]

proposed, we made a one-time prospective adjustment to the standard 
Federal rate for FY 2014 so that the effect of any significant 
difference between the data used in the original computations of budget 
neutrality for FY 2003 and more recent data to determine budget 
neutrality for FY 2003 is not perpetuated in the prospective payment 
rates for future years . In addition, as discussed in section V.A. of 
the Addendum of this final rule, as we proposed, we made an adjustment 
to the standard Federal rate to account for the estimated effect of the 
changes to the area wage level adjustment for FY 2014 on estimated 
aggregate LTCH PPS payments, in accordance with Sec.  412.523(d)(4). 
(We refer readers to the discussion of the reduction to the annual 
update for LTCHs that fail to submit quality reporting data in section 
VIII.C.2.c. of this preamble, the application of the one-time 
prospective adjustment under the second year of the 3-year phase-in in 
section VIII.C.3. of this preamble, and the budget neutrality 
adjustment for changes in the area wage levels in section V.A. of the 
Addendum of this final rule.)
2. FY 2014 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. As discussed 
in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53468 through 53476), we 
adopted the newly created FY 2009-based LTCH-specific market basket for 
use under the LTCH PPS beginning in FY 2013. For additional details on 
the historical development of the market basket used under the LTCH 
PPS, we refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53467 through 53468) and this preamble.
    Section 3401(c) of the Affordable Care Act provides for certain 
adjustments to any annual update to the standard Federal rate and 
refers to the timeframes associated with such adjustments as a ``rate 
year'' (which are discussed in more detail in section VIII.C.2.b. of 
this preamble.) We note that because the annual update to the LTCH PPS 
policies, rates, and factors now occurs on October 1, we 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 3004(a) 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 use 
``fiscal year'' rather than ``rate year'' for 2011 and subsequent 
years.
b. Revision of Certain Market Basket Updates as Required by the 
Affordable Care Act
    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'') 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.
    Section 1886(b)(3)(B)(xi)(II) of the Act defines the MFP adjustment 
as equal to the 10-year moving average of changes in annual economy-
wide, private nonfarm business multifactor productivity (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). Under our methodology, the end of the 10-year moving average 
of changes in the MFP coincides with the end of the appropriate FY 
update period. In addition, 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 they are both based on a fiscal year. 
The MFP adjustment is derived using a projection of MFP that is 
currently produced by IHS Global Insight, Inc. (For additional details 
on the development of the MFP adjustment and its application under the 
LTCH PPS, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51691 through 51692 and 51770 through 51771).)
    For FY 2014, as we proposed, we are continuing to use our 
methodology for calculating and applying the MFP adjustment to 
determine the annual update to the LTCH PPS standard Federal rate for 
FY 2014. (For details on the development of the MFP adjustment, 
including our finalized methodology for calculating and applying the 
MFP adjustment, we refer readers to the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51689 through 51692).)
c. Adjustment to the Annual Update to the LTCH PPS Standard Federal 
Rate under the Long-Term Care Hospital Quality Reporting (LTCHQR) 
Program
1. Background
    In accordance with section 1886(m)(5) of the Act, as added by 
section 3004(a) of the Affordable Care Act, the Secretary established 
the Long-Term Care Hospital Quality Reporting (LTCHQR) Program. (As 
noted above, although the language of section 3004(a) of the Affordable 
Care Act refers to years 2011 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 use ``fiscal year'' 
rather than ``rate year'' for 2011 and subsequent years.) Under the 
LTCHQR Program, as required by section 1886(m)(5)(A)(i) of the Act, for 
FY 2014 and each subsequent year, in the case of an LTCH that does not 
submit quality reporting data to the Secretary in accordance with 
section 1886(m)(5)(C) of the Act with respect to such a year, any 
annual update to a standard Federal rate for discharges for the 
hospital during the year, and after application of section 1886(m)(3) 
of the Act, shall be reduced by 2.0 percentage points. Section 
1886(m)(5)(A)(ii) of the Act provides that the application of the 2.0 
percentage points reduction may result in an annual update that is less 
than 0.0 for a year, and may result in LTCH PPS payment rates for a 
year being less than such LTCH PPS payment rates for the preceding 
year. Furthermore, section 1886(m)(5)(B) of the Act specifies that the 
2.0 percentage points reduction is applied in a

[[Page 50762]]

noncumulative manner, such that any reduction made under section 
1886(m)(5)(A) of the Act shall apply only with respect to the year 
involved, and shall not be taken into account in computing the LTCH PPS 
payment amount for a subsequent year.
    Section 1886(m)(5)(D)(iii) of the Act requires the Secretary to 
publish the selected measures for the LTCHQR Program that will be 
applicable with respect to the FY 2014 payment determination no later 
than October 1, 2012. Under section 1886(m)(5)(D)(i) of the Act, the 
quality measures for the LTCHQR Program are measures selected by the 
Secretary that have been endorsed by an entity that holds a contract 
with the Secretary under section 1890(a) of the Act, unless section 
1886(m)(5)(D)(ii) of the Act applies. This contract is currently held 
by the National Quality Forum (NQF). Section 1886(m)(5)(D)(ii) of the 
Act provides that an exception may be made 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 
that holds a contract with the Secretary under section 1890(a) of the 
Act. In such a case, section 1886(m)(5)(D)(ii) of the Act authorizes 
the Secretary to specify a measure(s) 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. The 
LTCHQR Program was implemented in section VII.C. of the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51743 through 51756). In that same final 
rule, as discussed in section IX.C. of the preamble of this final rule, 
we adopted the following three quality measures for the FY 2014 payment 
determination: Urinary Catheter-Associated Urinary Tract Infection 
(CAUTI) rate per 1, 000 urinary catheter days, for Intensive Care Unit 
Patients (NQF 013); Central Line Catheter-Associated Blood 
Stream Infection (CLABSI) Rate for ICU and High-Risk Nursery Patients 
(NQF 0139); and Percent of Residents with Pressure Ulcers That 
are New or Worsened (Application of NQF 0678). For additional 
discussion and details of the history of the LTCHQR Program, including 
the statutory authority and further details on the three measures 
previously finalized for the FY 2014 payment determination, we refer 
readers to section IX.C. of the preamble of this final rule and to the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51743 through 51756).
2. Reduction to the Annual Update to the LTCH PPS Standard Federal Rate 
Under the LTCHQR Program
    Consistent with section 1886(m)(5)(A)(i) of the Act, for FY 2014 
and subsequent fiscal years, we proposed that for LTCHs that do not 
submit quality reporting data under the LTCHQR Program with respect to 
such a fiscal year, any annual update to a standard Federal rate for 
discharges for the LTCH during the fiscal year and after application of 
the market basket update adjustments required by section 1886(m)(3) of 
the Act, would be further reduced by 2.0 percentage points. That is, in 
establishing an update to the LTCH PPS standard Federal rate for FY 
2014 and subsequent fiscal years, the full LTCH PPS market basket 
increase estimate, subject to an adjustment based on changes in 
economy-wide productivity (``the MFP adjustment'') required under 
section 1886(m)(3)(A)(i) of the Act and an additional reduction 
required by sections 1886(m)(3)(A)(ii) and 1886(m)(4) of the Act, would 
be further reduced by 2.0 percentage points for LTCHs that fail to 
submit quality reporting data under the LTCHQR Program.
    We did not receive any public comments on our proposed 
implementation of the requirements of section 1886(m)(5)(A)(i) of the 
Act, and are adopting that proposal as final, without modification. 
Accordingly, in this final rule, as we proposed, we are implementing 
the reduction in the annual update to the LTCH PPS standard Federal 
rate for failure to report quality data under the LTCHQR Program for FY 
2014 and subsequent fiscal years under Sec.  412.523(c)(4). 
Specifically, consistent with section 1886(m)(5)(A)(i) of the Act, 
under Sec.  412.523(c)(4)(i), as we proposed, for an LTCH that does not 
submit quality reporting data in the form and manner and at the time 
specified by the Secretary under the LTCHQR Program, the annual update 
to the standard Federal rate under Sec.  412.523(c)(3) is further 
reduced by 2.0 percentage points. (Note, as discussed previously in 
this section, the annual update to the standard Federal rate 
implemented under Sec.  412.523(c)(3) reflects the application of the 
adjustments to any annual update as required by sections 1886(m)(3) and 
(m)(4) of the Act.) In addition, as we proposed, consistent with 
section 1886(m)(5)(A)(ii) of the Act, we are specifying under Sec.  
412.523(c)(4)(ii), that any reduction of the annual update to the 
standard Federal rate under Sec.  412.523(c)(4)(i) will apply only to 
the fiscal year involved and would not be taken into account in 
computing the annual update to the standard Federal rate for a 
subsequent fiscal year. Lastly, consistent with section 1886(m)(5)(B) 
of the Act, under Sec.  412.523(c)(4)(iii), as we proposed, the 
application of any reduction of the annual update to the standard 
Federal rate under Sec.  412.523(c)(4)(i) may result in an annual 
update that is less than 0.0 percent for a fiscal year, and may result 
in payment rates for a fiscal year that would be less than such payment 
rates for the preceding rate year.
    We also discuss this application of the 2.0 percentage point 
reduction under Sec.  412.523(c)(4)(i) in our discussion of the annual 
market basket update to the LTCH PPS standard Federal rate for FY 2014 
below in section VIII.C.2.e. of this preamble.
d. Market Basket under the LTCH PPS for FY 2014
    Under the authority of section 123 of the BBRA as amended by 
section 307(b) of the BIPA, in the FY 2013 IPPS/LTCH PPS final rule (77 
FR 53468), we adopted a newly created FY 2009-based LTCH-specific 
market basket for use under the LTCH PPS beginning in FY 2013. The FY 
2009-based LTCH-specific market basket is based solely on the Medicare 
cost report data submitted by LTCHs and, therefore, specifically 
reflects the cost structures of only LTCHs. For additional details on 
the development of the FY 2009-based LTCH-specific market basket, we 
refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53467 
through 53476).
    For FY 2014, as we proposed, we are continuing to use the FY 2009-
based LTCH-specific market basket to update the LTCH PPS for FY 2014. 
We continue to believe that the FY 2009-based LTCH-specific market 
basket appropriately reflects the cost structure of LTCHs for the 
reasons discussed when we adopted the FY 2009-based LTCH-specific 
market basket for use under the LTCH PPS in the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53467 through 53476).
e. Annual Market Basket Update for LTCHs for FY 2014
    Consistent with our historical practice, we proposed to estimate 
the market basket update and the MFP adjustment based on IGI's forecast 
using the most recent available data. Based on IGI's second quarter 
2013 forecast, the FY 2014 full market basket estimate for the LTCH PPS 
using the FY 2009-based LTCH-specific market basket is 2.5 percent. 
Using our established methodology for determining the MFP adjustment, 
the current estimate of the MFP adjustment for FY 2014 based on

[[Page 50763]]

IGI's second quarter 2013 forecast is 0.5 percent, as discussed in 
section V.A.1. of this preamble.
    For FY 2014, section 1886(m)(3)(A)(i) of the Act requires that any 
annual update to the standard Federal rate be reduced by the 
productivity adjustment (``the MFP adjustment'') described in section 
1886(b)(3)(B)(xi)(II) of the Act. Consistent with the statute, as we 
proposed, we reduced the full FY 2014 market basket update by the FY 
2014 MFP adjustment. To determine the market basket update for LTCHs 
for FY 2014, as reduced by the MFP adjustment, consistent with our 
established methodology, as we proposed, we subtracted the FY 2014 MFP 
adjustment from the FY 2014 market basket update. Furthermore, sections 
1886(m)(3)(A)(ii) and 1886(m)(4)(D) of the Act requires that any annual 
update to the standard Federal rate for FY 2014 be reduced by the 
``other adjustment'' described in paragraph (4), which is 0.3 
percentage point for FY 2014. Therefore, following application of the 
productivity adjustment, as we proposed, we reduced the adjusted market 
basket update (that is, the full market basket increase less the MFP 
adjustment) by the ``other adjustment'' specified by sections 
1886(m)(3)(A)(ii) and 1886(m)(4) of the Act. (For additional details on 
our established methodology for adjusting the market basket increase by 
the MFP and the ``other adjustment'' required by the statute, we refer 
readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51771).)
    As discussed previously in section VIII.C.2.c. of this preamble, 
for FY 2014, section 1886(m)(5) of the Act requires that for LTCHs that 
do not submit quality reporting data under the LTCHQR Program, any 
annual update to a standard Federal rate, after application of the 
adjustments required by section 1886(m)(3) of the Act, is further 
reduced by 2.0 percentage points. Therefore, the update to the LTCH PPS 
standard Federal rate for FY 2014 for LTCHs that fail to submit quality 
reporting data under the LTCHQR Program, the full LTCH PPS market 
basket increase estimate, subject to an adjustment based on changes in 
economy-wide productivity (``the MFP adjustment'') as required under 
section 1886(m)(3)(A)(i) of the Act and an additional reduction 
required by sections 1886(m)(3)(A)(ii) and 1886(m)(4) of the Act, is 
also further reduced by 2.0 percentage points.
    In this final rule, in accordance with the statute, we reduced the 
FY 2014 full market basket estimate of 2.5 percent (based on IGI's 
second quarter 2013 forecast of the FY 2009-based LTCH-specific market 
basket) by the FY 2014 MFP adjustment (that is, the 10-year moving 
average of MFP for the period ending FY 2014, as described in section 
V.A.1. of the preamble of this final rule) of 0.5 percentage point 
(based on IGI's second quarter 2013 forecast). Following application of 
the productivity adjustment, the adjusted market basket update of 2.0 
percent (2.5 percent minus 0.5 percentage point) is then reduced by 0.3 
percentage point, as required by sections 1886(m)(3)(A)(ii) and 
1886(m)(4)(D) of the Act. Therefore, in this final rule, under the 
authority of section 123 of the BBRA as amended by section 307(b) of 
the BIPA, consistent with our proposal, we are establishing an annual 
market basket update under the LTCH PPS for FY 2014 of 1.7 percent 
(that is, the most recent estimate of the LTCH PPS market basket update 
at this time of 2.5 percent, less the MFP adjustment of 0.5 percentage 
point, and less the 0.3 percentage point required under section 
1886(m)(4)(D) of the Act), provided the LTCH submits quality reporting 
data in accordance with section 1886(m)(5) of the Act (as discussed 
above in section VIII.C.2.c. of this preamble). Accordingly, consistent 
with our proposal, we are revising Sec.  412.523(c)(3) by adding a new 
paragraph (x), which specifies that the standard Federal rate for FY 
2014 is the standard Federal rate for the previous LTCH PPS year 
updated by 1.7 percent, and as further adjusted, as appropriate, as 
described in Sec.  412.523(d). For LTCHs that fail to submit quality 
reporting data under the LTCHQR Program, under Sec.  412.523(c)(3)(x) 
in conjunction with Sec.  412.523(c)(4), as we proposed, we further 
reduce the annual update to the LTCH PPS standard Federal rate by 2.0 
percentage points in accordance with section 1886(m)(5) of the Act (as 
discussed previously in section VIII.C.2.c. of this preamble). 
Accordingly, consistent with our proposal, we are establishing an 
annual update to the LTCH PPS standard Federal rate of -0.3 percent 
(that is, 1.7 percent minus 2.0 percentage points) for FY 2014 for 
LTCHs that fail to submit quality reporting data under the LTCHQR 
Program. (We note that, as we proposed, we are also adjusting the FY 
2014 standard Federal rate by the application of the one-time 
prospective adjustment under the second year of the 3-year phase-in 
under Sec.  412.523(d)(3) (discussed below in section VIII.C.3. of this 
preamble) and by an area wage level budget neutrality factor in 
accordance with Sec.  412.523(d)(4) (as discussed in section V.B.5. of 
the Addendum of this final rule).)
3. Adjustment for the Second Year of the Phase-In of the One-Time 
Prospective Adjustment to the Standard Federal Rate under Sec.  
412.523(d)(3)
    We set forth regulations implementing the LTCH PPS, based upon the 
broad authority granted to the Secretary, under section 123 of the BBRA 
(as amended by section 307(b) of the BIPA). Section 123(a)(1) of the 
BBRA required that the system ``maintain budget neutrality'' in the 
August 30, 2002 LTCH PPS final rule (67 FR 55954). The statutory budget 
neutrality requirement means that estimated aggregate payments under 
the LTCH PPS for FY 2003 would be equal to the estimated aggregate 
payments that would have been made if the LTCH PPS were not implemented 
for FY 2003. The methodology for determining the LTCH PPS standard 
Federal rate for FY 2003 that would ``maintain budget neutrality'' is 
described in considerable detail in the August 30, 2002 final rule (67 
FR 56027 through 56037). Our methodology for estimating payments for 
the purposes of budget neutrality calculations used the best available 
data, and necessarily reflected several assumptions (for example, 
costs, inflation factors, and intensity of services provided) in 
estimating aggregate payments that would have been made if the LTCH PPS 
had not been implemented (without accounting for certain statutory 
provisions that affect the level of payments to LTCHs in years prior to 
the implementation of the LTCH PPS, as required by the statute).
    In the August 30, 2002 final rule, we also stated our intentions to 
monitor LTCH PPS payment data to evaluate whether later data varied 
significantly from the data available at the time of the original 
budget neutrality calculations (for example, data related to inflation 
factors, intensity of services provided, or behavioral response to the 
implementation of the LTCH PPS). To the extent the later data 
significantly differed from the data employed in the original 
calculations, the aggregate amount of payments during FY 2003 based on 
later data may be higher or lower than the estimates upon which the 
budget neutrality calculations were based. Therefore, in that same 
final rule, under the broad authority conferred upon the Secretary in 
developing the LTCH PPS, including the authority for establishing 
appropriate adjustments, under section 123(a)(1) of the BBRA, as 
amended by section 307(b) of the BIPA, we provided in Sec.  
412.523(d)(3) of the regulations for the possibility of making a one-
time prospective adjustment to the LTCH PPS rates, so that the effect 
of any significant difference between

[[Page 50764]]

actual payments and estimated payments for the first year of the LTCH 
PPS would not be perpetuated in the LTCH PPS rates for future years. We 
refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53487 
through 53488) for a complete discussion of the history of the 
development of the one-time prospective adjustment to the LTCH PPS 
standard Federal rate at Sec.  412.523(d)(3).
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53495), we finalized 
our policy to make a one-time prospective adjustment to the standard 
Federal rate so that it will be permanently reduced by approximately 
3.75 percent to account for the estimated difference between projected 
aggregate FY 2003 LTCH PPS payments and the projected aggregate 
payments that would have been made in FY 2003 under the TEFRA payment 
system if the LTCH PPS had not been implemented. Specifically, using 
the methodology we adopted in that same final rule, we determined that 
permanently applying a factor of 0.9625 (that is, a permanent reduction 
of approximately 3.75 percent) to the standard Federal rate is 
necessary to ensure estimated total FY 2003 LTCH PPS payments equal 
estimated total FY 2003 TEFRA payments consistent with our stated 
policy goal of the one-time prospective adjustment under Sec.  
412.523(d)(3) (that is, to ensure that the difference between estimated 
total FY 2003 LTCH PPS payments and estimated total FY 2003 TEFRA 
payments is not perpetuated in the LTCH PPS payment rates in future 
years). (We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 
FR 53487 through 53502) for a complete discussion of the evaluation 
approach, methodology, and determination of the one-time prospective 
adjustment to the LTCH PPS standard Federal rate at Sec.  
412.523(d)(3).)
    Given the magnitude of this adjustment, in the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53501 through 53502), under Sec.  412.523(d)(3), 
we established a policy to phase-in the permanent adjustment of 0.9625 
to the standard Federal rate over a 3-year period. To achieve a 
permanent adjustment of 0.9625, under the phase-in of this adjustment, 
in that same final rule, we explained that we will apply a factor of 
0.98734 to the standard Federal rate in each year of the 3-year phase-
in, that is, in FY 2013 (which does not apply to payments for 
discharges occurring on or after October 1, 2012, and on or before 
December 28, 2012, consistent with current law), FY 2014, and FY 2015. 
By applying a permanent factor of 0.98734 to the standard Federal rate 
in each year for FYs 2013, 2014, and 2015, we will completely account 
for the entire adjustment by having applied a cumulative factor of 
0.9625 (calculated as 0.98734 x 0.98734 x 0.98734 = 0.9625) to the 
standard Federal rate. Accordingly, in the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27668), in accordance with the existing 
regulations at Sec.  412.523(d)(3), we proposed to apply a permanent 
factor of 0.98734 for FY 2014 to the standard Federal rate under the 
second year of the 3-year phase-in of the one-time prospective 
adjustment.
    Comment: Several commenters reiterated the objections raised in 
response to the one-time prospective adjustment under Sec.  
412.523(d)(3) proposal presented in the FY 2013 IPPS/LTCH PPS proposed 
rule, and continued to assert that the adjustment is ``unnecessary'' or 
``overstated.'' Specifically, some of these commenters asserted that 
the adjustment is ``unnecessary'' because they believed that the policy 
objective behind the one-time prospective adjustment has already been 
accomplished by other adjustments and payment policy changes under the 
LTCH PPS since its implementation in FY 2003. The commenters who 
believe that the adjustment is ``overstated'' maintained that CMS has 
not accounted for the change in the percentage of cases paid under the 
Federal (base) rate since FY 2003 when determining the adjustment 
necessary to ensure that the difference between estimated total FY 2003 
LTCH PPS payments and estimated total FY 2003 TEFRA payments is not 
perpetuated in the LTCH PPS payment rates in future years. These 
commenters did not raise objections to CMS' finding that estimated FY 
2003 LTCH PPS payments are 2.5 percent higher than estimated total FY 
2003 TEFRA payments, but, based on their analysis, these commenters 
believed that only a 2.75 percent reduction to the current standard 
Federal rate (rather than the approximate 3.75 percent reduction 
determined by CMS) is necessary to reduce total current LTCH PPS 
spending by 2.5 percent because there are now more cases paid under the 
standard Federal rate today than there were in FY 2003 (approximately 
70 percent of cases in FY 2012 compared to approximately 50 percent of 
cases in FY 2003). Therefore, these commenters suggested that CMS 
eliminate the one-time prospective adjustment, or correct the amount of 
the adjustment for the remaining 2 years of the existing 3-year phase-
in (FYs 2014 and 2015). Other commenters supported our proposed 
continuation of the 3-year phase-in of the one-time prospective 
adjustment, if after further analysis we determine that the adjustment 
is necessary.
    Response: We continue to disagree with the commenters that the one-
time prospective adjustment under Sec.  412.523(d)(3) of approximately 
3.75 percent established in the FY 2013 IPPS/LTCH PPS proposed and 
final rules is ``unnecessary'' or ``overstated.'' As we explained in 
our responses to similar comments in the FY 2013 IPPS/LTCH PPS final 
rule (78 FR 53493 through 53494), the other payment policy changes and 
adjustments made since the implementation of the LTCH PPS were not made 
to address any budget neutrality requirement related to the initial 
implementation of the LTCH PPS, and do not serve as a substitute for 
the one-time prospective adjustment under Sec.  412.523(d)(3). The 
policy changes and adjustments that have been made to the LTCH PPS 
since its inception are part and parcel of fine-tuning a new 
prospective payment system, and were made to address explicitly stated 
policy goals, none of which were duplicative of the stated purpose and 
end-result of the one-time prospective adjustment. The purpose of the 
one-time prospective adjustment under Sec.  412.523(d)(3) is to ensure 
that any significant difference between estimated total FY 2003 LTCH 
PPS payments and estimated total FY 2003 TEFRA payments is not 
perpetuated in the LTCH PPS payment rates (that is, the standard 
Federal rate) in future years. Our policy has always been that the one-
time prospective adjustment be applied to the standard Federal rate. 
Our policy objective in providing for this one-time prospective 
adjustment has always been to ensure that computations based on the 
earlier, necessarily limited (but at the time best available) data at 
the inception of the LTCH PPS would not be built permanently into the 
payment rates if data available at a later date could provide more 
accurate results. The intended goal of the one-time prospective 
adjustment is to establish the LTCH PPS standard Federal rate in a 
manner that results in bringing the LTCH PPS standard Federal rate to 
the level it would have been had the estimated total FY 2003 LTCH PPS 
payments been 2.5 percent lower. Our goal is not to reduce current 
total LTCH PPS spending by 2.5 percent, as mistakenly believed by some 
commenters. We continue to believe that the one-time prospective 
adjustment is based on the difference between what would have otherwise

[[Page 50765]]

been paid under the TEFRA payment system and payments made under the 
LTCH PPS as it was implemented in FY 2003, consistent with our policy 
goal of the one-time prospective adjustment. For these reasons, we 
continue to disagree with the commenters' assertions that the payment 
impact of policy changes and adjustments that have been made since the 
implementation of the LTCH PPS should be accounted for when evaluating 
the necessity of the one-time prospective adjustment under Sec.  
412.523(d)(3).
    We also disagree with the commenters that the one-time prospective 
adjustment of approximately 3.75 percent is overstated because our 
methodology does not account for the fact that there are now more cases 
paid under the standard Federal rate (and relatively fewer cases paid 
as short-stay outliers (SSOs)) than there were paid under the standard 
Federal rate in FY 2003 (where there were relatively more cases paid as 
SSOs). Although the relative level of cases paid under the standard 
Federal rate (and cases paid as SSOs) has changed since the inception 
of the LTCH PPS, the policy objective of the one-time prospective 
adjustment has always been to ensure that the LTCH PPS standard Federal 
rate originally determined for FY 2003 does not perpetuate any 
significant difference between the data used in the original 
computation of budget neutrality for FY 2003 and more recent data to 
determine budget neutrality for FY 2003. Consistent with this policy 
objective, our methodology for determining a one-time prospective 
adjustment compares estimated payments that would have been made in FY 
2003 under the TEFRA payment system to estimated payments under the 
LTCH PPS in FY 2003. Therefore, the data and methodology that we used 
for this purpose is limited to the types of Medicare cases projected to 
have been treated in LTCHs in 2003, and the current levels of cases 
paid under the standard Federal rate (or paid under the SSO policy) are 
not germane to the computations of budget neutrality for FY 2003 under 
the one-time prospective adjustment under Sec.  412.523(d)(3).
    The intended goal of the one-time prospective adjustment, to ensure 
that any significant difference between estimated total FY 2003 LTCH 
PPS payments and estimated total FY 2003 TEFRA payments is not 
perpetuated in the LTCH PPS payment rates (that is, the standard 
Federal rate) in future years, is not to reduce current total LTCH PPS 
spending by 2.5 percent, as mistakenly stated by some commenters. 
Rather, the intended goal of the one-time prospective adjustment is to 
adjust the LTCH PPS standard Federal rate in a manner that results in 
bringing the standard Federal rate to the level it should be had the FY 
2003 standard Federal rate resulted in estimated aggregate LTCH PPS 
payments that were equal to the level they would have been if the LTCH 
PPS had not been implemented (that is, FY 2003 payments under the TEFRA 
system), based on actual FY 2003 data. The current mix of cases paid 
under the standard Federal rate has no relationship to estimated FY 
2003 LTCH PPS payments, which were used to evaluate and calculate the 
one-time prospective adjustment under Sec.  412.523(d)(3). Our 
methodology for determining the one-time prospective adjustment of 
approximately 3.75 percent is consistent with our stated goal because 
it makes an adjustment to the current standard Federal rate to bring it 
to the level that the FY 2003 standard Federal (base) rate would have 
been if we had determined that rate based on the best data currently 
available to estimate FY 2003 payments to LTCHs. Therefore, we continue 
to believe that the one-time prospective adjustment should be based on 
any difference in payment in FY 2003 between what would have otherwise 
been paid under the TEFRA payment system and payments made under the 
LTCH PPS as it was implemented in FY 2003, only. For these reasons, we 
disagree with the commenters' assertions that the one-time prospective 
adjustment of approximately 3.75 percent is overstated, and we are not 
adopting the commenters' suggestion to reduce the adjustment by making 
an adjustment to our methodology for calculating the one-time 
prospective adjustment to account for the change in the levels of cases 
paid under the standard Federal rate.
    Finally, we appreciate the commenters' support for our proposal to 
continue the established 3-year phase-in of the one-time prospective 
adjustment. Therefore, after consideration of public comments, we are 
finalizing our proposal to apply a permanent factor of 0.98734 for FY 
2014 to the standard Federal rate under the second year of the 3-year 
phase-in of the one-time prospective adjustment, without modification.
4. Summary of Other Public Comments on the Proposed LTCH PPS Payment 
Rates for FY 2014
    We received a number of public comments that were not within the 
scope of this regulation, but we appreciate the commenters for sharing 
their concerns. We also received public comments on several other 
issues related to the proposed LTCH PPS payment rates for FY 2014, but 
not specifically addressed by the proposals and related discussion 
presented in the FY 2014 IPPS/LTCH PPS proposed rule.
    Comment: One commenter questioned how the changes to the Medicare 
disproportionate share hospital (DSH) payment methodology for inpatient 
operating costs under the IPPS beginning in FY 2014, provided for by 
section 3133 of the Affordable Care Act, would affect payments under 
the LTCH PPS. Specifically, the commenter questioned how those changes 
to the IPPS DSH payment methodology would affect the LTCH PPS payment 
adjustments that are based on ``IPPS rates'' for some patients (that 
is, the ``IPPS-comparable amount'' under the SSO policy at Sec.  
412.529(d)(4) and the ``IPPS-equivalent amount'' under the 25-percent 
threshold payment adjustment policy at Sec.  412.534(f) and Sec.  
412.536(e)). Under the provisions of section 3133 of the Affordable 
Care Act, starting in FY 2014, IPPS hospitals that qualify for Medicare 
DSH payments will receive an empirically justified Medicare DSH payment 
equal to 25 percent of the payment amount they previously would have 
received under the existing methodology under section 1886(d)(5)(F). 
The remaining amount, equal to 75 percent of the amount that would 
otherwise have been paid in Medicare DSH payments, will be adjusted to 
reflect changes in the percentage of individuals that are uninsured. 
Hospitals that receive empirically justified Medicare DSH payments will 
then receive an additional payment (referred to as an uncompensated 
care payment) that reflects the hospital's amount of uncompensated care 
relative to the total uncompensated care amount for all eligible 
hospitals. (For additional information on the changes to the Medicare 
DSH payment adjustment methodology as provided by Section 3133 of the 
Affordable Care Act, we refer readers to section V.E.3. of this 
preamble.) The commenter asserted that, although the new uncompensated 
care payment is only applicable to subsection (d) hospitals that are 
paid under the IPPS, LTCH PPS payments that are based on ``IPPS rates'' 
would be incomplete without the inclusion of an uncompensated care 
payment derived on the same basis as is the case for IPPS hospitals. 
The commenter also pointed out that the current ``IPPS-comparable 
amount'' and ``IPPS-equivalent amount'' under the LTCH PPS include

[[Page 50766]]

adjustments for LTCHs treating low-income patients.
    Response: We appreciate the commenter bringing this issue to our 
attention. In the FY 2014 IPPS/LTCH PPS proposed rule, we inadvertently 
neglected to specifically indicate how the changes to the Medicare IPPS 
DSH payment adjustment methodology beginning in FY 2014 provided for by 
section 3133 of the Affordable Care Act, including the new 
uncompensated care payment, would be reflected in the ``IPPS-comparable 
amount'' under the SSO policy at Sec.  412.529(d)(4) and the ``IPPS-
equivalent amount'' under the 25-percent threshold payment adjustment 
policy at Sec.  412.534(f) and Sec.  412.536(e). The determination of 
both the ``IPPS-comparable amount'' and the ``IPPS-equivalent amount'' 
under the current regulations specifically includes amounts for 
inpatient operating costs ``for the costs of serving a disproportionate 
share of low-income patients.'' (We refer readers to Sec.  
412.529(d)(4)(ii)(C), Sec.  412.534(f)(2)(iii), and Sec.  
412.536(e)(2)(iii) of the regulations.) When we adopted the ``IPPS-
comparable amount'' under the SSO policy in the RY 2007 LTCH PPS final 
rule (71 FR 27848), we explained that this payment under the LTCH PPS 
is generally comparable to a payment under the IPPS payment 
methodology, and would be calculated based on the sum of the applicable 
operating and capital IPPS rates in effect at the time of the discharge 
from the LTCH, as established in the applicable IPPS final rule 
published in the Federal Register. We also explained that there are 
specific features of the IPPS that do not directly translate into the 
LTCH PPS, and that ``IPPS-comparable amount'' payments would be 
calculated by applying IPPS principles to achieve a close approximation 
of payments that would be made under the IPPS, recognizing the fact 
that not all components of the IPPS can be carried out precisely in the 
LTCH PPS context. Similarly, in that same final rule (71 FR 28879), we 
clarified the meaning of the ``IPPS-comparable amount'' under the 25 
percent threshold payment adjustment policy, and stated that it is our 
intention under the ``IPPS-equivalent amount'' to utilize and build 
upon IPPS payment principles to develop a payment adjustment under the 
LTCH PPS that approximates for LTCHs the payment for a particular case 
that would have been made under the IPPS. Therefore, we agree with the 
commenter that it is appropriate that the statutory changes to the 
Medicare IPPS DSH payment adjustment methodology provided by section 
3133 of the Affordable Care Act, including the new uncompensated care 
payment that will begin in FY 2014, should be reflected in the 
calculation of the ``IPPS-comparable amount'' and the ``IPPS-equivalent 
amount'' under the LTCH PPS.
    As described above, under the statutory changes to the Medicare DSH 
payment adjustment methodology as implemented in the regulations at 
Sec.  412.106(f), (g), and (h), in general, eligible IPPS hospitals 
will receive an empirically justified Medicare DSH payment equal to 25 
percent of the amount they otherwise would have received under the 
current statutory formula for Medicare DSH payments. The remaining 
amount, equal to an estimate of 75 percent of the amount that otherwise 
would have been paid as Medicare DSH payments, reduced to reflect 
changes in the percentage of individuals under the age of 65 who are 
uninsured, will become available to make additional payments to each 
hospital that qualifies for Medicare DSH payments and that has 
uncompensated care. The additional uncompensated care payments will be 
based on the hospital's amount of uncompensated care for a given time 
period relative to the total amount of uncompensated care for that same 
time period reported by all hospitals that receive Medicare DSH 
payments. Under these changes, aggregate Medicare IPPS operating DSH 
payments are projected to be reduced to 95.7 percent of the amount that 
would otherwise have been paid under the current statutory Medicare DSH 
payment formula. As discussed in greater detail in section V.E.3.d.(2) 
of this preamble, we are specifying that under the methodology outlined 
in section 1886(r)(2) of the Act, our estimate of 75 percent of the 
amount that would otherwise have been paid as Medicare DSH payments 
will be adjusted to 94.3 percent of that amount to reflect the change 
in the percentage of individuals that are uninsured. The resulting 
amount is then used to determine the amount of additional uncompensated 
care payments that will be made to eligible IPPS hospitals. In other 
words, Medicare DSH payments prior to the application of section 3133 
of the Act are adjusted to 70.7 percent (the product of 75 percent and 
94.3 percent) and the resulting amount is used to calculate the 
additional uncompensated care payments to eligible hospitals. As a 
result, for FY 2014, we project that the reduction in the amount of 
Medicare DSH payments pursuant to section 1886(r)(1) of the Act, along 
with the new additional payments for uncompensated care under section 
1886(r)(2) of the Act, will result in overall Medicare DSH payments of 
95.7 percent of the amount of Medicare DSH payments that would 
otherwise have been made in the absence of section 3133 of the Act 
(that is, 25 percent + 70.7 percent = 95.7 percent).
    The current calculation of the ``IPPS-comparable amount'' and the 
``IPPS-equivalent amount'' under the LTCH PPS includes an applicable 
IPPS operating DSH payment amount that is based on the current 
statutory Medicare DSH payment formula under section 1886(d)(5)(F) of 
the Act, as implemented at Sec. Sec.  412.106(a) through (e). 
Therefore, we agree with the commenter that it is appropriate to 
reflect the statutory changes to the Medicare DSH payment adjustment 
methodology that will begin in FY 2014 in the calculation of the 
``IPPS-comparable amount'' and the ``IPPS-equivalent amount'' under the 
LTCH PPS because section 3133 of the Affordable Care Act revised 
section 1886(d)(5)(F) of the Act to make payments under that section 
``[s]ubject to subsection (r), and the ``IPPS-comparable'' and the 
``IPPS-equivalent'' amounts in the current LTCH PPS payment methodology 
specifically incorporate the DSH payments under section 1886(d)(5)(F) 
of the Act. To reflect the statutory changes to the Medicare DSH 
payment adjustment methodology in the calculation of the ``IPPS-
comparable amount'' and the ``IPPS-equivalent amount'' under the LTCH 
PPS for FY 2014 and subsequent years, we will include a reduced 
Medicare DSH payment amount that reflects the projected percentage of 
the payment amount calculated based on the current statutory Medicare 
DSH payment formula that will be paid to eligible hospitals as 
empirically justified Medicare DSH payments and uncompensated care 
payments in FY 2014 and subsequent years (that is, a percentage of the 
current operating DSH payment amount that is reflected in the LTCH PPS 
payments that are based on IPPS rates). The projected percentage would 
be updated annually consistent with the annual determination of the 
amount of uncompensated care payments that will be made to eligible 
hospitals under the IPPS.
    We believe that this approach will result in appropriate payments 
under the LTCH PPS and is consistent with our intention that the 
``IPPS-comparable amount'' and the ``IPPS-equivalent amount'' under the 
LTCH PPS closely resembles what an IPPS payment would have been for the 
same episode of care, while recognizing that some features of the IPPS 
cannot be translated directly into the LTCH PPS (71 FR 28879). We

[[Page 50767]]

believe this approach is consistent with the way we have interpreted 
``IPPS-comparable amount'' and ``IPPS-equivalent amount'' because it 
represents a reasonable approximation of the overall change in payments 
to IPPS hospitals that is projected to result from the statutory 
changes to the Medicare DSH payment adjustment methodology while 
recognizing that not all components of the IPPS can be carried out 
precisely in the LTCH PPS context and without imposing the 
administrative burden to approximate the new uncompensated care payment 
amount under the provisions of section 1886(r)(2) of the Act as 
implemented at Sec.  412.106(f) through (h) for each LTCH. As described 
in greater detail in section V.E.3.d.(3) of this preamble, an eligible 
IPPS hospital's uncompensated care payment is determined using a 
hospital-specific value that expresses the proportion of the estimated 
uncompensated care amount for each eligible IPPS hospital with the 
potential to receive empirically justified Medicare DSH payments 
relative to the estimated uncompensated care amount for all hospitals 
estimated to receive empirically justified Medicare DSH payments in the 
fiscal year for which the uncompensated care payment is to be made. 
Because the portion of the ``IPPS-comparable amount'' that is based on 
the operating Medicare DSH payment amount derived from the current 
statutory Medicare DSH payment formula is a very small percentage of 
total LTCH PPS payments annually (approximately 0.1 percent) and we 
have acknowledged in our initial implementation of the ``IPPS-
comparable amount'' and the ``IPPS-equivalent amount'' under the LTCH 
PPS that not all components of the IPPS can be carried out precisely in 
the LTCH PPS context, we do not believe that it is necessary to 
undertake the calculations necessary to more precisely replicate the 
statutory IPPS uncompensated care payment amount when a straightforward 
and administratively simpler approximation results in a payment amount 
that reflects the overall payment change IPPS hospitals are projected 
to experience under the statutory changes to the Medicare DSH payment 
adjustment methodology that will begin in FY 2014.
    Accordingly, for FY 2014, the calculation of the ``IPPS-comparable 
amount'' under Sec.  412.529(d)(4) and the ``IPPS-equivalent amount'' 
under Sec.  412.534(f) and Sec.  412.536(e) will include an applicable 
operating Medicare DSH payment amount that is equal to 95.7 percent of 
the operating Medicare DSH payment amount based the current statutory 
Medicare DSH payment formula (that is, the operating Medicare DSH 
payment amount currently included in those calculations).
    Comment: Two commenters suggested that CMS provide additional 
payment for end-stage renal disease (ESRD) patients under the LTCH PPS 
for the same circumstances that such payments are made under the IPPS, 
noting that section 1881(b) of the Act does not limit the adjustment to 
subsection (d) hospitals. The commenters cited our regulations at Sec.  
412.104 that provide for an ESRD add-on payment where the beneficiary 
received dialysis services during the inpatient stay (excepting 
specified MS-DRGs), constitute 10 percent or more of the IPPS 
hospital's total Medicare discharges. One of the commenters included a 
copy of the conclusions derived from its research, which indicate the 
significant frequency and high costs of dialysis patients that are 
being treated in a small number of LTCHs. This commenter also suggested 
that in the alternative to an ESRD add-on payment, CMS adjust the MS-
DRG system to provide a CC or MCC for patients on dialysis.
    Response: This comment is beyond the scope of the provisions of the 
proposed rule. However, we note that we have responded previously to 
the issue that these commenters raise in a detailed response included 
in the RY 2009 LTCH PPS final rule (73 FR 26826 through 26827), which 
is reiterated, in part, below. We are aware of the situation of the 
particular LTCH described by both commenters, which typically treats 
between 17 to 20 percent of patients that would qualify for an ESRD 
add-on payment under the IPPS regulations at Sec.  412.104(a). As we 
noted in the RY 2009 LTCH PPS final rule, we continue to believe that 
applying an ESRD add-on payment adjustment to LTCHs would be 
inappropriate. LTCH's typically treat very sick patients with a number 
of serious secondary illnesses (multi-comorbidities) that require 
hospital-level care for, on average, greater than 25 days for any one 
episode of care. We believe that given the patient population treated 
at LTCHs, a higher proportion of LTCH patients would require dialysis 
than would be treated at an acute care hospital and paid for under the 
IPPS. Although the LTCH PPS uses the same patient classification system 
as is used by the IPPS, the relative weights assigned to the MS-LTC-
DRGs under the LTCH PPS are based on LTCH cases, which reflect 
``differences in patient resource use and costs'' in LTCHs as mandated 
by the statute that provides for the establishment of the LTCH PPS. A 
patient classification system using relative weights, such as the DRG-
based system used by both the IPPS and the LTCH PPS, determines the 
amount that Medicare pays for particular types of cases based on the 
hospital resources used in treating such cases as compared to the 
resources utilized in treating other types of cases, and assigns all 
cases numerical values called ``relative weights.'' Data, such as 
charges, used to measure hospital resource use for each MS-LTC-DRG is 
captured on patient claims, which Medicare uses in the annual update of 
the relative weights.
    In light of the commenters' request and their analysis, we recently 
reviewed LTCH claims data from the FY 2012 MedPAR files to determine 
the prevalence of LTCH patients with ESRD as a secondary diagnosis as 
identified by the ICD-9-CM code 585.6 (excluding cases in MS-LTC-DRGs 
652 and 682 through 685, which are not included in the IPPS ESRD add-on 
payment). Our analysis indicated the following:
     56 percent of the LTCHs have at least 10 percent of their 
cases with ESRD as a secondary diagnosis, which represents 78.8 percent 
of all the cases with ESRD as a secondary diagnosis;
     The average percent of cases in a MS-LTC-DRG with ESRD as 
a secondary diagnosis is approximately 20 percent;
     Almost 40 percent of MS-LTC-DRGs have cases with ESRD as a 
secondary diagnosis, of which 71 percent of those MS-LTC-DRGs have more 
than 10 percent of the cases in that MS-LTC-DRG with ESRD as a 
secondary diagnosis; and
     59 MS-LTC-DRGs have more than 25 percent of the cases with 
ESRD as a secondary diagnosis.
    Based on these findings, we continue to believe that ESRD patients 
in LTCHs are adequately reflected in data used to determine the MS-LTC-
DRG relative weights for non-dialysis MS-LTC-DRGs. Therefore, we 
believe that payments based on the LTCH PPS will generally reflect the 
relative use of resources necessary to treat those MS-LTC-DRGs, except 
for cases with unusually high costs, which could qualify for high-cost 
outlier payments. Accordingly, we believe that the additional resources 
associated with renal dialysis treatments are include in the LTCH PPS 
payments, and we are not adopting the commenters' suggestion to provide 
for an additional payment for ESRD patients under the LTCH PPS.

[[Page 50768]]

D. Expiration of Certain Payment Rules for LTCH Services--The 25-
Percent Threshold Payment Adjustment

    Section 114(c) of the MMSEA, as amended by section 4302(a) of the 
ARRA and sections 3106(c) and 10312(a) of the Affordable Care Act 
provided for a 5-year moratorium on the full application of the 25-
percent threshold payment adjustment policy that expired for some LTCHs 
and LTCH satellites for cost reporting periods beginning on or after 
October 1, 2012 (``October'' LTCHs) and for other LTCHs and LTCH 
satellites for cost reporting periods beginning on or after July 1, 
2012 (``July'' LTCHs). In the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53483 through 53484) as amended by the FY 2013 IPPS/LTCH PPS correcting 
amendment (77 FR 63751 through 63753), we provided for extensions to 
the expiring statutory moratoria for both ``October'' and ``July'' 
LTCHs and LTCH satellites.
    Specifically, we established a 1-year extension (that is, for cost 
reporting periods beginning on or after October 1, 2012, and before 
October 1, 2013) on the full application of the 25-percent threshold 
payment adjustment policy for ``October'' LTCHs, and for those ``July'' 
LTCHs that would have been affected by the ``gap'' between the 
expiration of the statutory moratorium (for cost reporting periods 
beginning on or after July 1, 2012) and our prospective regulatory 
relief (for cost reporting periods beginning on or after October 1, 
2012), we also provided for an additional moratorium based on LTCH 
discharges occurring on or after October 1, 2012 and ending at the 
start of their next cost reporting period. For those ``July'' LTCHs 
with cost reporting periods beginning on or after October 1, 2012, the 
regulatory extension of the statutory moratorium, described above, 
effective for the hospital's first cost reporting period beginning on 
or after October 1, 2012, resulted in seamless coverage for that group. 
However, for those ``July'' LTCHs with cost reporting periods beginning 
on or after July 1, 2012, and before October 1, 2012, that would have 
otherwise been subject to the ``gap'' between the expiration of the 
statutory moratorium and the effective date of the regulatory 
moratoria, we established a second regulatory moratorium effective with 
discharges occurring beginning October 1, 2012, through the end of the 
hospital cost reporting period (that is, the end of the cost reporting 
period that began on or after July 1, 2012, and before October 1, 
2012). For more details about these moratoria, we refer readers to the 
FY 2013 IPPS/LTCH PPS final rule (77 FR 53483 through 53484).
    Under current law, the regulatory moratorium on the full 
application of the 25-percent threshold payment adjustment policy will 
expire for all LTCHs (both ``October'' and ``July'' LTCHs) for cost 
reporting periods beginning on or after October 1, 2013. As discussed 
in greater detail below, we are not extending the regulatory moratorium 
of the 25-percent threshold payment adjustment policy. Therefore, LTCHs 
are encouraged to familiarize themselves with the prior rulemakings 
that established the adjustments for the various types of LTCHs and 
LTCH satellites. (We refer readers to the FY 2005 IPPS final rule (69 
FR 49205 through 49214) and the RY 2007 LTCH PPS final rule (72 FR 
26929). We note that the 25-percent threshold payment adjustment policy 
does not apply to ``subclause (II)'' LTCHs, that is, an LTCH described 
under section 1886(d)(1)(B)(iv)(II) of the Act as implemented at Sec.  
412.23(e)(2)(ii) of the regulations. Subclause (II) LTCHs meeting that 
definition continue to be exempted from this policy.
    In the proposed rule, we noted that we were allowing the moratoria 
to expire because we continue to be concerned that LTCHs that admitted 
more than the applicable percentage of patients from a particular 
referring hospital were, in effect, behaving like step-down units of 
the referring hospital, which results in two separate Medicare 
payments--one to the referring hospital and one to the LTCH--for what 
we believe should be structured as one episode of care. In light of our 
duties to protect the fiscal integrity of the Medicare program, we 
stated that we believed that it would be inappropriate to continue to 
offer the moratoria pending the implementation of the policy outcomes 
of the research discussed below. We welcomed public comments on this 
approach.
    Comment: Several commenters questioned CMS' decision to allow the 
moratorium on the full application of the 25-percent threshold payment 
adjustment policy to expire. The commenters opined that CMS implied in 
the FY 2013 IPPS/LTCH final rule that the regulatory moratorium 
implemented for FY 2013 was being established as a bridge to new 
payment policies under the LTCH PPS. The commenters assumed that CMS' 
ongoing research on patient-level criteria for LTCHs would serve as the 
basis for (and would result in) payment policy proposals that would 
render the 25-percent threshold payment adjustment policy unnecessary. 
The commenters further viewed CMS' decision to allow the moratorium to 
expire, as stated in the proposed rule, as being inconsistent with the 
approach taken by CMS last year in light of its consideration of a 
developed framework to support potential policy proposals for FY 2015. 
These commenters suggested that CMS eliminate the 25-percent threshold 
payment adjustment policy or to extend the moratorium on the full 
application of the 25-percent threshold payment adjustment policy for 
an additional year to mitigate the potentially negative impact on the 
continued economic viability of LTCHs under this policy.
    Response: While we understand that the FY 2013 IPPS/LTCH PPS final 
rule did not specify that we intended to fully implement the 25-percent 
threshold payment adjustment policy in FY 2014, there are no statutory 
or regulatory prohibitions on the Secretary that would bar her from 
allowing the moratorium to expire. The FY 2013 IPPS/LTCH PPS final rule 
did indicate that we had awarded research contracts for the purposes of 
developing patient-level criteria that could render the 25-percent 
threshold payment adjustment policy unnecessary. With that said, while 
the framework resulting from interim findings of these research 
projects was described in the FY 2014 IPPS/LTCH PPS proposed rule, we 
did not propose to implement patient-level criteria for LTCH admissions 
in FY 2014. Rather, based on the interim findings of these research 
projects, we were able to present a draft framework for potential 
payment policy proposals and solicited feedback.
    In light of the extensive public comments that we received in 
response to our initial thoughts about what the framework might entail, 
in the absence of patient-level criteria being in place, we continue to 
believe that the 25-percent threshold payment adjustment policy serves 
as an effective instrument to protect the Medicare Trust Fund from 
significant and inappropriate expenditures. (We refer readers to our 
detailed discussions of the 25-percent threshold payment adjustment 
policy for HwHs and LTCH satellites in the FY 2005 IPPS final rule (69 
FR 49191 through 49214) and its application to all other LTCHs in the 
RY 2008 LTCH PPS final rule (72 FR 26919 through 26944).) We further 
believe that the partial implementation of the 25-percent threshold 
payment adjustment policy has begun to serve this purpose. We note that 
the Office of the Assistant Secretary for Planning and Evaluation 
(ASPE) has conducted an analysis of LTCH referral patterns as part of 
its contract with Acumen, LLC. The results

[[Page 50769]]

of Acumen's analysis indicate that, from 2010 through 2012 
approximately 9-10 percent of total LTCH stays would have been subject 
to a payment adjustment under the 25-percent threshold payment 
adjustment policy. We note that a subset of those stays (for example, 
in rural LTCHs) would have been subject to the higher 50 percent 
threshold. Material supplied by an LTCH trade association as part of 
its comments to the FY 2014 IPPS/LTCH PPS proposed rule also support 
this conclusion.
    With regard to the potentially negative impact of the 25-percent 
threshold payment adjustment policy on the economic viability of LTCHs, 
we note that although we understand that some LTCHs have much lower 
margins and some much higher margins, LTCHs have generally adapted and 
succeeded under the 25-percent threshold payment adjustment policy as 
it was modified by the statutory and regulatory moratoria. (We refer 
readers to MedPAC's March 2013 Report to the Congress, page 251, which 
notes that aggregate Medicare margins for LTCHs in 2013 would be 5.9 
percent). Therefore, we believe that allowing the regulatory moratorium 
to expire and the 25-percent threshold payment adjustment policy to be 
fully implemented for cost reporting periods beginning on or after 
October 1, 2013, is the appropriate policy at least until such time as 
payments under the LTCH PPS are based on the adoption of clinically 
based, patient-level criteria.
    Comment: MedPAC submitted a public comment regarding the expiration 
of the moratorium on the full implementation of the 25-percent 
threshold payment adjustment policy. MedPAC noted in its comment that 
the policy was implemented to ensure that LTCHs did not ``. . . serve 
as de facto units of IPPS hospitals,'' and stated that it considers 
this policy, in the absence of LTCH admission criteria, as a ``blunt 
but necessary'' instrument.'' MedPAC encouraged the use of clinical 
patient-level admission criteria such as our CCI/MC framework, but 
stated ``[n]evertheless, we cannot ignore the possibility of a new set 
of inappropriate provider responses to payment incentives under the 
CCI/MC framework. Therefore, if CMS moves forward with its CCI/MC 
criteria, we urge the agency to continue to apply the 25 percent rule 
during the implementation until the robustness of the CCI/MC criteria 
can be assessed and unintended consequences can be observed and 
addressed.''
    Response: We appreciate MedPAC's support and for sharing its 
concerns regarding the future implementation of LTCH patient-level 
admissions criteria.
    Comment: One commenter opposed full implementation of the 25-
percent threshold payment adjustment policy and believed that, in an 
effort to avoid the payment reduction for admitting patients in excess 
of the applicable threshold, LTCHs would ``swap'' patients among 
themselves from referring hospitals to stay within their threshold. The 
commenter also noted that LTCHs would be presented with significant 
financial consequences for exceeding their thresholds as a result of 
the full implementation of the 25-percent threshold payment adjustment 
policy. The commenter also believed that the 25-percent threshold 
payment adjustment policy is not appropriate because of the differences 
between the care provided in LTCHs and IPPS hospitals, and stated that 
``LTCH patients are sicker and receive a unique set of services for 
their medical severity'' and ``. . . these are not the same short term 
acute interventions that are the focus of PPS hospitals.''
    Response: We note that the 25-percent threshold payment adjustment 
policy was not proposed in the FY 2014 IPPS/LTCH PPS proposed rule. 
Rather, in the absence of proposing regulatory changes or a further 
extension of the moratorium, the policy simply becomes effective as set 
forth in our regulations at Sec. Sec.  412.534 and 412.536. We are 
aware that, in areas where there are a number of LTCHs, patient 
``swapping'' may enable hospitals to avoid exceeding their applicable 
thresholds. The ability of some LTCHs to side-step the intent of the 
25-percent threshold payment adjustment policy is another reason why we 
believe that it is important to develop patient-level criteria for 
LTCHs, as we discussed in the FY 2014 IPPS/LTCH PPS proposed rule, that 
will more clearly identify those patients that we believe are the most 
appropriate for treatment in an LTCH. In the meantime, it is incumbent 
upon us to attempt to limit the percentage of beneficiaries for whom 
the Medicare program generates two PPS payments for what is essentially 
one episode of care. Furthermore, the financial impact mentioned by the 
commenter can be minimized if an LTCH treats patients who achieve high 
cost outlier status at the referring hospital because those patients 
are not counted towards the percentage threshold.
    Although adapting to the full implementation of the 25-percent 
threshold payment adjustment policy may be challenging for a particular 
LTCH, we do not agree with the commenter's assertion that this policy 
will compromise an LTCH's ability to provide care for those Medicare 
beneficiaries that the LTCH appropriately admits. In addition, the 
conclusions that we draw from the data reported by the Acumen analysis 
regarding LTCH compliance with the 25-percent threshold payment 
adjustment policy for the ASPE project, in combination with MedPAC's 
report on aggregate LTCH margins for FY 2013, both explained in the 
previous response, do not appear to support the claims that there will 
be widespread economic consequences for LTCHs as a result of the full 
application of the 25-percent threshold payment adjustment policy. 
While we understand that some LTCHs are equipped to provide medical 
care for high-acuity severely sick patients, as described in the 
proposed rule, our data indicate that there are many patients admitted 
to LTCHs that do not fit this description. In addition, we disagree 
with the commenter's assertion that hospitals paid under the IPPS focus 
solely on short-term interventions and are not equipped to handle these 
high-acuity patients. As we noted in the FY 2014 IPPS/LTCH PPS proposed 
rule, ``Our 2012 data indicates that less than 2 percent of all 
Medicare beneficiaries who were hospitalized in CY 2010 were treated in 
LTCHs.
    Our 2013 data indicates that New Hampshire, Maine, and Vermont have 
no LTCHs and the following States have five or fewer LTCHs: 
Connecticut, Delaware, Hawaii, Iowa, Idaho, Kansas, Maryland, 
Minnesota, Montana, Nebraska, New Mexico, New York, Wisconsin, West 
Virginia, Wyoming, and the District of Columbia. Therefore, the number 
of LTCHs and their geographic distribution suggest to us that LTCHs are 
only treating a small percentage of the patients that the LTCH industry 
has identified as their target population nationwide'' (78 FR 27669). 
Clearly, in areas where there is little or no LTCH presence, general 
acute care hospitals are effectively providing treatment for the same 
types of patients that are treated in LTCHs in areas where there is one 
or more LTCH present.
    Comment: Several commenters expressed concern with the full 
application of the 25-percent threshold payment adjustment policy to 
freestanding LTCHs and ``grandfathered'' HwHs ``for the first time'' as 
these hospitals had previously been exempted from any application of 
the 25-percent threshold payment adjustment policy. Some commenters 
identified specific problems that groups of LTCHs that receive 
``special'' treatment under the regulations (rural LTCHs and LTCHs 
admitting from MSA-dominant or urban single referring hospitals) have 
encountered even under

[[Page 50770]]

the moratorium on the full implementation of the 25-percent threshold 
payment adjustment policy. Several commenters representing LTCHs in 
rural areas with few referring hospitals and a single-hospital MSA 
described the negative consequences they anticipated if the 25-percent 
threshold payment adjustment policy were to be fully implemented, 
including possible hospital closures, access issues for beneficiaries, 
the diversion of patients to geographic areas away from their homes, 
and the lack of family and community support. One comment from an LTCH 
noted that, while it supported our goals under the 25-percent threshold 
payment adjustment policy, the policy would be unworkable in a single-
hospital MSA. This commenter offered several suggestions to amend the 
existing policy, including exempting the six single-hospital MSAs in 
the United States or at least exempting the three freestanding LTCHs in 
those MSAs; grandfathering LTCHs currently operating as freestanding 
LTCHs in single-hospital MSAs in accordance with our policies to 
``protect existing hospitals from potentially adverse impacts,'' 
exempting LTCHs based on their distance from other LTCHs; or increasing 
the threshold percentage for single-hospital MSAs. The commenter also 
suggested excluding cases that exceed a specific length of stay from 
the 25-percent threshold payment adjustment policy, for example, cases 
that exceed 2 standard deviations from the average length of stay of 
the designated DRG at the referring hospital, in addition to excluding 
high cost outlier cases from the percentage threshold calculation and 
presuming that such cases received the full course of treatment; 
blending the otherwise unadjusted LTCH PPS payment and the IPPS-
comparable payment instituted for cases exceeding the applicable 
threshold (as in the short-stay outlier (SSO) policy at Sec.  
412.529(c)(2)(iv)); or reinstating the ``transition'' to the full 
implementation of the 25-percent threshold payment adjustment policy.
    Response: We agree with the commenter that, with the expiration of 
the moratoria, full implementation of the 25-percent threshold payment 
adjustment policy would apply to freestanding LTCHs and grandfathered 
co-located LTCHs for the first time. In addition, it would lower the 
percentage threshold for LTCHs in rural areas and LTCHs admitting 
patients from MSA-dominant and urban single referring hospitals from 
the present 75 percent to 50 percent. We understand some of the 
commenters' concern that the full application of the 25-percent 
threshold payment adjustment policy could result in negative 
consequences for the LTCHs in rural areas and in MSAs with one 
referring hospital, but we continue to believe that LTCHs are free to 
admit any patient from any source without limit or restriction and that 
the 25-percent threshold payment adjustment policy addresses how 
Medicare will pay for patients and establishes the applicable 
thresholds that are the basis for such payment (69 FR 49207).
    We also appreciate the support expressed by the commenter from the 
single-hospital MSA for our policy goals, in general, and the 
suggestions made by this commenter. The application of the 25-percent 
threshold payment adjustment policy to freestanding LTCHs and 
grandfathered HwHs was finalized in RY 2008 (72 FR 26919 through 
26944), and at that time we did provide a 3-year transition to the full 
implementation of the policy at Sec. Sec.  412.536(f) and 412.534(h) of 
the regulations, respectively. Typically, we provide transitions when 
we have implemented significant policy changes in order to allow those 
entities affected by the policy change a reasonable time in which to 
adapt to whatever changes they need to make to come into compliance 
with the new regulatory scheme. The enactment of section 114(c) of the 
MMSEA of 2007, extended by section 4302 of the ARRA, sections 3106(c) 
and 10312(a) of the Affordable Care Act, and our regulations finalized 
for FY 2013, which will expire for cost reporting periods beginning on 
or after October 1, 2013, delayed the implementation of the full 
application of the 25-percent threshold payment adjustment policy under 
Sec. Sec.  412.534 and 412.536 of the regulations. Congress only 
delayed application of the 25-percent threshold payment adjustment 
policy; it did not reverse that policy in 2008, but rather left the 
decision on full implementation to the Secretary's discretion, once the 
statutory moratorium expired for cost reporting periods beginning on or 
after July 1, 2012 and October 1, 2012, respectively. Furthermore, we 
believe that the moratorium period has allowed LTCHs adequate time to 
adapt to and prepare for the full implementation of the 25-percent 
threshold payment adjustment policy. In addition, we believe that it is 
important to reiterate that patients that are admitted to an LTCH 
having reached the high-cost outlier threshold at those referring 
hospitals are not counted towards the percentage threshold.
    Comment: Several commenters challenged CMS' restatement of its 
original policy rationale for the establishment of the 25-percent 
threshold payment adjustment that was presented in the proposed rule, 
stating, that ``LTCHs that admit more than the applicable percentage of 
patients from a particular referring hospital are, in effect, behaving 
like step-down units of the referring hospital . . .'' The commenters 
cited the report from Kennell/RTI's July 2012 ``follow-up'' research on 
``Determining Medical Necessity and Appropriateness of Care for 
Medicare Long-Term Care Hospitals,'' which they asserted differentiated 
LTCHs from step-down units of IPPS hospitals. The commenters pointed 
out that CMS' contractors stated that LTCHs treat far more high-acuity 
patients than do step-down units. One commenter asserted that CMS has 
``no basis to suggest that step-down units in IPPS hospitals exist of 
the type and scope needed to care for patients admitted to LTCHs.''
    Response: The reality of LTCHs serving as defacto step-down units 
for IPPS hospitals has been at the center of our rationale for 
establishing the 25-percent threshold payment adjustment policy, 
beginning in FY 2005 for co-located LTCHs and LTCH satellites and in RY 
2008 for all other LTCHs. Specifically, our data indicated that 
Medicare patients were being discharged to LTCHs after being stabilized 
at IPPS hospitals for additional hospital-level care, care that 
Medicare had already paid the general acute care hospital to provide 
under the IPPS. The IPPS stays for these patients were shorter than for 
similar patients in communities where there was little or no LTCH 
presence (69 FR 49201, 49211).
    The commenters included excerpts from our report, ``Determining 
Medical Necessity and Appropriateness of Care for Medicare Long-Term 
Care Hospitals,'' (the follow-up report, as opposed to the Report to 
Congress, as discussed in greater detail below in section VIII.E. of 
this proposed rule) which indicated the percentage of critically ill 
patients treated in LTCHs as compared to step-down units in support of 
their contention that the distinction between LTCHs and step-down units 
indicated that our 25-percent threshold payment adjustment policy was 
based on a flawed premise. We disagree with the commenters. We believe 
that the basis of our 25-percent threshold payment adjustment policy 
has been well justified since its inception and that our recent data 
support the policy. We also note that, based on the FY 2010 MedPAR 
data, there were 13.8 million IPPS admissions, of which 450,989 met the 
CCI/MC patient profile. In FY 2010,

[[Page 50771]]

there were 127,969 LTCH admissions, of which only 32,743 (or 31 
percent) met the CCI/MC patient profile. Therefore, while it may be 
correct that as a percentage of total patients, LTCHs treat a ``higher 
percentage'' of critically ill patients, these numbers are useful as a 
``reminder'' that IPPS step-down units do treat critically ill CCI/MC 
patients, and are paid to treat those patients under the IPPS.
    Comment: Several commenters, including the American College of 
Thoracic Surgeons (ACTS) urged the adoption of clinical, as opposed to 
systems factors, for determining admissions to LTCHs. The ACTS stated, 
``[t]he [25 percent] policy is not grounded in evidence and may 
restrict appropriate transfers for some patients . . .'' and further 
expressed concern that although existing payment models could provide 
inappropriate incentives to transfer some patients to LTCHs ``. . . we 
believe that the best solution for the majority of patients is to 
standardize admission criteria by creating an operational definition of 
chronic critical illness, not by restricting LTCH transfers via the 25 
percent rule.''
    Response: We agree with the commenters regarding the value of 
evidence-based clinical factors for determining which LTCH patients 
Medicare should pay for under the LTCH PPS. We believe that the CCI/MC 
patient profile material that we presented in the proposed rule, which 
was derived from our contractor's preliminary report on the patient-
level criteria project, provided a robust framework for further 
development. We note that, included among the many comments that we 
received on this matter, comments on independently commissioned 
research will be shared with our contractor, Kennell/RTI.
    Comment: Several commenters noted that there are a number of major 
changes occurring in the Medicare program for LTCHs with a wide array 
of regulatory demands: the roll out of quality programs, transition to 
ICD-10, implementation of requirements for electronic medical records, 
efforts to integrate with other providers and payers in their 
communities, and stated that LTCHs are presented with what some of 
these commenters call ``substantial regulatory challenges and 
uncertainty.'' Given these factors, commenters urged CMS to maintain 
the 25-percent threshold payment adjustment policy's current threshold 
levels and (referring to the CCI/MC patient profile framework) to ``. . 
. reconsider the direction and scope of its current research and 
concentrate on less severe means of raising the minimum clinical 
standards for LTCHs.''
    One commenter quoted a recent preliminary report by the Institute 
of Medicine (IOM) on Geographic Variation in Medicare Services that 
stated ``we are at a crossroads in post-acute care'' and a ``call to 
action'' was issued jointly by the House of Representatives Ways and 
Means Committee and Senate Finance Committee on June 19, 2013, which 
requested stakeholders' input on concerns related post-acute care in 
the changing medical landscape by August 19, 2013. This commenter urged 
CMS to delay the full implementation of the 25-percent threshold 
payment adjustment policy until the IOM's final report has been issued 
and also pending the response to Congress' request for stakeholder 
input.
    Response: We do not believe that the forthcoming Federal fiscal 
year presents uniquely burdensome regulatory demands for LTCHs. Several 
of the commenters specifically mentioned the ``roll-out'' of quality 
measures; transition to the ICD-10 code sets used to report medical 
diagnoses and inpatient procedures from ICD-9; implementation of 
requirements for electronic medical records; and efforts to integrate 
with other providers and payers in their communities. However, it is 
not clear to us that the presence of these programs would affect an 
LTCH's ability to comply with the 25-precent threshold payment 
adjustment policy. Furthermore, we note that these are not all 
mandatory programs. These programs have been publicly known for some 
time and LTCHs have had considerable notice of the adopted policies. 
For example, the Long-Term Care Hospital Quality Reporting (LTCHQR) 
Program, which was initially introduced in section 3004 of the 
Affordable Care Act of 2010, required us to design and implement a pay-
for-reporting program for LTCHs by 2014, and stipulated that these 
quality measures be made available by 2012, with reporting on these 
measures to begin in FY 2013, and payment affected for FY 2014. The 
ICD-10 code sets were originally set to be implemented on January 1, 
2012, a deadline that was changed first, to October 1, 2013, and then 
October 1, 2014. The Health Information Technology for Economic and 
Clinical Health (HITECH) Act of 2009 provides for incentive payments 
for providers who adopt and demonstrate meaningful use of certified 
EHRs with the goal of widespread adoption by 2014, but this is a 
voluntary program. Participation in our demonstrations for provider 
integration/bundling are also purely voluntary at this time. Therefore, 
we do not agree that the programs listed provide the LTCH community 
with substantial regulatory challenges, or that the expiration of the 
moratorium on the full application of the 25-percent threshold payment 
adjustment policy constitutes an additional burden.
    In addition, we do not align or link the full implementation of the 
25-percent threshold payment adjustment policy and the issuance of a 
final IOM report on Geographic Variation in Medicare Services and the 
request by Congress for stakeholder input on the broad topic of post-
acute care. Each one of these items, independently, improves the 
Medicare program.
    Comment: Several commenters stated that LTCHs continue to be unable 
to obtain high cost outlier (HCO) details from discharging IPPS 
hospitals prior to admitting patients, therefore making it difficult 
for LTCHs to benefit from our exemption of HCO patients from the 
percentage calculation under the 25-percent threshold payment 
adjustment policy.
    Response: We have provided publicly available software for IPPS 
hospitals for the purposes of tracking their charges, costs, and 
determining their anticipated payments (that is, the PC PRICER, which 
is available on the CMS Web site). In addition, we are aware that 
commercial software is also available for such purposes. It has been 
our expectation that this information would, or at least should, freely 
pass between an IPPS discharge planner and an LTCH admissions officer. 
We also expect LTCHs to aggressively pursue obtaining this information 
from their referring IPPS hospitals and for IPPS hospitals to cooperate 
with these efforts.
    As we discuss the mechanics of implementing this policy, we are 
taking this opportunity to note the recent findings from the Department 
of Health and Human Services' Office of the Inspector General (OIG) in 
an Early Alert Memorandum Report entitled, ``Co-Located Long-Term Care 
Hospitals Remain Unidentified, Resulting in Potential Overpayments,'' 
(OEI-04-12-00491). The regulations at Sec. Sec.  412.22(e), 412.22(h), 
and 412.532(i) require co-located LTCHs (HwHs or LTCH satellites) to 
report their co-located status to us and the Medicare claims processing 
contractor. The regulatory penalty for not reporting co-located status 
as provided in Sec.  412.505 (b) is that ``. . . CMS may withhold (in 
full or in part) or reduce Medicare payment to the hospital.'' The OIG 
estimates that nearly half of the 211 LTCHs whose co-located status it 
had determined have

[[Page 50772]]

not reported this information to contractors. We urge LTCHs that have 
not met the regulatory notification requirement to do so immediately.
    Comment: Several commenters stated that there is widespread 
confusion about the difference between the IPPS-comparable payment, 
which is an option under the SSO policy and has been suggested for 
payment for non-CCI/MC patients under the preliminary framework 
presented in the proposed rule, and the IPPS-equivalent payment that is 
utilized under the 25-percent threshold payment adjustment policy.
    Response: There are similarities between an ``IPPS-comparable'' 
amount under the SSO policy and an ``IPPS-equivalent'' amount under the 
25-percent threshold payment adjustment policy, but there are also 
differences. Both are initially calculated as one would calculate an 
IPPS payment amount, including the applicable IPPS payment adjustments 
that would respectively be applied to each. We refer readers to Sec.  
412.529(d)(4) of the regulations for a description of the ``IPPS-
comparable'' amount and Sec.  412.534(f) for a description of the 
``IPPS-equivalent'' amount. We also note that, under the SSO policy if 
a case is paid an ``IPPS-comparable'' amount and is also a HCO, the 
LTCH PPS fixed-loss amount is applied, whereas under the 25-percent 
threshold payment adjustment policy, if the case is paid an ``IPPS-
equivalent'' amount and is also a HCO, the fixed-loss amount is based 
on the IPPS fixed-loss amount. Furthermore, the ``IPPS-comparable'' 
amount under the SSO policy is one of four options for payment. Under 
the 25-percent threshold payment adjustment policy, a case is paid 
``the lesser of'' the otherwise unadjusted amount under the LTCH PPS or 
``an amount payable under this subpart that is equivalent, as set forth 
in paragraph (f) of this section, to the amount that would be 
determined under the rules at Sec.  412.1(a).'' The most significant 
difference between these two adjusted LTCH payments is also the issue 
that seemed to confound the commenters; for purposes of the SSO policy, 
the ``IPPS-comparable'' amount is paid as a per diem not to exceed the 
full MS-DRG amount for that case. However, for purposes of the 25-
percent threshold payment adjustment policy, the ``IPPS-equivalent'' 
amount is the entire MS-DRG amount such as would be payable under the 
IPPS (not converted to a per diem). We refer readers to a detailed 
explanation of the ``IPPS-equivalent'' amount in the RY 2007 LTCH 
proposed rule (71 FR 4648, 4698 through 4700).
    Comment: Several commenters requested that CMS, in addition to 
excluding patients from the threshold calculation under the 25-percent 
threshold payment adjustment policy that had reached the HCO threshold 
at the referring IPPS hospital, exclude patients that Kennell/RTI have 
identified as ``appropriate'' for treatment at an LTCH, CCI/MC 
patients.
    Response: We understand the rationale behind the commenters' 
request, that is, if we use HCO status at the referring hospital as a 
proxy for a patient having completed a full course of treatment and, 
therefore, a patient for whom it would be reasonable for Medicare to 
generate a second payment, it is logical that we also exclude patients 
from the threshold calculation that are, by definition, appropriate for 
treatment in an LTCH. We agree that this rationale and request are 
logical, but the CCI/MC patient profile framework has just been 
presented to LTCH stakeholders for discussion and feedback. If we are 
able to propose and finalize the CCI/MC patient profile framework and 
we retain the 25-percent threshold payment adjustment policy, we could 
consider excluding CCI/MC patients from the 25-percent threshold.
    After consideration of the public comments we received, and as we 
did not propose any policy changes, the regulatory moratorium on full 
implementation of the 25-percent threshold payment adjustment will 
expire on October 1, 2013, which means that the 25-percent threshold 
payment adjustment policy will be applied to discharges occurring on or 
after October 1, 2013.

E. Research on the Development of a Patient Criteria-Based Payment 
Adjustment Under the LTCH PPS

1. Overview
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27668 through 
27676), we presented a description of our research on the development 
of patient and/or facility-level criteria for LTCHs and presented a 
potential framework for developing potential payment policy proposals 
based on the preliminary findings of two projects conducted by Kennell 
and Associates (Kennell) and its subcontractor, RTI, under the guidance 
of CMS' Center for Medicare and Medicaid Innovation (the Innovation 
Center). We stated that we believed that the findings from these 
projects, in large part, could be used to identify the subpopulation of 
Medicare beneficiaries that should form the core of patients under the 
LTCH PPS. Although this research is still not completed, we believe 
that the preliminary findings suggest that certain types of patients, 
namely those who are chronically critically ill and considered 
medically complex, as identified by specific clinical factors, are more 
appropriate candidates for high-cost treatment at an LTCH than other 
types of patients.
    The resulting interim framework was presented in the FY 2014 IPPS/
LTCH PPS proposed rule (78 FR 27668 through 27676). As stated in the 
proposed rule, we believe that the potential policy changes discussed 
are consistent with a significant body of research, which identifies 
the CCI/MC patient criteria as a useful indicator of an appropriate 
LTCH admission. Furthermore, the CCI/MC patient criteria appear to 
coincide with the kinds of patients that LTCHs have asserted they are 
best equipped to treat (78 FR 27675).
    As stated in the proposed rule, we were interested in receiving 
feedback from the public on the findings of this research study, as 
well as the potential impact that our framework could have on hospital 
markets with the expectation of formulating a proposal for FY 2015. As 
a result, we received several public comments on the framework from 
hospital associations, groups and coalitions of LTCHs, individual 
LTCHs, and attorneys representing LTCHs. Some of these comments 
included detailed data analyses. While we are not addressing these 
comments in this final rule, we will be sharing the comments and the 
data analyses with CMMI's contractors and soliciting their responses to 
the commenters' assertions and any data that may bring into question 
our contractor's interim framework.
    As previously stated, although we are not addressing these comments 
in this final rule, we believe that it is important to note several 
specific issues mentioned by the commenters regarding the CCI/MC 
patient profile framework:
     CMS' identification of the CCI/MC patient is more rigorous 
than MedPAC's, which is based solely on 8 ICU/CCI days prior to 
discharge from an IPPS hospital without a list of additional medically 
complex clinical factors. Because the research conducted by Kennell/RTI 
stated that identification of the CCI/MC patient group based on 
Medicare claims data was ``conservative and erring on side of being too 
restrictive rather than too inclusive,'' CMS should use a less 
``restrictive'' framework.
     CCI/MC patients identified with the ``ICU metric'' are too 
limited. Patients with high acuity and significant resource use should 
be the focus of

[[Page 50773]]

LTCH-patient reform. This policy will dramatically lower payments for 
high-severity cases that are not identified as CCI/MC. CMS is not 
``establishing criteria to identify the types of patients who benefit 
from the unique services that LTCHs provide.''
     There is a group of patients that are not captured by the 
CCI/MC clinical factors who could benefit from treatment in an LTCH. 
Rather than establishing a framework based on a data-driven 
``restrictive'' definition of which patients ``should'' be treated in 
LTCHs for the full LTCH PPS payment, CMS ``. . . should assess broader 
array of clinical conditions that can and should be treated in LTCHs,'' 
as well as an inclusive consideration of those patients presently 
treated in LTCHs requiring hospital-level care.
     LTCH industry-sponsored research is evaluating data on 
LTCH patients that have lower cost than patients not treated in LTCHs. 
The commenters suggested that CMS should consider this research.
     Outcomes for patients in LTCHs are superior to those for 
similar patients not treated in LTCHs.
     Paying for treatment of non-CCI/MC patients under an IPPS-
comparable amount based on a per diem up to the full IPPS amount is not 
appropriate and violates the statutory intent of the establishment of 
the LTCH PPS, totally ``skewing'' the averaging systems of PPS payment 
settings. Like all PPSs, payments should be structured as per discharge 
payments subject to HCO payments.
     Under the framework presented, LTCHs will be receiving the 
majority of their payments based on IPPS data.
     LTCHs fill a unique role in the continuum of care and our 
data verifies that LTCHs case mix is becoming more complex. Clinical 
standards should be established to incent treating the highest acuity, 
long-stay patients and discourage admission of patients with low 
acuity, suitable for admission to a lower level of care.
    MedPAC summarized its comment on the CCI/MC patient profile 
framework as follows:
    ``With respect to CMS's discussion of possible policy changes to 
the long-term care hospital (LTCH) PPS that would encourage the LTCH 
industry to refocus its admitting practices on serving chronically 
critically ill and medically complex (CCI/MC) patients, we believe the 
policy potentially represents a first real step towards criteria for 
LTCH patients that would appropriately limit high LTCH payment rates to 
the most medically complex patients who may be most likely to benefit 
from an LTCH program of care. This approach has the potential for 
significant Medicare savings, at least in the short run. The approach 
also may expand the concept of site neutrality by limiting payments for 
other cases admitted to LTCHs to IPPS payment rates for the same MS-
DRGs. The Commission remains concerned, however, about the level of 
payments for medically complex patients in both LTCHs and ACHs. While 
the Commission continues to support the use of criteria to justify 
higher LTCH payments, we urge CMS to continue to strive toward site-
neutral payments so that Medicare pays the same, subject to risk 
differentials for the same services, regardless of where the services 
are provided.'' (p. 3).
    We also want to take this opportunity to address and correct 
misperceptions regarding the studies and the chronology that appeared 
in the majority of the public comments. These commenters asserted that 
at the time that the proposed rule was published, we had not submitted 
the 2011 Report to Congress. This is incorrect. As stated in the 
proposed rule, the Report to Congress on ``Determining Medical 
Necessity and Appropriateness of Care for Medicare Long-Term Care 
Hospitals'' required by section 114(b) of the Medicare and Medicaid 
State Children's Expansion Act of 2007 (MMSEA) (Pub.L. 110-173) was 
submitted in March of 2011 (78 FR 27670 through 27671). As we also 
noted in the proposed rule, the report may be found on the CMS Web site 
at: http://www.cms.gov/officeoflegislation/downloads/RTC-long-term-care-hospitals-final.pdf. Our contractors' research findings for the 
2011 Report to Congress can be found in Appendix A of the 2011 Report 
to Congress.
    In addition, the description of the framework that was presented in 
the FY 2014 IPPS/LTCH PPS proposed rule was also premised on 
``additional follow-up research that CMS was sponsoring [to] . . . 
update and refine our understanding of Medicare LTCH patients and 
payments'' (78 FR 27671). One component of the follow-up research (as 
opposed to the research required by section 114(b) of the MMSEA for the 
2011 Report to Congress), is described in the identically-named final 
report entitled ``Determining Medical Necessity and Appropriateness of 
Care for Medicare Long-Term Hospitals,'' which was finalized in July 
2012. This July 2012 report factored in findings resulting from the 
implementation of the CARE tool, providing foundations for the 
remaining follow-up research, namely the to-be-completed research 
project to design a payment framework. The follow-up research on the 
development of a payment framework will ultimately generate an 
additional report, namely the ``Long-Term Care Hospitals and the 
Chronically Critically Ill Population--Payment Recommendations (CCIP-
PR). We refer readers to the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27671 through 27672) for further discussion of this ongoing research. 
We refer readers to the following Web site: www.rti.org/reports/cms/Kennell/Determine-Med-Necessity-Appropriate-Care-Medicine-LTCHs.pdf for 
additional information on Kennell/RTI's work. For additional 
information on the CARE tool, we refer reader to the following Web 
sites: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Reports/downloads/Flood_PACPRD_RTC_CMS_Report_Jan_2012.pdf and http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Reports/downloads/GAGE_PACPRD_RTC_Supp_Materials_May_2011.pdf.
    We also note that several commenters asserted that we were acting 
in ``near total secrecy'' as we carried out our research, and expressed 
concern regarding the lack of ``transparency'' because ``none of the 
data, findings, or other information from this research [the CCI/MC 
framework] has been made available to the public.'' We do not agree 
with these assertions. The FY 2014 IPPS/LTCH PPS proposed rule provided 
a recap of prior work (including citations to published findings) and 
put the public on notice as to ongoing research, as well as preliminary 
findings. Such information was made available to the public to ensure 
transparency and it included a description of a possible payment 
approach that ultimately may or may not figure into future proposals in 
LTCH PPS rulemakings. As part of the proposed rule, interested 
stakeholders were offered the opportunity to comment on a general 
approach. When our research is complete, the results will be made 
available to the public and, if such research leads to policy 
proposals, the public will have an opportunity to review our proposals 
and the data/findings supporting those proposals.
    We do not expect the stakeholders to be able to perform a detailed 
analysis of a specific plan because a specific plan has not yet been 
formulated and has not been proposed at this time. If we do determine 
that we intend to proceed with rulemaking in this area, a specific plan 
will be proposed, along with relevant supporting materials. 
Stakeholders will be provided the opportunity to submit comments on 
this material as part of the rulemaking

[[Page 50774]]

process. The specifics of any future proposals will be determined by us 
at the appropriate time during the development of any such policy. 
Review of contractor reports may ultimately prove useful if policies 
are ultimately proposed based on those findings, but interested parties 
should plan on referring to and commenting on the documentation 
associated with any future proposals during the rulemaking process as 
opposed to prior to any such proposals. The payment approach detailed 
in the FY 2014 IPPS/LTCH PPS proposed rule was influenced by a variety 
of projects and analyses. Publicly available reports for these projects 
can be found on the following Web sites: for the LTCH FPC Report to 
Congress at: http://www.cms.gov/About-CMS/LegislativeAffairs/OfficeofLegislation/Downloads/RTC-Long-Term-Care-Hospitals-Final.pdf; 
and for the LTCH FPC Final Report at: http://www.rti.orglreports/cms/kennell/Determine-Med-NecessityAppropriate-Care-Medicare-LTCHs.pdf. The 
presented approach was additionally influenced by work performed under 
the Chronically Critically Ill Population Payment Recommendation (CCIP-
PR) project. CCIP-PR is an active project, and there are no finalized 
documents available at this time. There will be a final report for this 
project, anticipated to be delivered to us in the Fall 2013. It is our 
intention to make this report publicly available.

IX. Quality Data Reporting Requirements for Specific Providers and 
Suppliers

    CMS is seeking to promote higher quality and more efficient health 
care for Medicare beneficiaries. This effort is supported by the 
adoption of widely agreed-upon quality measures. CMS has worked with 
relevant stakeholders to define measures of quality for most settings 
and to measure various aspects of care for most Medicare beneficiaries. 
These measures assess structural aspects of care, clinical processes, 
patient experiences with care, and, increasingly, outcomes.
    CMS has implemented quality reporting programs for multiple 
settings of care, including:
     Hospital inpatient services, under the Hospital Inpatient 
Quality Reporting (IQR) Program (formerly referred to as the Reporting 
Hospital Quality Data for Annual Payment Update (RHQDAPU) Program);
     Hospital outpatient services, under the Hospital 
Outpatient Quality Reporting (OQR) Program (formerly referred to as the 
Hospital Outpatient Quality Data Reporting Program (HOP QDRP));
     Care furnished by physicians and other eligible 
professionals, under the Physician Quality Reporting System (PQRS, 
formerly referred to as the Physician Quality Reporting Program 
Initiative (PQRI));
     Inpatient rehabilitation facilities, under the Inpatient 
Rehabilitation Facility Quality Reporting Program (IRF QRP);
     Long term care hospitals, under the Long Term Care 
Hospital Quality Reporting (LTCHQR) Program;
     PPS-exempt cancer hospitals, under the PPS-Exempt Cancer 
Hospital Quality Reporting (PCHQR) Program;
     Ambulatory surgical centers, under the Ambulatory Surgical 
Center Quality Reporting (ASCQR) Program;
     Inpatient psychiatric facilities, under the Inpatient 
Psychiatric Facilities Quality Reporting (IPFQR) Program;
     Home health agencies, under the home health quality 
reporting program (HH QRP); and,
     Hospices, under the Hospice Quality Reporting Program.
    CMS has also implemented an end-stage renal disease quality 
improvement program 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 Medicare and Medicaid 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. As appropriate, we will consider the adoption of measures with 
electronic specifications, so that the electronic collection of 
performance information is part of care delivery. Establishing such a 
system will require interoperability between EHRs and CMS data 
collection systems, additional infrastructural 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 many 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 in the near future, automatic 
collection and reporting of data elements for many measures through 
EHRs will greatly simplify and streamline reporting for various CMS 
quality reporting programs, and that hospitals will be able to switch 
primarily to EHR-based reporting of data for many measures that are 
currently manually chart-abstracted and submitted to CMS for the 
Hospital IQR Program.
    We have also implemented a Hospital Value-Based Purchasing (VBP) 
Program under section 1886(o) of the Act. In 2011, we issued the 
Hospital Inpatient VBP Program final rule (76 FR 26490 through 26547). 
We adopted additional policies for the Hospital VBP Program in section 
IV.B. of the FY 2012 IPPS/LTCH PPS final rule (76 FR 51653 through 
51660), in section XVI. of the CY 2012 OPPS/ASC final rule with comment 
period (76 FR 74527 through 74547) and in section VIII.C. of the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53567 through 53614). We are 
finalizing additional policies for this program in section V.H. of this 
final rule. Under the Hospital VBP Program, hospitals will 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 (other than readmission measures) specified under the 
Hospital IQR Program as required by section 1886(o)(2)(A) of the Act.
    In selecting measures for the Hospital IQR Program, we are mindful 
of the conceptual framework of the Hospital VBP Program. Section 
1886(o)(2)(B)(i)(I) of the Act states that for FY 2013, the selected 
measures for the Hospital VBP Program must cover at least the following 
five specified conditions or procedures: Acute myocardial infarction 
(AMI), Heart failure (HF), Pneumonia (PN), surgical care, as measured 
by the Surgical Care Improvement Project (SCIP), and Healthcare-
Associated Infections (HAIs), as measured by the prevention metrics and 
targets established in the HHS Action Plan to Prevent 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).
    The Hospital IQR Program is linked with the Hospital VBP Program 
because the measures and reporting infrastructure for both programs 
overlap. We view the Hospital VBP Program as the next step in promoting 
higher quality care for Medicare

[[Page 50775]]

beneficiaries by transforming Medicare from a passive payer of claims 
into an active purchaser of quality healthcare for its beneficiaries. 
Value-based purchasing is 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. As we stated 
in the Hospital Inpatient VBP Program proposed rule (76 FR 2455), we 
applied the following principles for the development and use of 
measures and scoring methodologies:
     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 this effort, we will 
continuously seek to align our measures with the adoption of e-
specified measures, and reporting of quality data via Certified 
Electronic Health Record Technology (CEHRT), so the electronic 
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 also view the Hospital-Acquired Condition (HAC) payment 
adjustment program authorized by section 3008 of the Affordable Care 
Act and the Hospital VBP Program as related, but separate, efforts to 
reduce HACs. The Hospital VBP Program is an incentive program that 
awards payments to hospitals based on quality performance on a wide 
variety of measures, while the program established by section 3008 of 
the Affordable Care Act, the HAC Reduction Program, creates a payment 
adjustment resulting in payment reductions for the lowest performing 
hospitals based on their rates of HACs. Policies for the Hospital VBP 
Program are included in section V.H. of the preamble of this final 
rule. Policies for the HAC Reduction Program are included in section 
V.I. of the preamble of this final rule.
    Although we intend to monitor the various interactions of programs 
authorized by the Affordable Care Act and their overall impact on 
providers and suppliers, 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.
    In the preamble of this final rule, we are adopting changes to the 
following Medicare quality reporting systems:
     In section IX.A., the Hospital IQR Program.
     In section IX.B., the PCHQR Program.
     In section IX.C., the LTCHQR Program.
     In section IX.D., the IPFQR Program.
    In addition, in section IX.E. of the preamble of this final rule, 
we are adopting changes to the Medicare EHR Incentive Program and 
meaningful use.

A. Hospital Inpatient Quality Reporting (IQR) Program

1. Background
a. 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 through 43861) and the FY 2011 IPPS/LTCH PPS final rule 
(75 FR 50180 through 50181) for detailed discussions of the history of 
the Hospital IQR Program, including the statutory history, and to the 
FY 2013 IPPS/LTCH PPS final rule (77 FR 53503 through 53555) for the 
measures we have adopted for the Hospital IQR measure set through FY 
2016.
b. 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 (TJC) Specifications Manual for 
National Hospital Quality Measures (Specifications Manual). This 
Specifications Manual is posted on the QualityNet Web site at https://www.QualityNet.org. We generally update the Specifications Manual on a 
semiannual basis and include in the updates 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. We will provide ICD-9 to ICD-10 crosswalks for the 
measure specifications in the manual for preview and comment in the 
July 2013 manual release.
    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.
    Many of the quality measures used in different Medicare and 
Medicaid reporting programs are endorsed by the National Quality Forum 
(NQF). The NQF is a voluntary consensus standard-setting organization 
with a diverse representation of consumer, purchaser, provider, 
academic, clinical, and other healthcare stakeholder organizations. The 
NQF was established to standardize healthcare quality measurement and 
reporting through its consensus development process. As part of its 
regular maintenance process for endorsed performance measures, the NQF 
requires measure stewards to submit annual measure maintenance updates 
and undergo maintenance of endorsement review every 3 years. In the 
measure maintenance process, the measure steward (owner/developer) is 
responsible for updating and maintaining the currency and relevance of 
the measure and will confirm existing or minor specification changes to 
NQF on an annual basis. NQF solicits information from measure stewards 
for annual reviews and in order to review measures for continued 
endorsement in a specific 3-year cycle.
    Through NQF's measure maintenance process, NQF-endorsed measures 
are sometimes updated to incorporate changes that we believe do not 
substantially change the nature of the measure. Examples of such 
changes

[[Page 50776]]

could be updated diagnosis or procedure codes, medication updates for 
categories of medications, changes to exclusions to the patient 
population, definitions, or extension of the measure endorsement to 
apply to other settings. We believe these types of maintenance changes 
are distinct from more substantive changes to measures that result in 
what are considered new or different measures, and that they do not 
trigger the same agency obligations under the Administrative Procedure 
Act.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53504 through 
53505), we finalized a policy under which we will use a subregulatory 
process to make non-substantive updates to NQF-endorsed measures used 
for the Hospital IQR Program. With respect to what constitutes 
substantive versus nonsubstantive changes, we expect to make this 
determination on a case-by-case basis. Examples of non-substantive 
changes to measures might include updated diagnosis or procedure codes, 
medication updates for categories of medications, broadening of age 
ranges, and exclusions for a measure (such as the addition of a hospice 
exclusion to the 30-day mortality measures). We believe that non-
substantive changes may also include updates to NQF-endorsed measures 
based upon changes to guidelines upon which the measures are based. We 
will revise the Specifications Manual so that it clearly identifies the 
updates and provide links to where additional information on the 
updates can be found. We also will post the updates on the QualityNet 
Web site at https://www.QualityNet.org. We will provide sufficient lead 
time for hospitals to implement the changes where changes to the data 
collection systems would be necessary.
    We will continue to use rulemaking to adopt substantive updates 
made by the NQF to the endorsed measures we have adopted for the 
Hospital IQR Program. Examples of changes that we might consider to be 
substantive would be those in which the changes are so significant that 
the measure is no longer the same measure, or when a standard of 
performance assessed by a measure becomes more stringent (for example, 
changes in acceptable timing of medication, procedure/process, or test 
administration). Another example of a substantive change would be where 
the NQF has extended its endorsement of a previously endorsed measure 
to a new setting, such as extending a measure from the inpatient 
setting to hospice.
    The quality measure SCIP INF 4, Controlled 6AM Glucose for Cardiac 
Surgery Patients (NQF 300), is an example of a measure that 
has undergone extensive changes as a result of the NQF maintenance 
process. The specifications have substantively changed and we proposed 
to adopt these changes in the FY 2014 IPPS/LTCH PPS proposed rule (78 
FR 27684). As we discuss below, the NQF Steering Committee voted to 
change the measure from controlled glucose at 6AM to controlled glucose 
18-24 hours post-surgery for cardiac surgery patients. The 
specifications also require corrective action to be documented if a 
post-operative glucose is over 180mg/dl. The specifications for the 
proposed updated measure can be found at: http://www.qualityforum.org.
    We believe that this policy adequately balances our need to 
incorporate non-substantive NQF updates to NQF-endorsed Hospital IQR 
Program measures in the most expeditious manner possible, while 
preserving the public's ability to comment on updates that so 
fundamentally change an endorsed measure that it is no longer the same 
measure that we originally adopted. We also note that the NQF process 
incorporates an opportunity for public comment and engagement in the 
measure maintenance process. These policies regarding what is 
considered substantive versus non-substantive apply to all measures in 
the Hospital IQR Program.
    Comment: One commenter suggested that measure maintenance changes 
such as broadening of age ranges, and exclusions for a measure (for 
example, addition of a hospice exclusion to the 30-day mortality 
measures), as well as updates to NQF-endorsed measures based upon 
changes to guidelines upon which the measure was based) are substantive 
and should be proposed via rulemaking. One commenter urged that any 
changes involving individuals under the age of 18 in measures that were 
initially developed for adult populations include a process for review 
and input by a panel of pediatric experts and stakeholders.
    Response: As stated previously in this section, we will continue to 
use rulemaking to adopt substantive updates made to the endorsed 
measures we have adopted for the Hospital IQR Program. We believe that 
measure maintenance changes can be either substantive, which could 
result in what are considered new or different measures, or 
nonsubstantive, which does not trigger the same agency obligations 
under the Administrative Procedure Act. With respect to what 
constitutes substantive versus nonsubstantive changes, we expect to 
make this determination on a case-by-case basis to assess changes such 
as those suggested by the commenter--broadening of age ranges, 
additional exclusions for a measure, guideline changes, etc. We thank 
the commenter for the suggestion for getting input by a panel of 
pediatric experts and stakeholders when a measure applying to adults 
are changed to include individuals under the age of 18 and will 
consider doing so in the future.
c. 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 2014 IPPS/LTCH PPS proposed rule (78 FR 27678 through 27679), we 
proposed, for the FY 2014 Hospital IQR Program and subsequent years, to 
continue our current policy 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.medicare.gov, and/or the 
interactive https://data.medicare.gov Web site, 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, structural measures, Emergency 
Department Throughput timing measures, hospital acquired condition 
measures, immunization measures, and hospital acquired infection 
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/ or https://data.medicare.gov. 
Publicly reporting the information in this

[[Page 50777]]

manner, although 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 email blasts and memorandums, Hospital 
Open Door Forums, 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.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53507 through 
53508), we removed five Agency for Healthcare Research and Quality 
(AHRQ) Patient Safety Indicators (PSIs). We did so noting that four of 
these indicators were part of the AHRQ PSI-90 measure, and that this 
information could be made publically available in the future in 
addition to the PSI-90 composite measure results that we currently make 
publically available. We recently received feedback from consumer 
advocacy groups and large purchasers that data on the individual PSI 
indicators that are part of the PSI-90 composite measure are highly 
relevant to consumers, and not publically reporting them would be a 
disservice to consumers of healthcare. Therefore, we proposed to make 
publicly available hospital level data for the PSI indicators that are 
part of the PSI-90 composite in addition to the composite results. We 
invited public comment on this proposal.
    Comment: Some commenters supported the proposal to break out the 
reporting of hospital-level data for the PSI indicators that are part 
of the PSI-90 composite, in addition to the composite results. The 
commenters stated that while the display of specific adverse event data 
is more valuable to hospitals to determine areas for quality 
improvement, the composite rates are useful for beneficiaries.
    One commenter did not support the disaggregating the data on PSI-90 
because several of the underlying measures are not NQF-endorsed, and 
therefore may not be stable at the individual level. The commenter 
contended that incomplete or unstable data does not serve the patients 
well when making informed decisions on the data.
    One commenter recommended excluding the display of PSI-7: Central 
venous catheter related bloodstream infection rate results in the PSI-
90 composite for concerns that the public may confuse this claims-based 
measure with the NHSN Central line associated bloodstream infection 
(CLABSI) measure in Hospital IQR Program. The commenter noted these two 
measures are significantly different as they are collected from 
different data sources.
    Response: We thank the commenters for recognizing the value of 
reporting separate hospital-level data for the PSI-90 indicators that 
are part of the PSI-90 composite, aside from the reporting of the 
composite results. We recognize that not all of the indicators in PSI-
90 are NQF endorsed. However, we do not believe that this means these 
measures are unreliable. We also recognize that one or more of the 
measures in PSI-90 may be similar to other measures displayed for 
consumers like the PSI-7. However, we believe that it would be 
beneficial for both hospitals and consumers to have access to 
performance information for the individual measures upon which the 
composite is based--hospitals for quality improvement purposes, 
consumers for greater understanding of what the composite score means. 
We will continue to provide data to the public in an easily 
understandable, user-friendly manner. We will report the composite 
score for PSI-90, and the individual hospital level rates in the 
downloadable database, https://data.medicare.gov/, that is available to 
users free of charge.
    After consideration of the public comments we received, we are 
finalizing our proposal to make publicly available hospital level data 
for the PSI indicators that are part of the PSI-90 composite in 
addition to the composite results.
    We also invited public comment on what additional quality measures 
and information featured on Hospital Compare may be highly relevant to 
patients and other consumers of healthcare, and how we may better 
display this information on the Hospital Compare Web site. One option 
we have considered is aggregating measures in a graphical display, such 
as star ratings.
    Comment: One commenter suggested that CMS report additional 
information on medical errors on Hospital Compare. Another commenter 
suggested that CMS report the information on pressure ulcer Stages III 
or IV.
    Response: We thank the commenters for these suggestions for 
additional information to report that may be highly relevant to 
patients, and we will consider mechanisms that we may use to do so.
    Comment: Some commenters supported CMS' goal of improving the 
display of quality information for the public's use. One commenter 
believed that the public would embrace a ``star rating'' system due to 
its simplicity. However, the commenter was concerned if confidence 
intervals and statistically significant differences can be displayed 
appropriately and correctly. One commenter recommended maintaining the 
availability of actual raw measure rates and testing different graphic 
depictions of measure results to improve the beneficiary-friendliness 
of the Hospital Compare Web site. Another commenter recommended that, 
prior to implementing graphical display, CMS should conduct an analysis 
of the appropriate domains or elements that would comprise the 
graphical rating, the relative weights assigned to each domain, and how 
risk-adjustment will be applied and get input from stakeholders.
    A few commenters opposed the ``star rating'' system as they 
believed that this kind of system requires arbitrary cutoffs. The 
commenters asserted that the pursuit for the small differences in high 
performance levels, as in the case of many Hospital IQR Program 
measures, is neither helpful to consumers nor fair to hospitals. 
Commenters believed that differentiation of hospital performance is 
best represented by the actual score or performance rate. The 
commenters were concerned that the use of star ratings may lead to 
hasty, snap decisions by the public.
    Response: We understand the commenter's concerns and thank them for 
sharing their insight on star rating system and graphical display. We 
work continuously to develop our Web site into a positive, user-
friendly experience. We will take the commenters' suggestions into 
consideration as we work to further improve Hospital Compare.
    Comment: A few commenters believed the platform of Hospital Compare 
offers the best hub for all kinds of measures of hospital performance. 
One commenter believed that the term ``Hospital Compare'' on the site 
is not appropriate due to the fact that no hospital attributes are used 
in any of the methodologies, and therefore, the data is not 
``comparative'' of ``hospitals.'' Some commenters contended that 
patient outcomes should be compared only against ``like'' facilities to 
truly measure outcomes that are meaningful. For example, the commenters 
believed that comparing a Trauma Level I facility to a Trauma Level III 
facility is not an appropriate compare. Likewise, tertiary facilities 
may unfairly be represented due to receiving higher acuity patients. 
The commenters urged adding more

[[Page 50778]]

transparency in hospital reports by including hospital attributes and 
regional patient demographics including volume, and numerators and 
denominators used to determine values, so that comparisons are 
realistic and a national standard within each stratum is user friendly 
and meaningful.
    Response: We thank the commenters for these suggestions for how to 
better display information on Hospital Compare, and will consider 
whether these enhancements are feasible for a future release of the Web 
site. We currently report characteristics including type of hospital 
and whether or not that hospital has an Emergency Department. We are 
fully committed to the display of hospital quality information for the 
general public to make informed decisions.
    Comment: One commenter recommended that CMS provide raw rates in 
Excel File format to meet provider and researchers' needs. In addition, 
the commenter also asked CMS to post hospital-level data for any 
measures that are used in calculating payments in a timely and routine 
fashion.
    Response: We currently make available data in a downloadable format 
which includes both an Access Database and CSV file formats which can 
be imported into an Excel spreadsheet. We will continue to offer these 
formats for downloading Hospital Compare data. We provide this data 
each quarter on http://www.medicare.gov/Download/DownloadDB.asp and on 
https://data.medicare.gov/. The process of care, HCAHPS and HAI measure 
rates are calculated on this quarterly schedule. Due to the nature of 
the calculation requirements, the outcome measures are only calculated 
annually.
    Comment: A few commenters were concerned that the outcome measures 
do not adequately identify outliers since the vast majority of 
hospitals are classified as average.
    Response: We have chosen to classify hospitals as Higher than 
Expected only when there is a high degree of certainty in order to 
avoid misleading consumers. To fall in the Higher than Expected 
category, the 95 percent interval estimate surrounding the hospital's 
rate must be higher than the national observed rate; the Lower than 
Expected category includes hospitals with 95 percent interval estimates 
lower than the national observed rate. The point estimate is also 
available for these hospitals, however, and shows a range of 
performance.
2. Removal and Suspension of Hospital IQR Program Measures
a. Considerations in Removing Quality Measures From the Hospital IQR 
Program
    Generally, we retain measures from the previous year's Hospital IQR 
Program measure set for subsequent years' measure sets except when they 
are removed or replaced as indicated. We refer readers to the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53505 through 53506) for a discussion 
of the considerations we use in removing (formerly referred to as 
retiring) previously adopted Hospital IQR Program measures.
    Comment: One commenter stated that ``topped-out'' should not be the 
sole criterion to remove process measures from the Hospital IQR Program 
measure set because the commenter was concerned about unintended 
consequences. The commenter contended that data collection for process 
measures that are strongly linked to the desired health outcomes (that 
is, accountability measures) should be continued since it is hard to 
predict the impact on performance once the measurement stops. The 
commenter strongly encouraged CMS to adopt the TJC accountability 
classification system in determining which process measures to remove.
    Response: We wish to clarify that when we propose to remove or 
suspend measures, we consider not only the measure's ``topped-out'' 
status, but also many other factors such as the MAP recommendation, NQF 
endorsement, the measure's tie to better patient outcomes, the 
potential negative impact on performance, whether the practices 
addressed by these measures continue to be routinely practiced, as well 
as public comments. The four measures we suspended beginning with the 
FY 2015 payment determination (77 FR 53509) were examples of how we 
apply such considerations.
    We also wish to clarify that measure suspension from the Hospital 
IQR Program results in a discontinuation of routine data collection for 
the measure for Hospital IQR Program purposes until further notice. 
However, unlike measure removal, data collection for a suspended 
measure may be re-initiated through subregulatory notification 
processes should there be evidence to support doing so and the 
specifications do not require substantive revision. After suspension, 
we may choose to reinstate measure data collection at a future time. 
Some circumstances under which we may choose to reinstate collection 
include, but are not limited to: Evidence indicating declines in 
performance after the suspension of a topped-out measure; changes in 
performance targets or best practices that informed the original 
measure; or MAP recommendations to reinstate the measure. If changes in 
the measure prompt us to consider reinstating data collection and such 
changes are substantive in nature, any modifications to a previously 
NQF-endorsed measure may require supplemental NQF review as well as 
rulemaking.
    We thank the commenter for the recommendation that we use the TJC 
accountability classification system and will take it into 
consideration when we contemplate measure removal and suspension.
b. Hospital IQR Program Measures Removed in Previous Rulemaking
    In previous rulemakings, we have removed numerous Hospital IQR 
Program quality measures, including:
     PN-1: Oxygenation Assessment for Pneumonia, a ``topped-
out'' measure, because measures with very high performance among 
hospitals present little opportunity for improvement and do not provide 
meaningful distinctions in performance for consumers (73 FR 48604).
     AMI-6: Beta Blocker at Arrival 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 remove such a measure, 
confirm the removal in the next IPPS rulemaking cycle, and notify 
hospitals and the public of the decision to promptly remove measures 
through the usual hospital and QIO communication channels used for the 
Hospital IQR Program. These channels include memos, email notification, 
and QualityNet Web site postings. To this end, we confirmed the removal 
of the AMI-6 measure in the FY 2010 IPPS/LTCH PPS rulemaking cycle 
after immediate suspension because the measure posed patient safety 
risks.
     Mortality for Selected Procedures Composite measure 
because the measure is not considered suitable for purposes of 
comparative reporting by the measure developer (75 FR 50186).

[[Page 50779]]

     Three adult smoking cessation measures: AMI-4: Adult 
Smoking Cessation Advice/Counselling; HF-4: Adult Smoking Cessation 
Advice/Counselling; and PN-4: Adult Smoking Cessation Advice/
Counselling, because these measures are ``topped-out'' and no longer 
NQF-endorsed (76 FR 51611).
     PN-5c: Timing of Receipt of Initial Antibiotic Following 
Hospital Arrival measure out of concerns that the continued collection 
of this measure might lead to the unintended consequence of antibiotic 
overuse (76 FR 51611).
     17 measures set out below (77 FR 53506 through 53509)

------------------------------------------------------------------------
                                      17 Measures removed from hospital
                                     IQR program measure set for the FY
               Topic                   2015 payment determination and
                                              subsequent years
------------------------------------------------------------------------
Surgical Care Improvement Project (SCIP) Measure
------------------------------------------------------------------------
                                     SCIP INF-VTE-1: Surgery
                                     patients with recommended Venous
                                     Thromboembolism (VTE) prophylaxis
                                     ordered *
------------------------------------------------------------------------
AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators
 (IQIs) and Composite Measures
------------------------------------------------------------------------
                                     PSI 06: Iatrogenic
                                     pneumothorax, adult **
                                     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 **
                                     IQI 91: 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 **
------------------------------------------------------------------------
* Chart-abstracted measure
** Claims-based measure

    Comment: A commenter recommended expediting the removal date of the 
17 measures targeted for FY 2015 payment determination removal to FY 
2014.
    Response: We note that although the payment determination in which 
these measures would cease to be used is FY 2015, the collection 
requirement for the measures will cease December 31, 2014. It is not 
feasible to cease collection sooner.
c. Removal of Hospital IQR Program Measures for the FY 2016 Payment 
Determination and Subsequent Years
    As we move toward more outcome-related measures, we have considered 
the removal of additional measures using our stated removal criteria. 
In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27680 through 27681), 
we proposed to remove 8 measures from the Hospital IQR Program. Three 
measures are chart-abstracted (one pneumonia measure, one heart failure 
measure, and one immunization measure), and one is a structural measure 
(Systematic Clinical Database Registry for Stroke Care). We also 
proposed to remove 4 additional chart-abstracted measures from the 
Hospital IQR Program because they were either recommended for removal 
by the MAP during the pre-rulemaking process or are considered ``topped 
out.''
(1) Removal of PN-3b: Blood Culture Performed in the Emergency 
Department Prior to First Antibiotic Received in the Hospital Measure
    In the FY 2007 IPPS final rule, we adopted PN-3b: Blood Culture 
Performed in the Emergency Department Prior to First Antibiotic 
Received in the Hospital. We proposed to remove this measure based on 
several considerations. First, the measure is no longer NQF-endorsed. 
Second, the MAP recommended removal of the measure from the Hospital 
IQR Program in a February 2013 pre-rulemaking report that made 
recommendations on measures under consideration by HHS. The MAP 
believed the measure was topped-out with no room for improvement. 
Third, the measure lacks an adequate association between processes of 
care and patient outcomes. Accordingly, since there is only limited 
data showing impact from drawing blood cultures prior to administering 
antibiotics and to address concerns of overuse of blood cultures, we 
proposed to remove PN-3b from the Hospital IQR Program.
    Comment: Many commenters strongly agreed with the rationale for 
removing PN-3b and acknowledged CMS' concerns about the unintended 
consequences of measuring the timing of drawing blood cultures, 
starting of antibiotics and its effect on the overuse of antibiotics 
and the emergence of drug resistant organisms.
    Response: We thank the commenters for supporting the removal of 
this measure and agreeing with our concerns for this measure.
    After consideration of the public comments we received, we are 
finalizing the removal of this measure from the Hospital IQR Program 
measure set.
(2) Removal of HF-1: Discharge Instructions Measure
    In the FY 2007 IPPS final rule we adopted HF-1: Discharge 
Instructions. We proposed to remove this measure based on several 
considerations. First, the measure is no longer NQF-endorsed. In 
addition, the MAP was concerned

[[Page 50780]]

because research showed a weak correlation between this measure and 
patient outcomes. Third, while we consider discharge instructions an 
important aspect of patient care, we face a challenge in validating the 
efficacy of the information received with this measure. Therefore, we 
proposed to remove HF-1 from the Hospital IQR Program.
    Comment: Some commenters supported the proposal to remove the HF-1 
measure, but also recommended the removal of STK-8 Stroke education 
measure as they are similar in nature since they are both discharge 
instruction measures.
    Response: We thank the commenter for the support for the removal of 
HF-1. We have not proposed to remove STK-8 because the assessment of 
stroke care quality is a relatively new topic in the Hospital IQR 
Program, and we have not had an opportunity to evaluate data on the 
measure because collection just began earlier this year. Also, for 
electronic reporting alignment purposes, STK-8 is one of the measures 
that we are going to allow hospitals to voluntarily report 
electronically.
    Comment: Many commenters strongly supported the proposed removal of 
the HF-1 Discharge Instruction Measure, which they believed contributes 
no real value in patient outcome. Commenters pointed out that the 
measure has been retired from the American College of Cardiology/
America Hospital Association performance measure list for heart failure 
patients because there is no strong link to outcomes. One commenter 
stated that the medication reconciliation aspect of this measure is 
labor intensive. One commenter encouraged CMS to continue to evaluate 
potential heart failure measures to maintain a comprehensive 
perspective, including medication reconciliation, because this 
condition affects so many high risk beneficiaries in the Medicare 
population. The commenter was concerned that the removal of the HF-1 
measure would cause a void in the measurement of medication 
reconciliation.
    Response: We thank the commenters for the support of our proposal 
to remove this measure. We agree with the commenter that heart failure 
is a high-risk condition affecting a large percentage of the Medicare 
population. We recognize the commenter's concerns that the HF-1 measure 
is not strongly tied to patient outcomes and that the medication 
reconciliation component of the measure is cumbersome to implement. 
However, there are currently three other measures in Hospital IQR 
Program measure set that address heart failure: HF-2: Evaluation of 
left ventricular systolic function; Heart Failure 30-day risk 
standardized readmission; and Heart Failure 30-day risk standardized 
mortality rate. Regarding the commenter's concern about a void in 
medication reconciliation from the removal of HF-1, we will continue to 
seek potential measures that address this HF issue for future 
rulemaking.
    After consideration of the public comments we received, we are 
finalizing the removal of this measure from the Hospital IQR Program 
measure set as proposed.
(3) Removal of IMM-1: Immunization for Pneumonia Measure
    We adopted IMM-1: Immunization for Pneumonia for the Hospital IQR 
Program for the FY 2014 payment determination with data collection 
beginning with January 1, 2012 discharges. We proposed to remove this 
measure based on the following consideration. In October of 2012, the 
Advisory Committee on Immunization Practices (ACIP) released new 
guidelines on the administration of pneumococcal vaccination for 
various populations. Because IMM-1 was already required as part of the 
Hospital IQR Program before the new guidelines were published, we 
cannot feasibly implement the measure to incorporate the potential 
iterations of the new guidelines. We believe that maintaining the 
measure in the Hospital IQR Program during this period of rapid 
guideline changes would detract from hospitals efforts to administer 
vaccines appropriately.
    We emphasize that, despite the proposed removal of IMM-1 from the 
Hospital IQR Program, we expect hospitals to continue to keep up-to-
date with the vaccination recommendations for various populations.
    Comment: Many commenters supported the proposed removal of IMM-1 
from the Hospital IQR Program measure set.
    Some commenters did not support the proposed removal of IMM-1 
Immunization for Pneumonia measure because they believed that removing 
the measure would undermine efforts to continually improve pneumococcal 
immunization rates. In addition, the commenters noted that optimal 
vaccination rates for the older patient population have yet to be 
achieved. Commenters believed immunization for pneumonia in older 
adults, especially the Medicare population, is of paramount importance 
to prevent admissions due to pneumonia. The commenters believed that 
the latest CMS measure specifications updates in the Specifications 
Manual should be broad enough to accommodate the new ACIP guidelines 
for the administration of pneumococcal vaccination to various 
populations. Commenters expressed concern that efforts to increase 
adult vaccination for pneumonia would decline if the measure were 
removed from the program altogether. One commenter recommended allowing 
an interim period for hospitals to prepare to report on the measure 
based on the ACIP recommendations. Also, the commenter urged CMS to 
maintain a comprehensive pneumonia measure set in the Hospital IQR 
Program.
    Response: We appreciate the comments that support the removal IMM-1 
from the Hospital IQR Program. Our original intent was to propose and 
finalize the removal of the measure from the Hospital IQR Program 
measure set based on the reasons indicated in the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27680). Since the publication of the proposed 
rule, we have carefully assessed our measure removal criteria, measure 
suspension criteria as discussed in the IX.A.2.a. of the preamble of 
this final rule, the considerations in removing quality measures from 
the Hospital IQR Program set out in the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51609 through 51611), as well as public comments received 
from this rulemaking. We have, as explained more fully below, decided 
it is more suitable to suspend the collection of the IMM-1 measure 
until further notice rather than remove it from the program altogether 
in order that we may update the measure and reinstate the collection of 
the measure in electronic form in the future, should evidence arise of 
a decline in performance. As indicated in this example of measure 
suspension, we note our measure suspension policy entails flexibility 
in that suspension decisions can be made on a case by case basis.
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51609 through 
51610), we removed measures because they were ``topped-out.'' In the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53506 through 53509), we removed 
measures for several reasons: (1) They lost NQF endorsement; (2) an 
alternative measure that is more proximal to or that has a stronger 
relationship to outcome was available; (3) a more broadly applicable 
measure was available; (4) to reduce redundancy; (5) MAP 
recommendation; or (6) the measure would not be used in Hospital VB 
Program.
    The IMM-1 measure does not meet one or more of the criteria for 
removal

[[Page 50781]]

stated above, and therefore, we believe warrants suspension rather than 
removal. In the case of the IMM-1 measure, since the October 1, 2012 
release of the ACIP guidelines on the administration of the 
pneumococcal vaccination for various populations, we investigated 
numerous options to refine the IMM-1 measure to be consistent with 
those guidelines. Following discussions with technical experts, we 
learned that creating several algorithms to capture all possible 
scenarios prior to pneumococcal vaccination was not the only challenge 
of implementing a feasible and reliable chart-abstracted measure. We 
learned that achieving reproducibly meaningful measure results depended 
on patient charts that consistently contained detailed information 
about the date and type of prior vaccination, and comorbid conditions. 
We determined that our current data source for the measure (that is, 
paper medical records that undergo chart abstraction) often do not 
contain this level of detailed historical data and patients often do 
not recall dates of prior vaccines received and specific vaccine types. 
When considering possible clinical scenarios of screening and 
vaccinating for pneumonia, current chart and electronic data do not 
consistently allow for successful abstraction of these varied and 
detailed historical facts, all of which are needed to appropriately 
administer a pneumococcal vaccine. The measure, as updated by ACIP 
guidelines, would burden hospitals with data abstraction yielding 
questionably meaningful and reliable results, and could potentially 
encourage hospitals to vaccinate inappropriate patients in order to not 
perform poorly on a measure. Furthermore, we also learned that the ACIP 
recommendations are likely to further evolve in the near future.
    However, we agree with the commenters that immunization for 
pneumonia in older adults, especially the Medicare population, is of 
paramount importance to prevent admissions due to pneumonia. Ideally, 
patients 65 years of age and older should be routinely screened and 
vaccinated during all points of contact with healthcare providers, not 
just in the acute care setting. Hospital IQR Program measures play a 
pivotal role in improving health care and we believe that IMM-1 has 
contributed to achieving desirable pneumococcal rates. We stress that 
is not our intent to discourage appropriate pneumococcal vaccination of 
adults. We reiterate that hospitals should adhere to preventive 
medicine principles by being up-to-date with evidenced-based ACIP 
recommendations and CDC pneumococcal vaccination guidelines and 
vaccinate accordingly.
    In summary, we believe the IMM-1 measure is more appropriate for 
suspension than removal because it does not meet the previously stated 
removal criteria, but cannot be implemented in its current state. 
Therefore, in an effort to balance our goals to incentivize high 
quality care while minimizing data collection burden for hospitals, we 
have decided to suspend data collection for IMM-1 in the Hospital IQR 
Program until such time when the guidelines stabilize and are well-
established.
    In addition, due to the detailed aspects of the current ACIP 
guidelines, we believe a pneumococcal measure is best implemented with 
information from electronic health records. Based on the above comments 
and issues, instead of removing, we will suspend the IMM-1 measure from 
the Hospital IQR Program beginning with the FY 2016 payment 
determination until further notice.
(4) Removal of the Structural Measure: Participation in a Systematic 
Clinical Database Registry for Stroke Care
    We adopted the structural measure Participation in a Systematic 
Clinical Database Registry for Stroke Care for the Hospital IQR Program 
for the FY 2013 payment determination with data collection beginning 
with January 1, 2011 discharges. We proposed to remove this measure 
based on the following consideration. Since the adoption of this 
structural measure, we have adopted a Stroke measure set with data 
collection beginning with January 1, 2013 discharges. We believe that 
the Stroke measure set will provide more meaningful and detailed 
information regarding how well stroke care is being managed in a 
hospital setting than the current structural measure, which consists of 
a general yes/no response.
    Comment: Many commenters supported the proposed removal of the 
measure in light of the proposed addition of clinically driven process 
of care measures of stroke care. The commenters believed that 
participation in a registry is not correlated with improved patient 
care. A few commenters did not support the removal of this measure for 
concern that hospitals may be dis-incentivized to participate in 
registry data collection. The commenters added that the stroke registry 
collects more information than the Stroke measure set specified for e-
reporting.
    Response: We thank the commenters for their support of the removal 
of the measure. The purpose of this measure was to assess registry 
participation and not to incentivize it. We do not believe that removal 
of this measure would dis-incentivize hospitals from participating in 
registries. Currently, the Hospital IQR Program measure set still 
contains other structural measures regarding registry participation. We 
believe that registries continue to provide valuable quality 
improvement feedback to hospitals that may be useful beyond what we are 
reporting. We do not anticipate hospitals would discontinue 
participation in registry even though we remove this structural 
measure.
    After consideration of the public comments we received, we are 
finalizing the removal of this measure from the Hospital IQR Program 
measure set as proposed.
(5) Removal of Four Additional Chart-Abstracted Measures
    We also proposed to remove four chart-abstracted measures from the 
Hospital IQR Program because these measures were either recommended for 
removal by the MAP during the pre-rulemaking process or are considered 
``topped out.''
     AMI-2: Aspirin prescribed at discharge
     AMI-10: Statin prescribed at discharge
     HF-3: ACEI or ARB for LVSD
     SCIP-Inf-10: Surgery Patients with perioperative 
temperature management
    We invited public comment on our proposal to remove these measures.
    Comment: Many commenters supported the proposed removal of the four 
additional chart-abstracted measures.
    Response: We thank the commenters for their support for the removal 
of these proposed measures.
    Comment: A few commenters did not support the proposed removal of 
the AMI-2 Aspirin prescribed at discharge and AMI-10 Statin prescribed 
at discharge measures. The commenters were concerned that removal of 
these two measures may change the topped-out performance to sub-par 
performance. One commenter urged CMS to put these four measures in 
suspension rather than removal. The commenters noted that the first 
three of these measures are TJC accountability measures and are worthy 
of monitoring and continued review to ensure that performance do no 
inappropriately decline.
    Response: We recognize the commenters' concern and appreciate the 
feedback. However, we consider many

[[Page 50782]]

factors before proposing to remove a measure from the Hospital IQR 
Program. These factors include the measure's ``topped-out'' status, MAP 
recommendation, NQF endorsement, the measure's tie to better patient 
outcomes, the likelihood of a potential negative effect on performance, 
whether the practices addressed by these measures continue to be 
routinely practiced, as well as public comments. We believe that even 
with removal of the these measures, the remaining AMI and HF measures 
in Hospital IQR Program measure set will ensure that hospitals continue 
to monitor appropriate medication use for patients with AMI and HF 
conditions, and we also believe (based on our experience with other 
measures that we have removed) that performance of these routine care 
processes is unlikely to decline. Taking all these factors into 
consideration, we will finalize removal of these measures.
    Comment: One commenter did not support the removal of the HF-3 ACE-
I or ARB for left ventricular systolic dysfunction measure. The 
commenter believed that the measure collects valuable data for HF 
patients as the ACE-I/ARB dose could shed light on best practices. The 
commenter urged CMS to put this measure in suspension rather than 
removal.
    Response: We appreciate the commenters concerns. However, the data 
collected from HF-3 only captures if an ACE-I or ARB was prescribed at 
discharge and does not capture dosing practices. We believe that the 
remaining measures in the Hospital IQR Program will continue to monitor 
and evaluate the quality of HF care within hospitals.
    After consideration of the public comments we received and based on 
the reasons provided in the proposed rule (78 FR 27680), we are 
finalizing our proposal to remove this measure from the Hospital IQR 
Program.
    Comment: One commenter recommended the removal of all structural 
measures.
    Response: In our view, the structural measures currently in the 
Hospital IQR Program measure set still yield valuable information in 
the improvement of healthcare quality and we have no plans to remove 
all structural measures unless evidence indicates otherwise.
    Comment: Many commenters requested immediate removal of the removed 
measures from Hospital Compare once their removal is finalized.
    Response: We note that once the measures are removed from the 
Hospital IQR Program, they are also removed from Hospital Compare.
    After consideration of the public comments we received, we are 
finalizing the removal of six chart-abstracted measures and one 
structural measure listed in the tables below; we are also suspending 
the IMM-1 measure from the Hospital IQR Program measure set beginning 
with the FY 2016 payment determination and until further notice.

------------------------------------------------------------------------
                                        Hospital IQR program measures
                                    removed in this Final Rule beginning
               Topic                      with the FY 2016 Payment
                                                Determination
------------------------------------------------------------------------
Acute Myocardial Infarction.......   AMI-2 Aspirin prescribed at
                                     discharge.
                                     AMI-10 Statin prescribed at
                                     discharge.
------------------------------------------------------------------------
Pneumonia.........................   PN-3b Blood culture
                                     performed in the emergency
                                     department prior to first
                                     antibiotic received in hospital.
------------------------------------------------------------------------
Heart Failure.....................   HF-1 Discharge
                                     instructions.
                                     HF-3 ACEI or ARB for LVSD.
------------------------------------------------------------------------
Surgical Care Improvement Project.   SCIP-Inf-10 Surgery
                                     patients with perioperative
                                     temperature management.
------------------------------------------------------------------------
Structural Measure................   Participation in a
                                     systematic clinical database
                                     registry for stroke care.
------------------------------------------------------------------------


------------------------------------------------------------------------
                                        Hospital IQR program measures
                                        suspended in this Final Rule
               Topic                 beginning with the FY 2016 payment
                                                determination
------------------------------------------------------------------------
Immunization......................   IMM-1 Immunization for
                                     pneumonia.
------------------------------------------------------------------------

d. Suspension of Data Collection for the FY 2014 Payment Determination 
and Subsequent Years
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51611), we suspended 
data collection for four measures beginning with January 1, 2012 
discharges, affecting the FY 2014 payment determination and subsequent 
years.

------------------------------------------------------------------------
                                        Hospital IQR program measures
               Topic                 previously suspended beginning with
                                      the FY 2014 payment determination
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI).   AMI-1 Aspirin at arrival.
                                     AMI-3 ACEI/ARB for left
                                     ventricular systolic dysfunction.
                                     AMI-5 Beta-blocker
                                     prescribed at discharge.
------------------------------------------------------------------------
Surgical Care Improvement Project    SCIP INF-6 Appropriate Hair
 (SCIP).                             Removal.
------------------------------------------------------------------------

    We suspended, rather than removed, these measures, despite having 
evidence that these measures may be topped-out (that is, their 
performance is uniformly high nationwide, with little variability among 
hospitals) because we believe that the processes assessed by these 
measures are tied to better patient outcomes, and that permanent 
removal of the measures from the Hospital IQR Program may result in 
declines in performance and, therefore, worse outcomes. Therefore, we 
decided not to remove these measures from the Hospital IQR Program. The 
suspension

[[Page 50783]]

of data collection for these four measures will be continued unless we 
have evidence that performance on the measures is in danger of 
declining. Should we determine that hospital adherence to these 
practices has unacceptably declined, we would resume data collection 
using the same form and manner and on the same quarterly schedule that 
we finalize for these and other chart abstracted measures, providing at 
least 3 months of notice prior to resuming data collection. Hospitals 
would be notified of this via CMS listservs, CMS email 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 four measures.
3. Process for Retaining Previously Adopted Hospital IQR Program 
Measures for Subsequent Payment Determinations
    For the purpose of streamlining the rulemaking process, in the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53512 through 53513), we finalized 
our policy that when we adopt measures for the Hospital IQR Program 
beginning with a particular payment determination, these measures are 
automatically adopted for all subsequent payment determinations unless 
we propose to remove, suspend, or replace the measures.
4. Additional Considerations in Expanding and Updating Quality Measures 
Under the Hospital IQR Program
    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53510 through 53512) for a discussion of the considerations we use to 
expand and update quality measures under the Hospital IQR Program and 
our policy, beginning with the FY 2013, to use one calendar year of 
data for chart-abstracted measures for payment determinations.
    Comment: Many commenters commended CMS for its overarching plans 
and efforts to advance the Hospital IQR Program to its current success.
    Many commenters applauded CMS' program direction in strengthening 
the portfolio of hospital inpatient quality measures, removing some 
chart-abstracted clinical process measures and adding more claims-based 
outcome measures in the Hospital IQR Program. Many commenters greatly 
appreciated CMS' efforts to strive for measures that meet the 
objectives of the National Priorities Partnership, HHS Strategic Plan 
and National Quality Strategy and moving towards using EHR for data 
collection. Commenters anticipated that streamlining the reporting 
requirements, aligning and harmonizing measures for the EHR Incentive 
Program and the Hospital IQR Program will significantly ease the 
reporting burden on hospitals as well as on clinicians who can devote 
more time to direct patient care.
    Response: We are strongly encouraged by the positive support from 
the public and hospitals. We will continue to embrace our goals and 
commitment to inspire hospitals to continually improve the quality of 
care.
    We are very pleased with the public support of our program 
direction and our efforts to shift our focus to more outcome measures 
and use the NQS as the framework to attain a cohesive public national 
quality strategy to achieve high quality care across the healthcare 
spectrum.
    Comment: One commenter suggested CMS consider issuing a prioritized 
set of medical conditions for which CMS seeks to adopt quality measures 
in proposed rulemaking to solicit stakeholders' feedback.
    Response: We thank the commenter for this suggestion, and will 
consider doing so in future rulemaking.
    Comment: One commenter suggested consolidating all the hospital 
payment incentives and related reporting program requirements into one 
big program to alleviate the reporting burden on providers.
    Response: We understand the commenter's concerns. However, it would 
not be feasible for us to implement such a program at this time. To 
alleviate burden for hospital providers, we are striving to align 
measures across settings as well as moving toward electronic reporting.
    Comment: One commenter supported the established NQF/MAP process to 
review and endorse measures. However, the commenter recommended that 
CMS adhere to the scheduled NQF/MAP meetings for endorsement without 
using ad hoc meetings to review measures that did not receive NQF 
endorsement.
    Response: We thank the commenters for their support of the Measure 
Applications Partnership (MAP) and the NQF. We acknowledge that their 
contributions to quality measurement remain a valuable part of our 
programs. However, because it appears that some confusion may have 
arisen, we are clarifying the roles that these two groups play in this 
process.
    First, we would like to state that the MAP pre-rulemaking process 
and the NQF endorsement process are very different processes, even 
though they both involve the NQF. The NQF endorsement process involves 
reviewing measures for endorsement and deals with substantive changes 
to measures because such changes often affect measure endorsement. 
Section 1890 of the Act governs the contract that the Secretary has 
with the NQF and the duties related to endorsement. On the other hand, 
the MAP pre-rulemaking process does not address the review and 
development of measures for endorsement, nor does the MAP endorse 
measures. Rather, section 1890A of the Act, which establishes the pre-
rulemaking process, requires that the entity under contract with the 
Secretary under section 1890 of the Act (currently the NQF) convene 
multi-stakeholder groups to provide input into the selection of certain 
categories of quality and efficiency measures being considered by the 
Secretary for use in a number of federal programs and other quality-
related initiatives. This process provides another opportunity, in 
addition to opportunities provided during the rulemaking process 
itself, for the public to comment on measures being considered for use 
in certain federal healthcare programs and initiatives. The NQF 
convenes such multi-stakeholder groups and has labeled these multi-
stakeholder groups the MAP. The MAP's input is based on, among other 
things, a list that the Secretary must make available to the public by 
December 1st of each year (the List of Measures Under Consideration or 
MUC List). The MUC List sets forth the measures that the Secretary is 
considering for inclusion in certain federal programs at the time that 
the list is made public. The MAP must provide its input on selecting 
measures by February 1st of the following year, and can provide input 
on the measures on the MUC List. We note that there is no statutory 
requirement for us to follow every MAP recommendation. As stated in the 
statute, the Secretary need only consider the MAP input. We follow many 
MAP recommendations and have considered all MAP input, as required by 
statute.
    We did request that the MAP set up meetings with a Hospital 
Workgroup for an ad hoc review of four measures for hospital programs 
that were not on the MUC list. However, none of those measures were IQR 
measures. As such, the ad hoc meetings had no effect on the IQR 
program.
    Comment: A few commenters strongly recommended that CMS only adopt 
measures reviewed by the MAP and endorsed by NQF. The commenters 
contended that consensus achieved during the measure development 
process, through broad acceptance and

[[Page 50784]]

use of a measure, or through public comment do not entail the robust 
and comprehensive process used to establish NQF endorsement.
    Response: We have adhered to the pre-rulemaking process as required 
under section 1890A of the Act in proposing and finalizing all measures 
in the Hospital IQR program. This includes receiving and taking into 
consideration input from the MAP. We reiterate that, as stated in 77 FR 
53510, to the extent practicable, measures we use should be nationally 
endorsed by a multi-stakeholder organization. Section 3001(a)(2) of the 
Affordable Care Act 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 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.'' Accordingly, 
we attempt to utilize endorsed measures whenever possible.
5. Changes to Hospital IQR Program Measures Previously Adopted for the 
FY 2015 and FY 2016 Payment Determinations and Subsequent Years
a. Previously Adopted Hospital IQR Program Measures for the FY 2015 
Payment Determination and Subsequent Years
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53512 through 
53531), we finalized 59 measures for the Hospital IQR Program measure 
set for the FY 2015 payment determination and subsequent years. These 
59 measures are listed below.

------------------------------------------------------------------------
                                        Hospital IQR program measures
                                     previously adopted for the FY 2015
               Topic                      payment determination and
                                              subsequent years
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI)    AMI-2 Aspirin prescribed at
 Measures.                           discharge.
                                     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 (STK) Measure Set..........   STK-1 VTE prophylaxis.
                                     STK-2 Antithrombotic
                                     therapy for ischemic
                                     stroke.[dagger]
                                     STK-3 Anticoagulation
                                     therapy for Afib/flutter.[dagger]
                                     STK-4 Thrombolytic therapy
                                     for acute ischemic stroke.[dagger]
                                     STK-5 Antithrombotic
                                     therapy by the end of hospital day
                                     2.[dagger]
                                     STK-6 Discharged on
                                     Statin.[dagger]
                                     STK-8 Stroke
                                     education.[dagger]
                                     STK-10 Assessed for
                                     rehab.[dagger]
------------------------------------------------------------------------
VTE Measure Set...................   VTE-1 VTE
                                     prophylaxis.[dagger]
                                     VTE-2 ICU VTE
                                     prophylaxis.[dagger]
                                     VTE-3 VTE patients with
                                     anticoagulation overlap
                                     therapy.[dagger]
                                     VTE-4 Patients receiving un-
                                     fractionated Heparin with doses/
                                     labs monitored by protocol.[dagger]
                                     VTE-5 VTE discharge
                                     instructions.[dagger]
                                     VTE-6 Incidence of
                                     potentially preventable
                                     VTE.[dagger]
------------------------------------------------------------------------
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-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-VTE-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 (expanded to
 Measures.                           include one 3-item care transition
                                     set* and two new ``About You''
                                     items).*
------------------------------------------------------------------------

[[Page 50785]]

 
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.
                                     30-day Risk Standardized
                                     Readmission following Total Hip/
                                     Total Knee Arthroplasty.*
                                     Hospital-Wide All-Cause
                                     Unplanned Readmission (HWR).*
------------------------------------------------------------------------
AHRQ Patient Safety Indicators       Complication/patient safety
 (PSIs) Composite Measures.          for selected indicators
                                     (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.
                                     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.
                                    --SSI following Colon Surgery.
                                    --SSI following Abdominal
                                     Hysterectomy.
                                     Catheter-Associated Urinary
                                     Tract Infection.
                                     MRSA Bacteremia.
                                     Clostridium difficile (C.
                                     difficile).
                                     Healthcare Personnel
                                     Influenza Vaccination.
------------------------------------------------------------------------
Surgical Complications............   Hip/Knee Complication:
                                     Hospital-level Risk-Standardized
                                     Complication Rate (RSCR) following
                                     Elective Primary Total Hip
                                     Arthroplasty.*
------------------------------------------------------------------------
Emergency Department (ED)            ED-1 Median time from
 Throughput Measures.                emergency department arrival to
                                     time of departure from the
                                     emergency room for patients
                                     admitted to the hospital.[dagger]
                                     ED-2 Median time from admit
                                     decision to time of departure from
                                     the emergency department for
                                     emergency department patients
                                     admitted to the inpatient
                                     status.[dagger]
------------------------------------------------------------------------
Prevention: Global Immunization      Immunization for Influenza.
 (IMM) Measures.                     Immunization for Pneumonia.
------------------------------------------------------------------------
Cost Efficiency...................   Medicare Spending per
                                     Beneficiary.
------------------------------------------------------------------------
Perinatal Care....................   PC-01 Elective delivery
                                     prior to 39 completed weeks of
                                     gestation.*/[dagger]
------------------------------------------------------------------------
* New or expanded measures/items for the FY 2015 payment determination
  and subsequent years.
[dagger] Measure for electronic reporting via CEHRT in the Hospital IQR
  Program (voluntary participation in CY 2014).

    We received some comments on some of the measures adopted for the 
FY 2015 payment determination and subsequent years.
    Comment: One commenter believed that the Hospital-wide readmission 
(HWR) measure cohort is too broad for adequate risk-adjustment and 
risk-adjustment for readmission rates is inadequate overall.
    Response: In reference to the commenter's concern about the cohort 
being too broad for adequate risk-adjustment, we wish to clarify that 
the HWR measure divides the broad hospital cohort into 5 categories for 
risk-adjustment. The HWR measure is composed of 5 separate models--
cardiorespiratory, cardiovascular, general medicine, neurology and 
surgery. This enables us to assess the risk factor profiles of the 
conditions within each cohort to ensure that risk factors are similar 
within cohort both in directionality and the strength of the 
relationship with the outcome, for each of these specific cohorts. 
Therefore, we believe that this cohort specific approach ensures 
adequate risk adjustment for the readmission measure. We note that the 
intent of readmission measures is to profile hospital quality and not 
to maximize the prediction of hospital or patient readmission risk as 
the commenter seems to imply.
    Comment: One commenter was concerned about hospitals shifting care 
to the ED or using more observation stay services in order to avoid 
being penalized for readmissions and requests that the readmission 
measures be accompanied by measures of ED and observation stay usage.
    Response: We have continued to consider and evaluate stakeholder 
concerns regarding the increased use of ED and observation stay use in 
order to avoid readmissions. We take this issue very seriously and will 
continue to monitor the usage of ED and observation stay services to 
determine if other measures of ED and observation stay should be 
reported alongside readmission measures.
b. Refinements to Existing Measures in the Hospital IQR Program
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27683 through 
27684), we proposed to incorporate refinements for several measures 
that are currently adopted in the Hospital IQR Program. These 
refinements have either arisen out of the NQF endorsement maintenance 
process, or during our internal efforts to harmonize measurement 
approaches. The measure refinements include the following: (1) 
Incorporation of the planned readmission algorithm in 30-day 
readmission measures for AMI, HF, PN, THA/TKA, and Hospital-Wide 
Readmission to match recent NQF endorsement maintenance decisions 
beginning in 2013; (2) expansion of CLABSI and CAUTI measures to select 
non-ICU locations in IPPS hospitals beginning with infections occurring 
on

[[Page 50786]]

or after January 1, 2014 (consistent with NQF expansion of the measures 
beyond ICUs); (3) updates to SCIP INF 4 to match recent NQF endorsement 
maintenance decisions beginning with January 1, 2014 discharges; and 
(4) an update to the MSPB measure to include Railroad Retirement Board 
(RRB) beneficiaries beginning in 2014. These proposed refinements are 
described in greater detail below.
(1) Incorporation of Planned Readmission Algorithm for 30-Day 
Readmission Measures
    In response to stakeholder comments, we have developed an algorithm 
to identify readmissions that are likely to be planned as part of 
ongoing medical or surgical treatment. Planned readmissions are 
identified in claims data using the CMS Planned Readmission Algorithm 
Version 2.1 which detects readmissions that are typically planned and 
may occur within 30 days of discharge from the hospital. For more 
information on the methodology used to identify planned readmissions, 
and the list of planned diagnoses and procedures used in the algorithm, 
we refer readers to the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html, as well as the 
discussion of planned readmissions under section 3025 of the Affordable 
Care Act in section V.G. of the preamble of this final rule. We 
submitted this algorithm for NQF review during annual maintenance of 
the AMI, HF, PN, and Total Hip/Total Knee Replacement readmission 
measures as well as for the recently adopted Hospital Wide Readmission 
measure.
    NQF has endorsed the use of the algorithm for these measures, and 
we proposed to incorporate the Planned Readmission Algorithm into the 
AMI, HF, PN, and Total Hip/Knee Replacement readmission measures in 
addition to the Hospital-Wide Readmission Measure beginning in 2013. We 
invited public comment on this proposal.
    Comment: Many commenters supported the inclusion of the planned 
readmissions algorithm.
    Response: We appreciate the commenters support for the readmissions 
algorithm.
    Comment: One commenter requested that the planned readmissions 
algorithm for stroke include patent foramen ovale closure and 
cranioplasty following a decompressive craniectomy.
    Response: We thank the commenter for the suggestions. We clarify 
that as part of the planned readmissions algorithm, patients who are 
readmitted for a patent foramen ovale closure (AHRQ CCS 49--Other OR 
heart procedures) or cranioplasty (AHRQ CCS 9--Other OR therapeutic 
nervous system procedures) are already classified as planned 
readmissions and will not count as readmissions in the measures.
    Comment: Many commenters believed that CMS should exclude 
readmissions unrelated to the initial reason for admission.
    One commenter requested that CMS allow hospitals to indicate when a 
readmission was planned. Another commenter requested that CMS allow 
hospitals to indicate if a readmission was related so that these can be 
excluded.
    Response: We do not seek to differentiate between related and 
unrelated readmissions because readmissions not directly related to the 
index condition may still be a result of the care received during the 
index hospitalization. For example, a patient hospitalized for stroke 
who develops a hospital-acquired infection may ultimately be readmitted 
for sepsis. It would be inappropriate to treat this readmission as 
unrelated to the care the patient received during the index 
hospitalization. Furthermore, the range of potentially avoidable 
readmissions also includes those not directly related to the initial 
hospitalization, such as those resulting from poor communication at 
discharge or inadequate follow-up. Therefore, creating a comprehensive 
list of potential complications related to the index hospitalization 
would be arbitrary, incomplete, and, ultimately, impossible to 
implement.
    Generally, planned readmissions are not a signal of quality of 
care. We have worked with experts in the medical community as well as 
other stakeholders to carefully identify procedures and treatments that 
should be considered ``planned'' and not counted as readmissions. In 
the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27683), we proposed that 
the measures identify planned readmissions by using an expanded 
algorithm, which is a set of criteria for classifying readmissions as 
planned using Medicare claims. This algorithm identifies admissions 
that are typically planned and may occur within 30 days of discharge 
from the hospital.
    Comment: A few commenters urged CMS to continue researching 
additional exclusions for planned readmissions.
    Response: We are committed to continually updating the planned 
readmissions algorithm. Our measures continually undergo maintenance to 
determine the need for updated specifications and to monitor trends as 
well as coding changes. We will continue to closely monitor the planned 
readmissions algorithm and modify it as needed.
    Comment: A few commenters requested that CMS incorporate 
socioeconomic factors in its risk-adjustment methodology for outcome 
measures.
    Response: We have continued to consider and evaluate stakeholder 
concerns regarding the influence of patient socioeconomic status on 
readmission and mortality rates. We routinely monitor the impact of 
socioeconomic status on hospitals' results and have consistently found 
that hospitals that care for large proportions of patients of low 
socioeconomic status are capable of performing well on our measures. 
Our most recent analyses (Chartbook: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/MedicareHospitalQualityChartbook2012.pdf) once again confirmed this 
finding. Many safety-net providers and teaching hospitals do as well or 
better on the measures than hospitals without substantial numbers of 
patients of low socioeconomic status. Our analyses also show that 
adding SES to the risk-adjustment has a negligible impact on hospitals' 
risk-standardized rates (p. 36 of the previously referenced Chartbook). 
The risk-adjustment for clinical factors likely captures much of the 
variation due to socioeconomic status, thus leading to more modest 
impact of socioeconomic status on hospitals' results than stakeholders 
expect.
    We note that the goal of risk-adjustment is to account for factors 
that are inherent to the patient at the time of admission, such as 
severity of disease, so as to put hospitals on a level playing field. 
The measures should not be risk-adjusted to account for differences in 
practice patterns that lead to lower or higher risk for patients to be 
readmitted or die. The measures aim to reveal differences related to 
the patterns of care. The measures do not adjust for socioeconomic 
status because the association between socioeconomic status and health 
outcomes can be due, in part, to differences in the quality of health 
care received by groups of patients with varying socioeconomic status. 
The measures also do not adjust for socioeconomic status because we do 
not want to hold hospitals to different standards for the outcomes of 
their patients of low socioeconomic status.

[[Page 50787]]

    Finally, we do not want to mask potential disparities or minimize 
incentives to improve the outcomes of disadvantaged populations. This 
approach is also consistent with the guidance from the NQF, which 
states that risk models should not obscure disparities by adjusting for 
factors associated with inequality (such as race or socioeconomic 
status). However, we are committed to tracking this issue and will 
continue to evaluate disparities in care and the impact of patients' 
socioeconomic status on hospitals' rates.
    After consideration of the public comments we received, we are 
finalizing the proposed incorporation of planned readmission algorithm 
for 30-day readmission measures.
(2) Expansion of Collection of CLABSI and CAUTI to Select Non-ICU 
Locations
    We proposed to expand the collection of the CAUTI and CLABSI 
measures to include several non-ICU locations beginning with infections 
occurring on or after January 1, 2014. Those proposed locations are 
medical wards, surgical wards, and medical/surgical wards. This 
expansion is consistent with the NQF re-endorsement update to these 
measures allowing application of the measures beyond ICUs. We proposed 
this expansion to allow hospitals that do not have ICU locations to use 
the tools and resources of the NHSN for quality improvement and public 
reporting efforts. We invited public comment on this proposal.
    Comment: Some commenters supported the proposed expansion and 
collection of the CLABSI and CAUTI measures to select non-ICU 
locations. These commenters believed the prevalence of the use of 
urinary and central venous line catheters outside the ICU setting is 
significant, and this refinement would allow hospitals that do not have 
ICU locations to use these tools and resources for quality improvement. 
In addition, the refinements align with the updated NQF-endorsed 
version. Commenters urged CMS to update the measure specifications in 
the measure Specifications Manual accordingly.
    Response: We thank the commenters' for their support. CDC is the 
measure steward for the CLABSI and CAUTI measures and the technical 
Specifications Manual will refer to the CDC site for the updated 
measure specifications.
    Comment: A few commenters did not support the expansion and 
collection of CLABSI and CAUTI to select non-ICU locations for several 
reasons. These commenters noted that collection beyond the ICU setting 
is very burdensome and labor intensive because it would require manual 
data collection for a potentially large number of patients each day 
that they have a catheter device for the denominator.
    These commenters recommended that CMS should: (1) Retain the 
current specifications and confine data collection for CLABSI and CAUTI 
to ICUs (where patients are at most risk) only within acute care 
hospitals until more accurate surveillance definitions and validated 
methods to more simply collect the data are available; (2) wait for the 
CDC to obtain NQF endorsement for a revised version of the CLABSI 
measure; and (3) focus on developing an electronically specified 
hospital-wide measure that relies on ICD-10.
    Response: Over 1,300 healthcare facilities nationwide already 
collect and report CLABSI and CAUTI data from patient care locations 
beyond ICUs. This reporting is prompted by State mandates, facility 
participation in the current CMS 10th Scope of Work for the QIO program 
(http://medicaring.org/2011/06/22/highlights-of-10th-sow-for-qios/), 
and a number of existing regional collaborations. The commenter is 
correct that the CDC is working to clarify the CAUTI definitions to 
eliminate any confusion and inaccuracies in the determinations of 
specified criteria. These clarifications are planned to be included in 
the NHSN system as early as January 2014.
    There were no further updates submitted to NQF by CDC at this time 
for CLABSI definitions, so the only update being made by CDC to this 
NQF measure is inclusion of the calculations to produce a reliability-
adjusted SIR. This is an addition and not a replacement to any metrics 
already described in the existing approved measure, and does not change 
any criteria or definitions for reporting CLABSIs. We also note that we 
consider a change of this type to be a technical change to the measure, 
rather than a substantive change requiring notice and comment 
rulemaking. CDC analyses have shown that the SIR and its use of the 
number of days catheters were used (catheter days) are reliable and 
accurately represent the risk for patients who acquire catheter-
associated infections. Use of any other denominator, like number of 
patients (patient days), may not appropriately evaluate the risk of 
infection per patient. The NHSN definitions for CLABSI and CAUTI are a 
more accurate and true representation of these infections as the 
definitions focus on actual signs and symptoms collected from a patient 
and not simply a number of codes attached to a patient stay for billing 
purposes. Therefore, ICD-10 diagnosis codes, as is the case with the 
current ICD-9-CM codes, would not be a suitable or acceptable 
replacement for the NHSN HAI definitions.
    Comment: Some commenters recommended delaying the expansion and 
collection of CAUTI to select non-ICU locations, in order to give 
hospitals more time to implement electronic collection of the 
denominator data, expand best practices outside the ICU, and prepare 
for data collection to accurately count and report device days. Some 
commenters recommended allowing hospitals to have a trial collection 
period.
    Response: We acknowledge commenters' concerns about needing 
additional time to expand collection efforts beyond the ICU for CLABSI 
and CAUTI. Based upon these comments, we will defer the implementation 
date of the CLABSI/CAUTI expansion to non-ICU settings by one year to 
January 1, 2015. This 1-year deferred implementation date would give 
hospitals time to test collection in non-ICU locations prior to the 
January 1, 2015 implementation date.
    After consideration of the public comments we received, we are 
deferring the implementation date of the CLABSI/CAUTI expansion to non-
ICU settings to January 1, 2015.
(3) Refinement of SCIP-INF-4 to Match Refinements Made During NQF Re-
endorsement
    The quality measure SCIP INF 4, Controlled 6AM Glucose for Cardiac 
Surgery Patients (NQF 300), is an example of a measure that 
has undergone extensive changes as a result of the NQF endorsement 
maintenance process. The specifications have changed so substantially 
that we proposed to adopt them in the proposed rule. Specifically, the 
NQF Steering Committee voted to change the measure from controlled 
glucose at 6AM to a more comprehensive measure, controlled glucose 18-
24 hours post-cardiac surgery. The revised specifications also require 
corrective action to be documented if a post-operative glucose is over 
180mg/dl. We proposed to adopt these revised specifications for SCIP-
INF-4 beginning with January 1, 2014 discharges and invited public 
comment on this proposal. The revised specifications for the measure 
can be found at http://www.qualityforum.org/QPS/0300.
    Comment: Many commenters supported the proposed adoption of the NQF 
changes that arose from the NQF endorsement maintenance process. Some 
commenters believed the

[[Page 50788]]

specifications, once updated, would result in a more clinically 
meaningful measure. One commenter requested CMS consider more glycemic 
controlled-related measures in the future.
    Response: We thank the commenters' support of our proposal and 
suggestions. Once this final rule is published, we will publish an 
addendum to the Specifications Manual to address any changes adopted in 
the final rule.
    Comment: One commenter noted that the 18-24 hours post-cardiac 
surgery time frame should not be tied to the anesthesia end time. 
Instead, the commenter requested use of a different time parameter by 
which the receiving unit would clearly have documented the arrival of 
the patient in the unit where the patient will likely remain throughout 
that specified time frame. Another commenter stated that most of the 
literature supports averaging blood glucose over the first one or two 
days. The commenter, therefore, recommended reducing the 0600 target 
glucose from 200 mg/dL to 180 mg/dL instead on post-operative day (POD) 
1 and POD2. Another commenter asked if the term ``corrective action'' 
can be changed to ``documentation of clinical attempt of glucose 
control.'' One commenter asked for clarification whether the guidelines 
allow for exclusions when corrective actions are appropriately 
administered and glucose remains elevated above the threshold of 200mg/
dL. Another commenter stated that the term ``controlled'' should be 
defined and raised concerns that tight glycemic control in frail 
elderly patients would contribute to decreased cognition and function.
    Response: We adopted the measure refinement as endorsed by NQF. We 
will consider whether some of the other suggestions made by commenters 
regarding glucose target and terminology (for example, corrective 
action and controlled) used in the measure should be changed or further 
defined in order to encourage appropriate treatment while preventing 
adverse outcomes as suggested by commenters. In response to the comment 
about broadening the timeframe of the measure, anesthesia end time is a 
standard data element already collected and reported by hospitals 
participating in the Hospital IQR Program as part of the SCIP 
performance measures. As a result, during re-endorsement, anesthesia 
end time was used to define the start of the period for blood glucose 
control. However, we will consider whether additional refinements 
should be made to better define the 18 to 24 hour timeframe for the 
measure.
    In the past, we have received considerable feedback on the use of 
0600, or 6 a.m., as the target for glucose control. This ``6 a.m.'' 
time does not take into account the time that the operation ended. For 
example, if a patients' surgery did not end until midnight, hospitals 
have noted difficulty in getting the blood sugar under control by 6 
a.m. During re-endorsement, the NQF Technical Advisory Panel rejected 
the use of the arbitrary time frame of 6 a.m. to evaluate glucose 
control and recommended a fixed time of 18-24 hours after the end of 
surgery to allow sufficient time to get the blood glucose under 
control.
    All technical details and exclusions for the revised measures will 
be outlined in the inpatient technical Specifications Manual posted on 
QualityNet on July 1, 2013 for discharges beginning on January 1, 2014.
    After consideration of the public comments we received, we are 
finalizing the proposed refinement of SCIP-INF-4 to match refinements 
made during NQF re-endorsement.
(4) Refinement of Medicare Spending Per Beneficiary Measure (MSPB)
(a) Inclusion of Railroad Retirement Board Beneficiaries (RRB)
    We proposed to refine the Medicare Spending per Beneficiary (MSPB) 
measure previously finalized for the FY 2015 payment determination and 
subsequent years. We proposed to include Railroad Retirement Board 
(RRB) beneficiaries in the measure for the FY 2016 and subsequent 
years' payment determinations. We do not consider this refinement to be 
a substantive change. However, we proposed this refinement through 
rulemaking because we explicitly stated in previous rulemaking that 
these beneficiaries would be excluded from the measure (76 FR 51620). 
Since that time, we have learned that we have complete claims data for 
RRB beneficiaries, and believe that eligible MSPB episodes generated by 
RRB hospital discharges should be included in the MSPB measure. We 
finalized the details of MSPB episode construction and adjustment in 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51618 through 51626). The 
effect of including RRB beneficiaries on the MSPB ratio is minimal. For 
the majority of hospitals, the change in their MSPB measure rates would 
be small--between -0.01 and 0.01.
    Comment: No commenters opposed including RRB. One commenter did not 
have reservations about including RRB beneficiaries in the measure, and 
one stated that CMS should ensure that including the RRB beneficiaries 
is consistent with the measure specifications submitted to the NQF for 
endorsement consideration. One commenter generally expressed support 
for proposed refinements to existing Hospital IQR Program measures.
    Response: We thank these commenters for their support of including 
the RRB beneficiary population in the MSPB measure, and we agree that 
the measure specifications should reflect their inclusion. We did not 
exclude RRB beneficiary population on the NQF measure submission form, 
and we explicitly stated in the submission that we could include RRB 
beneficiaries without changing the measure methodology.
    Comment: Several commenters expressed views regarding the use of 
the MSPB measure in the Hospital IQR Program in general. Commenters 
expressed concern that the measure did not adequately address hospital 
efficiency and that hospitals require data in real time in order to 
improve.
    Response: This measure was finalized for inclusion in the Hospital 
IQR Program in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51618-
51627). We addressed the question of whether the MSPB is a measure of 
efficiency in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53586), 
noting that it is consistent with existing approaches to measuring cost 
in the healthcare setting. We appreciate the value of timely 
performance information, which is why we provide hospitals with 
extensive amounts of data on their performance on this measure as soon 
as practicable, allowing time for claims to be processed, MSPB episodes 
to be calculated, and reports to be generated. In late May 2013, 
hospitals received the data on their performance during calendar year 
2012. This followed the 3-month claim run period out finalized for the 
measure. For a description of the extensive, hospital-specific data 
that hospitals receive during the measure preview period, we refer 
readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53588).
    After consideration of the public comments we received, we are 
finalizing the inclusion of RRB beneficiaries in the MSPB measure for 
future Hospital IQR Program payment determinations.

[[Page 50789]]

(b) Incorporating Maryland Hospitals
    We are considering how best to incorporate Maryland hospitals paid 
under the waiver under section 1814(b)(3) of the Act into the MSPB 
measure. The payments made to Maryland hospitals pose a unique 
challenge to the payment standardization methodology currently used for 
the MSPB measure. Currently, hospitalizations in Maryland hospitals 
that are captured in the post-discharge window of the MSPB measure are 
standardized by applying the hospital wage index to the labor-related 
share of the IPPS payment, according to the methodology found on page 
10 of the ``CMS Price Standardization'' document (http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228772057350). This approach does not account for the absence of outlier 
payments on Maryland claims. In order to make a comparison of Maryland 
hospitals to other subsection (d) hospitals paid under the IPPS, in the 
event that MSPB measure rates are calculated for Maryland hospitals in 
the future, outliers would have to be imputed. If we were to include 
Maryland hospitals in the MSPB measure in the future, we would do so 
through future rulemaking.
    Comment: A few commenters referred to calculation of base operating 
DRG payment amounts for Maryland, stating that they should be 
calculated as they are for all other IPPS hospitals.
    Response: We wish to clarify that we do not calculate the MSPB 
measure using base operating DRG payment amounts, but rather it is 
based on standardized Medicare payment amounts for Part A and Part B 
services received by Medicare beneficiaries during an MSPB episode 
surrounding a hospitalization. We refer readers to the FY 2012 IPPS/
LTCH PPS final rule for further details of the measure's construction 
(76 FR 51618 through 51627).
    Comment: Several commenters expressed that we should collect and 
publicly report data on Hospital Compare for as many hospitals as 
possible, including Maryland hospitals.
    Response: We thank these commenters for their input and will 
consider it as we develop further policy on this issue.
    Comment: One commenter noted a number of differences in the way 
that Maryland hospital payments are calculated and requested an 
opportunity to work with us to make the standardized allowed amounts 
for Maryland hospitals more comparable to hospitals paid under the 
IPPS.
    Response: We thank this commenter for the input, and we will 
consider it as we determine an appropriate standardization approach for 
Maryland hospital payments.
6. Additional Hospital IQR Program Measures for the FY 2016 Payment 
Determination and Subsequent Years
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27684 through 
27694), we proposed to add five new risk-adjusted claims-based outcome 
measures to the Hospital IQR Program for the FY 2016 payment 
determination and subsequent years: (1) 30-day risk standardized COPD 
Readmission; (2) 30-day risk standardized COPD Mortality; (3) 30-day 
risk standardized Stroke Readmission; (4) 30-day risk standardized 
Stroke Mortality; and (5) AMI payment per Episode of Care. In section 
IX.A.7. of the preamble of this final rule, we also discuss our 
proposal that hospitals may voluntarily report certain Hospital IQR 
measures in an electronic format.
    The proposed measures were included on a publicly available 
document entitled ``List of Measures Under Consideration for December 
1, 2012'' in compliance with section 1890A(a)(2) of the Act, and they 
were reviewed by the MAP in its ``MAP Pre-Rulemaking Report: 2013 
Recommendations on Measures Under Consideration by HHS,'' which has 
been made available on the NQF Web site at http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partnership.aspx. We considered the input and recommendations provided 
by the MAP in selecting measures to propose for the Hospital IQR 
Program.
    For purposes of the Hospital IQR Program, section 
1886(b)(3)(B)(IX)(aa) of the Act requires that any measure specified by 
the Secretary must have been endorsed by the entity with a contract 
under section 1890(a) of the Act. However, the statutory requirements 
under section 1886(b)(3)(B)(IX)(bb) of the Act provide an exception 
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, 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 received some general comments on the proposed measures.
    Comment: One commenter noted that that claims data alone are not 
sufficient to support quality measures such as the risk-adjusted 
outcome measures.
    Response: We appreciate the commenter's concern about the use of 
claims data in quality measures; however, we feel that claims data are 
sufficient for a number of reasons. The claims are used to identify the 
cohort of included hospitalizations, assess the outcome and risk-
adjust. In order to identify the cohort of included hospitalizations 
(for example, admissions for heart attack), claims are commonly used in 
both quality measures and research. ICD-9 codes are generally 
considered reliable sources for identifying key information such as the 
principal discharge diagnosis to establish measure cohorts. Claims are 
a highly valid source of outcome measurement, readmission or death, and 
payment amount.
    Stakeholders' specific concerns about claims data commonly relate 
to the use of claims for risk-adjusting measures. The current and 
proposed outcome measures have been developed in line with accepted 
standards for measure development and with extensive input from the 
clinical, scientific and stakeholder community to ensure the validity 
of our risk-adjusted outcome measures. Furthermore, many similar 
measures have undergone validation with medical-record data, which has 
demonstrated that the results of measures that use claims instead of 
medical record data for risk-adjustment have highly correlated 
hospital-level results. This validation confirms that claims are an 
adequate source of data needed for risk-adjustment of these outcome 
measures.
    We develop measures in accordance with national guidelines, and in 
consultation with clinical and measurement experts, key stakeholders, 
and the public. The current and proposed outcome measures are 
consistent with the technical approach to outcomes measurement set 
forth in the NQF guidance for outcomes measures, CMS' Measure 
Management System, and the guidance articulated in the American Heart 
Association scientific statement ``Standards for Statistical Models 
Used for Public Reporting of Health Outcomes.'' Furthermore, many prior 
administrative claims based outcome measures have been validated with 
chart data and this validation demonstrated that hospital profiling is 
similar, supporting the use of claims data for these measures.

[[Page 50790]]

    Throughout measure development, we obtain expert and stakeholder 
input via two mechanisms: First, through regular discussions with an 
advisory working group, and second, through meetings with a national 
Technical Expert Panel (TEP), a group of recognized experts and 
stakeholders in relevant fields. We hold regular conference calls with 
our working group throughout the measure development phase. The working 
group includes clinicians and other professionals with expertise in 
stroke, biostatistics, measure methodology, and quality improvement. 
The working group meetings address key issues surrounding measure 
development including detailed discussions regarding the pros and cons 
of specific decisions (for example, defining the appropriate measure 
cohort) to ensure the methodological rigor of the measure.
    In addition to the working group, and in alignment with the CMS' 
Measure Management System, we convene a TEP to provide input and 
feedback during measure development. To create the TEP, we release a 
public call for nominations and select individuals representing a range 
of perspectives including those of physicians, consumers, hospitals, 
and purchasers. We convene three TEP conference calls during the course 
of measure development. In contrast to the working group meetings, the 
TEP meetings follow a more structured format consisting of presentation 
of key issues, relevant data, and our proposed approach. This 
presentation is followed by open discussion of these issues with TEP 
members.
    Finally, we publicly post the measure specifications and a summary 
of the TEP discussions and make a widely distributed call for public 
comments. We collect these comments through the Measure Management 
System Web site (https://www.cms.hhs.gov/apps/QMIS/publicComment.asp). 
We summarize the public comments and post the verbatim comments on a 
freely accessible Web site. We take the comments we receive into 
consideration during the final stages of measure development. In 
conclusion, we believe that all the above steps that occur during the 
measure development process provide assurance that claims-based data 
provide adequate information we need for claims-based measures.
    Comment: One commenter supported the measurement of condition-
specific outcomes measures, such as mortality and readmissions, as the 
data provides actionable quality improvement information.
    Response: We appreciate the commenter's support for this aspect of 
the program.
    Comment: One commenter believed that CMS should educate hospitals 
on the risk-adjustment variables and approach used for the measures.
    Response: We are committed to ensuring that hospitals are fully 
aware of the technical specifications of all quality measures. Prior to 
implementing new outcome measures, we conduct dry runs of the measures 
to familiarize hospitals with their discharge- and hospital-level data 
and the measure methodology. In addition we publicly post the 
methodology reports for the measures as well as frequently asked 
questions (http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html). 
We also have inboxes which hospitals can contact with any questions 
they may have about the measures ([email protected] and 
[email protected]).
    Comment: One commenter believed that CMS should monitor the 
unintended consequences of the outcome measures such as the appropriate 
use of palliative and hospice care.
    Response: We appreciate this comment. Through prior informal 
analysis, we learned that the use of codes to indicate hospice care is 
inconsistent across hospitals and, therefore, raises the concern of how 
accurately the current available data reflects appropriate use of 
palliative or hospice care. We will, however, consider the feasibility 
of monitoring the appropriate use of palliative and hospice care given 
the current inconsistent use of codes by hospitals.
    Comment: One commenter was concerned that CMS is not properly 
monitoring the readmission measures to determine if there are 
unintended consequences.
    Response: We are committed to monitoring the measures and assessing 
unintended consequences over time, such as the inappropriate shifting 
of care, increased patient morbidity and mortality, and other negative 
unintended consequences for patients. In order to monitor unintended 
consequences we have a surveillance system and annually publish a 
Chartbook (http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/MedicareHospitalQualityChartbook2012.pdf) which examines these issues.
    Comment: One commenter did not support using the same measures in 
both the Hospital IQR Program and the Hospital Readmissions Reduction 
Program.
    Response: We believe it is appropriate to align measurement across 
pay for reporting and pay for performance programs such as the Hospital 
IQR Program and Hospital Readmissions Reduction Program for various 
reasons, including placing emphasis on quality issues in need of 
improvement. To the extent that we target high-cost, high-volume areas 
for quality improvement in more than one program, we would expect there 
to be some amount of topical overlap among programs. In order to avoid 
confusion among providers, we also prefer to use one measure on a 
specific topic rather than measuring the same topic in two or more 
different ways in different programs.
    Comment: A few commenters requested that CMS specify measures for 
all populations, not just Medicare patients.
    Response: We appreciate the commenters' suggestion. To the extent 
feasible and applicable, we will specify the measures for all patients 
regardless of payers.
    The proposed measures are described in greater detail below.
a. Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate 
(RSRR) Following Chronic Obstructive Pulmonary Disease (COPD) 
Hospitalization Measure (NQF 1891)
    We proposed to include this NQF-endorsed measure in the Hospital 
IQR Program beginning with the FY 2016 payment determination. The MAP 
supports this measure. In 2007, MedPAC published a report to Congress 
in which it identified the seven conditions associated with the most 
costly potentially preventable readmissions; among these seven, COPD 
ranked fourth.\54\ In 2008, 12.1 million U.S. adults were estimated to 
have COPD resulting in approximately 672,000 hospital discharges.\55\ 
There is also evidence of variation in outcomes at hospitals for COPD 
patients, supporting the finding that there are opportunities for 
improving care. The median 30-day risk-standardized readmission rate 
among Medicare fee-for-service (FFS) patients aged 65 or

[[Page 50791]]

older hospitalized for COPD in 2008 was 22.0 percent, and ranged from 
18.33 percent-25.03 percent across 4,546 hospitals.\56\
---------------------------------------------------------------------------

    \54\ Committee MPA. Report to the Congress: Promoting Greater 
Efficiency in Medicare. 2007.
    \55\ American Lung Association. Trends in COPD (Chronic 
Bronchitis and Emphysema): Morbidity and Mortality. 2010; Available 
at: http://www.lungusa.org/finding-cures/our-research/trend-reports/copd-trend-report.pdf.
    \56\ Grosso L.M., Lindenauer P., Wang C., et al. Hospital-level 
30-day Readmission Following Admission for an Acute Exacerbation of 
Chronic Obstructive Pulmonary Disease: Report prepared for the 
Centers for Medicare & Medicaid Services. 2011; Available at: http://www.qualitynet.org/.
---------------------------------------------------------------------------

    The AHRQ has identified COPD as an ambulatory-care-sensitive 
condition (ACSC). ACSCs are conditions for which good outpatient care 
can potentially prevent the need for hospitalization or for which early 
intervention can prevent complications or more severe disease.\57\ 
Although COPD is an ACSC, readmission rates are also influenced by 
inpatient care.
---------------------------------------------------------------------------

    \57\ AHRQ Quality Indicators. Fact Sheet: Prevention Quality 
Indicators. 2006; Available at: http://qualityindicators.ahrq.gov/downloads/pqi/2006-Feb-PreventionQualityIndicators.pdf.
---------------------------------------------------------------------------

    To better assess hospital care and care transitions for COPD 
patients, we developed a hospital-level readmission measure for 
patients hospitalized with an acute exacerbation of COPD. We proposed 
this measure for use in the Hospital IQR Program as well as the 
Hospital Readmissions Reduction Program. We discuss the measure 
methodology in detail in the section of this final rule pertaining to 
the Hospital Readmissions Reduction Program. We refer readers to 
section IX.A.6.b. of the preamble of this final rule on COPD for 
details of the measure specifications. Details on the technical 
specifications of the measure can also be found on our Web site at: 
(http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    We invited public comment on this proposal.
    Comment: One commenter believed that CMS should report COPD 
readmission and mortality rates by gender.
    Response: For public reporting, maintaining a single cohort has the 
advantage of increasing sample size and providing the ability to detect 
quality differences across hospitals. We will consider whether to look 
at this issue further as part of ongoing surveillance efforts.
    Comment: Many commenters requested CMS incorporate socioeconomic 
factors in the risk-adjustment methodology.
    Response: Commenters also raised this issue regarding our proposed 
incorporation of planned readmission algorithm for 30-day readmission 
measures in section IX.A.5.b.(1) of the preamble of this final rule and 
we refer readers to our response in that section.
    Comment: A few commenters requested that CMS implement the COPD 
readmission measure in the Hospital IQR Program before simultaneously 
proposing it for the Hospital Readmissions Reduction Program.
    Response: We proposed and are finalizing using the COPD readmission 
measure for the Hospital IQR Program and plan to publicly report data 
in FY 2014. This will allow hospitals to gain experience with the 
measure prior to implementation in both the Hospital IQR Program, and 
the Hospital Readmissions Reduction Program. In addition, we are 
committed to ensuring that hospitals are fully aware of the technical 
specifications of all quality measures. Prior to implementing new 
outcome measures, to the extent feasible, we conduct dry runs of the 
measures to familiarize hospitals with their patient- and hospital-
level data and the measure methodology. The data provided to hospitals 
during the dry run are confidential and will not be publicly reported. 
In addition we publicly post the methodology reports for the measures 
as well as frequently asked questions. We also have inboxes which 
hospitals can contact us with any questions they may have about the 
measures ([email protected] and 
[email protected]).
    Comment: One commenter believed that CMS should add length of stay 
data to the COPD mortality and readmission measures because length of 
stay impacts risk of mortality and readmission.
    Response: We recognize that length of stay affects risk of 
mortality and readmission. This is why our mortality and readmission 
measures use a standardized time period of 30-days in order to assess 
performance across hospitals fairly. We are committed to monitoring the 
measures and assessing unintended consequences over time, such as how 
shifts in length of stay impact performance on the measures. In order 
to monitor unintended consequences, we have a surveillance system and 
annually publish a Chartbook (http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/MedicareHospitalQualityChartbook2012.pdf) which examines 
these issues.
    Comment: One commenter was concerned about the lack of risk 
adjustment for environmental factors that may significantly affect 
respiratory patients.
    Response: During measure development, we conducted a targeted 
literature review and consulted with several experts to explore risk 
adjusting for levels of particulate matter an air pollutant associated 
with short-term increases in morbidity and increased admission rates 
among respiratory patients. We found that the literature suggests that 
ambient levels of particulate matter affect short-term mortality and 
admission rates for COPD (and for other cardiovascular and respiratory 
conditions).58 59 60 Although important from a public health 
standpoint, the increases in risk are relatively small. Further, the 
strength and direction of the potential association between particulate 
levels and the outcomes of mortality and readmission are influenced by 
other factors, including temperature, humidity, seasonal variation, and 
city-level factors such as smoking and air conditioning use rates.\61\ 
Finally, we did not find any studies regarding the effect of ambient 
particulates on mortality and readmission rates among hospitalized 
patients for COPD, and the effect of particulate matter on readmission 
rates remains uncertain. Given the technical challenge of risk 
adjusting for this pollutant, and our expectation that building 
particulate levels into the model is not likely to significantly 
improve the models' performance even with the best methods, we do not 
plan to pursue adding air pollution variables to the models at this 
time.
---------------------------------------------------------------------------

    \58\ Environmental Protection Agency. Review of the National 
Ambient Air Quality Standards for Particulate Matter: Policy 
Assessment of Scientific and Technical Information. December 2005.
    \59\ Medina-Ramon M, Zanobetti A, Schwartz J. The effect of 
ozone and PM10 on hospital admissions for pneumonia and 
chronic obstructive pulmonary disease: a national multicity study. 
American Journal of Epidemiology. 2006;163(6):579-588.
    \60\ Dominici F, Peng RD, Bell ML, et al. Fine particulate air 
pollution and hospital admission for cardiovascular and respiratory 
diseases. Journal of the American Medical Association. 
2006;295(10):1127-1134.
    \61\ Medina-Ramon M, Zanobetti A, Schwartz J. The effect of 
ozone and PM10 on hospital admissions for pneumonia and 
chronic obstructive pulmonary disease: a national multicity study. 
American Journal of Epidemiology. 2006;163(6):579-588.
---------------------------------------------------------------------------

    The purpose of risk-adjustment is to account for differences across 
hospitals in factors unrelated to quality, such as patient 
comorbidities, that may affect the outcome of mortality and 
readmission. It is important to risk adjust for factors that could bias 
the measure results (for example, could favor hospitals in low 
pollution areas). Adjusting for environmental factors would make sense 
if it were technically feasible and if it would improve the model by 
reducing or eliminating a

[[Page 50792]]

potential bias. Variables for environmental factors are unlikely to 
affect hospital-level risk-standardized rates. The studies to date 
focus on the general non-hospitalized population, and it is not clear 
how they apply to the patients in our models--that is, patients 
hospitalized with an acute exacerbation of COPD. Experts believed the 
effect of adjusting for particulate matter would likely be small or 
negligible given that the model applies to patients already 
hospitalized for COPD.
    In addition, there are feasibility issues. Modeling the effect 
appropriately would be complex. Our review of the issues suggests it 
would be inappropriate to use ambient air quality levels as a risk 
adjuster without also adjusting for other factors that affect the 
strength and direction of the potential association between particulate 
levels and the outcomes, including temperature, humidity, seasonal 
variation, and city-level factors such as smoking and air conditioning 
use rates. Given these challenges, and our expectation that building 
particulate levels into the model is not likely to significantly 
improve the models' performance even with the best methods, we do not 
plan to pursue adding air pollution variables to the models at this 
time.
    After consideration of the public comments we received, we are 
finalizing as proposed the Hospital 30-Day, all-cause, risk-
standardized readmission Rate (RSRR) following chronic obstructive 
pulmonary disease (COPD) hospitalization measure for the FY 2016 
payment determination and subsequent years.
b. Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) 
Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization 
Measure (NQF 1893)
(1) Background
    COPD affects as many as 24 million individuals in the United States 
and is the nation's fourth leading cause of death. Between 1998 and 
2008, the number of patients hospitalized annually for acute 
exacerbations of COPD (AECOPD) increased by approximately 18 
percent.62 63 64 Moreover, COPD is one of the top 20 
conditions contributing to Medicare costs.\65\ Finally, there is 
evidence of variation in outcomes at hospitals for COPD patients, 
supporting the finding that there are opportunities for improving care. 
The median 30-day risk-standardized mortality rate among Medicare FFS 
patients aged 65 or older hospitalized for COPD in 2008 was 8.5 
percent, and ranged from 5.9 percent to 13.5 percent across 4,537 
hospitals.\66\
---------------------------------------------------------------------------

    \62\ National Heart L, and Blood Institute, The Morbidity & 
Mortality: Chart Book on Cardiovascular, Lung and Blood Diseases. 
2009; Available at: http://www.nhlbi.nih.gov/resources/docs/2009_ChartBook.pdf.
    \63\ The Centers for Disease Control and Prevention. National 
Center for Health Statistics Chronic Lower Respiratory Disease. 
FastStats 2010; Available at: http://www.cdc.gov/nchs/fastats/copd.htm.
    \64\ Agency for Healthcare Research and Quality. Healthcare Cost 
and Utilization Project Statistics on Hospitals Stays. 2009; 
Available at: http://hcupnet.ahrq.gov/.
    \65\ Andrews RM. The National Hospital Bill: The Most Expensive 
Conditions by Payer, 2006. Rockville: Agency for Healthcare Research 
and Quality; 2008.
    \66\ Grosso L.M., Lindenauer P., Wang C., et al. Hospital-level 
30-day Mortality Following Admission for an Acute Exacerbation of 
Chronic Obstructive Pulmonary Disease: Report prepared for the 
Centers for Medicare & Medicaid Services. 2011; Available at: http:/
/www.qualitynet.org.
---------------------------------------------------------------------------

    We proposed to include a hospital 30-day, all-cause risk-
standardized rate of mortality following an admission for an AECOPD in 
the Hospital IQR Program. The measure aims to address a prevalent and 
costly health problem in the nation. In addition, the measure aligns 
with our priority objectives to promote quality improvements leading to 
successful transition of care for patients from acute care to 
outpatient settings, and reducing short term, preventable mortality 
rates.
    We plan to implement this measure to encourage improvement of 
outcomes by providing patients, physicians, and hospitals with 
information about hospital-level, risk-standardized mortality rates 
following hospitalization for an AECOPD. Clinical trials and 
observational studies suggest that several aspects of care provided to 
patients hospitalized for AECOPD can have significant effects on 
mortality, thus supporting the essential construct of mortality as an 
appropriate outcome to measure quality.67 68 69 70 Moreover, 
by proposing an outcome measure, we intend to broaden the view of 
quality of care that encompasses more than what can be captured by 
merely measuring individual processes-of-care. Through outcome 
measures, we can capture complex and critical aspects of care, such as 
communication between providers, prevention of, and response to, 
complications, patient safety and coordinated transitions to the 
outpatient environment, all contribute to patient outcomes but are 
difficult to measure by individual process measures.\71\ \72\
---------------------------------------------------------------------------

    \67\ Global strategy for Diagnosis M, and Prevention of COPD, 
2009; Available at: http://www.goldcopd.org/.
    \68\ National Institute for Health and Clinical Excellence. 
Chronic Obstructive Pulmonary Disease: Management of Chronic 
Obstructive Pulmonary Disease in Adults in Primary and Secondary 
Care (Partial Update). National Collaborating Centre for Acute and 
Chronic Conditions. Available at: http://www.nice.org.uk/nicemedia/live/13029/49397/49397.pdf.
    \69\ Walters JA, PG Gibson, R Wood-Baker, M Hannay, EH Walters. 
Systemic corticosteroids for acute exacerbations of chronic 
obstructive pulmonary disease. Cochrane Database Syst Rev. 2009; 
CD001288(1).
    \70\ Lightowler JV, Wedzicha JA, Elliott MW, Ram FS. Non-
invasive positive pressure ventilation to treat respiratory Failure 
resulting from exacerbations of chronic obstructive pulmonary 
disease: Cochrane systematic review and meta-analysis. Bmj. 
2003;326(7382).
    \71\ Krumholz H, Normand S-L, Spertus JA, Shahian DM, Bradley 
EH. Measuring Performance for Treating Heart Attacks and Heart 
Failure: The Case for Outcomes Measurement. Health Affairs 
2007;26:75-85.
    \72\ Bradley EH, Herrin J, Elbel B, et al. Hospital Quality for 
Acute Myocardial Infarction: Correlation Among Process Measures and 
Relationship With Short-term Mortality. The Journal of the American 
Medical Association 2006;296:72-8.
---------------------------------------------------------------------------

    The specifics of the measure methodology are included in the 
measure methodology report we have posted on our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. Please see the report 
for further details on the risk-adjustment statistical model.
(2) Overview of Measure
    The measure is a NQF-endorsed 30-day, all-cause risk-standardized 
rate of mortality after admission for an AECOPD to any non-federal 
acute care hospital. The MAP supports this measure for inclusion in the 
Hospital IQR Program.
    In general, the measure uses the same approach to risk-adjustment 
and hierarchical logistic modeling (HLM) methodology that is specified 
for our inpatient outcome measures previously adopted for the Hospital 
IQR Program, including AMI, HF, and PN readmission and mortality 
measures. For a discussion of this methodology, we refer readers to our 
Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
(3) Data Sources
    The proposed measure is claims-based and uses Medicare 
administrative data that contain hospitalizations for FFS Medicare 
beneficiaries hospitalized with AECOPDs.
(4) Outcome
    The outcome for this measure is 30-day all-cause mortality defined 
as a death from any cause within 30 days of the admission date for the 
index hospitalization. This outcome period is consistent with other 
NQF-endorsed

[[Page 50793]]

publicly reported mortality measures (AMI, HF, and PN).
    The measure assesses all-cause mortality not just COPD-specific 
mortality for several reasons. First, limiting the measure to COPD-
related mortalities may limit the focus of efforts to improve care to a 
narrow set of approaches (such as processes that will prevent a 
recurrent exacerbation) as opposed to encouraging broader initiatives 
aimed at improving the overall in-hospital care. Second, cause of death 
may be unreliably recorded and it is often not possible to exclude 
quality issues and accountability based on the documented cause of 
mortality. For example, a COPD patient who develops a hospital-acquired 
infection may ultimately die from sepsis. It would be inappropriate to 
treat this death as unrelated to the care the patient received for 
COPD. Finally, from a patient perspective, death is the outcome that 
matters, regardless of cause.
(5) Cohort
    COPD is a group of lung diseases characterized by airway 
obstruction. Patients hospitalized for an AECOPD present with varying 
degrees of severity ranging from a worsening of baseline symptoms 
(dyspnea, cough, and/or sputum) to respiratory failure. To capture the 
full spectrum of severity of patients hospitalized for an AECOPD, we 
included patients with a principal diagnosis of COPD, as well as those 
with a principal diagnosis of respiratory failure who had a secondary 
diagnosis of an AECOPD. Requiring AECOPD as a secondary code helps to 
identify respiratory failure due to COPD exacerbation versus another 
condition (for example, heart failure). For detailed information on the 
cohort definition please reference the COPD mortality technical report 
on our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
(6) Inclusion and Exclusion Criteria
    The measure includes hospitalizations for patients 65 years or 
older at the time of index admission and for whom there was a complete 
12 months of FFS enrollment to allow for adequate risk-adjustment. The 
measure excludes the following admissions from the measure cohort: (1) 
Admissions for patients having a principal diagnosis of an AECOPD 
during the index hospitalization who were transferred from another 
acute care facility are excluded because the hospital where the patient 
was initially admitted made critical acute care decisions (including 
the decision to transfer and where to transfer); (2) admissions for 
patients enrolled in the Medicare Hospice Program any time in the 12 
months prior to the index hospitalization, including the first date of 
the index admission are excluded because it is likely that these 
patients are continuing to seek comfort care and their goal may not be 
survival; and (3) admissions for patients that are discharged alive and 
against medical advice are excluded because providers did not have the 
opportunity to deliver full care and prepare the patient for discharge.
(7) Risk Adjustment
    The measure adjusts for differences across hospitals in how at risk 
their patients are for death relative to patients cared for by other 
hospitals. Consistent with NQF guidelines, the model does not adjust 
for socioeconomic status or race because risk-adjusting for these 
characteristics would hold hospitals with a large proportion of 
minority or low socioeconomic status patients to a different standard 
of care than other hospitals. One goal of this measure is to illuminate 
quality differences that such risk adjustment would obscure.
(8) Calculating the Risk-Standardized Mortality Ratio (RSMR)
    The measure is calculated using hierarchical logistic modeling 
(HLM). This approach appropriately accounts for the types of patients a 
hospital treats (that is, hospital case mix), the number of patients it 
treats, and the quality of care it provides. The HLM is an appropriate 
statistical approach to measuring quality based on patient outcomes 
when the patients are clustered within hospitals (and therefore the 
patients' outcomes are not statistically independent) and the number of 
eligible patients for the measure varies from hospital to hospital. As 
noted above, the measure methodology defines hospital case mix based on 
the clinical diagnoses provided in the hospital claims for their 
patients' inpatient and outpatient visits for the 12 months prior to 
the COPD hospitalization, as well as those present in the claims for 
care at admission. The methodology, however, specifically does not 
account for diagnoses present in the index admission that may indicate 
complications rather than patient comorbidities.
    The RSMR is calculated as the ratio of the number of predicted 
deaths to the number of expected deaths and then the ratio is 
multiplied by the national unadjusted mortality rate. The ratio is 
greater than one for hospitals that have more deaths that would be 
expected for an average hospital with similar cases and less than one 
if the hospital has fewer deaths than would be expected for an average 
hospital with similar cases. This approach is analogous to a ratio of 
``observed'' or ``crude'' rate to an ``expected'' or risk-adjusted rate 
used in other similar types of statistical analyses.
    The RSMR is a point estimate--the best estimate of a hospital's 
mortality rate based on the hospital's case mix. For displaying the 
measure for the Hospital IQR Program, we computed an interval estimate, 
which is similar to the concept of a confidence interval, to 
characterize the level of uncertainty around the point estimate. We use 
the point estimate and interval estimate to determine hospital 
performance (for example, higher than expected, as expected, or lower 
than expected). For more detailed information on the calculation 
methodology please refer to our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    We invited public comment on this proposal.
    Comment: Some commenters supported the addition of the COPD 
mortality measure to Hospital IQR Program.
    Response: We appreciate the commenters' support for this measure.
    Comment: Several commenters noted that the COPD mortality measure 
may not be reliable.
    Response: We use the same statistical approach to reliability for 
the COPD mortality measure that we have established for our hospital 
risk-adjusted outcome measures, including the mortality and 
readmissions measures. Reliability is related to sample size. We 
adopted a risk-adjustment modeling methodology for our outcome measures 
that takes into account sample size. Although the commenter raised the 
issue of reliability related to the COPD mortality measure that CMS 
proposed for the Hospital IQR program, this issue was raised and 
responded to in part in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53379) in our discussion of the readmission measures for the Hospital 
Readmissions Reduction Program. The response is set out below.
    ``We determined the 25-case threshold for public reporting based on 
a reliability statistic that is calculated from the intercluster 
correlation, a parameter of the model.''
    In addition, we have thought carefully about how best to measure 
quality for

[[Page 50794]]

small volume hospitals. Smaller hospitals do typically have less 
certain estimates, because they have fewer cases for use in assessing 
quality; that is a challenge inherent in outcome measurement. One 
advantage of the statistical model we use for the measures is that it 
allows for the inclusion of small hospitals while characterizing the 
certainty of their estimates. The hierarchical logistic regression 
model that we use to calculate the risk-standardized outcome measures 
allows the inclusion of hospitals with relatively few observations, but 
takes into account the uncertainty associated with sample size in 
estimating their risk-standardized outcome rates. The model takes into 
account the uncertainty in the estimate of outcome rates for small 
volume hospitals by assuming that each hospital is a typically 
performing hospital. It weighs that assumption along with the outcomes 
for the particular hospital in calculating the outcome rate. Therefore, 
the estimated outcome rates for smaller hospitals will likely be closer 
to the national rate because the limited number of eligible cases in 
the hospital tells little about that hospital's true outcome rate.
    Comment: Several commenters requested that CMS incorporate 
socioeconomic factors in its risk-adjustment methodology.
    Response: Commenters also raised this issue regarding our proposed 
incorporation of planned readmission algorithm for 30-day readmission 
measures in section IX.A.5.b.(1) of the preamble of this final rule and 
we refer readers to our response in that section.
    Comment: A few commenters suggested that additional work is needed 
to adequately explore the relationship between COPD 30-day risk 
standardized mortality rates and 30-day readmission rates.
    Response: We consider that hospital performance on mortality and 
readmission measures represent different aspects of quality. 
Researchers found that performance on risk-standardized mortality rates 
was not strongly correlated with performance on risk-standardized 
readmission rates for HF and not at all for AMI and pneumonia.\73\ We 
appreciate the commenters' concern and will monitor the correlation for 
COPD as part of our hospital quality surveillance.
---------------------------------------------------------------------------

    \73\ Krumholz HM, Lin Z, Keenan PS, et al. Relationship between 
hospital readmission and mortality rates for patients hospitalized 
with acute myocardial infarction, heart failure, or pneumonia. JAMA. 
2013; 309(6):587-593.
---------------------------------------------------------------------------

    Comment: One commenter noted that the hospice exclusion is a crude 
exclusion for the mortality measures and requested that CMS add 
information about the desire of the patient to refuse CPR or other 
potentially life-extending services to determine if mortality was in 
fact an acceptable outcome for that patient.
    Response: We appreciate this comment, and will continue to consider 
options for identifying and removing from the measures patients who are 
seeking comfort care only. The options available for identifying these 
patients and excluding them from the mortality measures are limited and 
each has tradeoffs. We appreciate the concern about the potential 
effects of the current approach on clinical care, and will consider 
this as we maintain the measures.
    After consideration of the public comments we received, we are 
finalizing as proposed the Hospital 30-Day, all-cause, risk-
standardized mortality rate (RSMR) following chronic obstructive 
pulmonary disease (COPD) hospitalization measure for the FY 2016 
payment determination and subsequent years.
c. Hospital 30-day, All-Cause Risk-Standardized Rate of Readmission 
Following Acute Ischemic Stroke (Stroke Readmission) Measure
(1) Background
    Stroke is an important and common diagnosis among Medicare 
patients. Ischemic stroke affects hundreds of thousands of adults in 
the United States each year and leaves many with new disability and at 
increased risk for complications, recurrent stroke and clinical 
deterioration.\74\ Hospital readmissions after stroke may result from 
the progression of disease, but may also be an indicator of poor care. 
Approximately 10 percent of stroke survivors will have a recurrent 
stroke within a year and one out of four stroke patients will be 
readmitted to the hospital.\75\ \76\ \77\ Moreover, stroke is one of 
the top 20 conditions contributing to Medicare costs.\78\ Finally, 
there is evidence of variation in outcomes at hospitals for stroke 
patients, supporting the finding that there are opportunities for 
improving care. The median 30-day risk-standardized readmission rate 
among Medicare FFS patients aged 65 or older hospitalized for stroke in 
2007 was 14.7 percent, and ranged from 11.6 percent to 19.4 percent 
across 4,242 hospitals.\79\
---------------------------------------------------------------------------

    \74\ American Heart Association, Heart Disease and Stroke 
Statistics--2012 Update. American Heart Association, Circulation 
2012, 125:e2-e220.
    \75\ Sacco RL, Hauser WA, Mohr JP, Foulkes MA. One[hyphen]year 
outcome after cerebral infarction in whites, blacks, and Hispanics. 
Stroke 1991;22:305[hyphen]11.
    \76\ Andersen HE, Schultz[hyphen]Larsen K, Kreiner S, 
Forchhammer BH, Eriksen K, Brown A. Can readmission after stroke be 
prevented? Results of a randomized clinical study: a postdischarge 
follow[hyphen]up service for stroke survivors. Stroke 
2000;31:1038[hyphen]45.
    \77\ Gooding J, Jette AM. Hospital readmissions among the 
elderly. Journal of the American Geriatric Society 
1985;33:595[hyphen]601.
    \78\ Andrews RM. The National Hospital Bill: The Most Expensive 
Conditions by Payer, 2006. Rockville: Agency for Healthcare Research 
and Quality; 2008.
    \79\ Bernheim S.M., Wang C., Wang Y., et al. Hospital 
30[hyphen]Day Readmission Following Acute Ischemic Stroke 
Hospitalization Measure: Report prepared for the Centers for 
Medicare & Medicaid Services. 2010; Available at: http://
www.qualitynet.org.
---------------------------------------------------------------------------

    We proposed to include this non-NQF-endorsed hospital 30-day, all-
cause risk-standardized rate of readmission following acute ischemic 
stroke measure in the Hospital IQR Program, under the exception 
authority in section 1886(b)(3)(B)(IX)(bb) of the Act as previously 
discussed in section IX.A.6. of the preamble to this final rule. 
Although the proposed measure is not currently NQF-endorsed or MAP 
supported, we considered other available measures that have been 
endorsed or adopted by a consensus organization, and found no other 
feasible and practical measures on this topic. We believe it is 
imperative to adopt this measure as it aims to address a prevalent and 
costly health problem in the nation. In addition, the measure aligns 
with our priority objectives to promote quality improvements leading to 
successful transition of care for patients from acute care to 
outpatient settings, and reduce short term, preventable readmission 
rates.
    We plan to implement this measure to encourage improvement of 
outcomes by providing patients, physicians, and hospitals with 
information about hospital-level, risk-standardized readmission rates 
following hospitalization for acute ischemic stroke. Studies have shown 
stroke readmission to be related to quality of care, and that 
improvements in care can reduce readmission rates.\80\ \81\ \82\ 
Moreover, by proposing an outcome measure, we intend to broaden the 
view of quality of care that encompasses more

[[Page 50795]]

than what can be captured by merely measuring individual processes-of-
care. Through outcome measures, we can capture complex and critical 
aspects of care, such as communication between providers, prevention 
of, and response to, complications, patient safety and coordinated 
transitions to the outpatient environment, all of which contribute to 
patient outcomes but are difficult to measure by individual process 
measures.\83\ \84\
---------------------------------------------------------------------------

    \80\ Jack BW, Chetty VK, Anthony D, et al. A Reengineered 
Hospital Discharge Program to Decrease Rehospitalization. Annals of 
Internal Medicine 2009;150:178[hyphen]88.
    \81\ Naylor MD, Brooten D, Cambell R, et al. Comprehensive 
Discharge Planning and Home Follow[hyphen]up of Hospitalized Elders: 
A Randomized Clinical Trial. The Journal of the American Medical 
Association 1999; 281:613[hyphen]20.
    \82\ Bravata DM, Ho SY, Meehan TP, Brass LM, Concato J. 
Readmission and death after hospitalization for acute ischemic 
stroke: 5[hyphen]year follow[hyphen]up in the Medicare population. 
Stroke 2007; 38:1899[hyphen]904.
    \83\ Krumholz H, Normand S-L, Spertus JA, Shahian DM, Bradley 
EH. Measuring Performance for Treating Heart Attacks and Heart 
Failure: The Case for Outcomes Measurement. Health Affairs 
2007;26:75-85.
    \84\ Bradley EH, Herrin J, Elbel B, et al. Hospital Quality for 
Acute Myocardial Infarction: Correlation Among Process Measures and 
Relationship With Short-term Mortality. The Journal of the American 
Medical Association 2006;296:72-8.
---------------------------------------------------------------------------

    The specifics of the measure methodology are included in the 
measure methodology report we have posted on our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. We refer readers to the 
report for further details on the risk-adjustment statistical model.
(2) Overview of Measure
    The measure is a 30-day, all-cause risk-standardized rate of 
readmission following hospitalization for acute ischemic stroke to any 
non-federal acute care hospital. The measure includes Medicare FFS 
patients aged 65 or older admitted for an acute ischemic stroke and 
assesses if the patient was readmitted within 30 days of discharge.
    In general, the measure uses the same approach to risk-adjustment 
and HLM methodology that is specified for our inpatient outcome 
measures previously adopted for the Hospital IQR Program, including 
AMI, HF, and PN readmission and mortality measures. For a discussion of 
this methodology, we refer readers to our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    Furthermore this measure, which is calculated using CMS claims or 
administrative data, is validated by comparing it to a medical record 
model in a matched cohort of admissions for which stroke medical record 
data and administrative claims data are available.
(3) Data Sources
    The proposed measure is claims-based and uses Medicare 
administrative data that contain hospitalizations for fee-for-service 
Medicare beneficiaries hospitalized with acute ischemic stroke.
(4) Outcome
    The outcome for this measure is 30-day all-cause readmission 
defined as an unplanned subsequent inpatient admission to any acute 
care facility from any cause within 30 days of the admission date for 
the index hospitalization. A number of studies have demonstrated that 
improvements in care at the time of patient discharge can reduce 30-day 
readmission rates.85 86 87 It is a timeframe in which a 
readmission may reasonably be attributed to the hospital care and 
transitional period to a non-acute setting.
---------------------------------------------------------------------------

    \85\ Jack BW, Chetty VK, Anthony D, et al. A Reengineered 
Hospital Discharge Program to Decrease Rehospitalization. Annals of 
Internal Medicine 2009;150:178-88.
    \86\ Coleman EA, Parry C, Chalmers S, Min S-j. The Care 
Transitions Intervention: Results of a Randomized Controlled Trial. 
Archives of Internal Medicine 2006;166:1822-8.
    \87\ Anderson C, Deepak BV, Amoateng-Adjepong Y, Zarich S. 
Benefits of Comprehensive Inpatient Education and Discharge Planning 
Combined With Outpatient Support in Elderly Patients With Congestive 
Heart Failure. Congestive Heart Failure 2005;November-December:315-
21.
---------------------------------------------------------------------------

    The measure assesses all-cause unplanned readmission (excluding 
planned readmissions) rather than only stroke-specific readmissions for 
several reasons. First, from the patient perspective, readmission for 
any reason is likely to be an undesirable outcome of care, even though 
not all readmissions are preventable. Second, limiting the measure to 
stroke-related readmissions may limit the focus of efforts to improve 
care to a narrow set of approaches (such as processes that will prevent 
recurrent stroke) as opposed to encouraging broader initiatives aimed 
overall at improving the care within the hospital and transitions from 
the hospital setting. Moreover, it is often hard to exclude quality 
issues and accountability based on the documented cause of readmission, 
for instance, a patient who came back with pneumonia may have aspirated 
due to inadequate preventive measures and therefore we would not want 
to discount such a readmission.
    The measure does not count readmissions that are considered 
planned. Planned readmissions are identified in claims data using the 
CMS Planned Readmission Algorithm Version 2.1 which detects 
readmissions that are typically planned and may occur within 30 days of 
discharge from the hospital. For more information on the methodology 
used to identify planned readmissions, and the list of planned 
diagnoses and procedures used in the algorithm, please refer to on our 
Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. 
The stroke readmission measure makes one modification to the planned 
readmissions algorithm as it does not consider readmissions as planned 
for patients who are readmitted for debridement of wound; infection or 
burn (AHRQ's Clinical Classification Software procedure category 169). 
Such treatments are commonly provided for decubitus ulcers that can 
easily be unplanned readmissions following stroke care, because such 
ulcers can complicate a stroke. The algorithm includes planned 
readmissions for common related follow-up care for stroke patients (for 
example, carotid endarterectomy) as well as readmissions which are 
generally planned regardless of the original admission (for example, a 
stroke patient readmitted for cholecystectomy). Unplanned readmissions 
that fall within the 30-day post discharge timeframe from the index 
admission are not counted as outcomes for the index admission if they 
are preceded by a planned readmission.
(5) Cohort
    The cohort of index hospital admissions included in the measure is 
restricted to hospitalizations for ischemic stroke. The measure is 
limited to ischemic stroke hospitalizations for several reasons. First, 
ischemic strokes are the most common type of stroke, accounting for the 
vast majority of stroke hospitalizations.\88\ Second, the etiology and 
prognosis of ischemic stroke is quite different than that of 
hemorrhagic stroke, so a combined cohort would be more heterogeneous. 
This heterogeneity could make it more difficult to account for a 
hospital's patient mix and lead to a less fair measure. Similarly, 
patients with transient ischemic attacks (TIAs) are not included 
largely due to concerns about inconsistency in the use of 
administrative codes to define TIA and potential for inclusion of 
patients without cerebrovascular conditions. For detailed information 
on the cohort definition, we refer readers to the stroke readmission 
technical report on our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

    \88\ Thom T, Haase N, Rosamond W, et al. Heart Disease and 
Stroke Statistics-2006 Update: A Report From the American Heart 
Association Statistics Committee and Stroke Statistics Subcommittee. 
Journal of the American Heart Association 2006:85-151.

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

[[Page 50796]]

(6) Inclusion and Exclusion Criteria
    The measure includes hospitalizations for patients 65 years or 
older at the time of index admission and for whom there was a complete 
12 months of FFS enrollment to allow for adequate risk-adjustment. The 
measure excludes the following admissions from the measure cohort: (1) 
Admissions for patients who die during the initial hospitalization 
because they are not eligible for readmission; (2) admissions for 
patients having a principal diagnosis of stroke during the index 
hospitalization and subsequently transferred to another acute care 
facility are excluded because the measure's focus is on hospitals that 
discharge patients to a non-acute setting (for example, to home or a 
skilled nursing facility); (3) admissions for patients that are 
discharged against medical advice are excluded because providers did 
not have the opportunity to deliver full care and prepare the patient 
for discharge; (4) admissions for patients without at least 30-days 
post-discharge enrollment in Medicare FFS are excluded because the 30-
day readmission outcome cannot be assessed in this group; and (5) 
additional stroke admissions for patients within 30 days of discharge 
from an index stroke admission will be considered readmissions and not 
additional index admissions.
(7) Risk Adjustment
    The measure adjusts for differences across hospitals in how at risk 
their patients are for readmission relative to patients cared for by 
other hospitals. Consistent with NQF guidelines, the model does not 
adjust for socioeconomic status or race because risk-adjusting for 
these characteristics would hold hospitals with a large proportion of 
minority or low socioeconomic patients to a different standard of care 
than other hospitals. One goal of this measure is to illuminate quality 
differences that such risk-adjustment would obscure.
(8) Calculating the Risk Standardized Readmission Ratio (RSRR)
    The measure is calculated using HLM. This approach appropriately 
accounts for the types of patients a hospital treats (that is, hospital 
case mix), the number of patients it treats, and the quality of care it 
provides. HLM is an appropriate statistical approach to measuring 
quality based on patient outcomes when the patients are clustered 
within hospitals (and therefore the patients' outcomes are not 
statistically independent) and the number of eligible patients for the 
measure varies from hospital to hospital. As noted above, the measure 
methodology defines hospital case mix based on the clinical diagnoses 
provided in the hospital claims for their patients' inpatient and 
outpatient visits for the 12 months prior to the ischemic stroke 
hospitalization, as well as those present in the claims for care at 
admission. However, the methodology specifically does not account for 
diagnoses present in the index admission that may indicate 
complications rather than patient comorbidities. In addition, the 
measure takes into account situations where patients initially present 
at one ED but are then admitted to another hospital for their index 
stroke hospitalization. The measure includes a risk-adjustment factor 
to account for ED-transfer patients.
    The RSRR is calculated as the ratio of the number of predicted 
readmissions to the number of expected readmissions and then the ratio 
is multiplied by the national unadjusted readmission rate. The ratio is 
greater than one for hospitals that have more readmission that would be 
expected for an average hospital with similar cases and less than one 
if the hospital has fewer readmissions than would be expected for an 
average hospital with similar cases. This approach is analogous to a 
ratio of ``observed'' or ``crude'' rate to an ``expected'' or risk-
adjusted rate used in other similar types of statistical analyses.
    The RSRR is a point estimate--the best estimate of a hospital's 
readmission rate based on the hospital's case mix. For displaying the 
measure for the Hospital IQR Program, we computed an interval estimate, 
which is similar to the concept of a confidence interval, to 
characterize the level of uncertainty around the point estimate. We use 
the point estimate and interval estimate to determine hospital 
performance (for example, higher than expected, as expected, or lower 
than expected). For more detailed information on the calculation 
methodology, we refer readers to our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    We proposed to adopt this measure in the Hospital IQR Program for 
the FY 2016 payment determination and subsequent years under the 
exception authority in section 1886(b)(3)(B)(IX)(bb) of the Act as 
previously discussed in section IX.A.6. of the preamble of this final 
rule. Although the proposed measure is not currently NQF-endorsed or 
MAP supported, we considered other available measures that have been 
endorsed or adopted by the NQF, and were unable to identify any other 
NQF-endorsed measures that assess stroke readmission with a standard 
period of follow-up. We also are not aware of any other 30-day stroke 
readmission measures that have been endorsed or adopted by a consensus 
organization. The development of this measure went through the same 
rigorous development process as the other publicly reported outcomes 
measures and involved extensive input by stakeholders and clinical 
experts. It follows the same scientific approach to evaluate hospital 
performance as other Hospital IQR Program outcome measures. Finally, it 
has been validated with medical record measures and shown to produce 
similar hospital-level results. Accordingly, we proposed to adopt the 
30-day stroke readmission measure under the Secretary's authority set 
forth at section 1886(b)(3)(B)(IX)(bb) of the Act.
    We invited public comment on this proposal.
    Comment: Many commenters opposed the stroke readmission measure 
because it is not NQF-endorsed.
    Response: We submitted the 30-day Stroke Readmission and 30-day 
Stroke Mortality Measures to the NQF for review during its 2012 
Neurology Endorsement Maintenance Consensus Development Project. The 
NQF Neurology steering committee convened three times to assess the CMS 
stroke measures. The first time the Committee recommended the 
readmission measure for endorsement (the vote was 13 to 9). After the 
public comment period, the Steering Committee met for a second time to 
discuss the issues raised by the commenters. The issues raised during 
public comment were: (1) The lack of inclusion of the NIH Stroke Scale 
(NIHSS) score as patient severity score for risk adjustment purposes; 
(2) whether the measures are able to show variability among hospitals, 
and room for improvement; and (3) hospitals perceived ability to 
influence the readmission measure. The committee reassessed these 
issues and concluded that the 30-day readmission measure met the four 
NQF endorsement criteria--importance, scientific acceptability, 
usability, and feasibility. However the committee voted 12-10 against 
the endorsement of the readmission measure. The third time the 
Committee met following a second round of public comment, they 
discussed the issue of whether the readmission measure should be risk 
adjusted for patient level SES factors. The Steering Committee 
discussed these issues and decided not to re-vote on the

[[Page 50797]]

measures. For further information, we refer readers to the Official NQF 
Report for this Consensus Development Project, located here: http://
www.qualityforum.org/Publications/2012/12/Neurology_Endorsement_
Maintenance__-Phase_I_Technical_Report.aspx.
    We submitted the readmission and mortality measures for review by 
the MAP in December 2012. While some members of the MAP supported use 
of the measures in the Hospital IQR Program, in its Final Report to 
HHS, the MAP did not support either the 30-day Stroke Readmission 
Measure or the 30-day Stroke Mortality Measure, because the measures 
did not receive NQF endorsement. We refer readers to the February 2013 
MAP Pre-rulemaking recommendations located here: http://
www.qualityforum.org/Publications/2013/02/MAP_Pre-Rulemaking_Report_
_-February_2013.aspx.
    In evaluating and selecting the 30-day acute ischemic stroke 
readmission measure for inclusion in the Hospital IQR Program, we 
considered whether there were other available measures that have been 
endorsed or adopted by the NQF, and were unable to identify any other 
NQF-endorsed measures that assess 30-day acute ischemic stroke 
readmission. We also are not aware of any other measures of 30-day 
acute ischemic stroke outcomes that have been endorsed or adopted by a 
consensus organization. The development of the 30-day acute ischemic 
stroke readmission measure went through the same rigorous development 
process as the other publicly reported outcomes measures and involved 
extensive input by stakeholders and clinical experts. This follows the 
same scientific approach to evaluate hospital performance as other 
Hospital IQR Program outcome measures. There are currently no stroke 
outcome measures in the Hospital IQR Program to complement the process 
of care and structural measures, yet stroke remains one of the top 
causes of death, and hospitalization for Stroke is frequently followed 
by readmission. This is why we proposed to adopt this measure for the 
Hospital IQR Program under the Secretary's authority set forth at 
section 1886(b)(3)(B)(IX)(bb) of the Act.
    We appreciate and have heard the concerns of the stakeholders on 
this issue. We are committed to working with the stakeholder 
communities and to continuously refine our measures, which for the 
stroke outcome measures includes risk adjusted patient severity. We 
will work with the stroke communities and other stakeholders to seek 
feasible ways to incorporate additional severity adjustment as 
suggested. We note that stroke is the fifth leading cause of adult 
mortality in the U.S., and therefore we believe it would be a 
disservice to patients to delay inclusion of these current stroke 
outcome measures in quality reporting and quality improvement 
initiatives. We are committed to making these measures better and 
working with stakeholders to do so.
    Comment: Several commenters supported the addition of the stroke 
readmission measure to Hospital IQR Program.
    Response: We appreciate the commenters support for this measure.
    Comment: A number of commenters expressed concerns that the stroke 
readmission measure does not include risk adjustment for stroke 
severity. Specifically a few commenters suggested that use of this 
measure could hamper efforts to develop State-wide coordinated care 
systems, since many stroke centers receive severe cases from other 
providers' emergency departments. Commenters also stated that the 
adoption of the measure may create disincentives for providers to 
accept more severe stroke patients to try to avoid having high 
readmission rates. Instead of the proposed measure, one commenter asked 
CMS to develop a measure that accounts for stroke severity to enable 
hospitals to put internal changes in action to reduce readmission rates 
and improve quality of care for stroke patients. The same commenter 
also noted that the vast majority of stroke readmissions are not 
preventable.
    Response: We appreciate these concerns and suggestions and will 
continue to engage stakeholders on ways to incorporate stroke severity 
into the risk-adjusted model for stroke outcome measures. Our goal is 
to refine measures so that the measure results will better inform 
hospitals on ways to improve quality of care for their patients.
    We understand stakeholders' concerns that a measure of stroke 
readmission that does not adequately adjust for stroke severity might 
negatively impact the development of State-wide coordinated care 
systems. During measure development, we attempted to address this 
concern through validation of our measure. We compared the results of 
our measure with medical record data that included a marker of stroke 
severity. The correlation coefficient of the risk standardized 
readmission rates from the administrative and medical record models is 
0.99 and for the stroke mortality model (see the discussion of the 
stroke mortality measure below), it was 0.80. Hospital performance on 
both of the measures using two different data sources (that is, 
administrative claims or medical records) was very similar. We believe 
this analysis not only demonstrates the validity of the administrative 
claims data for risk-adjustment, but also illustrates how assessment of 
stroke severity using a method other than the NIHSS score can provide 
meaningful data that enables hospitals to improve stroke quality of 
care.
    Regarding the concerns about the creation of a potential 
disincentive to accept more severe stroke patients in transfer, we have 
thought carefully about this measure's effect on tertiary care centers. 
In order to confirm that the measure is fair to tertiary care centers, 
we performed analyses during measure development and found that measure 
performance for stroke centers is not different than that of non-stroke 
center hospitals. Further, our measures continually undergo maintenance 
to determine the need for: (1) Updated specifications; (2) responses to 
concerns of stakeholders; and (3) measure refinement in response to 
monitored trends. We will closely monitor this issue to ensure that 
hospitals are appropriately caring for patients experiencing various 
levels of stroke severity.
    We would like to clarify that we do not assume all readmissions are 
preventable. Our goal for the readmission measure is to identify 
hospitals that seem to have excess readmissions above and beyond what 
would be expected for their case mix. We believe that careful discharge 
planning and instructions, communication with outpatient providers, 
attention to patient safety and prevention of infections, are all 
important for reducing readmissions. With these internal changes by 
hospitals, we believe that these and other steps to reduce readmissions 
will lead to hospitals having lower overall readmission rates and have 
better rates on this measure. We stress that the measure is not 
intended to drive hospitals to a zero readmission rate, but rather is 
designed to encourage hospitals to identify opportunities to 
systematically reduce readmission risks in their environment.
    Comment: One commenter was concerned that the measure calculations 
cannot be replicated/validated by hospitals by using solely their own 
data.
    Response: The measure would require access to 100 percent of 
Medicare Part A and Part B claims for all Medicare Fee

[[Page 50798]]

for Service beneficiaries in order to truly replicate the calculations 
that we perform for these measures. We realize that this type of data 
access or analytic capacity may not be available to hospitals, and this 
is why we provide hospitals with detailed information to help them 
understand what the calculations were based on--including discharge 
level comorbidities and dispositions, so that hospitals can verify the 
accuracy of the calculations we provide.
    Comment: One commenter suggested that any stroke outcome measures 
used by the program should be properly developed, tested and risk-
adjusted. Some commenters requested that CMS begin collecting stroke 
severity in the form of the NIHSS score and work to revise these 
measures to include adjustment for stroke severity, prior to 
implementation in the Hospital IQR Program.
    Response: We appreciate these concerns and suggestions and will 
continue to engage stakeholders on ways to incorporate stroke severity 
into the stroke outcome measures. Our goal is to continuously refine 
measures so that the measure results will better inform hospitals on 
ways to improve quality of care for their patients.
    We understand stakeholder concerns that the current stroke outcome 
measures do not risk-adjust for stroke severity using the NIHSS score. 
We believe the stroke outcome measures were effectively developed, 
tested and risk-adjusted because we validated our claims-based risk 
adjustment model against a clinical risk adjustment model that included 
the National Stroke Project Stroke Severity Scale (NSPSSS), a marker of 
patient severity other than the NIHSS score that correlates well with 
the NIHSS.\89\ During development our aim was to: (1) Develop a 
scientifically valid measure; (2) conduct development in a fully 
transparent manner with multiple public comment periods; and (3) 
acquire extensive input from the clinical community.
---------------------------------------------------------------------------

    \89\ El Husseini,N.; Shea,K.J.; and Goldstein, L.B. (2011). 
``Concerns for the Reliability and Validity of the National Stroke 
Project Stroke Severity Scale.'' Cerebrovasc. Dis. Vol 32:426-430.
---------------------------------------------------------------------------

    To address the concerns of validity, we performed a comparison of 
the performance of the administrative claims model with the performance 
of a clinical model that included the NSPSSS in a matched cohort of 
admissions. Our analyses found that there was a high-level of agreement 
between the claims-based model and the clinical model. The correlation 
coefficients of the hospital risk standardized readmission rates 
calculated using the claims based model and the clinical model were 
0.99 for the readmission measure and 0.80 for the stroke mortality 
measure. Hospital performance on the measures using the two different 
data sources (that is, administrative claims or medical records) was 
also very similar. We believe that these results demonstrate the 
validity of our administrative claims based model for risk-adjustment, 
because generally, clinical data from medical records are considered a 
gold standard for comparison.
    We appreciate and have heard the concerns of the stakeholders on 
this issue. We are committed to working with the stakeholder 
communities and to continuously refine our measures, which for the 
stroke outcome measures includes risk adjusted patient severity. We 
will work with the stroke communities and other stakeholders to seek 
feasible ways to incorporate additional severity adjustment as 
suggested. We must highlight that stroke is the fifth leading cause of 
adult mortality in the U.S., and therefore we believe it would be a 
disservice to patients to delay inclusion of these current stroke 
outcome measures in quality reporting and quality improvement 
initiatives. We are committed to making these measures better and 
working with stakeholders to do so.
    After consideration of the public comments we received, we are 
finalizing as proposed the Hospital 30-day, all-cause risk-standardized 
rate of readmission following acute ischemic stroke measure for FY 2016 
payment determination and subsequent years.
d. Hospital 30-Day, All-Cause Risk-Standardized Rate of Mortality 
Following an Admission for Acute Ischemic Stroke (Stroke Mortality) 
Measure
(1) Background
    Stroke is an important and common diagnosis among Medicare 
patients. Stroke affects approximately 795,000 people each year in the 
U.S. with high rates of mortality and morbidity. Stroke is the fourth 
most common cause of death after heart disease, cancer, and chronic 
lower respiratory disease.\90\ Moreover, stroke is one of the top 20 
conditions contributing to Medicare costs.\91\ Finally, there is 
evidence of variation in outcomes at hospitals for stroke patients, 
supporting the finding that there are opportunities for improving care. 
The median 30-day risk-standardized mortality rate among Medicare FFS 
patients aged 65 or older hospitalized for stroke in 2007 was 15.3 
percent, and ranged from 10.7 percent to 23.5 percent across 4,288 
hospitals.\92\
---------------------------------------------------------------------------

    \90\ American Heart Association, Heart Disease and Stroke 
Statistics--2012 Update. American Heart Association, Circulation 
2012, 125:e2-e220.
    \91\ Andrews RM. The National Hospital Bill: The Most Expensive 
Conditions by Payer, 2006. Rockville: Agency for Healthcare Research 
and Quality; 2008.
    \92\ Bernheim S.M., Wang C., Wang Y., et al. Hospital 
30[hyphen]Day Mortality Following Acute Ischemic Stroke 
Hospitalization Measure: Report prepared for the Centers for 
Medicare & Medicaid Services. 2010; Available at: http://
www.qualitynet.org.
---------------------------------------------------------------------------

    We proposed to include a non-NQF endorsed hospital 30-day, all-
cause risk-standardized rate of mortality following an admission for 
acute ischemic stroke measure in the Hospital IQR Program, under the 
exception authority in section 1886(b)(3)(B)(IX)(bb) of the Act as 
previously discussed in section IX.A.6. of the preamble of this final 
rule. Although the proposed measure is not currently NQF-endorsed or 
MAP supported, we considered other available measures that have been 
endorsed or adopted by a consensus organization, and found no other 
feasible and practical measures on this topic. We believe it is 
important to adopt this measure as it aims to address a prevalent and 
costly health problem in the nation. In addition, the measure aligns 
with our priority objectives to promote quality improvements leading to 
successful transition of care for patients from acute care to 
outpatient settings, and reducing short term, preventable mortality 
rates.
    We plan to implement this measure to encourage improvement of 
outcomes by providing patients, physicians, and hospitals with 
information about hospital-level, risk-standardized mortality rates 
following hospitalization for acute ischemic stroke. Studies have shown 
stroke mortality to be related to quality of care, and that there are 
effective interventions that hospitals can adopt to reduce mortality 
rates.\93\ \94\ Moreover, by proposing an outcome measure, we intend to 
broaden the view of quality of care that encompasses more than what can 
be captured by merely measuring individual processes-of-care. Through 
outcome measures, we can capture complex and critical aspects of care, 
such as communication between providers, prevention of, and response 
to, complications, patient safety and

[[Page 50799]]

coordinated transitions to the outpatient environment, all of which 
contribute to patient outcomes, but are difficult to measure by 
individual process measures.\95\ \96\
---------------------------------------------------------------------------

    \93\ Fonarow GC, Reeves MJ, Zhao X, et al. Age-Related 
Differences in Characteristics, Performance Measures, Treatment 
Trends, and Outcomes in Patients With Ischemic Stroke. Journal of 
the American Heart Association 2010;121:879-91.
    \94\ Bravata DM, Wells CK, Lo AC, et al. Processes of Care 
Associated With Acute Stroke Outcomes. Archives of Internal Medicine 
2010;170:804-10.
    \95\ Krumholz H, Normand S-L, Spertus JA, Shahian DM, Bradley 
EH. Measuring Performance for Treating Heart Attacks and Heart 
Failure: The Case for Outcomes Measurement. Health Affairs 
2007;26:75-85.
    \96\ Bradley EH, Herrin J, Elbel B, et al. Hospital Quality for 
Acute Myocardial Infarction: Correlation Among Process Measures and 
Relationship With Short-term Mortality. The Journal of the American 
Medical Association 2006;296:72-8.
---------------------------------------------------------------------------

    The specifics of the measure methodology are included in the 
measure methodology report we have posted on our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. We refer readers to the 
report for further details on the risk-adjustment statistical model.
(2) Overview of Measure
    The measure is a 30-day, all-cause risk-standardized rate of 
mortality after admission for acute ischemic stroke to any non-federal 
acute care hospital. The measure includes Medicare fee-for-service 
patients aged 65 or older admitted for an acute ischemic stroke and 
assesses if the patient died within 30 days of admission.
    In general, the measure uses the same approach to risk-adjustment 
and HLM methodology that is specified for our inpatient outcome 
measures previously adopted for the Hospital IQR Program, including 
AMI, HF, and PN readmission and mortality measures. For a discussion of 
this methodology, we refer readers to our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    Furthermore this measure, which is calculated using CMS claims or 
administrative data, is validated by comparing it to a medical record 
model in a matched cohort of admissions for which stroke medical record 
data and administrative claim data are available.
(3) Data Sources
    The proposed measure is claims-based and uses Medicare 
administrative data that contain hospitalizations for Medicare FFS 
beneficiaries hospitalized with acute ischemic stroke.
(4) Outcome
    The outcome for this measure is 30-day all-cause mortality defined 
as a death from any cause within 30 days of the admission date for the 
index hospitalization. Thirty days is a standard time period used in 
other measures of stroke mortality.\97\ \98\ It is a timeframe in which 
a death may reasonably be attributed to the hospital care and 
transitional period to a non-acute setting.
---------------------------------------------------------------------------

    \97\ Saposnik G, Hill MD, O'Donnell M, Fang J, Hachinski V, 
Kapral MK. Variables Associated With 7-Day, 30-Day, and 1-Year 
Fatality After Ischemic Stroke. Journal of the American Heart 
Association 2008;39.
    \98\ Counsell C, Dennis M, McDowall M, Warlow C. Predicting 
Outcome After Acute and Subacute Stroke: Development and Validation 
of New Prognostic Models Journal of the American Heart Association 
2002:1041-7.
---------------------------------------------------------------------------

    The measure assesses all-cause mortality as opposed to stroke-
specific mortality for several reasons. First of all, limiting the 
measure to stroke-related mortalities may limit the focus of efforts to 
improve care to a narrow set of approaches (such as processes that will 
prevent recurrent stroke) as opposed to encouraging broader initiatives 
aimed at improving the overall care within the hospital. Second, cause 
of death may be unreliably recorded and it is often impossible to 
exclude quality issues and accountability based on the documented cause 
of mortality. For example, a stroke patient who develops a hospital-
acquired infection may ultimately die from sepsis. It would be 
inappropriate to treat this mortality as unrelated to the care the 
patient received for stroke. Finally, from a patient perspective, death 
is the outcome that matters, regardless of cause.
(5) Cohort
    The cohort of index hospital admissions included in the measure is 
restricted to hospitalizations for ischemic stroke. The measure is 
limited to ischemic stroke hospitalizations for a few reasons. First, 
ischemic strokes are the most common type of stroke, accounting for the 
vast majority of stroke hospitalizations.\99\ Second, the causes and 
prognosis of ischemic stroke are quite different than that of 
hemorrhagic stroke, so a combined cohort would be more heterogeneous. 
This heterogeneity could make it more difficult to account for a 
hospital's patient mix and lead to a less fair measure. Similarly, 
patients with TIAs are not included largely due to concerns about 
inconsistency in the use of administrative codes to define TIA and 
potential for inclusion of patients without cerebrovascular conditions. 
For detailed information on the cohort definition please reference the 
stroke mortality technical report on our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

    \99\ American Heart Association, Heart Disease and Stroke 
Statistics--2012 Update. American Heart Association, Circulation 
2012, 125:e2-e220.
---------------------------------------------------------------------------

(6) Inclusion and Exclusion Criteria
    The measure includes hospitalizations for patients 65 years or 
older at the time of index admission and for whom there was a complete 
12 months of FFS enrollment to allow for adequate risk-adjustment. The 
measure excludes the following admissions from the measure cohort: (1) 
Admissions for patients having a principal diagnosis of stroke during 
the index hospitalization who were transferred from another acute care 
facility are excluded because the hospital where the patient was 
initially admitted made critical acute care decisions (including the 
decision to transfer and where to transfer); (2) admissions for 
patients enrolled in the Medicare Hospice program any time in the 12 
months prior to the index hospitalization, including the first date of 
the index admission are excluded because it is likely that these 
patients are continuing to seek comfort care and their goal may not be 
survival; and (3) admissions for patients that are discharged alive and 
against medical advice are excluded because providers did not have the 
opportunity to deliver full care and prepare the patient for discharge.
(7) Risk Adjustment
    The measure adjusts for differences across hospitals in how at risk 
their patients are for death relative to patients cared for by other 
hospitals. Consistent with NQF guidelines, the model does not adjust 
for socioeconomic status or race because risk-adjusting for these 
characteristics would hold hospitals with a large proportion of 
minority or low socioeconomic status patients to a different standard 
of care than other hospitals. One goal of this measure is to illuminate 
quality differences that such risk-adjustment would obscure.
(8) Calculating the Risk Standardized Mortality Ratio (RSMR)
    The measure is calculated using hierarchical logistic modeling 
(HLM). This approach appropriately accounts for the types of patients a 
hospital treats (that is, hospital case mix), the number of patients it 
treats, and the quality of care it provides. The HLM is an appropriate 
statistical approach to measuring quality based on patient outcomes 
when the patients are clustered within hospitals (and therefore the 
patients' outcomes are not statistically independent) and the number of 
eligible patients for the measure varies from hospital to

[[Page 50800]]

hospital. As noted above, the measure methodology defines hospital case 
mix based on the clinical diagnoses provided in the hospital claims for 
their patients' inpatient and outpatient visits for the 12 months prior 
to the stroke hospitalization, as well as those present in the claims 
for care at admission. However, the methodology specifically does not 
account for diagnoses present in the index admission that may indicate 
complications rather than patient comorbidities. In addition, the 
measure takes into account situations where patients initially present 
at one ED, are then admitted to another hospital for their index stroke 
hospitalization. The measure includes a risk-adjustment factor to 
account for ED-transfer patients.
    The RSMR is calculated as the ratio of the number of predicted 
deaths to the number of expected deaths and then the ratio is 
multiplied by the national unadjusted mortality rate. The ratio is 
greater than one for hospitals that have more deaths that would be 
expected for an average hospital with similar cases and less than one 
if the hospital has fewer deaths than would be expected for an average 
hospital with similar cases. This approach is analogous to a ratio of 
an ``observed'' or ``crude'' rate to an ``expected'' or risk-adjusted 
rate used in other similar types of statistical analyses.
    The RSMR is a point estimate--the best estimate of a hospital's 
mortality rate based on the hospital's case mix. For displaying the 
measure for the Hospital IQR Program, we computed an interval estimate, 
which is similar to the concept of a confidence interval, to 
characterize the level of uncertainty around the point estimate. We use 
the point estimate and interval estimate to determine hospital 
performance (for example, higher than expected, as expected, or lower 
than expected). For more detailed information on the calculation 
methodology, we refer readers to our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    We proposed to adopt this measure in the Hospital IQR Program for 
the FY 2016 payment determination and subsequent years under the 
exception authority in section 1886(b)(3)(B)(IX)(bb) of the Act as 
previously discussed in section IX.A.6. of the preamble of this final 
rule. Although the proposed measure is not currently NQF-endorsed or 
MAP supported, we considered other available measures that have been 
endorsed or adopted by the NQF, and were unable to identify any other 
NQF-endorsed measures that assess stroke mortality with a standard 
period of follow-up. We also are not aware of any other 30-day stroke 
mortality measures that have been endorsed or adopted by a consensus 
organization. The development of this measure went through the same 
rigorous development process as the other publicly reported outcomes 
measures and involved extensive input by stakeholders and clinical 
experts. It follows the same scientific approach to evaluate hospital 
performance as other Hospital IQR outcome measures. Finally, it has 
been validated with medical record measures and shown to produce 
similar hospital-level results. Accordingly, we proposed to adopt the 
30-day stroke mortality measure under the Secretary's authority set 
forth at section 1886(b)(3)(B)(IX)(bb) of the Act.
    We invited public comment on this proposal.
    Comment: Many commenters opposed the use of the stroke mortality 
measure because it is not NQF-endorsed.
    Response: We submitted the 30-day Stroke Mortality Measure to the 
NQF for review during its 2012 Neurology Endorsement Maintenance 
Consensus Development Project. The NQF Neurology Steering Committee 
convened three times to assess the measure. At the first meeting, the 
Committee strongly recommended the measure for endorsement (the vote 
was 18 yes to 4 no). After the public comment period, the Steering 
Committee met for a second time to discuss the issues raised by the 
commenters. The issues raised during public comment were: (1) The 
measure uses administrative data rather than clinical data; (2) most of 
the severely disabled stroke patients are redirected to referral stroke 
centers, which may result in excess mortality at those sites; (3) 
unintended consequences--hospitals may selectively accept stroke 
patients with mild or moderate strokes and may not want to accept more 
severely ill patients; (4) the measure did not appear well validated; 
and (5) the NIHSS score is not included in the risk-adjustment model 
(The NIHSS is a tool used by healthcare providers to quantify the 
impairment caused by a stroke such as level of consciousness, eye 
movement, visual test, facial palsy, motor arm, motor leg, limb ataxia, 
sensory, language, and speech, whereas the NSPSSS assesses the presence 
of visual, speech, motor and sensory deficits for stroke patients.) 
Commenters cited the findings of the JAMA article, Comparison of 30-Day 
Mortality Models for Profiling Hospital Performance in Acute Ischemic 
Stroke With vs Without Adjustment for Stroke Severity, by Fonarow, et 
al. The Committee discussed these issues at length, especially the 
results in the Fonarow article. The Steering Committee then voted again 
on the measure. Votes on each of the four NQF criteria--importance, 
scientific acceptability, usability, and feasibility--resulted in a 
majority of high and moderate votes for the measure. For the overall 
endorsement vote, however the Committee did not reach consensus (the 
vote was split 11 yes to 11 no). The measure went out for a second 
public comment period with additional testing information. We elected 
to withdraw the stroke mortality measure from NQF review prior to the 
third Steering Committee meeting. For further information, we refer 
readers to the Official NQF Report for this Consensus Development 
Project, located here: http://www.qualityforum.org/Publications/2012/
12/Neurology_Endorsement_Maintenance__-Phase_I_Technical_
Report.aspx.
    We submitted the measures for review by the MAP in December 2012. 
While some members of the MAP supported use of the measures in the 
Hospital IQR Program, in their Final Report to HHS, the MAP did not 
support the 30-day Stroke Mortality Measure because the measure did not 
receive NQF endorsement. We refer readers to the February 2013 MAP Pre-
rulemaking recommendations located here: http://www.qualityforum.org/
Publications/2013/02/MAP_Pre-Rulemaking_Report__-February_
2013.aspx.
    In evaluating and selecting this measure for inclusion in the 
Hospital IQR Program, we considered whether there were other available 
measures that have been endorsed or adopted by the NQF, and were unable 
to identify any other NQF-endorsed measures that assess 30-day stroke 
mortality. We also are not aware of any other measures of 30-day stroke 
outcomes that have been endorsed or adopted by a consensus 
organization. The development of this measure went through the same 
rigorous development process as the other publicly reported outcomes 
measures and involved extensive input by stakeholders and clinical 
experts. This follows the same scientific approach to evaluate hospital 
performance as other Hospital IQR Program outcome measures. There are 
currently no stroke outcome measures in the Hospital IQR Program to 
complement the process of care and structural measures, yet stroke 
remains one of the top causes of death. This is why we proposed to 
adopt this measure for the Hospital IQR Program

[[Page 50801]]

under the Secretary's authority set forth at section 
1886(b)(3)(B)(IX)(bb) of the Act.
    We appreciate and have heard the concerns of the stakeholders on 
this issue. We are committed to working with the stakeholder 
communities and to continuously refine our measures, which for the 
stroke outcome measures includes risk adjusted patient severity. We 
will work with the stroke communities and other stakeholders to seek 
feasible ways to incorporate additional severity adjustment as 
suggested. We must highlight that stroke is the fifth leading cause of 
adult mortality in the U.S., and therefore we believe it would be a 
disservice to patients to delay inclusion of these current stroke 
outcome measures in quality reporting and quality improvement 
initiatives. We are committed to making these measures better and 
working with stakeholders to do so.
    Comment: Some commenters supported the addition of the stroke 
mortality measure to Hospital IQR Program.
    Response: We appreciate the commenters' support.
    Comment: Several commenters requested CMS consider excluding 
hospice settings and levels of care for post discharge stroke patients.
    Response: The stroke mortality measure excludes patients who are 
enrolled in Medicare hospice on the day of admission or in the 12 
months prior to the day of admission because the goal of the 
hospitalization for these patients is likely not survival. However, 
consistent with guidelines for health care quality outcome measures, 
the 30-day measure does not exclude patients who transitioned to 
hospice or palliative care during their hospital stay because such 
transitions may be the result of quality failures that have led to poor 
clinical outcomes; thus, excluding these patients could mask quality 
problems. Moreover, the use of palliative care during a hospital stay 
is not necessarily an indication that a patient is no longer seeking 
life-sustaining measures. Palliative care is focused on providing 
patients relief of symptoms. It is increasingly used by patients who 
are not at the end of life and, therefore, should not be used to 
exclude patients from a mortality measure.
    Comment: A few commenters requested that CMS focus on an e-measure 
for strokes which implements ICD-10 codes.
    Response: We are currently expanding the use of e-measures and will 
continue to examine the feasibility of converting existing measures 
into e-measures. We are also committed to transitioning current 
measures to ICD-10 once ICD-10 is fully implemented.
    Comment: One commenter requested that the measure include Medicare 
Advantage patients.
    Response: We do not receive claims data for beneficiaries who are 
enrolled in the Medicare Advantage Program. Therefore, the measure 
cannot be calculated using claims paid under the Medicare Advantage 
Program.
    Comment: One commenter requested CMS develop a reporting mechanism, 
similar to the present on admission (POA) flag, so that providers can 
more accurately and properly report the care that they deliver to the 
patient.
    Response: We have implemented a POA coding requirement for primary 
and secondary diagnoses on claims submitted for Part A services. We 
currently do not use these codes in this measure. However, we 
appreciate the recommendation for the use of POA flags and will 
continue to evaluate whether they can be used as part of the stroke 
mortality measure rate calculations.
    Comment: One commenter requested CMS include the NQF 0467 
measure--Acute Stroke Mortality Rate (AHRQ IQI 17) in the Hospital IQR 
measure set instead of the stroke readmission and mortality measures.
    Response: The NQF 0467 measure is a measure of inpatient 
deaths only and does not include deaths which occur in the post-acute 
timeframe. We believe it is important to not only measure inpatient 
deaths but also those that occur in any setting during the 30-day 
period after discharge, which are captured in the proposed measure. 
This is because measuring only in-hospital deaths may result in the 
unintended consequence of hospitals discharging patients 
inappropriately in order to avoid being attributed with their death.
    Comment: One commenter noted that the stroke mortality measure 
model does not provide adequate discrimination between hospitals in 
terms of performance citing a recent JAMA article which suggests that 
hospitals can be classified as ``better than'' or ``worse than'' 
expected mortality when those hospitals should be classified as 
``expected mortality'' if the risk adjustment does not include the 
NIHSS.
    Response: The article referenced by the commenter in the Journal of 
the American Medical Association (JAMA) in 2012 is believed to be that 
written by Fonarow et al.\100\ In this article, the authors compared 
categorization or classification of hospitals as better than, no 
different than, or worse than the national stroke rate using a 30-day 
mortality model with and without the NIHSS score. Briefly, Fonarow et 
al. created a 30-day mortality model thought to be identical to the 
CMS/Yale 30-day acute ischemic stroke mortality model. Once they 
created this model they added NIHSS score variables and categorized 782 
hospitals using the model without the NIHSS score and with the NIHSS 
score. Their analyses showed that 94 percent of the 782 hospitals that 
were analyzed were classified or categorized identically by both models 
(that is, model with and without the NIHSS score). The commenter noted 
that Fonarow et al.'s article found that the model with the NIHSS score 
classified 6 percent of the hospitals (that is, 45 of 782 hospitals) 
differently from the model without the NIHSS score.
---------------------------------------------------------------------------

    \100\ Fonarow, G.C.; Pan, W.; Saver, J.L. et al. (2012) 
``Comparison of 30-Day Mortality Models for Profiling Hospital 
Performance in Acute Ischemic Stroke with vs without Adjustment for 
Stroke Severity. JAMA, vol. 308 No.3.
---------------------------------------------------------------------------

    We believe the reclassification found in article is potentially 
unreliable due to several limitations of this article. First over half 
of the patients in the study did not have a measured NIHSS score. This 
fact both undermines the findings in the article and provides evidence 
that implementing a measure with the NIHSS score would not be feasible 
in the near term. Second the measure analyzed within the article, 
though described as being the same as the CMS measure actually differed 
in important respects. The measure in the JAMA article lacks a risk 
variable for Emergency Department (ED)-transfer patients. The ED 
transfer variable included in the proposed measure is an important 
variable that likely captures some of the differences in stroke 
severity for patients treated in hospitals that are regional stroke 
centers. In addition the measure in the JAMA article included a 
different cohort of stroke patients other than Acute Ischemic Stroke 
patients (the JAMA article included hemorrhagic patients), the risk-
adjustment includes different variables and is much less parsimonious 
(has 87 variables). Third, the article did not allow evaluation of the 
degree of differences between the results of the two models. A small 
change in the estimates may change ranking without meaningfully 
changing hospital results. The article does not provide information 
about how similar the new estimates are to the CMS original estimates, 
or whether the new estimates fall within the uncertainty of the 
original estimates. Nor does the article present the

[[Page 50802]]

correlation between the original model results and new results for 
hospitals.
    We believe the proposed stroke outcome measures were effectively 
developed, tested and risk adjust using the National Stroke Project 
Stroke Severity Scale (NSPSSS), a marker of patient severity other than 
but similar to the NIHSS score. The NIHSS is a tool used by healthcare 
providers to quantify the impairment caused by a stroke such as level 
of consciousness, eye movement, visual test, facial palsy, motor arm, 
motor leg, limb ataxia, sensory, language, and speech. The NSPSSS 
assesses the presence of visual, speech, motor and sensory deficits for 
stroke patients. The NSPSSS correlates well with NIHSS. During the 
measure development, we performed a comparison of the performance of 
the administrative claims model with the performance of a medical 
record model that included the NSPSSS. Our analysis found that the 
models had a high-level of agreement. The correlation coefficient of 
the hospital risk standardized readmission rates calculated from the 
claims and the medical record risk-adjustment models is 0.99 and for 
the stroke mortality model it was 0.80. These results demonstrated the 
validity of the administrative claims data for risk-adjustment. 
Hospital performance on the measures using two different data sources 
(that is, administrative claims or medical records) was very similar. 
The measures we have developed are scientifically valid measures, 
developed in full transparency and with extensive input from the 
clinical community. We believe these are the best measures possible 
using available data and its implementation would encourage 
improvements in quality and patient outcomes.
    Comment: One commenter requested that measure performance be 
reported more frequently, on a quarterly basis.
    Response: We decided to use the proposed timeframe because it 
balances the needs for the most recent claims and for sufficient time 
to process the claims data and calculate the measures to meet the 
program implementation timeline. Quarterly reporting of performance 
data for the 30-day outcome measures will not allow sufficient 
differentiation of performance. However, we will continue to explore 
the feasibility of providing more frequent feedback on discharges to 
hospitals.
    After consideration of the public comments we received, we are 
finalizing as proposed the Hospital 30-Day, all-cause risk-standardized 
rate of mortality following an admission for acute ischemic stroke for 
FY 2016 payment determination and subsequent years.
e. Hospital Risk-Standardized Payment Associated With a 30-day Episode-
of-Care for Acute Myocardial Infarction (AMI) Measure
(1) Background
    Providing high-value care is an essential part of our mission to 
provide better health care for individuals, better health for 
populations, and lower costs for health care. In order to incentivize 
innovation that promotes high-quality care at high value it is critical 
to examine measures of payment and patient outcomes concurrently. There 
is evidence of variation in payments at hospitals for AMI patients; 
mean 30-day risk-standardized payment among Medicare FFS patients aged 
65 or older hospitalized for AMI in 2008 was $20,207, and ranged from 
$15,521 to $27,317 across 1,846 hospitals.\101\ However, high or low 
payments to hospitals are difficult to interpret in isolation. Some 
high payment hospitals may have better clinical outcomes when compared 
with low payment hospitals while other high payment hospitals may not 
have better outcomes. For this reason, the value of hospital care is 
more clearly assessed when pairing hospital payments with hospital 
quality. Therefore, we proposed to include a non-NQF-endorsed measure: 
hospital risk-standardized payment associated with a 30-day episode-of-
care for acute myocardial infarction (AMI) in the Hospital IQR Program 
under the exception authority in section 1886(b)(3)(B)(IX)(bb) of the 
Act as previously discussed in section IX.A.6. of the preamble of this 
final rule. Although the proposed measure is not currently NQF-
endorsed, we considered other available measures that have been 
endorsed or adopted by a consensus organization, and found no other 
feasible and practical measures on this topic. The MAP supports this 
measure contingent on NQF-endorsement.
---------------------------------------------------------------------------

    \101\ Kim N., Bernheim S.M., Ott L.S., et al. Hospital-level, 
Risk-Standardized Payment Associated with a 30-Day Episode-of-Care 
for AMI: Report prepared for the Centers for Medicare & Medicaid 
Services. 2013; Available at: http://www.qualitynet.org.
---------------------------------------------------------------------------

    We believe it is important to adopt this measure as it is aligned 
with our 30-day AMI mortality measure and can also be paired with our 
30-day AMI readmission measure. This would facilitate assessing 
hospital value, because including this measure in the Hospital IQR 
Program and publicly reporting it on Hospital Compare will allow 
stakeholders to assess information about a hospital's quality and cost 
of care for AMI. The measure reflects differences in the management of 
care for patients with AMI both during hospitalization and immediately 
post-discharge. AMI is a condition with substantial variation in costs 
of care and, therefore, is an ideal condition for assessing relative 
value for an episode-of-care that begins with an acute hospitalization. 
By focusing on one specific condition, value assessments may provide 
actionable feedback to hospitals and incentivize targeted improvements 
in care.
(2) Rationale for Examining Payments for a 30-Day Episode-of-Care
    When examining variation in payments, consideration of the episode-
of-care triggered by admission is meaningful for several reasons. 
First, hospitalizations represent a brief period of illness that 
requires ongoing management post-discharge and decisions made at the 
admitting hospital affect payments for care in the immediate post-
discharge period. Second, attributing payments for a continuous 
episode-of-care to admitting hospitals may reveal practice variations 
in the full care of the illness that can result in increased payments. 
Third, a 30-day preset window provides a standard observation period by 
which to compare all hospitals. Lastly, the AMI payment measure is 
intended to be paired with our 30-day AMI mortality and readmission 
measures and capture payments for Medicare patients across all care 
settings, services, and supplies, except for Medicare Part D (that is, 
inpatient, outpatient, skilled nursing facility, home health, hospice, 
physician/clinical laboratory/ambulance services, supplier Part B 
items, and durable medical equipment, prosthetics/orthotics, and 
supplies).
    We have posted the measure methodology report on our Web site at: 
http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. We refer 
readers to the report for further details on the risk adjustment 
statistical model as well as the model results.
(3) Overview of the Measure
    The AMI payment measure assesses hospital risk-standardized payment 
associated with a 30-day episode-of-care for AMI for any non-federal 
acute care hospital. The measure includes Medicare FFS patients aged 65 
or older admitted for an AMI and calculates payments for these patients 
over a 30-day episode-of-care beginning with the index admission. In 
general, the

[[Page 50803]]

measure uses the same approach to risk-adjustment as our 30-day outcome 
measures previously adopted for the Hospital IQR Program, including the 
AMI, HF, and PN readmission and mortality measures. We refer readers to 
our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
(4) Data Sources
    The proposed measure is claims-based and uses Medicare 
administrative data that contain hospitalizations and payments for 
Medicare FFS beneficiaries hospitalized with AMI.
(5) Outcome
    The primary outcome of the AMI payment measure is the hospital-
level risk-standardized payment for an AMI episode-of-care. The measure 
captures payments for Medicare patients across all care settings, 
services, and supplies, except Part D. By risk-standardizing the 
payment measure, we are able to adjust for case-mix at any given 
hospital and compare a specific hospital's AMI payment to other 
hospitals with the same case-mix. The analytic time frame for the AMI 
payment measure begins with the index admission for AMI and ends 30 
days post-admission.
    In order to isolate payment variation that reflects practice 
patterns rather than CMS payment adjustments, the AMI payment measure 
excludes policy and geography payment adjustments unrelated to clinical 
care decisions. We achieve this by ``stripping'' or ``standardizing'' 
payments for each care setting. Stripping refers to removing geographic 
differences and policy adjustments in payment rates for individual 
services from the total payment for that service. Standardizing refers 
to averaging payments across geographic areas for those services where 
geographic differences in payment cannot be stripped. Stripping and 
standardizing the payment amounts allows for a fair comparison across 
hospitals based solely on payments for decisions related to clinical 
care of AMI.
(6) Cohort
    We created the AMI payment measure cohort to be aligned with the 
publicly reported AMI mortality measure cohort. Consistent with these 
measures, the AMI payment measure includes hospitalizations with a 
principal hospital discharge diagnosis of AMI using the International 
Classification of Diseases, Ninth revision, Clinical Modification. A 
full list of ICD-9-CM codes included in the final cohort can be found 
in Appendix B of the technical report on our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. An index hospitalization 
is the initial AMI admission that triggers the 30-day episode-of-care 
for this payment calculation. The measure includes only those 
hospitalizations from short-stay acute care hospitals in the index 
cohort and restricts the cohort to patients enrolled in FFS Medicare 
Parts A and B (with no Medicare Advantage coverage).
(7) Inclusion and Exclusion Criteria
    The AMI payment measure includes hospitalizations for patients 65 
years or older at the time of index admission and for whom there was a 
complete 12 months of FFS enrollment to allow for adequate risk 
adjustment. The measure excludes the following admissions from the 
measure cohort: (1) Admissions for patients with fewer than 30 days of 
post-admission enrollment in Medicare because this is necessary in 
order to identify the outcome (payments) in the sample over the 
analytic period; (2) admissions for patients having a principal 
diagnosis of AMI during the index hospitalization who were transferred 
from another acute care facility are excluded, because the hospital 
where the patient was initially admitted made the critical acute care 
decisions (including the decision to transfer and where to transfer); 
(3) admissions for AMI patients who were discharged on the same or next 
day as the index admission and did not die or get transferred are 
excluded, because it is unlikely these patients suffered a clinically 
significant AMI; (4) admissions for patients enrolled in the Medicare 
Hospice program any time in the 12 months prior to the index 
hospitalization, including the first date of the index admission are 
excluded, because it is likely that these patients are continuing to 
seek comfort care and their goal may not be survival; (5) admissions 
for patients who are discharged alive and against medical advice are 
excluded because providers did not have the opportunity to deliver full 
care and prepare the patient for discharge; (6) admissions for patients 
transferred to or from federal or Veterans Administration hospitals are 
excluded, because we do not have claims data for these hospitals; thus, 
including these patients would systematically underestimate payments; 
and (7) admissions without a DRG or DRG weight for the index 
hospitalization are excluded, because we cannot calculate a payment for 
these patients' index admission using the IPPS; this would 
underestimate payments for the entire episode-of-care.
(8) Risk Adjustment
    The measure adjusts for differences across hospitals in how 
payments are affected by patient comorbidities relative to patients 
cared for by other hospitals. Consistent with NQF guidelines, the model 
does not adjust for socioeconomic status or race, because risk-
adjusting for these characteristics would hold hospitals with a large 
proportion of minority or low socioeconomic status patients to a 
different standard of care than other hospitals. One goal of this 
measure is to illuminate quality differences that such risk-adjustment 
would obscure.
(9) Calculating the Risk Standardized Payment (RSP)
    The measure is calculated using hierarchical generalized linear 
statistical models with a log link and an inverse Gaussian error 
distribution. This approach appropriately models a positive, 
continuous, right-skewed outcome like payment and also accounts for the 
types of patients a hospital treats (that is, hospital case mix), the 
number of patients it treats, and the quality of care it provides. The 
hierarchical generalized linear model is an appropriate statistical 
approach to measuring quality based on patient outcomes when the 
patients are clustered within hospitals (and therefore the patients' 
outcomes are not statistically independent) and sample sizes vary 
across hospitals. As noted above, the measure methodology defines 
hospital case mix based on the clinical diagnoses provided in the 
hospital claims for their patients' inpatient and outpatient visits for 
the 12 months prior to the AMI hospitalization, as well as those 
present in the claims for care at admission. This methodology 
specifically does not, however, account for diagnoses present in the 
index admission that may indicate complications rather than patient 
comorbidities.
    The RSP is calculated as the ratio of predicted payments to 
expected payments and then the ratio is multiplied by the national 
unadjusted average payment for an episode-of-care. The ratio is greater 
than one for hospitals that have higher payments than would be expected 
for an average hospital with similar cases and less than one if the 
hospital has lower payments than would be expected for an average 
hospital with similar cases. This approach is analogous to a ratio of 
``observed'' or ``crude'' rate to an

[[Page 50804]]

``expected'' or ``risk-adjusted'' rate used in other similar types of 
statistical analyses.
    The RSP is a point estimate--the best estimate of a hospital's 
payment based on the hospital's case mix. For displaying the measure 
for the Hospital IQR Program, we computed an interval estimate, which 
is similar to the concept of a confidence interval, to characterize the 
level of uncertainty around the point estimate, we use the point 
estimate and interval estimate to determine hospital performance (for 
example, higher than expected, as expected, or lower than expected). 
For more detailed information on the calculation methodology, we refer 
readers to our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    We proposed to adopt the AMI payment measure in the Hospital IQR 
Program for the FY 2016 payment determination and subsequent years 
under the exception authority in section 1886(b)(3)(B)(IX)(bb) of the 
Act as previously discussed in section IX.A.6. of the preamble of this 
final rule. Although the proposed measure is not currently NQF-
endorsed, we considered available measures that have been endorsed or 
adopted by the NQF, and we were unable to identify any measures that 
assess hospital risk-standardized payment associated with a 30-day 
episode-of-care for acute myocardial infarction. We also are not aware 
of any other 30-day episode-of-care for acute myocardial infarction 
measures that have been endorsed or adopted by a consensus 
organization.
    This measure is meant to be paired with our 30-day AMI mortality 
and/or readmission measure in order for us to gain a better 
understanding of the value of care for a hospital's patients and the 
nation as a whole. We invited public comment on this proposal.
    Comment: Many commenters opposed the adoption of the AMI payment 
per episode of care measure because it is not NQF-endorsed.
    Response: Although the proposed measure is not currently NQF-
endorsed, we considered other available measures that have been 
endorsed or adopted by a consensus organization, and found no other 
feasible and practical measures on this topic. The MAP supports this 
measure contingent on NQF-endorsement. We believe it is important to 
adopt this measure as it is aligned with our 30-day AMI mortality 
measure and can also be paired with our 30-day AMI readmission measure. 
This measure would facilitate assessing hospital quality, because 
including this measure in the Hospital IQR Program and publicly 
reporting it on Hospital Compare will allow stakeholders to assess 
information about a hospital's quality and cost of care for AMI. 
Therefore, we are adopting this hospital risk-standardized payment 
associated with a 30-day episode-of-care for acute myocardial 
infarction (AMI) in the Hospital IQR Program under the exception 
authority in section 1886(b)(3)(B)(IX)(bb) of the Act as previously 
discussed in section IX.A.6. of the preamble of this proposed rule.
    There is evidence of variation in payments at hospitals for AMI 
patients; mean 30-day risk-standardized payment among Medicare FFS 
patients aged 65 or older hospitalized for AMI in 2008 was $20,207, and 
ranged from $15,521 to $27,317 across 1,846 hospitals. However, high or 
low payments to hospitals are difficult to interpret in isolation. Some 
high payment hospitals may have better clinical outcomes when compared 
with low payment hospitals while other high payment hospitals may not 
have better outcomes. For this reason, the quality of hospital care is 
more clearly assessed when pairing hospital payments with hospital 
quality.
    Comment: Some commenters noted that this measure is being proposed 
as a hospital measure even though it reflects the actions of a 
multitude of health care entities, many of which are often not within 
hospitals' direct control. Costs within a 30-day episode of AMI care 
cannot be attributed solely to hospitals.
    Response: When considering payments to hospitals, we attributed 
payments for a 30-day episode of care to the hospital since the episode 
is triggered by admission to an inpatient hospitalization. 
Hospitalizations represent a brief period of acute illness that 
requires ongoing management post-discharge and hospitals are often 
directly responsible for scheduling post-discharge follow-up. Therefore 
decisions made at the admitting hospital affect not only the 
hospitalization payments, but payments for care in the immediate post-
discharge period.
    Comment: A few commenters were concerned that the AMI payment 
measure is duplicative of CMS' bundled payment program. Commenters 
questioned why CMS is not using CMS' AMI episode grouper for this 
measure.
    Response: The AMI payment measure is different from our Bundled 
Payments for Care Improvement Initiative (BCPI) in several ways. If 
providers wish to participate in the BPCI for AMI episode of care, 
these episodes would be defined by DRGs and not ICD-9 codes.
    The goal of the AMI payment measure is to provide information on 
the value of care by comparing payments for an AMI episode of care with 
performance on quality measures like CMS' 30-day readmission and 
mortality measures. Thus, it is important that the patient cohorts are 
as closely aligned as possible between payment and quality measures. 
This would not be possible if we used the AMI episode grouper.
    Comment: A few commenters requested clarification on the rationale 
for proposing the AMI payment measure when the MSPB measure is already 
in use and requested clarification regarding how the measure will be 
paired with the AMI Mortality and Readmission measures. These 
commenters believe the measure would be duplicative of the MSPB measure 
if it were to be adopted into the Hospital VBP Program.
    Response: The goal of the AMI payment measure is to provide 
information on the value of care provided for a specific condition, 
AMI, while the MSPB measure examines spending for all conditions. This 
measure is meant to be paired with our 30-day AMI mortality and/or 
readmission measure in order for us to gain a better understanding of 
the value of care for a hospital's patients and the nation as a whole. 
We plan to publicly report a single summary risk-standardized payment 
(RSP) score for each hospital included in the measure.
    We proposed the AMI payment measure for the Hospital IQR Program, 
and at this time have not proposed to add it to the Hospital VBP 
Program. Because the AMI payment measure is condition-specific, we 
believe this measure would not be duplicative of the MSPB measure, 
which is not condition-specific.
    Comment: A few commenters believed that the minimum number of cases 
for the AMI payment measure may not be reliable.
    Response: We use the same approach to small numbers and reliability 
for the AMI payment measure that we have established for our hospital 
risk-adjusted outcome measures in general, including the mortality and 
readmission measures. Reliability is related to sample size. We adopted 
a risk-adjustment modeling methodology for our outcome measures that 
takes into account sample size. Although the commenter raised the issue 
of reliability related to the AMI payment measure, the issue was raised 
and responded to in a previous rulemaking. We refer readers to the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53379) for our discussion of the 
basis for selecting the

[[Page 50805]]

minimum number of cases for the readmission measures for the Hospital 
Readmissions Reduction Program. We determined the 25-case threshold for 
public reporting based on a reliability statistic that is calculated 
from the intercluster correlation, a parameter of the model.
    In addition, we have considered how best to measure quality for 
small volume hospitals. Smaller hospitals do typically have less 
certain (for example, less statistically reliable) estimates, because 
they have fewer cases for use in assessing quality; that is a challenge 
inherent in outcome measurement. One advantage of the statistical model 
we use for the measures is that it allows for the inclusion of small 
hospitals while characterizing the certainty of their estimates. The 
hierarchical logistic regression model that we use to calculate the 
risk-standardized outcome measures allows the inclusion of hospitals 
with relatively few observations, but takes into account the 
uncertainty associated with sample size in estimating their risk-
standardized outcome rates. The model takes into account the 
uncertainty in the estimate of outcome rates for small volume hospitals 
by assuming that each hospital is a typically performing hospital. It 
weighs that assumption along with the outcomes for the particular 
hospital in calculating the outcome rate. Therefore, the estimated 
outcome rates for smaller hospitals will likely be closer to the 
national rate because the limited number of eligible cases in the 
hospital tells little about that hospital's true outcome rate.
    Comment: One commenter supported the measure methodology.
    Response: We appreciate the commenter's support for this aspect of 
the measure methodology.
    Comment: One commenter requested CMS provide hospitals with their 
results before the AMI payment measure is added to Hospital IQR 
Program.
    Response: We strive to provide information to hospitals about new 
claims-based measures whenever it is feasible for us to do so. We plan 
to conduct a dry run prior to public reporting of the measure in which 
we will provide hospitals with their results on the measure as well as 
how payments for their patients are distributed among various post-
acute care settings.
    Comment: One commenter was concerned that the AMI payment measure 
does not adequately capture case mix and has not been validated.
    Response: We have performed validation work to confirm the 
scientific rigor of using claims data for risk adjustment in outcome 
measures. We validated the AMI, HF, and pneumonia mortality and 
readmission measures with models that use medical record-abstracted 
data for risk adjustment. These analyses demonstrated that using claims 
data produces estimated hospital-level risk-standardized mortality 
rates (RSMRs) and risk-standardized readmission rates (RSRRs) that are 
very similar to the rates estimated by models based solely on medical 
record data. This high level of agreement in the results based on the 
two different approaches supports the use of the claims-based models 
for public reporting. Because the risk adjustment model for AMI payment 
is similar to that used for mortality, we believe that this previous 
validation study performed for the AMI, HF, and PN mortality and 
readmissions measures that establishes their overall reliability also 
supports that of the AMI payment measure.
    Our approach to gathering risk factors for patients also mitigates 
the potential limitations of claims data. Because not every diagnosis 
is coded at every visit, we use claims data for the year prior to the 
index admission, as well as secondary diagnosis codes during the index 
admission, for risk adjustment.
    Comment: One commenter noted the difference between the cost of 
care for those cases in the 10th percentile and the 90th percentile is 
small, especially when considering the cost of the admission is 
included in the calculation. One commenter believed that the index 
admission and readmissions are the largest drivers of payments for an 
AMI episode of care and other care settings will contribute little if 
any to hospital's total episode payments.
    Response: The variation in the adjusted hospital-specific AMI 30-
day episode-of-care payment ranges from $15,251 to $27,317 across 1,846 
hospitals. We believe that this variation is sufficient for assessing 
differences in payment that arise from treating a patient with AMI. 
While other conditions may exhibit greater relative and absolute 
payment differences, assessing AMI payments remains important. This 
importance is magnified when considering that AMI quality and outcome 
measures are already being reported. The association between AMI 
episode payments and quality/outcome measures is of importance to us. 
While index admissions and readmissions are the most costly portions of 
treating AMI patients, they are not the only care settings used by AMI 
patients. In examining payments for AMI patients for a 30-day episode 
of care we find that there is variation between providers with regards 
to the types and amount of post-acute care used.
    After consideration of the public comments we received, we are 
finalizing as proposed the Hospital risk-standardized payment 
associated with a 30-day episode-of-care for acute myocardial 
infarction measure for the Hospital IQR Program for FY 2016 payment 
determination and subsequent years.
    In summary, we are adopting all of the Hospital IQR Program 
measures adopted in previous payment determinations, with the exception 
of seven measures (six chart-abstracted measures and 1 structural 
measure) that we are removing and one measure we are suspending (one 
chart-abstracted measure). We are finalizing five new claims-based 
measures for a total of 57 measures for the FY 2016 payment 
determination and subsequent years.
    Set out below is a table showing both the previously adopted and 
the new quality measures finalized in this final rule for the FY 2016 
payment determination and subsequent years. This table does not include 
suspended measures and removed measures.

----------------------------------------------------------------------------------------------------------------
                                                 Previously adopted hospital IQR Program measures and measures
                    Topic                     finalized in this final rule for the FY 2016 payment determination
                                                                     and subsequent years
----------------------------------------------------------------------------------------------------------------
Acute Myocardial Infarction (AMI) Measures
----------------------------------------------------------------------------------------------------------------
                                               AMI-7a Fibrinolytic (thrombolytic) agent received within
                                               30 minutes of hospital arrival.
                                               AMI-8a Timing of Receipt of Primary Percutaneous Coronary
                                               Intervention (PCI).
----------------------------------------------------------------------------------------------------------------
Heart Failure (HF) Measures
----------------------------------------------------------------------------------------------------------------
                                               HF-2 Evaluation of left ventricular systolic function.
----------------------------------------------------------------------------------------------------------------

[[Page 50806]]

 
Stroke Measure (STK) Set
----------------------------------------------------------------------------------------------------------------
                                               STK-1 VTE prophylaxis.
                                               STK-2 Antithrombotic therapy for ischemic stroke[dagger].
                                               STK-3 Anticoagulation therapy for Afib/flutter[dagger].
                                               STK-4 Thrombolytic therapy for acute ischemic
                                               stroke[dagger].
                                               STK-5 Antithrombotic therapy by the end of hospital day
                                               2[dagger].
                                               STK-6 Discharged on Statin[dagger].
                                               STK-8 Stroke education[dagger].
                                               STK-10 Assessed for rehab[dagger].
----------------------------------------------------------------------------------------------------------------
VTE Measure Set
----------------------------------------------------------------------------------------------------------------
                                               VTE-1 VTE prophylaxis[dagger].
                                               VTE-2 ICU VTE prophylaxis[dagger].
                                               VTE-3 VTE patients with anticoagulation overlap
                                               therapy[dagger].
                                               VTE-4 Patients receiving un-fractionated Heparin with
                                               doses/labs monitored by protocol[dagger].
                                               VTE-5 VTE discharge instructions[dagger].
                                               VTE-6 Incidence of potentially preventable VTE[dagger].
----------------------------------------------------------------------------------------------------------------
Pneumonia (PN) Measures
----------------------------------------------------------------------------------------------------------------
                                               PN-6 Appropriate initial antibiotic selection.
----------------------------------------------------------------------------------------------------------------
Surgical Care Improvement Project (SCIP) Measures
----------------------------------------------------------------------------------------------------------------
                                               SCIP INF-1 Prophylactic 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-9: Postoperative urinary catheter removal on
                                               post operative day 1 or 2 with day of surgery being day zero.
                                               SCIP Cardiovascular-2: Surgery Patients on a Beta Blocker
                                               prior to arrival who received a Beta Blocker during the
                                               perioperative period.
                                               SCIP-VTE[dash]2: Surgery patients who received
                                               appropriate VTE prophylaxis within 24 hours pre/post surgery.
----------------------------------------------------------------------------------------------------------------
Mortality Measures (Medicare Patients)
----------------------------------------------------------------------------------------------------------------
                                               Acute Myocardial Infarction (AMI) 30-day mortality rate.
                                               Heart Failure (HF) 30-day mortality rate.
                                               Pneumonia (PN) 30-day mortality rate.
                                               Stroke 30-day mortality rate.***
                                               COPD 30-day mortality rate.***
----------------------------------------------------------------------------------------------------------------
Patients' Experience of Care Measures
----------------------------------------------------------------------------------------------------------------
                                               HCAHPS survey (expanded to include one 3-item care
                                               transition set * and two new ``About You'' items).*
----------------------------------------------------------------------------------------------------------------
Readmission Measures (Medicare Patients)
----------------------------------------------------------------------------------------------------------------
                                               Acute Myocardial Infarction (AMI) 30-day Risk
                                               Standardized Readmission Measure.
                                               Heart Failure (HF) 30-day Risk Standardized Readmission
                                               Measure.
                                               Pneumonia (PN) 30-day Risk Standardized Readmission
                                               Measure.
                                               30-day Risk Standardized Readmission following Total Hip/
                                               Total Knee Arthroplasty.*
                                               Hospital-Wide All-Cause Unplanned Readmission (HWR).*
                                               Stroke 30-day Risk Standardized Readmission.***
                                               COPD 30-day Risk Standardized Readmission.***
----------------------------------------------------------------------------------------------------------------
AHRQ Patient Safety Indicators (PSIs) Composite Measures
----------------------------------------------------------------------------------------------------------------
                                               Complication/patient safety for selected indicators
                                               (composite).
----------------------------------------------------------------------------------------------------------------
AHRQ PSI and Nursing Sensitive Care
----------------------------------------------------------------------------------------------------------------
                                               PSI-4 Death among surgical inpatients with serious
                                               treatable complications.
----------------------------------------------------------------------------------------------------------------
Structural Measures
----------------------------------------------------------------------------------------------------------------
                                               Participation in a Systematic Database for Cardiac
                                               Surgery.
                                               Participation in a Systematic Clinical Database Registry
                                               for Nursing Sensitive Care.
                                               Participation in a Systematic Clinical Database Registry
                                               for General Surgery.
                                               Safe Surgery Checklist Use.**
----------------------------------------------------------------------------------------------------------------

[[Page 50807]]

 
Healthcare-Associated Infections Measures
----------------------------------------------------------------------------------------------------------------
                                               Central Line Associated Bloodstream Infection.
                                               Surgical Site Infection.
                                                --SSI following Colon Surgery.
                                                --SSI following Abdominal Hysterectomy.
                                               Catheter-Associated Urinary Tract Infection.
                                               MRSA Bacteremia.
                                               Clostridium difficile (C. difficile).
                                               Healthcare Personnel Influenza Vaccination.
----------------------------------------------------------------------------------------------------------------
Surgical Complications
----------------------------------------------------------------------------------------------------------------
                                               Hip/Knee Complication: Hospital-level Risk-Standardized
                                               Complication Rate (RSCR) following Elective Primary Total Hip
                                               Arthroplasty.*
----------------------------------------------------------------------------------------------------------------
Emergency Department (ED) Throughput Measures
----------------------------------------------------------------------------------------------------------------
                                               ED-1 Median time from emergency department arrival to
                                               time of departure from the emergency room for patients admitted
                                               to the hospital[dagger].
                                               ED-2 Median time from admit decision to time of departure
                                               from the emergency department for emergency department patients
                                               admitted to the inpatient status[dagger].
----------------------------------------------------------------------------------------------------------------
Prevention: Global Immunization (IMM) Measures
----------------------------------------------------------------------------------------------------------------
                                               Immunization for Influenza.
----------------------------------------------------------------------------------------------------------------
Cost Efficiency
----------------------------------------------------------------------------------------------------------------
                                               Medicare Spending per Beneficiary.
                                               AMI Payment per Episode of Care.***
----------------------------------------------------------------------------------------------------------------
Perinatal Care
----------------------------------------------------------------------------------------------------------------
                                               Elective delivery prior to 39 completed weeks of
                                               gestation*/[dagger].
----------------------------------------------------------------------------------------------------------------
* New or expanded measures/items for FY 2015 payment determination and subsequent years.
** New measures for FY 2016 payment determination and subsequent years.
*** Measures finalized in this final rule for the FY 2016 payment determination and subsequent years.
[dagger] Measure for electronic reporting via CEHRT in the Hospital IQR Program (voluntary participation in CY
  2014).

7. Electronic Clinical Quality Measures
    We believe that collection and reporting of data through health 
information technology will greatly simplify and streamline reporting 
for many CMS quality reporting programs. Through electronic reporting, 
hospitals will be able to leverage EHRs to capture, calculate, and 
electronically submit quality data that is currently manually chart-
abstracted and submitted to CMS for the Hospital IQR Program. As we 
noted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51614), we 
recognize the need to align and harmonize measures across hospital 
quality reporting programs to minimize the reporting burden imposed on 
hospitals. In the Medicare EHR Incentive Program Stage 2 final rule (77 
FR 54083 through 54087), we finalized 29 clinical quality measures from 
which hospitals must select at least 16 measures covering three domains 
to report beginning in FY 2014. We anticipate that, as health 
information technology evolves and infrastructure is expanded, we will 
have the capacity to accept electronic reporting of many of the chart-
abstracted measures that are currently part of the Hospital IQR 
Program.
    Recently, we published in the Federal Register (78 FR 308 through 
310) a Request for Information (RFI) entitled, ``Medicare Program; 
Request for Information on Hospital and Vendor Readiness for Electronic 
Health Records Hospital Inpatient Quality Data Reporting'' to gather 
stakeholder feedback to determine the optimal timing and transition 
strategy for adopting electronic reporting of quality measures by 
hospitals participating in the Hospital IQR Program. The information 
received in response to the RFI was considered as the requirements set 
forth below were developed. In the FY 2014 IPPS/LTCH PPS proposed rule 
(78 FR 27694 through 27695), we proposed an approach that begins to 
align the Hospital IQR and Medicare EHR Incentive Programs by providing 
hospitals currently participating in the Hospital IQR Program with the 
option of electronically reporting a subset of measures.
    We proposed that hospitals would be able to, on a voluntary basis, 
electronically report 16 measures across four measure sets, (stroke 
[STK], venous thromboembolism [VTE], emergency department [ED], and 
perinatal care [PC]) in CY 2014 for the FY 2016 Hospital IQR Program 
payment determination. These four measure sets are already included in 
the Hospital IQR Program as chart-abstracted measures. The measures in 
three of these four measure sets--STK, VTE, ED--(15 measures) are 
already included in the Medicare EHR Incentive Program Electronic 
Reporting Pilot for Eligible Hospitals and CAHs (76 FR 74489). With 
regard to the perinatal care (PC) measure set, we stated in the 2013 
IPPS/LTCH PPS final rule that we would consider electronic reporting 
when the e-specification of the PC-01 measure became available. The 
electronic specifications for these measures are included in the 
electronic clinical quality measure library at: http://www.cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/eCQM_Library.html. We recognize that

[[Page 50808]]

PC-01 is a highly burdensome measure for hospitals to report via chart 
abstraction. Also, we do not believe that the measures, in their 
electronically specified form, are substantively different than they 
are in their chart-abstracted form, although we recognized that the 
EHR-based extraction methodology is different from the chart 
abstraction data collection methodology.
    We proposed to make electronic reporting voluntary in CY 2014. The 
requirements for electronic reporting are discussed below in section 
IX.A.9.d. of the preamble of this final rule. We invited public comment 
on this proposal.
    Comment: Most commenters expressed support for CMS efforts to align 
quality measurement reporting programs, encouraged CMS to simplify 
reporting periods as much as possible and urged CMS to continue to work 
to align the Hospital IQR Program, Medicare EHR Incentive Program, and 
all other federal quality reporting programs now and in the future. 
Commenters suggested CMS consider the variety of health system settings 
throughout the entire process of quality measurement when planning to 
include measures for public reporting and value-based purchasing (VBP).
    Response: We agree with the commenters and believe that aligning 
various federal quality reporting programs will reduce provider 
reporting burden and increase patient quality of care now and in the 
future. We believe the optional electronic reporting will simplify 
reporting periods by enabling hospitals to submit clinical quality 
measures for both the Medicare EHR Incentive Program and the Hospital 
IQR Program with one submission. We will take into consideration the 
suggestion to consider the variety of health system settings throughout 
the entire process of quality measurement when planning to include 
measures for public reporting and value based purchasing.
    Comment: One commenter found the proposed approach--collecting 
electronic clinical quality measures--to be totally devoid of the 
critical role the Hospital IQR Program plays in providing valid, 
reliable and consistent data collection and reporting of measures for 
both public reporting and pay for reporting programs.
    Response: We appreciate the comment, but we disagree that the 
collection of electronic clinical quality measures is devoid of the 
critical role of the Hospital IQR Program. To align various federal 
quality programs affecting hospitals, we believe it is important to 
implement electronic measure reporting for hospitals. The movement to 
adopt electronic measure reporting in the Hospital IQR Program will 
ultimately lessen the reporting burden on hospitals and improve data 
reliability.
    Comment: A few commenters encouraged CMS to spend more time 
planning for the transition to electronic measures for the Hospital IQR 
Program and urged CMS to address the timeline under which electronic 
clinical quality measures are developed and implemented.
    Response: We have invested and will continue to invest in planning 
for the transition to electronic clinical quality measures. We have 
evaluated the electronic clinical quality measures' development and 
implementation processes and expect to streamline these processes in 
the near term. There is a well-established process whereby we work with 
stakeholders to propose and finalize electronic clinical quality 
measures. For additional details about these processes please see the 
CMS electronic clinical quality measures resource at http://www.cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/ClinicalQualityMeasures.html and also see the Measures Management 
Blueprint at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/MeasuresManagementSystemBlueprint.html.
    Comment: One commenter requested CMS lay out its plan for the 
current core measure topics (Acute Myocardial Infarction, Heart 
Failure, Pneumonia, Surgical Care Improvement Process, and 
Immunization) to provide healthcare organizations with enough lead time 
to plan for and make necessary changes to existing electronic medical 
record systems, hire appropriate staff, and address any issues as the 
Hospital IQR Program shifts to electronic data abstraction.
    Response: We understand the need to share the Hospital IQR Program 
electronic measures strategy to provide vendors and providers with 
enough lead time to plan for human resource and IT needs and we plan to 
continue to address these issues as we transition to electronic 
reporting of quality measures in the Hospital IQR Program. We intend to 
consider the adoption of additional electronic measures in future 
rulemaking.
    Comment: One commenter requested that CMS clarify whether the 
Stroke, VTE, ED, Perinatal, and Severe Sepsis measures will only be 
allowed to be submitted from the electronic medical record or will 
still be allowed to be reported via chart-abstraction under the 
Hospital IQR Program for FY 2014 and FY 2015, and asked whether a 
hospital's failure to submit will result in a 2 percentage point 
reduction in its annual payment update.
    Response: To clarify, the electronic submission of the Stroke, VTE, 
ED, and PC measure data for the Hospital IQR Program in 2014 for the FY 
2016 payment determination is voluntary, and hospitals can elect to 
submit the data via chart abstraction instead. For the FY 2014 and FY 
2015 payment determination, hospitals will submit via chart-abstraction 
as previously finalized. We also note that the STK-1 measure need not 
be reported as part of the STK measure set for those electronically 
reporting because no electronic specification exists for STK-1. There 
is no severe sepsis measure currently adopted for the Hospital IQR 
Program.
    Comment: Some commenters opposed requiring electronic submission of 
Hospital IQR Program measures in 2015. Commenters recommended instead 
that hospitals continue to electronically report measures on a 
voluntary basis for the Hospital IQR Program. Commenters indicated that 
this option would provide CMS with the time needed to collect evidence 
from the hospitals that voluntarily reported in 2014 to understand 
issues, lessons learned, and such and specify a date certain for the 
start of required electronic clinical quality measures reporting for 
the Hospital IQR Program. Commenters concluded that the proposal does 
not provide CMS with the benefit of learning from experience from the 
field.
    Response: We understand several commenters had concerns regarding 
our consideration to require mandatory electronic submission of 
measures for the Hospital IQR Program in 2015. To address these 
concerns, we plan to monitor electronic clinical quality measures 
submissions and CMS system responses. The 2013 Medicare EHR Incentive 
Program Electronic Reporting Pilot data (which will be submitted by 
November 30, 2013) will be used to develop and test the electronic 
clinical quality measures data collection process. This process will 
inform our decisions regarding electronic reporting of certain Hospital 
IQR measures in CY 2015 and beyond.
    Comment: One commenter sought clarification regarding how hospitals 
may participate in the EHR Incentive Program Pilot.
    Response: The 2013 Medicare EHR Incentive Program Electronic 
Reporting Pilot is a voluntary electronic reporting option hospitals 
may use to satisfy the electronic clinical quality measures reporting 
component for the Medicare

[[Page 50809]]

EHR Incentive Program. Participation in the pilot is highly encouraged 
and allows hospitals an opportunity to pioneer efforts for submitting 
clinical quality measures electronically. More information on the 
pilot, including how to participate, can be found on the QualityNet Web 
site at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=1228771190900.
    Comment: Several commenters requested that CMS evaluate the 2012 
EHR Incentive Program Reporting Pilot data to determine the program's 
challenges and lessons learned and urged CMS to extend the duration of 
the pilot program. Commenters also urged CMS to work with vendors to 
make the EHR Incentive Program Reporting Pilot a viable option for all 
hospitals.
    Response: The 2013 Medicare EHR Incentive Program Electronic 
Reporting Pilot data (which will be submitted by November 30, 2013) 
will be used to develop and test the electronic clinical quality 
measures data collection process as well as the monitoring process. We 
plan to share the lessons learned once the two-year pilot has 
concluded. We will be looking for errors in data submissions to 
identify potential problems--both systemic and hospital-specific. We 
will analyze the pilot data to assess the consistency and reliability 
of quality measure reporting and will leverage those insights to inform 
electronic measure reporting policies. We do not plan to extend the 
pilot beyond FY 2013 because the Medicare EHR Incentive Program has 
established electronic reporting options for hospitals beginning in FY 
2014.
    Comment: Many commenters requested that CMS consider the impact of 
the proposal to collect and use electronic clinical quality measures 
data on the overall establishment of national performance rates for the 
Hospital VBP Program. The commenters raised the concern that this 
proposal might negatively impact the true national database displayed 
on Hospital Compare and the benchmark values used to determine scoring 
for the Hospital VBP Program if hospitals are allowed to submit 
electronic measure data without fundamental statistical analysis to 
substantiate the accuracy, reliability and validity of the data.
    Response: We selected these four measure sets specifically to avoid 
impact to the Hospital VBP Program and note that the four measure sets 
are not included in the Hospital VBP Program. We do not intend to 
utilize the CY 2014 electronically submitted data for any of these 
measure sets to determine a hospital's baseline period for the Hospital 
VBP Program, in part because the volume of data we are requesting--one 
quarter of data--is insufficient to establish a baseline. We will 
consider adopting electronically-submitted measures for the Hospital 
VBP Program as the measures meet the program's statutory requirements.
    Comment: One commenter supported the development of a central 
portal for distribution of electronic measure specifications and 
associated tools.
    Response: We appreciate the comment and will take it into 
consideration.
    Comment: One commenter urged CMS to formally designate a single 
national central external reference library for electronic clinical 
quality measures.
    Response: We believe the commenter is requesting CMS develop a 
central repository of electronic quality measures similar to NQF's 
repository of endorsed quality measures. We will consider this request 
that we formally designate this type of repository for electronic 
clinical quality measures.
    Comment: A few commenters expressed concern that, as hospitals move 
towards submitting electronic clinical quality measures and the amount 
of quality measures increases, they face the difficulty of documenting 
activities that are spread over multiple electronic systems that may 
not yet be fully integrated. The commenters noted that since there is 
not yet an EHR available that handles all facets of healthcare 
delivery, hospitals will always run into this problem.
    Response: We are aware of the challenges associated with moving 
toward electronic quality measure reporting such as an increase in the 
difficulty of documenting activities using multiple electronic systems 
that may not yet be fully integrated. However, we believe that in the 
long-run, electronic quality measure reporting from EHRs will benefit 
patients and providers by decreasing the burden on providers of 
reporting measures using the chart-abstraction method. We believe 
electronic reporting will increase provider reporting efficiency and 
reduce costs by decreasing paperwork.
    Comment: Several commenters were concerned that electronic clinical 
quality measures yield different performance rates than their chart-
abstracted counterpart measures and, urged CMS to postpone mandatory 
electronic submission of measures to avoid reporting disparate results. 
The commenters supported a standardized electronic measures vocabulary 
to reduce the reporting burden and electronic collection of health care 
quality information. The commenters also urged CMS to keep the 
electronic clinical quality measures library current with clinical 
practice and update the value sets as needed, based on changes to the 
national vocabularies.
    Response: We intend to use the voluntarily submitted measure data 
to assess the differences in performance rates for electronically 
submitted versus chart-abstracted data. We currently update electronic 
specifications annually to reflect current clinical practice for 
electronic clinical quality measures finalized in the Stage 2 final 
rule (Table 10: 77 FR 54083 through 54087), which include the four 
measure sets that we proposed to be electronically reported for the 
Hospital IQR Program. Each CMS electronic clinical quality measure ID 
identifies a root measure number plus a version number, which 
corresponds with a specific version of electronic specifications with 
the related value sets for each electronic clinical quality measure. We 
work in conjunction with the National Library of Medicine (NLM) and 
Office of the National Coordinator for Health Information Technology 
(ONC) to update value sets as needed and to standardize vocabularies. 
For more information on electronic specifications for electronic 
clinical quality measures, please visit http://www.cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/Electronic_Reporting_Spec.html.
    Comment: Several commenters agreed with CMS that measures used 
should be endorsed by a multi-stakeholder organization because 
consideration and input from a variety of stakeholders is necessary to 
ensure efficient and optimized use of measurement in the multi-
dimensional process of health care delivery.
    Response: We appreciate the comment and agree with the commenter. 
We support measures approved through a multi-stakeholder consensus 
development process such as that of NQF. NQF uses a formal ``Consensus 
Development Process'' to evaluate and endorse consensus standards, 
including performance measures, and is designed to consider the 
interests of stakeholder groups from across the healthcare industry.
    After consideration of all the public comments we received, we are 
finalizing our proposal to allow optional electronic submission of the 
STK, VTE, ED, and PC measure sets for the FY 2016 payment 
determination. As we note above, the STK-1 measure need not be

[[Page 50810]]

reported as part of the STK measure set for those electronically 
reporting because no electronic clinical quality measure exists for 
STK-1. As further detailed in section IX.A.9.d. of the preamble of this 
final rule, hospitals may electronically report one or more of these 
four measure sets electronically.
8. Possible New Quality Measures and Measure Topics for Future Years
    We anticipate that, as EHR technology evolves, hospitals will 
electronically report all chart-abstracted clinical process of care and 
HAI measures which are currently part of the Hospital IQR Program or 
which have been proposed for adoption into the Program. As stated 
above, we intend for the future direction of electronic quality measure 
reporting to significantly reduce administrative burden on hospitals 
under the Hospital IQR Program. We will continue to work with measure 
stewards and developers to develop new measure concepts, and conduct 
pilot, reliability, and validity testing. We believe that this proposal 
will provide hospitals and CMS with the ability to test systems in CY 
2014 in order to prepare for future required electronic reporting. We 
believe this will simplify measure collection and submission for the 
Hospital IQR Program, and will reduce the burden on hospitals to report 
chart-abstracted measures.
    We intend to propose that hospitals report additional electronic 
measures in an effort to reduce the burden associated with reporting 
chart abstracted measures and to continue to promote the adoption of 
CEHRT.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27695), we 
invited public comment on our intention to add 5 new measures to be 
collected via EHRs in the future. The five new measures listed below 
were reviewed by the MAP for inclusion in the Hospital IQR Program:
     Severe Sepsis and Septic Shock Management Bundle NQF 
0500 (MAP supported)
     PC-02 Cesarean Section NQF 0471 (MAP supported)
     PC-05 Exclusive Breast Milk Feeding NQF 0480 (MAP 
supported)
     Healthy Term Newborn NQF 0716 (MAP supported the 
direction of this measure)
     Hearing Screening Prior to Hospital Discharge NQF 
1354 (MAP supported).
    Comment: A few commenters supported the five measures that CMS 
intends to collect via EHRs in the future. One commenter stated that 
the five measures that CMS intended for e-reporting should be put on 
hold until the experience with the reporting of the first set of e-
measures are available.
    Many commenters strongly advocated that sepsis and septic shock 
management saves lives and strongly recommended the implementation of 
this measure no later than 2015. A few commenters were very concerned 
that the severe sepsis and septic shock management and the Cesarean 
section measures have not been specified, validated or NQF-endorsed as 
e-measures and therefore, would not be conducive for e-reporting.
    A few commenters supported the PC-05 Exclusive Breast Milk Feeding, 
Healthy Term Newborn, and Hearing Screening Prior to Hospital Discharge 
measures, and recommended the identification of the population through 
the use of administrative codes rather than a combination of diagnoses. 
One commenter did not support the PC-05 Exclusive Breast Milk Feeding 
measure stating that the exclusion limitation of this measure that 
requires a provider/lactation consultant to complete the documentation 
is burdensome and does not match the EHR infrastructure and workflow.
    One commenter did not support the Hearing Screening Prior to 
Hospital Discharge measure which was believed to be more appropriate as 
an outpatient measure.
    Response: We thank the commenters for their input and we will take 
them into consideration as we decide whether to collect these measures 
via EHRs in the future.
    Comment: In addition to suggestions regarding specific measures, we 
also received many comments on the following measure topics:
     Medication Reconciliation (NQF 0097), and 
Medication Reconciliation Post-Discharge (NQF 0554)
     Medication safety
     MRSA surveillance testing
     Surgical outcomes, including lower-extremity bypass 
complications, ICU mortality and complications, elderly surgical 
outcomes and colorectal surgery outcomes
     Appropriate therapy for surgical prophylaxis
     TJC Substance use measure set
     TJC Tobacco treatment measure set
     Participation in a systematic clinical database for 
vascular treatment
     Colorectal cancer screening
     Oncology: Plan of care for pain
     Urinary incontinence
     Pain assessment
     Hospital malnutrition: Nutrition screening and assessment
     Registry-based CABG composite score
    We thank the commenters for the comments and suggestions and will 
take them into consideration for future measure selections.
9. 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, to the 
Secretary in accordance with this clause and in a form and manner, and 
at a time, specified by the Secretary, data required to be submitted on 
measures selected under this clause with respect to such a fiscal year. 
For each Hospital IQR Program year, we require that hospitals submit 
data on each measure in accordance with the measure's specifications 
for a particular period of time. The data submission requirements, 
Specifications Manual, and submission deadlines are posted on the 
QualityNet Web site at: http://www.QualityNet.org/. Hospitals submit 
quality data through the secure portion of the QualityNet (formerly 
known as QualityNet Exchange) Web site (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 the FY 2016 Payment Determination and 
Subsequent Years
    The Hospital IQR Program procedural requirements are now codified 
in regulation at 42 CFR 412.140. Hospitals should generally refer to 
the regulation for participation requirements. In the FY 2014 IPPS/LTCH 
PPS proposed rule (78 FR 27695 through 27696), however, we proposed to 
make three changes to the procedural requirements.
    We proposed to align the last date to withdraw with the final 
submission deadline. The current withdrawal deadline is August 15 of 
the fiscal year preceding the fiscal year for which a Hospital IQR 
Program payment determination will be made. We proposed to change that 
deadline to

[[Page 50811]]

May 15 prior to the start of the payment year affected in order to 
align with the last submission quarter deadline. For example, if a 
hospital wanted to withdraw from the program for the FY 2016 payment 
determination, the hospital would need to complete the withdrawal by 
May 15, 2015. We proposed to amend the language at 42 CFR 412.140(b) to 
reflect this proposal. We proposed this change because we are striving 
to provide more timely feedback to hospitals regarding their annual 
payment update (APU) status. We do not believe this change would add 
any additional burden to hospitals and it would provide CMS the ability 
to make earlier participation decisions. We invited public comment on 
this proposal.
    Comment: Several commenters supported the administrative changes 
proposed in the Hospital IQR Program.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing as proposed the alignment of the last day to withdraw with 
the final submission deadline, May 15th. We are also amending our 
regulations at Sec.  412.140(b) to reflect this policy.
    In addition, we proposed two technical corrections to the 
regulation text at 42 CFR 412.140. The first correction is to the title 
of this section. The current title is ``Participation, Data Submission, 
and Validation Requirements under the Hospital Inpatient Quality Review 
(IQR) Program.'' This should state ``Participation, Data Submission, 
and Validation Requirements Under the Hospital Inpatient Quality 
Reporting (IQR) Program.'' The second technical correction is at 
paragraph (a)(3) which states: ``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).'' We proposed to correct the acronym 
``CNN'' to ``CCN.'' The proposed language would state: ``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 (CCN).''
    Comment: Several commenters supported the proposed technical 
corrections.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing as proposed two technical corrections to the regulation text 
at Sec.  412.140. The first correction is to the title of this section, 
``Participation, Data Submission, and Validation Requirements Under the 
Hospital Inpatient Quality Reporting (IQR) Program.'' The second 
technical correction is to paragraph (a)(3) to ``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 (CCN).''
c. Data Submission Requirements for Chart-Abstracted Measures
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53536 through 
53537), for the FY 2015 payment determination and subsequent years, we 
retained the 4\1/2\ months quarterly submission deadline for chart-
abstracted quality measures. We also retained the aggregate population 
and sampling deadline of 4 months. Hospitals would continue to be 
required 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 (76 FR 
51640 through 51641). We adopted the same 14-day period after the 
aggregate population and sample size count deadline to submit the 
required patient-level records. For the FY 2016 payment determination 
and subsequent years, hospitals must submit data for four consecutive 
calendar year discharge quarters. For example, for the FY 2016 payment 
determination, the submission quarters are as follows: 1Q CY 2014, 2Q 
CY 2014, 3Q CY 2014 and 4Q CY 2014. We also adopted this submission 
deadline for the new chart-abstracted measure for FY 2016, Elective 
Delivery Prior to 39 Completed Weeks Gestation: Percentage of Babies 
Electively Delivered Prior to 39 Completed Weeks Gestation which is 
collected via a Web Based Tool.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27696), for the 
FY 2016 payment determination and subsequent years, we proposed to 
clarify the submission deadline time. Although we have historically 
stated that the submission deadline is 11:59 p.m., we have not 
clarified which time zone. For the FY 2016 payment determination and 
subsequent years we proposed to clarify that submissions to QualityNet 
will be accepted until 11:59 p.m. Pacific time. We invited public 
comment on this proposal.
    Comment: Several commenters supported the proposed clarification.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing as proposed policy to reflect that submissions to QualityNet 
will be accepted until 11:59 p.m. Pacific time.
d. Data Submission Requirements for Quality Measures That May be 
Voluntarily Electronically Reported for the FY 2016 Payment 
Determination
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27696 through 
27698), we proposed the following approach to begin to align quality 
measure reporting under the Hospital IQR and Medicare EHR Incentive 
Programs. (We noted that this proposal, if finalized, does not 
implement any statutory provisions of the HITECH Act or change any of 
the existing regulatory provisions of the Medicare EHR Incentive 
Program, which are the subject of section IX.E of the preamble of this 
final rule, separate rulemaking, and public comment.) Under the 
Hospital IQR Program, for the FY 2016 payment determination, we 
proposed that hospitals may choose to either (1) electronically report 
at least one quarter of CY 2014 quality measure data for each measure 
in each of four Hospital IQR measure sets (STK, VTE, ED, and PC), or 
(2) to continue reporting all of these measures using chart-abstracted 
data for all four quarters of CY 2014. The proposal also stated, if a 
hospital chose to electronically report the four measure sets, all of 
the quality measures in those four measure sets must be electronically 
reported for the same reporting quarter(s) although, as stated above, 
the hospital would choose which quarter(s) to report.
    We strongly recommended hospitals electronically report the 16 
measures in these four measure sets in CY 2014, to provide hospitals 
and CMS with the ability to test systems and adjust workflow in CY 2014 
in order to prepare for required electronic reporting. We stated our 
belief that this will simplify quality reporting and submission for the 
Hospital IQR Program, and will reduce the reporting burden on 
hospitals. To further incentivize hospitals to choose this option, we 
stated our intent to use the electronically reported data to determine 
whether the hospital has satisfied the Medicare EHR Incentive Program 
clinical quality measure reporting requirement. We noted that the 
hospital must also satisfy all other

[[Page 50812]]

requirements for the Medicare EHR Incentive Program.
    We proposed different Hospital IQR Program data submission 
deadlines for each quarter depending on whether the hospital is 
submitting the data solely for the Hospital IQR Program (that is, if 
the hospital does not want the data to be used to determine whether the 
hospital has satisfied the Medicare EHR Incentive Program clinical 
quality measure reporting requirement) or whether the hospital wishes 
to submit the data for both the Hospital IQR Program and the Medicare 
EHR Incentive Program. We proposed that, if a hospital chooses to 
report the four measure sets electronically for the Hospital IQR 
Program, but does not want the data to be used to determine whether the 
hospital has satisfied the Medicare EHR Incentive Program clinical 
quality measure reporting requirement, the reporting periods and 
deadlines would be as follows:

Proposed FY 2016 Hospital IQR Program Chart-Abstracted Measure Reporting
                          Periods and Deadlines
------------------------------------------------------------------------
     Discharge reporting periods              Submission deadlines
------------------------------------------------------------------------
January 1, 2014-March 31, 2014.......  August 15, 2014.
April 1, 2014-June 30, 2013..........  November 15, 2014.
July 1, 2014-September 30, 2014......  February 15, 2014.
October 1, 2013-December 31, 2014....  May 15, 2013.
------------------------------------------------------------------------

    We proposed that if the hospital does not want us to use the 
electronically reported data to also determine whether the hospital has 
satisfied the Medicare EHR Incentive Program clinical quality measure 
reporting requirement, we would modify this data submission schedule to 
align the reporting periods and deadlines for the Hospital IQR and 
Medicare EHR Incentive Programs. Specifically, we proposed that if a 
hospital wants us to also use the electronically reported data to 
determine whether the hospital has satisfied the Medicare EHR Incentive 
Program clinical quality measure reporting requirement, the Medicare 
EHR Incentive Program reporting periods and deadlines could be used to 
satisfy the Hospital IQR Program requirements. The Medicare EHR 
Incentive Program clinical quality measure reporting follows the 
Federal fiscal year while the Hospital IQR Program follows the calendar 
year. The table below lists the FY 2014 Medicare EHR Incentive Program 
reporting periods and submission deadlines.

 Medicare EHR Incentive Program Reporting Periods and Deadlines FY 2014
------------------------------------------------------------------------
            Reporting periods                   Submission deadlines
------------------------------------------------------------------------
For eligible hospitals in their first      July 1, 2014.
 year of the Medicare EHR Incentive
 Program--Any 90 consecutive days in FY
 2014 prior to July 1, 2014.
For eligible hospitals that are beyond     November 30, 2014.
 their first year of the Medicare EHR
 Incentive Program reporting
 electronically--Any FY 2014 quarter, or
 the entire FY 2014 (October 1, 2013-
 September 30, 2014).
------------------------------------------------------------------------

    We noted that the data submission deadline is November 30, 2014 for 
hospitals that are beyond their first year of the Medicare EHR 
Incentive Program (77 FR 54080). Accordingly, if such a hospital chose 
to electronically report 3Q CY 2014 data under the Hospital IQR 
Program, it would need to submit the data by November 30, 2014 (not 
February 15, 2015) in order to also use that data to determine whether 
the hospital has satisfied its Medicare EHR Incentive Program clinical 
quality measurement requirement. In addition, we noted that, as noted 
above, the hospital must also satisfy all other program requirements 
established for the Medicare EHR Incentive Program.
    We also noted that because of the difference in reporting 
deadlines, we would not be able to use 4Q 2014 electronically submitted 
Hospital IQR data for purposes of determining whether a hospital has 
satisfied its Medicare EHR Incentive Program clinical quality 
measurement requirement. We proposed that hospitals could still report 
the data electronically to meet their Hospital IQR Program 
requirements.
    We proposed in section IX.E. of the preamble of the proposed rule 
to extend the beginning of the electronic submission period to January 
2, 2014 (78 FR 27745). We noted that, if the extended electronic 
submission period is finalized, hospitals in their first year of 
demonstrating meaningful use could also electronically submit the four 
measure sets (STK, VTE, ED, and PC) for one quarter by July 1, 2014 to 
meet the clinical quality measure reporting criteria for the Medicare 
EHR Incentive Program as well as the Hospital IQR Program reporting 
requirement for those measure sets. We also proposed that hospitals 
choosing to report at least one quarter of quality measure data 
electronically would not need to submit chart-abstracted quality 
measure data for the other quarters in CY 2014 for these four measure 
sets (STK, VTE, ED, and PC).
    For hospitals choosing to report electronically in the Hospital IQR 
Program, we proposed that hospitals submitting these four measure sets 
electronically must use the Medicare EHR Incentive Program process for 
electronically submitting quality measure data into QualityNet (for 
EHR-based reporting). We proposed that Hospital IQR Program hospitals 
follow the submission requirements finalized in the Medicare EHR 
Incentive Program Stage 2 final rule (77 FR 54080) and utilize their 
existing QualityNet account to submit electronic quality measure data. 
We noted that specific submission procedures will be posted on the 
QualityNet Web site at: https://www.qualitynet.org/.
    We proposed to align with the case threshold exemption from the 
Medicare EHR Incentive Program. This means that for each quality 
measure for which hospitals do not have a minimum number of patients 
that meet the patient population denominator criteria for the relevant 
EHR reporting period, hospitals would have the ability to declare a 
``case threshold exemption'' of five or fewer discharges. We stated 
that our intent is to finalize the same process in both the

[[Page 50813]]

Medicare EHR Incentive Program and the Hospital IQR Program as further 
detailed below.
    In preparation for this transition to electronic quality measure 
reporting under the Hospital IQR Program, we proposed that if a 
hospital chooses to report the four measure sets (STK, VTE, ED, and PC) 
electronically during CY 2014, the hospital's data would be extracted 
from the Certified Electronic Health Record Technology (CEHRT) and 
submitted to CMS using the Health Level Seven (HL7) Quality Reporting 
Document Architecture (QRDA) Category I Revision 2 standard. Certified 
EHR Technology is defined for the Medicare EHR Incentive Program at 42 
CFR 495.4 and 45 CFR 170.102.
    We recognized that a small percentage of Hospital IQR Program-
participating hospitals are not currently participating in the Medicare 
EHR Incentive Program and that this proposal may not be applicable to 
those hospitals. We stated that these hospitals should continue to 
report the four measure sets using chart-abstraction. However, we noted 
that greater adoption of CEHRT and reporting of quality measures 
electronically across Medicare hospital quality reporting will reduce 
the administrative burden on hospitals associated with the reporting of 
chart-abstracted quality measures. This will help hospitals to meet 
both Hospital IQR Program and Medicare EHR Incentive Program 
requirements with a streamlined data submission to CMS.
    We stated that, in the recent HHS ONC final rule regarding 
standards, implementation specifications, and certification criteria 
for health information technology (77 FR 54163 through 54292), HHS 
adopted ``2014 Edition'' EHR certification criteria that will require 
CEHRT to provide the capability to submit electronic clinical quality 
measure data in the HL7 QRDA Category I standard to support patient-
level data submissions. We stated that we do not believe that our 
proposal to use QRDA Category I (patient-level) data under the Hospital 
IQR Program will create a new reporting burden for hospitals because we 
already require hospitals to submit ``all-payer'' patient-level data 
under the Hospital IQR Program.
    We stated that the QRDA standard specifies the framework for 
quality reporting, standardizes measure-defined data elements for 
interoperability between organizations, and is used to transmit 
clinical quality measure data needed to meet meaningful use (MU) 
requirements under the Medicare EHR Incentive Program.
    We proposed that we would not publicly report data collected from 
hospitals choosing to report these four measure sets electronically in 
CY 2014. After reviewing comments we received from our Request for 
Information (RFI) entitled ``Medicare Program; Request for Information 
on Hospital and Vendor Readiness for Electronic Health Records Hospital 
Inpatient Quality Data Reporting'' (78 FR 308 through 310), it became 
clear that we should consider not publicly reporting clinical quality 
measure data submitted electronically for the four proposed measure 
sets due to possible abnormalities in the data and/or the submission 
process that may occur during the first year of electronic reporting to 
CMS. We stated that this proposal will provide us time to assess the 
data reported to determine the optimal timing and transition strategy 
for electronic quality measure reporting by hospitals participating in 
the Hospital IQR Program. However, we stated that we would like to 
recognize hospitals that report electronically and invited public 
comment on whether hospitals choosing electronic reporting of quality 
measures would like to be acknowledged on the Hospital Compare Web site 
as ``Pioneers'' in Medicare EHR-based reporting. We noted, however, 
that the data results for Medicare EHR-based measures would not be 
publicly reported.
    We stated our concern that a large number of hospitals would not be 
able to meet the Hospital IQR Program requirements for FY 2016 if we 
proposed to require hospitals to electronically report the four measure 
sets. Accordingly, we stated our belief that this proposal--providing 
hospitals the opportunity for voluntary electronic submission of data 
for one quarter of CY 2014 discharges--represents a balanced policy 
that some hospitals will be able to take advantage of while ensuring 
that the FY 2016 Hospital IQR Program requirements are attainable for 
all participating hospitals. We stated that, as we move further toward 
alignment of quality measures reporting among our reporting 
initiatives, we intend to propose in the future to require hospitals to 
report electronically specified quality measures.
    We did not propose to validate any of the data that is 
electronically reported for the FY 2016 Hospital IQR Program. However, 
we shared the concern among hospitals, vendors, and other stakeholders 
that there is a need to develop a comprehensive validation process that 
applies to electronically reported data. We stated our intent to 
develop and propose to adopt a data validation strategy for 
electronically reported quality measure data in the FY 2015 IPPS/LTCH 
PPS proposed rule. This strategy will be informed, in part, by comments 
we receive in response to the proposed rule.
    We invited public comment on these proposals.
    Comment: Some commenters indicated that there are challenges with 
hospital EHR adoption and the number of hospitals using electronic 
clinical quality measures. A few commenters urged CMS to take a step 
back and rearticulate the program goals and logic.
    Response: We have conducted various outreach, education, and 
communication activities with stakeholder communities, including 
hospitals and vendors. We will continue to consider stakeholder 
feedback in developing the electronic quality reporting strategy. We 
have previously stated our commitment to align quality measurement and 
reporting among our programs (for example, the Hospital IQR Program and 
PQRS). We noted that our alignment efforts focus on several fronts 
including using the same measures for different programs, standardizing 
the measure development and electronic specification processes across 
our programs, coordinating quality measurement stakeholder involvement 
efforts, and identifying ways to minimize multiple submission 
requirements and mechanisms. A longer-term vision would be hospitals 
and clinicians reporting through a single, aligned mechanism for 
multiple CMS programs (77 FR 54053).
    We understand that, while there are some challenges with hospital 
EHR adoption rates, there has also been tremendous progress over the 
years. In March 2013, ONC reported, ``since the passage of the HITECH 
Act in 2009, there has been strong growth in non-federal acute care 
hospital adoption of EHR technology to meet Meaningful Use objectives. 
. . . Hospital adoption rates for each of the 14 Meaningful Use Stage 1 
Core objectives ranged from 72% to 94%. . . . These findings indicate 
that acute care hospitals have made considerable progress since the 
passage of the HITECH Act toward the goals of improving health and 
health care through the use of advanced health information technology'' 
(http://www.healthit.gov/sites/default/files/oncdatabrief10final.pdf).
    Comment: A few commenters wondered what, if any, potential impacts 
there would be on hospital ICD-10 implementation and wondered whether 
CMS provided algorithms for the electronic measures.
    Response: We do not believe that there will be significant impacts 
related

[[Page 50814]]

to ICD-10 implementation because the ICD-10 code sets have already been 
included in the electronic specifications for the electronic clinical 
quality measures. Also, the electronic specifications for the 
electronic clinical quality measures are available to the public at the 
electronic clinical quality measures library found at: http://www.cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/eCQM_Library.html. The code sets for all the electronic clinical 
quality measures are available on the National Library of Medicine's 
Value Set Authority Center (VSAC) at https://vsac.nlm.nih.gov.
    Comment: A few commenters requested clarification regarding whether 
or not hospitals report Hospital IQR Program measures using chart-
abstraction for the non-electronically reported measures. Commenters 
urged CMS to recognize that hospitals will be required to continue to 
report chart abstracted data to other national and State entities, such 
as The Joint Commission, until all of the entities are in total 
alignment with CMS efforts to electronically report quality measures.
    Response: As discussed in more detail below, we are finalizing a 
modified approach to voluntary electronic reporting. Under this 
approach, hospitals that choose to engage in voluntary electronic 
reporting should continue to report measures via chart abstraction 
unless the measure is part of the measure set that the hospital reports 
electronically. For example, if a hospital chooses to report the PC 
measure set (which is currently comprised of one measure) 
electronically, the hospital will be able to report that measure set 
electronically for one of the following quarters (its choice)--CY Q1, 
CY Q2 or CY Q3. If the hospital chooses to report more than one measure 
set electronically, they must be all reported in the same calendar 
quarter. For example, if a hospital choses to use voluntarily 
electronic reporting for a CY quarter and then reports a different 
measure set for a later CY quarter, the hospital would only receive 
Hospital IQR credit for the first discharge quarter submitted; the 
expectation is that the hospital would be submitting chart-abstraction 
of a full calendar year for the latter measure set. All other chart-
abstracted measures, including the measures in the measure sets not 
electronically reported will need to be reported via chart-abstraction 
for all four quarters. If a hospital reports part of a measure set 
electronically and the other part via chart abstraction, the hospital 
will not receive Hospital IQR credit for the measure set. We understand 
hospitals will continue to have to report chart-abstracted data to 
other national and State entities, and we continue to discuss options 
for electronic reporting alignment with various stakeholders.
    In addition, we note that the STK-1 measure cannot be 
electronically reported because electronic specifications have not been 
developed for that measure. Therefore, if a hospital chooses to report 
the STK measure set electronically, it would not need to report the 
STK-1 measure via chart-abstracted measure to satisfy the Hospital IQR 
Program reporting requirements.
    Comment: Many commenters opposed the proposal to require electronic 
reporting of Hospital IQR Program data in 2014 because of the 
challenges associated with electronic measure specifications and the 
EHR implementation and certification process.
    Response: Hospitals are encouraged, but not required, to submit 
electronic clinical quality measures for the Hospital IQR Program in 
2014 for the FY 2016 Hospital IQR Program payment determination. 
Through this voluntary process, hospitals and CMS will gain additional 
experience with electronic reporting and any potential issues that may 
result. We also encourage hospitals to continue submitting these 
measures via chart-abstraction if they choose. This will enable the 
most robust data set for the comparison. Since this proposal is 
voluntary, we believe it provides hospitals the flexibility to 
determine whether they are ready to submit electronically.
    Comment: Some commenters urged CMS to allow hospitals to 
voluntarily generate data using the specifications in the CMS/Joint 
Commission measure manual, rather than using the methods and standards 
finalized for the Medicare EHR Incentive Program, and report it to CMS 
using the electronic submission mechanism. The commenters noted that 
these data would be submitted in conformance with the requirements of 
the Hospital IQR Program, and if submitted through the electronic 
submission mechanism for at least one quarter, would count as 
fulfilling the Meaningful Use requirements for clinical data 
submission.
    Response: We appreciate the suggestion and note that the electronic 
submission of clinical quality measure data for the Hospital IQR 
Program in 2014 is voluntary. We are finalizing our proposal to allow 
hospitals to voluntarily submit measures electronically via the 
Medicare EHR Incentive Program. If a hospital chooses this option, the 
hospital will report the electronic clinical quality measures using the 
methods and standards finalized for the Medicare EHR Incentive Program 
(see the CMS and ONC final rules at 77 FR 53968 and 77 FR 54163, 
respectively, for further details regarding the Medicare EHR Incentive 
Program). This proposal does not preclude submitting the traditional 
chart-abstracted measures to the Hospital IQR Program using the 
specifications in the CMS/Joint Commission measure manual; however, the 
hospital need not do so if it elects to report electronically.
    Comment: A commenter questioned whether a hospital that does not 
report PC-01 can still participate in the Medicare EHR Incentive 
Program or whether the hospital has to report all 16 measures to be 
eligible.
    Response: Under the policy that we adopted for the Medicare EHR 
Incentive Program, a hospital may be exempted from reporting on a 
particular electronic clinical quality measure if the hospital seldom 
has the types of cases addressed by that electronic clinical quality 
measure. Specifically, a hospital that experiences 5 or fewer inpatient 
discharges per quarter or 20 or fewer inpatient discharges per year 
(Medicare and non-Medicare combined), as defined by an electronic 
clinical quality measure's denominator population, would be exempted 
from reporting on that electronic clinical quality measure (for further 
explanation of the policy, see 77 FR 54080, 72988 through 72989). Under 
this policy, it is possible that a hospital could qualify for an 
exemption from reporting on PC-01 for the Medicare EHR Incentive 
Program.
    Comment: One commenter supported the CMS proposal to submit the 
identified four measure sets electronically to satisfy a portion of the 
Hospital IQR and EHR Incentive Program requirements.
    Response: We thank the commenter for the support.
    Comment: Many commenters opposed the proposal to submit the 
identified four measure sets--16 measures total--electronically to CMS 
noting that the policy would limit hospitals' choice in fulfilling 
meaningful use requirements since, by identifying the 16 electronic 
clinical quality measures, the policy would eliminate the choice 
hospitals currently have to report any 16 of 29 electronic clinical 
quality measures. Most commenters also noted that vendors are not 
required to support all 29 measures and may not support the 16 
identified in the proposed rule.

[[Page 50815]]

    Response: We understand that hospitals prefer to have the 
flexibility to choose from the list of 29 measures from Stage 2 of the 
Medicare EHR Incentive Program. We have taken these comments into 
consideration and are finalizing a modified policy as a result. 
Specifically, we are finalizing a policy which permits hospitals, if 
they choose this voluntary option, to select one or more of the four 
measure sets (STK (except, as noted above, STK-1), ED, VTE, and PC) to 
electronically report in CY 2014, instead of requiring hospital, if 
they choose this option, to use electronic reporting for all four 
measure sets. We believe that this modification allows enough 
flexibility for hospitals to begin electronically reporting, if, for 
example, a hospital's vendor does not support all of the measures in 
the four measure sets originally proposed.
    Comment: Commenters noted that Stage 2 of the Medicare EHR 
Incentive Program requires hospitals to implement at least five 
clinical decision support (CDS) tools in their EHRs that are related to 
the electronic clinical quality measures they report for Meaningful 
Use. Commenters suggested that CMS address this issue by eliminating 
the requirement that CDS tools be related to electronic clinical 
quality measures and allow hospitals to choose the CDS tools that best 
help them achieve their individual quality improvement strategies and 
goals.
    Response: We disagree with the commenters' belief that this 
proposal interferes with CDS tools implementation. Hospitals have the 
flexibility to choose which CDS interventions to implement. It is 
expected that hospitals will select clinical decision support 
interventions to drive improvement in the delivery of care for the 
high-priority health conditions relevant to their patient population. 
We refer the commenters to the Medicare EHR Incentive Program Stage 2 
final rule (77 FR 53995) for more information.
    Comment: One commenter requested that CMS provide additional 
details regarding where hospitals can find the measure failures and 
whether this information is contained at CMS or in the CEHRT.
    Response: We appreciate the request for additional details 
regarding measure failures but cannot respond because we were unclear 
of what was specifically meant by this comment given the lack of 
context. We invite the commenter and others to join our EHR listservs 
on QualityNet if the commenter has additional questions or would like 
to learn more about electronic clinical quality measures in general.
    Comment: With regard to the proposed 16 electronic clinical quality 
measures, a few commenters requested more detail about how CMS intends 
to use and store the data. In addition, several commenters wondered 
whether CMS has the necessary infrastructure to accept electronic 
clinical quality measures within the specified timeframe. One commenter 
wanted more information about whether data would be retained for 
unknown usage in the future.
    Response: We intend to store the electronic data in the same manner 
that we store the Hospital IQR Program chart-abstracted data, with 
modifications to accept QRDA I data. We believe this infrastructure 
will allow us to accept the electronic clinical quality measure data 
submitted in CY 2014 for the Hospital IQR Program. We intend to retain 
the data to analyze it for lessons learned, and we will use the data to 
inform future policy decisions.
    Comment: Some commenters did not support the initiative to label 
hospitals ``Pioneers'' on the Hospital Compare Web site and suggested 
that CMS develop an icon and name through focus group testing to 
recognize hospitals that are submitting quality measure information 
electronically.
    Response: We appreciate the comment and will further evaluate the 
name to be used to recognize these hospitals. We intend to recognize 
hospitals that voluntarily report electronic clinical quality measures 
electronically in CY 2014 for the Hospital IQR Program.
    Comment: One commenter questioned why CMS finds it necessary to 
create a special designation on the Hospital Compare Web site for 
hospitals using CEHRTs given the public awareness of hospitals 
participating in the Meaningful Use program. A commenter noted that the 
purpose of Hospital Compare is to provide evidence-based quality and 
performance information about hospitals to consumers and wonders 
whether consumers may misinterpret the meaning of a special designation 
and make healthcare decisions based on that rather than the hospital's 
performance on evidence-based measures.
    Response: Our intention in recognizing these hospitals is, in part, 
to incentivize other hospitals to electronically report and, as a 
result, increase the volume of electronic clinical quality measures 
data we collect for validation testing purposes. We intend to clearly 
indicate the purpose and meaning of the recognition on the Hospital 
Compare Web site to avoid any potential confusion.
    Comment: One commenter asked CMS to validate data derived 
electronically from the EHR with the medical record in its totality. 
The commenter suggested the data validation process should occur in the 
FY 2015 reporting period and the level of data accuracy should be 
ascertained prior to instituting required electronic reporting in the 
FY 2016 payment determination or subsequent years. Some commenters also 
noted the data submitted electronically for the FY 2016 Hospital IQR 
Program would not be validated and wondered whether CMS intends to 
develop a validation strategy for electronically reported quality 
measure data in next year's IPPS rulemaking. Some commenters objected 
to the adoption of baseline and performance periods for the Hospital 
VBP Program that blend the results of both reporting modes until the 
reliability and accuracy of measures reported using electronic 
specifications has improved.
    Many commenters supported CMS' proposal to withhold voluntarily 
submitted electronic clinical quality measures data from public display 
in CY 2014 due to possible abnormalities in the data or potential 
issues associated with a new submission method. The commenters also 
noted that it would not be fair to compare results for hospitals 
reporting on chart-abstracted and electronic versions of the same 
measures since measures manually abstracted benefit from the broader 
context that is available in a chart. Commenters recommended that 
additional research be conducted to address differences between 
measures reported electronically and measures reported via chart-
abstraction before CMS mandates public reporting of electronic clinical 
quality measure data through the Hospital IQR Program or other quality 
reporting programs.
    The majority of commenters, however, opposed CMS' proposal to 
withhold the electronically reported data from publication on Hospital 
Compare and instead urged CMS to publicly display it. These commenters 
believed that withholding the data would undermine the intent of the 
Hospital IQR Program and provide little insight into whether EHRs can 
be used to effectively report comparable data for purposes of public 
reporting in the future.
    Response: We believe that the 2013 Medicare EHR Incentive Program 
Electronic Reporting Pilot is beginning to address concerns regarding 
data validity, and we invite participation in the 2013 Medicare EHR 
Incentive Program Electronic Reporting Pilot. In

[[Page 50816]]

addition, we have worked with ONC to include more stringent 
certification criteria for EHR products in order to increase data 
consistency and reliability across providers and vendors. The 
electronic clinical quality measures have been tested, and we are 
working with the EHR vendor and provider communities to continuously 
improve the electronic specifications. We do, however, understand the 
concerns raised by commenters regarding data validity and public 
reporting. After taking all of these considerations into account, we 
are finalizing that we will make the electronically reported data 
public on Hospital Compare if we deem that the data are accurate enough 
to be publicly reported. In addition, we intend to develop and propose 
a validation strategy for electronically reported quality measure data 
in future rulemaking.
    Comment: Several commenters suggested that CMS transition to 
electronic reporting of clinical quality measures by maintaining the 
intent of quality measures, testing tools designed to support 
electronic clinical quality measures development, and field testing 
measures prior to including them in a reporting program.
    Response: We are continuing to work with partners and key 
stakeholders to improve the tools used to develop electronic clinical 
quality measures and methodologies to test electronic clinical quality 
measures prior to adoption in our quality reporting programs.
    Comment: Many commenters noted that electronic clinical quality 
measures lack accuracy, testing, quality, validity, comparability with 
chart-abstracted measures, and well-developed standards. The commenters 
called for ``electronic specification stability'' before CMS adopts 
electronic reporting for the Hospital IQR Program and noted that 
electronic reporting does not currently produce complete information. 
Some commenters urged CMS to reconsider the proposed acceptance of 
hospital quality reporting data directly from EHRs until there has been 
verification of data reliability and validity.
    Response: We thank the commenters for their input. We are working 
with the hospital and vendor communities to develop a robust validation 
methodology. We continue to engage with external stakeholders by 
requesting public comments regarding validation methodologies. Until we 
receive quality data reported directly from EHRs, we will have limited 
ability to perform data reliability and validity testing. By offering a 
voluntary submission option, we anticipate that hospitals will submit 
quality measure data directly from EHRs so that we have data for 
reliability and validity testing.
    Comment: A few commenters strongly supported continued engagement 
with the provider and vendor communities through cooperative efforts 
such as the eMeasures Learning Collaborative and its workgroups and 
urged CMS and ONC to include the vendor community when working with 
measure stewards and developers in the development of new measure 
concepts and when pilot, reliability, and validity testing is 
conducted. For example, commenters noted that in 2012, CMS launched the 
eMeasures Learning Collaborative with the NQF, and the commenters 
applauded this collective approach to effectively advise stakeholders 
on the best eMeasures development, maintenance, and implementation 
processes.
    Response: We thank the commenters for their support. We plan to 
continue to collaborate with multi-stakeholder groups and the ONC when 
working with measure stewards and developers in the development of new 
measure concepts and conducting pilot, reliability, and validity 
testing.
    Comment: Some commenters urged CMS and ONC to align efforts to 
verify through demonstration projects the comparability of results of 
manually abstracted measures with electronically specified/EHR 
extracted measures. The commenters also called for a certification 
requirement for third party auditors.
    Response: Although we do not understand what the commenters mean 
when referring to a ``third-party auditor,'' we do not believe that the 
electronic clinical quality measures are substantively different from 
their chart-abstracted forms. We are researching methodologies, 
including consideration of demonstrations and/or pilots to develop data 
validation strategies and are working with the hospital and vendor 
communities.
    Comment: A few commenters noted errors in the 2014 measure 
specifications, the Cypress software used to certify electronic 
clinical quality measures, and the certification test methods. These 
commenters noted time pressures associated with the frequent updates 
and changes to the ONC certification process over the past five months 
since the tools and measure specifications became available. These 
changes require vendors and providers to adopt new versions of 
measures, resulting in time pressures for development, testing and 
implementation/roll out to customers.
    Response: We plan to continue to work with the ONC to address these 
issues. We understand vendors are working hard to adopt new measure 
specifications released by CMS and ONC.
    Comment: A few commenters found the proposal focused more on the 
electronic submission and less on the accuracy of the information and, 
consequently, believed 2014 was too soon to assume electronic quality 
measures are ready for validation. The commenters outlined an 
alternative approach to allow hospitals to satisfy both programs 
clinical quality measure reporting requirements when they pull quality 
data from an EHR and allow a chart abstractor to validate that 
information in the Hospital IQR Program specifications.
    Response: We do not plan to validate electronic clinical quality 
measure data, as part of the regular Hospital IQR validation program, 
for the FY 2016 payment determination. We will, however, review the 
accuracy of the electronic clinical quality measure data assessing it 
for the electronic specification adherence before making it publicly 
available. Further, we intend to use these submissions to inform the 
development of a validation strategy that would apply to electronically 
reported measure data in the future. We do not preclude hospitals from 
using their EHRs to collect data for submitting chart-abstracted 
measures under the Hospital IQR Program. We are working on a strategic 
plan to identify the optimal transition while providing a flexible 
voluntary option to electronically report measures in 2014. For 
validation of electronic clinical quality measures, we are researching 
methodologies to develop data validation strategies and are working 
with the hospital and vendor communities. We have engaged external 
stakeholders by requesting public comments regarding validation 
methodologies through a Request for Information (RFI) published in 
January 2013.
    Comment: Some commenters were concerned that, although the measure 
descriptions seem similar for both Meaningful Use and the Hospital IQR 
Program (the measures have the same title, etc.), the measure 
specifications and calculations were developed independently and are 
not equivalent. The commenters requested that CMS consider this 
variation and provide education and outreach to the provider community 
to assist in this transition.
    Response: We do not believe that the electronic clinical quality 
measures are substantively different from their chart-

[[Page 50817]]

abstracted form. We believe that collection and reporting of data 
through health information technology will greatly simplify and 
streamline reporting for many CMS quality reporting programs. Through 
electronic reporting, hospitals will be able to leverage EHRs to 
capture, calculate, and electronically submit quality data that is 
currently manually chart-abstracted and submitted to CMS for the 
Hospital IQR Program. In addition, we provide a central location for 
all clinical quality measure specifications and educational materials 
for electronic clinical quality measures reporting which providers can 
access (http://www.cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/eCQM_Library.html). We are moving in the 
direction of expanding that resource to incorporate additional 
electronic clinical quality measures resources. We intend to provide 
outreach and education to hospitals for this transition in multiple 
formats such as Webinars and FAQs.
    Comment: A few commenters suggested that CMS work with an 
independent evaluator to understand any variance that may result from 
the electronic extraction of quality measure data from EHRs rather than 
through manual chart abstraction.
    Response: We appreciate the suggestion and will take this 
recommendation into consideration as we further develop our electronic 
reporting policies.
    Comment: A few commenters expressed concern that the efficiency of 
reporting should not be achieved at the expense of alienating 
clinicians and hospitals by detracting from patient care.
    Response: We agree with the commenters and will consider burden as 
we develop our policy and methods.
    Comment: Some commenters believed a hard cut-off between chart-
abstracted and electronic ``retooled'' measures was not practical in 
the near term.
    Response: We agree with commenters. We are engaged in a transition 
from chart-abstracted reporting of measures to electronic reporting of 
measures, and we anticipate that the transition to full electronic 
measure reporting in the Hospital IQR Program will occur over a period 
of time, rather than all at once.
    Comment: One commenter identified a lack of alignment between the 
electronic data submission deadlines and the timeline in the FY 2014 
IPPS/LTCH PPS proposed rule. The commenter noted publication of the FY 
2015 IPPS/LTCH PPS final rule would precede the data submission 
deadline of November (in the proposed rule, November 30, 2014) and CMS 
would not benefit from the experience. Therefore, commenter requested 
that CMS align these timeframes in the future.
    Response: We understand that the rulemaking cycle will overlap with 
the voluntary electronic reporting period. However, we anticipate 
having the opportunity to collect two quarters of electronic data from 
hospitals that choose to report electronically. We encourage hospitals 
to report data as early as possible in order to gain experience with 
submitting measures via electronic specifications. We believe these two 
quarters of data will provide us with a better understanding of the 
data derived from submitting measures via electronic specifications. We 
will also gain additional experience with the 2013 Medicare EHR 
Incentive Program Electronic Reporting Pilot.
    Comment: A few commenters raised concerns about the proposal to 
require only one quarter's worth of data for hospitals reporting 
Hospital IQR Program measures electronically, and believed that one 
quarter of data does not provide a statistically valid sample and that 
electronic data derived from CEHRTs may result in an inaccurate 
assessment of a hospital's performance.
    Response: We proposed one quarter of data for the purposes of 
aligning with the reporting periods established for the Medicare EHR 
Incentive Program. In addition, we believe that allowing a hospital 
that chooses to report electronically to report one quarter of data 
will reduce the reporting burden on the hospital. Also, this policy 
creates an incentive for hospitals to participate in the voluntary 
electronic clinical quality measure reporting for the Hospital IQR 
Program.
    Comment: A few commenters found the reporting timelines confusing 
and questioned the rationale for proposing different reporting 
timelines that vary depending on whether or not a hospital elected to 
electronically report measures or to report measures using the standard 
chart-abstracted method.
    Response: The goal of the proposal was to synchronize the reporting 
periods of the Hospital IQR and the Medicare EHR Incentive Programs to 
reduce the reporting burden on hospitals. However, based on concerns of 
these commenters, we are finalizing a policy that better aligns the 
reporting deadlines under the two programs. We are finalizing that if a 
hospital would like us to use the electronically reported Hospital IQR 
data to determine whether the hospital has satisfied the Medicare EHR 
Incentive Program clinical quality measure reporting requirement, it 
must electronically report the data for CY Q1, CY Q2 or CY Q3 2014 by 
November 30, 2014, or if the hospital is in its first year of 
demonstrating meaningful use, electronically report CY 2014 Q1 or CY 
2014 Q2 data by July 1, 2014. Due to the FY 2016 Hospital IQR Program 
timeline and the desire to align with the Medicare EHR Incentive 
Program submission timelines, we will not be able to accept 
electronically specified measures during CY 2014 Q4 to determine 
whether a hospital satisfies the Hospital IQR Program requirements. 
This is the beginning of a multi-year process we seek to engage in to 
align the timelines of multiple federal quality reporting programs.
    Comment: A few commenters requested that CMS continue to adopt the 
newest version of the HL7 standard used to specify the electronic 
clinical quality measures within the quality reporting programs.
    Response: We plan to continue to collaborate with our partners and 
stakeholders to identify appropriate standards--including the HL7 
standard--to be used for quality reporting.
    Comment: Many commenters requested that CMS provide the process it 
will use to develop and release new versions of electronic clinical 
quality measures, their associated value sets and how CMS plans to 
document the timeframe for which each HL7 version is active within the 
applicable quality-reporting programs, including the Hospital VBP 
Program.
    Response: We understand the nature of the commenters' request and 
plan to continue to collaborate with our partners and stakeholders to 
identify appropriate standards and update existing standards for 
quality reporting. We will also continue to collaborate with our 
partners and stakeholders to identify the best manner in which to 
communicate those standards.
    Comment: Many commenters opposed CMS' proposal to restrict the data 
standard to QRDA I and recommended that CMS allow hospitals to use 
either the QRDA I or QRDA III standard. Commenters requested 
clarification regarding why CMS made the determination that QRDA I is 
feasible and QRDA III is not feasible. In addition, commenters urged 
that if QRDA I is the policy choice for electronic quality data 
submission, CMS must take all necessary steps to protect against 
breaches of private health information through the use of CMS' 
electronic reporting portal. Commenters also noted the QRDA standards 
(categories I and III) are still in draft format and are not yet widely 
used.

[[Page 50818]]

Therefore, there is little, if any, experience with or testing of these 
standards. One commenter suggested that CMS align its data standard 
with ONC's certification requirements for EHR technology. The 
commenters noted that this approach would fully leverage CEHRTs which 
allow both QRDA I and QRDA III.
    Response: The QRDA category I specifies the framework for quality 
reporting, standardizes measure-defined data elements for 
interoperability between organizations, and is used to transmit 
clinical quality measure data needed to meet Meaningful Use (MU) 
requirements under the Medicare EHR Incentive Program. After reviewing 
all the comments, we have decided to adopt the QRDA I reporting 
standard for the Hospital IQR Program and may consider the QRDA III 
standard in future rulemaking. We will adopt the QRDA I reporting 
standard because it aligns with the current Hospital IQR Program 
standard of collecting patient level data for chart-abstracted 
measures. The Medicare EHR Incentive Program for hospitals has modified 
in this final rule, section IX.E below, the clinical quality measure 
reporting requirement for 2014 to accept only the QRDA I (release 2) 
format for electronic reporting.
    As noted above, hospitals will continue to submit quality data 
through the secure portion of the QualityNet Web site (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. CMS will consider other options for 
collecting clinical quality measurement data in future rulemaking.
    Comment: One commenter requested more information regarding whether 
CMS would make QRDA I details available for EHR developers who need to 
understand if the feasibility assessment will change in 2015 and 
beyond.
    Response: We understand the concerns raised and, as feasibility 
assessments are completed, we will make every effort to post the 
information on a Web site such as http://www.QualityNet.org/. Currently 
the Hospital IQR Program requires submission of chart-abstracted data 
at the patient level (QRDA I equivalent), so our decision to accept 
QRDA I is aligned with the method hospitals currently use to submit 
chart-abstracted data for the same measures.
    After consideration of the public comments we received, we are 
finalizing a modified approach that will allow hospitals to voluntarily 
report up to four measure sets (STK (with the exception of STK-1), ED, 
VTE, and/or PC) electronically for the same quarter for FY 2016 
Hospital IQR Program. Hospitals that choose this option will meet their 
Hospital IQR reporting requirement with respect to each of these 
measure sets if they report all the measures in that measure set (with 
the exception of STK-1, if the hospital chooses that measure set) 
electronically for one quarter.
    We will take into account the measure set(s) reported 
electronically for the Hospital IQR Program when we determine whether a 
hospital has satisfied the clinical quality measure reporting component 
of meaningful use for the Medicare EHR Incentive Program in FY 2014. 
Specifically, if a hospital would like us to use the electronically 
reported Hospital IQR data to determine whether the hospital has 
satisfied the Medicare EHR Incentive Program clinical quality measure 
reporting requirement, it must electronically report the data for CY 
Q1, CY Q2 or CY Q3 2014 by November 30, 2014, or if the hospital is in 
its first year of demonstrating meaningful use, electronically report 
CY Q1 or CY Q2 2014 data by July 1, 2014. Due to the FY 2016 Hospital 
IQR Program's 2016 payment determination timeline and the desire to 
align with EHR Incentive Program submission timelines, we cannot accept 
electronic submission of CY Q4 2014 data since EHR Incentive Program 
data is required to be reported by November 30, 2014. The measures 
electronically reported under the Hospital IQR Program will be 
considered to determine whether the hospital has satisfied the Medicare 
EHR Program clinical quality measure reporting requirement as long as 
the hospital also satisfies all other program requirements under the 
Medicare EHR Incentive Program. With the exception of the 
electronically reported measures (for which only one quarter of 
reporting would be necessary), all other Hospital IQR chart-abstracted 
measures (including those that are electronically specified but not 
chosen by the hospital for electronic reporting) must be reported via 
chart-abstraction for all four quarters of 2014.
    We are also finalizing that we will only publicly report the 
electronically reported data on Hospital Compare if we determine the 
data are accurate enough to be reported.
    The chart below provides a summary of the finalized reporting 
periods and electronic submission deadlines for the FY 2016 Hospital 
IQR Program:

FY 2016 Hospital IQR Program Electronic Reporting Periods and Submission
Deadlines for Eligible Hospitals That Are Beyond Their First Year of the
                     Medicare EHR Incentive Program
------------------------------------------------------------------------
     Discharge reporting periods             Submission deadlines
------------------------------------------------------------------------
January 1, 2014-March 31, 2014......  November 30, 2014.
April 1, 2014-June 30, 2014.........  November 30, 2014.
July 1, 2014-September 30, 2014.....  November 30, 2014.
October 1, 2014-December 31, 2014...  Not Applicable.
------------------------------------------------------------------------

    As described in section IX.E of the preamble of this final rule, we 
are also finalizing our proposal to extend the beginning of the 
electronic submission period for the Medicare EHR Incentive Program to 
January 2, 2014 and note that hospitals in their first year of 
demonstrating meaningful use could also electronically submit the four 
measure sets for one quarter by July 1, 2014 to meet the clinical 
quality measure reporting criteria for the Medicare EHR Incentive 
Program.
    Hospitals choosing to report at least one quarter of quality 
measure data electronically are not required, but are highly 
encouraged, to also submit the same data via chart-abstraction. We 
understand that many hospitals will be submitting chart-abstracted 
quality measure data to The Joint Commission so the reporting burden 
would not be increased. Hospitals will gain experience in understanding 
the differences in the submission methods. Furthermore, for hospitals 
who chose to voluntarily report electronically in the Hospital IQR 
Program, we are finalizing that the hospitals will use the Medicare EHR 
Incentive Program process for electronically submitting quality measure 
data into QualityNet (for EHR-based reporting). We also note that

[[Page 50819]]

hospitals voluntarily submitting electronically specified clinical 
quality measures will follow the submission requirements finalized in 
the Medicare EHR Incentive Program Stage 2 final rule (77 FR 54088) and 
in subsequent rulemaking. Hospitals voluntarily submitting 
electronically specified clinical quality measures will utilize their 
existing QualityNet account to submit electronic quality measure data. 
If a hospital chooses to report one or more of the four measure sets 
(STK (with the exception of STK-1), VTE, ED, and PC) electronically 
during CY 2014, the hospital's data will be extracted from the CEHRT 
and submitted to CMS using the Health Level Seven (HL7) Quality 
Reporting Document Architecture (QRDA) Category I Revision 2 standard.
    After consideration of the public comments we received, we are 
finalizing our proposal to adopt the QRDA I reporting standard for 
hospitals voluntarily submitting electronically specified clinical 
quality measures to the Hospital IQR Program. We will not accept the 
QRDA III reporting standard at this time; however, we will consider 
this and other options in future rulemaking. The Hospital IQR Program 
requires submission of chart-abstracted data at the patient level, so 
our decision to accept QRDA I is aligned with the method hospitals 
currently use to submit clinical quality measure data.
    We intend to develop and propose a validation strategy for 
electronically reported quality measure data in the FY 2015 IPPS/LTCH 
PPS proposed rule. We are researching methodologies to develop data 
validation strategies and are working closely with the hospital and 
vendor communities to develop a robust validation methodology that will 
complement the vendor certification process for electronic clinical 
quality measures. We do not plan to validate, for purposes of meeting 
Hospital IQR Program validation requirements, electronic clinical 
quality measures voluntarily submitted to the Hospital IQR Program for 
the FY 2016 payment determination.
    We believe this proposal--providing hospitals the opportunity for 
voluntary electronic submission of data for one quarter of CY 2014 
discharges--represents a balanced policy that some hospitals will be 
able to take advantage of while ensuring that the FY 2016 Hospital IQR 
Program requirements are attainable for all participating hospitals. As 
we move further toward alignment of quality measures reporting among 
our reporting initiatives, we intend to propose in the future to 
require hospitals to report electronically specified quality measures.
e. Sampling and Case Thresholds for the FY 2016 Payment Determination 
and Subsequent Years
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51641), we 
continued, for the FY 2015 payment determination and subsequent years, 
the approach we adopted in the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50230) regarding hospital submission of population and sampling data. 
In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53537), we did not make 
any changes to these requirements. For the FY 2016 payment 
determination and subsequent years, we did not propose to make any 
changes to these requirements.
    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.
f. HCAHPS Requirements for the FY 2017 Payment Determination and 
Subsequent Years
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50220), we adopted 
the HCAHPS requirements for the FY 2013 and FY 2014 Hospital IQR 
Program payment determinations.
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51641 through 
51643), we made one change to these requirements. Beginning with 
discharges occurring in third quarter CY 2011, we established that 
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.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53537 through 
53538), for the FY 2016 Hospital IQR Program payment determination, we 
continued these HCAHPS requirements.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27698 through 
27700), for the FY 2017 payment determination and subsequent years, we 
proposed to retain these requirements. Under these requirements, a 
hospital must continuously collect and submit HCAHPS data in accordance 
with the current HCAHPS Quality Assurance Guidelines and the quarterly 
data submission deadlines, both of which are posted at http://www.hcahpsonline.org. In order for a hospital to participate in the 
collection of HCAHPS data, a hospital must either: (1) Contract with an 
approved HCAHPS survey vendor that will conduct the survey and submit 
data on the hospital's behalf to the QIO Clinical Warehouse; or (2) 
self-administer the survey without using a survey vendor provided that 
the hospital attends HCAHPS training and meets Minimum Survey 
Requirements as specified on the 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 2017 Hospital IQR 
Program, the HCAHPS data would be based on discharges from January 1, 
2015 through December 31, 2015.
    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 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, and 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 obtain and submit at least 300 completed HCAHPS 
surveys in

[[Page 50820]]

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 obtaining and 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 an appropriate 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) and 
the HCAHPS Review and Correction Report that are available. These 
reports enable a hospital to ensure that its survey vendor has 
submitted the data on time, the data has been accepted into the QIO 
Clinical Warehouse, and the data accepted into the QIO Clinical 
Warehouse are complete and accurate.
    In order to ensure compliance with HCAHPS survey and administration 
protocols, survey vendors and hospitals that self-administer the HCAHPS 
Survey must: (1) Meet HCAHPS Minimum Survey Requirements and Rules of 
Participation presented in the current HCAHPS Quality Assurance 
Guidelines; (2) adhere to the HCAHPS survey administration protocols 
provided in the current HCAHPS Quality Assurance Guidelines and updated 
through HCAHPS Bulletins and announcements on the official HCAHPS On-
Line Web site, http://www.hcahpsonline.org; and (3) 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 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 strongly recommend that hospitals approved to self-administer 
the HCAHPS Survey attend both HCAHPS Introductory Training and HCAHPS 
Update Training every year. The dates of HCAHPS training session are 
announced on the HCAHPS On-Line Web site, http://www.hcahpsonline.org.
    The HCAHPS Survey is available in official translations in several 
languages other than English: Spanish (mail and telephone modes); 
Chinese (mail mode); Russian (mail mode); and Vietnamese (mail mode). 
All official translations of the HCAHPS Survey instrument are available 
in the current HCAHPS Quality Assurance Guidelines. We strongly 
encourage hospitals with a significant patient population that speaks 
Spanish, Chinese, Russian or Vietnamese to offer the HCAHPS Survey in 
those languages. We plan to offer an official translation of the HCAHPS 
Survey in Portuguese (mail mode) in 2013. We encourage hospitals that 
serve patient populations that speak languages other than those noted 
to request CMS to create an official translation of the HCAHPS Survey 
in those languages. Only the official translations of the HCAHPS Survey 
instrument can be implemented.
    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 wish to emphasize that, barring the exception that the hospital 
is too small to obtain 300 completed surveys in a four-quarter period, 
IPPS hospitals that do not meet the minimum 300 completed surveys 
requirement may not be in compliance with the Hospital IQR Program's 
requirement that hospitals submit quality data in the form, manner, and 
time specified by the Secretary in order to receive the full APU. If we 
become aware of specific cases in which a hospital has not met the 
finalized HCAHPS survey protocols, we may determine that the hospital 
has failed to meet the applicable APU requirement, and will reduce that 
hospital's APU accordingly.
    We proposed to codify the current guideline that approved HCAHPS 
survey vendors and self-administering hospitals must fully comply with 
all HCAHPS oversight activities, including allowing CMS and its HCAHPS 
Project Team to perform site visits at hospitals' and survey vendors' 
locations. We proposed to codify this survey requirement at Sec.  
412.140(f)(1).
    We proposed to codify the current guideline that CMS approves 
survey vendor applicants to administer the HCAHPS survey for hospitals 
clients when applicants have met the Minimum Survey Requirements and 
Rules of Participation listed in the current HCAHPS Quality Assurance 
Guidelines and adhere to the survey administration protocols provided 
in the current HCAHPS Quality Assurance Guidelines and occasionally 
updated through HCAHPS Bulletins and announcements on the official 
HCAHPS On-Line Web site. We proposed to include this survey requirement 
at Sec.  412.140(f)(2).
    The absence of a sufficient number of HCAHPS eligible discharges is 
the only acceptable reason for obtaining and submitting fewer than 300 
completed HCAHPS surveys in a rolling four quarter period. Hospitals 
and HCAHPS survey vendors should regularly check the official HCAHPS 
Web site at http://www.hcahpsonline.org for new information and program 
updates regarding the HCAHPS Survey, its administration, oversight and 
data adjustments. We invited public comment on our proposal to continue 
using these HCAHPS requirements for the FY 2016 payment determination 
and subsequent years.
    We did not receive any public comments on our Hospital IQR HCAHPS 
proposal and are finalizing it as proposed, with some changes to the 
proposed regulatory language.
g. Data Submission Requirements for Structural Measures for the FY 2015 
and FY 2016 Payment Determinations
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51643 through 
51644), beginning with FY 2013, we finalized the period of data 
collection for which

[[Page 50821]]

hospitals will submit the required structural measure information once 
annually for the structural measures via a Web-Based Measure Tool. We 
finalized our proposal for FY 2014 for submission of structural 
measures between April 1, 2013 and May 15, 2013 with respect to the 
time period of January 1, 2012 through December 31, 2012. In the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53538 through 53539), we finalized 
our proposal to continue this policy for the FY 2015 payment 
determination and subsequent years.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27700), however, 
in order to provide the more timely feedback to hospitals regarding APU 
participation status, for the FY 2015 payment determination, we 
proposed to change the date that structural measures will be submitted 
from April 1 2014-May 15, 2014 to January 1, 2014-February 15 2014. For 
the FY 2016 payment determination, we proposed that the period of data 
collection for which hospitals will submit the required registry 
participation information for the structural measures via a Web-Based 
Measure Tool be between January 1, 2015 and February 15, 2015, with 
respect to the time period of January 1, 2014 through December 31, 
2014. These proposals will allow us to provide earlier feedback to 
hospitals regarding APU status. We invited public comment on our 
proposals.
    Comment: A few commenters supported the proposals.
    Response: We thank the commenters for their support.
    Although some commenters generally supported this proposal, some 
commenters did not support the proposal to move the deadline for the 
Data Accuracy and Completeness Acknowledgement (DACA). It is our 
experience that most hospitals complete the DACA and structural 
measures at the same time. Because we are not finalizing our proposal 
to move the deadline for the DACA to February 15th in this final rule 
(we refer readers to section IX.A.11. of the preamble of this final 
rule), we believe that moving the submission deadline for the 
structural measures as proposed would require hospitals to complete 
these requirements at different times and, as a result, create 
unnecessary burden because it would be inconsistent with the DACA 
submission deadline. In addition, because we are not finalizing the 
DACA submission deadline change, we will not be able provide more 
timely feedback to hospitals on whether they have satisfied the 
Hospital IQR Program requirements for a particular year regardless of 
whether the timeframe to report the structural measures is January 1, 
2014-February 15, 2014 or April 1, 2014-May 15, 2014. For those 
reasons, we are not finalizing this proposal, and the timeframe to 
report the structural measures each year will be April 1, 2104-May 15, 
2014, with respect to the preceding calendar year.
h. Data Submission and Reporting Requirements for Healthcare-Associated 
Infection (HAI) Measures Reported via NHSN
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51644 through 
51645), we adopted the data submission and reporting standard 
procedures that have been set forth by CDC for NHSN participation in 
general and for submission of the HAI measures to NHSN. The existing 
data collection and submission timeframes for the HAI measures for the 
FY 2015 payment determination and subsequent years align with the 
submission timeframes for chart-abstracted measures with the exception 
of Healthcare Provider Influenza Vaccination as defined below. The data 
submission deadlines are posted on the QualityNet Web site at: http://www.QualityNet.org/.
    Hospitals will have until the Hospital IQR Program final submission 
deadline to submit their quarterly data for CLABSI, SSI, CAUTI, MRSA 
Bacteremia and Clostridium difficile to NHSN. After the final Hospital 
IQR Program submission deadline has occurred for each calendar quarter 
of CY 2013, we will obtain the hospital-specific calculations that have 
been generated by the NHSN for the Hospital IQR Program.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53539), we continued 
the data submission and reporting standard procedures we adopted in the 
FY 2012 IPPS/LTCH PPS final rule, with two exceptions discussed below, 
for the FY 2015 payment determination and subsequent years.
    The HAI measures that will be included in the FY 2016 payment 
determination are included in the following chart:

----------------------------------------------------------------------------------------------------------------
                                   FY 2016 payment determination: hospital associated infection measures (CDC's
              Topic                                                    NHSN)
----------------------------------------------------------------------------------------------------------------
                                  Central Line Associated Blood Stream Infection.
                                  Surgical Site Infection.
                                  Catheter-Associated Urinary Tract Infection.
                                  MRSA Bacteremia.
                                  Clostridium difficile.
                                  Healthcare Provider Influenza Vaccination.
----------------------------------------------------------------------------------------------------------------

    We realize that some hospitals may not have locations that meet the 
NHSN criteria for CLABSI or CAUTI reporting, for example, when a 
hospital has no ICUs. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53539), we provided an exception for the CLABSI and CAUTI measures for 
hospitals that do not have an ICU, reducing the burden associated with 
reporting to NHSN.
    In addition, we recognize that some facilities may perform so few 
procedures requiring surveillance under the SSI measure that the data 
may not meaningfully assess the hospital's performance on the measure. 
Therefore, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53539), we 
provided an exception for these hospitals from the reporting 
requirement in any given year if the hospital performed fewer than a 
combined total of 10 colon and abdominal hysterectomy procedures in the 
calendar year prior to the reporting year. For example, a hospital that 
performed only 2 colon surgeries and 4 abdominal hysterectomies in CY 
2013 is not required to report the SSI measure in CY 2014. We finalized 
our proposal to provide hospitals with a single HAI exception form, to 
be used for seeking an exception for any of the CLABSI, CAUTI and SSI 
measures, which is available on QualityNet at: https://www.qualitynet.org/ Hospitals-Inpatient>Healthcare Associated 
Infections (HAI). For the FY 2016 payment determination and subsequent 
years, we did not propose to make any changes to these requirements and 
exceptions.

[[Page 50822]]

    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51631-51633) we 
finalized collection of the Healthcare Provider Influenza Vaccination 
measure data from October 1 through March 31st to coincide with the flu 
season. In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27700), 
because this measure is collected seasonally, we proposed to collect 
this measure on May 15th of the calendar year for which the season 
ends. For example, for the Healthcare Provider Influenza Vaccination 
measure collection for vaccinations given from October 1, 2013 (or when 
the vaccine becomes available)--March 31, 2014, the submission deadline 
would be May 15, 2014. We invited public comment on this proposal.
    Comment: A few commenters expressed concerns that differing 
deadlines among CMS programs are confusing for submitters.
    Response: We thank the commenters for informing us of their 
concern. We have aligned several deadlines in recent years and will 
continue to align deadlines as possible across programs.
    Comment: Several commenters supported the May 15th deadline for the 
Healthcare Provider Influenza Vaccination measure.
    Response: We thank the commenters for their support.
    After consideration of the public comments we received, for FY 2015 
and subsequent years we are finalizing as proposed the submission 
deadline of May 15 of the calendar year for which the season ends.
    For the FY 2016 payment determination and subsequent years, we 
proposed to require hospitals to report the Medicare Beneficiary ID 
numbers to the NHSN system for all events reported for Medicare 
beneficiaries. The NHSN system currently supports the voluntary 
submission of this information, but we proposed to make it mandatory 
for patients with Health Insurance Claim (HIC) numbers. We made this 
proposal to better support our validation efforts to improve CMS and 
hospitals' ability to correctly identify the sampled validation 
episodes of care. We currently match medical records to NHSN data as 
part of validation. With the information available for matching, we may 
occasionally fail to match a reported event. By requiring that 
hospitals report the HIC number when it is available, we increase our 
confidence that records reported to NHSN will appropriately be matched 
with the records we sample for validation. Because we cannot anticipate 
in advance which records may be sampled for validation, we proposed to 
require that hospitals provide this information for all reported events 
during Hospital IQR data submission. We invited public comment on this 
proposal.
    Comment: Several commenters supported the proposal to add a 
requirement to report the HIC numbers for those patients who have them 
in order to enhance future validation efforts.
    Response: We thank commenters for their support.
    Comment: Several comments expressed concern about the burden 
associated with adding the HIC number. Commenters observed that the HIC 
number is not routinely included in databases used by infection control 
practitioners to monitor infection, and that vendors may not be able to 
accommodate this change in the timeframes established. One commenter 
recommended that CMS work with infection control practitioners to 
evaluate the feasibility of including the HIC number in the NHSN 
database. One commenter expressed the opinion that this requirement 
should not be adopted without analysis of its impact on workflow/burden 
to hospitals, and that, if adopted, sufficient time should be provided 
to allow facilities to appropriately resource and/or alter their 
electronic data capture in order to meet this new requirement.
    Response: We proposed this requirement to greatly enhance both 
confidence and efficiency in achieving matches between events reported 
to NHSN and events identified during validation. However, we recognize 
that for some hospitals that do not maintain HIC number in their 
laboratory IT system and do not yet have interoperable systems for 
billing and laboratory data, this new requirement could be perceived as 
burdensome. To address concerns that hospitals need time to complete 
this set-up activity, we are finalizing that hospitals will be required 
to report Medicare Beneficiary ID numbers to the NHSN system for all 
events reported for Medicare beneficiaries, beginning with CY Q3 2014 
events, which is the first quarter that we anticipate beginning to 
validate HAIs for the FY 2017 annual payment determination.
    Comment: One commenter noted that in their State, a Social Security 
number is already required and is used to match NHSN cases to an all-
payer all claims database.
    Response: Although we are aware that some States may already 
require that providers report patient identifying information to NHSN, 
we believe that our proposal will enable us to improve the accuracy of 
the Hospital IQR validation process for all participating hospitals 
nationwide. We also note that the NHSN system already includes an 
optional field for the HIC number. Therefore, no NHSN infrastructure 
must be changed to accommodate this requirement.
    After consideration of the public comments we received, we are 
finalizing that hospitals will be required to report Medicare 
Beneficiary ID numbers to the NHSN system for all events reported for 
Medicare beneficiaries, beginning with CY Q3 2014 events.
10. Modifications to the Validation Process for Chart-Abstracted 
Measures Under the Hospital IQR Program
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27701 through 
27709), for the FY 2015 payment determination and subsequent years, we 
proposed some modifications to the validation requirements and methods 
we finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53539 
through 53553). As described below, these proposals are intended to 
strengthen the Hospital IQR Program by validating new HAI measures 
while simultaneously decreasing burden relative to previous years.
    The procedures to which we proposed to modify are organized into 
the following sections: (a) Number and timing of quarters included in 
validation; (b) selection of measures and sampling of charts to be 
included in validation; (c) procedures for computing the validation 
score; (d) selection of hospitals for validation of chart-abstracted 
measures; and (e) procedures for submitting records for validation.
a. Timing and Number of Quarters Included in Validation
    As finalized in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50219), 
the quarters included in the validation effort for each year's Hospital 
IQR Program payment determination are the 4th calendar quarter (October 
through December) of the year that occurs 2 years before the payment 
determination and the first 3 calendar quarters (January through 
September) of the following calendar year. For example, as illustrated 
below, for the FY 2015 payment determination, the quarters previously 
finalized for inclusion in validation are the fourth quarter of CY 2012 
through the third quarter of CY 2013. The first figure below shows the 
timeline and steps associated with the Hospital IQR Program and the 
subsequent steps in annual validation as previously finalized and as 
proposed.

[[Page 50823]]

    Section 1886(o)(1)(C)(ii)(I) of the Act precludes a hospital from 
participating in the Hospital VBP Program for a fiscal year if the 
hospital is subject to the payment reduction under the Hospital IQR 
Program for that fiscal year. As illustrated in the figure, the process 
previously finalized (75 FR 50219), yields the determination of a 
hospital's Hospital IQR Program APU in August of every year. However, 
to support the hospital's payment determination under the Hospital VBP 
Program in a timely manner, the Hospital IQR APU determination must be 
made by July 1 of each year. Therefore, we proposed the changes 
discussed below.
    For the FY 2015 payment determination and subsequent years, we 
proposed to change this requirement to include in validation only the 
4th quarter of the calendar year that occurs 2 years before the payment 
determination and the first 2 calendar quarters (January through June) 
of the following calendar year. As illustrated below, for the FY 2015 
payment determination, the quarters proposed for inclusion in 
validation are the fourth quarter of CY 2012 through the second quarter 
of CY 2013; and for the FY 2016 payment determination, the quarters 
proposed for inclusion in validation are the fourth quarter of CY 2013 
through the second quarter of CY 2014.
    For the FY 2016 payment determination and subsequent years, we also 
proposed to change the validation requirement to include the 3rd and 
4th calendar quarters of the year that occurs 2 years before the 
payment determination is made and the 1st and 2nd quarters of the 
subsequent year for validation. As discussed above, this timeframe 
still allows an APU determination by July 1 each year. From an 
operational standpoint, gathering data for the entire year is 
preferable to gathering data for only three quarters. Also, we believe 
that all four quarters of data that are used for the Hospital IQR and 
VBP Programs should be checked for accuracy.
    However, as described further below, we will not have built the 
infrastructure needed to support the proposed HAI validation process by 
the 3rd quarter of CY 2013. Therefore, for the FY 2016 payment 
determination, we proposed to validate all measures except for HAIs 
starting with 3rd quarter of CY 2013, and to initiate validation of 
HAIs in the 4th quarter of CY 2013.

[[Page 50824]]

[GRAPHIC] [TIFF OMITTED] TR19AU13.018

    We invited public comment on this proposal.
    Comment: A commenter opposed this proposal because the commenter 
believed that decreased sample size would result in more hospitals 
failing to satisfy the validation requirement because of the narrow 
margin of error.
    Response: We thank the commenter for this feedback and wish to 
clarify the impact of a decreased sample size on a hospital's ability 
to satisfy the validation requirement. In the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53551), we fixed the confidence level at 90 percent. 
We use the upper bound of a two-tailed confidence interval. At any 
given sample size and population value for the hospital's score, the 
probability of failure is fixed at this confidence level. Because our 
confidence level is fixed, the probability of a hospital failing also 
does not change. However, decreasing the sample size would decrease our 
detection rates for failing hospitals by increasing the probability 
that a hospital would not fail (that is, its confidence interval will 
include a score of 75 percent), when in fact the population (true) 
score for the hospital was less than 75 percent. We believe that most 
of our hospitals have very high reliability. For example, for the FY 
2013 payment determination, half of all hospitals had a score of 95 
percent or better. Therefore, we believe that cutting sample size for a 
single year in order to make the necessary determinations in required 
timeframes will not negatively impact hospitals or the program.
    Comment: Several commenters supported CMS' proposals to change the

[[Page 50825]]

timing of the quarters of measure data it validates, as well as the 
number of quarters included in order to make all payment determinations 
by July 1 of each year.
    Response: We thank these commenters for their support.
    After consideration of the public comments we received, we are 
finalizing this policy as proposed.
b. Selection of Measures and Sampling of Charts to be Included in 
Validation
    (1) Clinical Process of Care Measures
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53540 through 
53550), for the FY 2015 payment determination and subsequent years, we 
finalized separate processes for selecting and scoring for validation 
of 21 chart-abstracted clinical process of care measures and three HAI 
measures. The measures finalized for validation for clinical processes 
of care were included in 6 measure sets: acute myocardial infarction 
(AMI), heart failure (HF), pneumonia (PN), surgical care improvement 
project (SCIP), emergency department (ED) and immunization (IMM) (77 FR 
53541 through 53542).
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27703), for the 
purposes of the FY 2016 payment determination and subsequent years, we 
proposed to retain for validation 12 of the 21 chart-abstracted 
clinical process of care measures and to suspend validation for the 
remaining 9 chart-abstracted clinical process of care measures. With 
respect to seven of the nine measures, we did not propose to include 
them in the FY 2016 measure set.
    However, we proposed to suspend validation of ED-1 and ED-2, 
despite their proposed inclusion in the FY 2016 measure set, because we 
do not operationally have the ability to validate electronically-
specified versions of these quality measures. We believe that 
continuing to validate the measures only when they are reported via 
chart-abstraction could create inequity in the validation process that 
favors hospitals opting to report the measures electronically. 
Therefore, we proposed to delete the ED measure set from the validation 
process. We invited public comment on these proposals.
    Comment: Several commenters emphasized the importance of validating 
the ED measure set. One commenter stated that all Hospital IQR measures 
should be validated for as long as they are publicly reported on 
Hospital Compare. One commenter disagreed with CMS' proposal that the 
ED measures should not be validated because CMS lacks validation 
methods for Hospital IQR measures that are reported as electronically-
specified. This commenter argued that ED measures derived from 
electronic specifications are as valid as ED measures derived via 
chart-abstracted methods, and that dropping the ED measures from 
validation would ``devalue'' these measures which are important 
indicators of quality and efficiency in EDs. One commenter emphasized 
the importance of developing validation methodologies for all 
electronically-specified quality measures in the Hospital IQR Program, 
but agreed with the logic for removing the measure set from the chart-
abstracted validation process.
    Response: We recognize the importance of validating ED-1 and ED-2, 
and anticipate that their removal from validation will be temporary 
until we select an appropriate methodology for validating 
electronically reported measures. We discuss our efforts to develop a 
validation strategy in section IX.A.9.d. of the preamble of this final 
rule.
    Comment: Several comments supported the proposal to validate the 
clinical process of care measures for AMI, HF, PN, SCIP and IMM in the 
Hospital IQR Program. Some commenters expressed their understanding 
that the measures proposed to be included in Hospital IQR Program 
validation are measures which are retained in the program.
    Response: We thank these commenters for their support. In addition, 
in the FY 2014 IPPS/LTCH PPS proposed rule, we inadvertently mislabeled 
the tag for the IMM-2 measure in the Table on 78 FR 27703 as 
``Immunization for Pneumonia,'' instead of ``Immunization for 
Influenza.'' We are clarifying that we are finalizing a requirement to 
validate IMM-2, which we clarify is ``Immunization for Influenza.'' We 
also clarify that we will not validate ``IMM-1 Immunization for 
Pneumonia,'' beginning with the FY 2016 Hospital IQR Program because, 
as explained in section IX.A.2.c.(3) of the preamble to this final rule 
above, we have decided to suspend the measure.
    After consideration of the public comments we received, we are 
finalizing as proposed the removal of 9 measures from validation 
including the 7 that have been suspended or removed from the Hospital 
IQR Program and two ED measures.
    Set out below are the 12 clinical process of care measures we are 
finalizing for validation for the FY 2016 payment determination and 
subsequent years. Please note that while the table only reflects the 
information for the FY 2016 payment determination, these measures are 
finalized for validation in subsequent years as well.

 Hospital IQR Program Chart-Abstracted Clinical Process of Care Measures
     Finalized for Validation for the FY 2016 Payment Determination
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Measure:
    AMI-7a Fibrinolytic (thrombolytic) agent received within 30 minutes
     of hospital arrival.
    AMI-8a Timing of receipt of primary percutaneous coronary
     intervention.
    HF-2 Evaluation of left ventricular systolic function.
    PN-6 Appropriate initial antibiotic selection.
    SCIP INF-1 Prophylactic 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-9: Postoperative urinary catheter removal on postoperative
     day 1 or 2 with day of surgery being day zero.
    SCIP Cardiovascular-2: Surgery Patients on a Beta Blocker prior to
     arrival who received a Beta Blocker during the perioperative
     period.
    SCIP-VTE-2: Surgery patients who received appropriate VTE
     prophylaxis within 24 hours pre/post surgery.
------------------------------------------------------------------------
    IMM-2 Immunization for influenza
------------------------------------------------------------------------

    The process for sampling of clinical process of care cases 
previously finalized for the FY 2015 payment determination and 
subsequent years in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53540 
through 53541) is as

[[Page 50826]]

follows. A sample of 15 records per quarter is to be drawn for 
validation of the chart-abstracted clinical process of care measures 
(77 FR 53540 through 53541). As finalized in the FY 2012 IPPS/LTCH PPS 
final rule for the FY 2014 payment determination and subsequent years, 
the sample is to include 3 records each sampled from among the AMI, HF, 
PN, and SCIP measure sets, and 3 records to validate for both the ED 
and IMM measure sets from among ``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 
(76 FR 51648).'' As finalized in the FY 2012 IPPS/LTCH PPS final rule, 
the records sampled for AMI, HF, PN, and SCIP will also be validated 
for ED/IMM (76 FR 51648); but as finalized in the FY 2013 IPPS/LTCH PPS 
final rule, these cases will not be validated from among charts sampled 
for HAI validation (77 FR 53540 through 53541).
    We proposed to modify this process for the FY 2016 payment 
determination and subsequent years in two ways. First, we proposed to 
eliminate validation of the ED measure set for the reasons described 
immediately above. Second, we proposed to change the requirement to 
validate ED and IMM for all records included in the validation sample 
for AMI, HF, PN, and SCIP (77 FR 53540 through 53541). When previously 
finalized, this policy was intended for two purposes. When a patient 
chart sampled for validation for AMI, HF, PN, or SCIP also had data 
submitted to the warehouse for ED/IMM, we have been evaluating the 
accuracy of the data submitted to the warehouse for ED and IMM and 
including our assessment of accuracy in the validation score. In 
addition, when a patient chart sampled for validation for AMI, HF, PN, 
or SCIP did not include data submitted to the warehouse, our intention 
in abstracting data on ED and IMM was to assess the extent to which 
hospitals may have misdrawn the sample such that the ED and IMM data 
reported to the warehouse was inaccurate. Although it was our intention 
to use the data for both reasons, we have found it challenging to use 
the data to evaluate inaccurate sampling and have not yet done so.
    Therefore, for the FY 2016 payment determination and subsequent 
years, we proposed to validate IMM for between 3 and 15 charts per 
hospital per quarter. These include the 3 charts sampled for IMM from 
among 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, and as many of the 12 charts 
sampled for AMI, HF, PN, and SCIP populations as have IMM data 
submitted to the warehouse. We invited public comment on this proposal.
    Comment: One commenter supported this specific proposal, and no 
commenters explicitly opposed it.
    Response: We thank the commenter for the support.
    After consideration of the public comment we received, we are 
finalizing this policy as proposed.
(2) HAI Measures Included in the Current Validation Process
    The three HAIs specified for chart-abstracted validation in the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53542), for FY 2015 payment 
determination and subsequent years are CLABSI, CAUTI, and SSI for 
patients undergoing abdominal hysterectomies and colon procedures. HAIs 
are very rare events, which makes validating that they have been 
reported accurately more challenging than validating the clinical 
process of care measures. As previously finalized in the FY 2012 and FY 
2013 IPPS/LTCH PPS final rules (76 FR 51645 through 51648 and 77 FR 
53542 through 53548, respectively), for each HAI, we identify a set of 
patient episodes of care which have a much higher probability of 
containing a reportable HAI than others. Each quarter, we sample up to 
12 of these candidates, request patient charts from hospitals to 
determine whether or not an HAI occurred, and score these charts by 
determining whether events were appropriately reported to NHSN.
    Comment: Some commenters noted duplicated efforts between CMS and 
State health departments regarding HAI validation. Some of these 
commenters recommended that federal responsibility and funding for HAI 
validation should be redirected from CMS to the CDC and States. These 
commenters described the current and historical roles played by the CDC 
and State health departments in preventing HAIs, mandating State HAI 
reporting, providing training and education on NHSN definitions, 
developing protocols, reporting, and analyzing HAI data. Commenters 
also called attention to the CDC's CLABSI Validation Toolkit,\102\ a 
guidance document for States. Some of these same commenters argued that 
redirecting funds would result in a more efficient and effective 
process because States are ``better equipped'' to perform validation 
than CMS. One commenter acknowledged that having a uniform method for 
validating all Hospital IQR Program measures ``seems most efficient,'' 
but asked CMS to consider whether HAIs warrant special attention. 
Commenters also emphasized the need for more detailed educational 
feedback and stronger communication and coordination between CMS and 
other stakeholders, particularly the CDC's NHSN, State health 
departments and infection control practitioners.
---------------------------------------------------------------------------

    \102\ ``National Healthcare Safety Network (NHSN) Validation 
Guidance and Toolkit 2012. Validation for Central Line-Associated 
Bloodstream Infection (CLABSI) in ICUs,'' Centers for Disease 
Control and Prevention, Atlanta, GA, 2013, http://www.cdc.gov/nhsn/toolkit/validation-clabsi/index.html, last accessed July 3, 2013.
---------------------------------------------------------------------------

    Response: We have the responsibility to ensure the validity of HAI 
data reported to our Hospital IQR Program. Data from this program are 
used to provide the public and other stakeholders with information 
regarding the quality of care furnished by subsection (d) hospitals 
throughout the nation. We are also collecting HAI data for the Hospital 
VBP Program. Given the importance of ensuring that the data are 
accurate, we believe that our validation process must be consistent 
nationwide.
    Although we recognize the role that many States are taking to 
prevent HAIs, we do not intend to fund State efforts to conduct these 
activities. We believe that State efforts in this area are best viewed 
as complementary to our efforts to uniformly validate HAI data.
    We understand that CDC and State health departments prefer on-site 
validation methodologies. However, at a national level, on-site 
validation is impractical because of the resources required. We 
disagree that on-site validation is the only way to achieve valid 
quality measurement systems. As discussed further below in this 
section, we believe that removing ambiguities from NHSN's case 
definitions will be far more effective for achieving objective 
consistent reporting of HAI by all hospitals nationally than conducting 
validation onsite.
    We agree that hospitals need more detailed educational feedback. 
Because NHSN data are not integrated into CMS's QualityNet System, 
which hospitals use to submit clinical process of care data to the 
Hospital IQR Program, the feedback available to hospitals in the first 
year of HAI validation was less detailed than that available to 
hospitals for the clinical process of care measures. However, 
individual hospitals with questions were still able to request 
educational feedback. We have already addressed this limitation by 
storing more detailed information about abstractors' rationale for 
judging a particular record to have included or not included a 
reportable

[[Page 50827]]

HAI event beginning with validation of data for 4th quarter 2012 
discharges. We anticipate that hospitals should begin receiving this 
more detailed feedback shortly, and that this may address some of the 
commenters' concerns about hospitals' educational needs. It should also 
allow us to provide better aggregate information about common pitfalls 
in reporting HAIs.
    Regarding collaboration, CMS and CDC staff have worked closely for 
more than two years to develop standardized approaches for validation 
of NHSN-based Hospital IQR data. To the extent that collaboration with 
other interested parties aligns with Hospital IQR Program goals while 
reducing burden to subsection (d) hospitals, we encourage such efforts.
    Comment: Commenters believed State health department staff were 
better qualified to conduct validation than the CMS contractor because 
of ``greater content expertise.'' One commenter requested information 
on the knowledge and training of those individuals performing the HAI 
data validation. Another commenter emphasized the knowledge of NHSN 
protocols held by hospital infection control practitioners.
    Response: We selected the Clinical Data Abstraction Center (CDAC) 
contractor because it employs highly trained professionals with 
extensive quality measurement experience developing and using 
standardized objective protocols. All CDAC staff are highly experienced 
medical records abstractors who undergo rigorous training and testing. 
The CDAC has abstracted HAI data from medical records for HHS quality 
measurement programs for approximately 10 years. In addition, the CDAC 
also abstracts the HAI quality measure data used to evaluate the HHS 
Partnership for Patients campaign.
    The CDAC contractor is also familiar with NHSN protocols. CMS and 
CDAC interact at least monthly and usually weekly with CDC staff to 
request detailed technical assistance in all areas related to the 
understanding and use of the NHSN protocol such that they can develop 
and update standardized abstraction protocols for their staff. After 
protocols are developed and before the implementation of any new 
validation activity, CMS and CDC subject matter experts review all CDAC 
materials. CDC trains CDAC supervisors and CMS staff on all newly 
introduced and updated NHSN protocols. CDAC supervisors continuously 
monitor their staff and provide routine feedback when they detect 
abstractor errors regarding HAI protocols.
    Comment: One commenter asked for a summary of findings from CMS' 
prior validation of CLABSI reporting including lessons learned and the 
accuracy of the surveillance in the ICUs for CLABSI based on data 
submitted to CMS.
    Response: We generally release quarterly validation scores to the 
hospitals using a secure QualityNet report. We protect the 
confidentiality of validation reports to provide hospitals with 
feedback for their internal quality improvement efforts. We intend to 
provide a national summary report on our 2012 CLABSI validation within 
the next year.
    From the first year, we identified some important lessons learned. 
For example:
     CDAC identified a lack of a standardized timeframe in both 
CDAC and NHSN protocols for the presence of symptoms indicating 
infection onset prior to central line placement. As a result, this was 
a common reason why CDAC identified no infection when a hospital 
reported one. By the time we reviewed these results, CDC had already 
updated their protocols to reduce the subjectivity in their case 
definitions and increase standardized timeframes.\103\ CDAC is in the 
process of updating its validation protocols to align with these 
revised case definitions and will make them publicly available. CMS and 
CDC will continue to collaborate on additional standardization.
---------------------------------------------------------------------------

    \103\ ``Central Line-Associated Bloodstream Infection Event'' 
http://www.cdc.gov/nhsn/pdfs/pscmanual/4psc_clabscurrent.pdf, April 
1, 2013. Last accessed 7/7/2013.
---------------------------------------------------------------------------

     When hospitals failed to report an event that CDAC thought 
should have been reported, CDAC identified some cases in which there 
was partial documentation that a particular infection was secondary to 
another site (and therefore not a CLABSI), but for which all NHSN 
criteria for this designation were not met.
    Comment: One commenter agreed with CMS that identifying SSIs post-
discharge is important, but urged CMS to delay adoption of post-
discharge surveillance methods until the CDC is able to develop 
recommendations related to this specific issue. The commenter suggested 
that once the CDC is able to make these recommendations, the CMS 
Conditions of Participation (CoPs) for post-discharge surveillance 
could incorporate them.
    Response: In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53545), we 
raised the importance of identifying SSIs post-discharge for purposes 
of quality reporting. For this reason, we finalized a process to 
validate SSIs occurring post-discharge using claims data and medical 
records. Hospital CoPs are separate from the Hospital IQR Program, and 
we have not proposed any changes to CoPs. Rather, we described how we 
would validate SSIs occurring post-discharge. Moreover, in the FY 2014 
IPPS/LTCH PPS proposed rule, we proposed no changes to the general SSI 
approach. We intend to share with our Survey and Certification Group 
the commenter's recommendation that post-discharge surveillance be 
incorporated into hospital CoPs for future consideration.
    In order to identify candidate cases referenced above for CLABSI 
and CAUTI, we also require hospitals to submit supplemental information 
on certain patient episodes of care quarterly. In the FY 2012 and FY 
2013 IPPS/LTCH PPS final rules (76 FR 51645 through 51648 and 77 53542 
through 53548, respectively), we identified the supplemental 
information to be provided and the types of patient episodes of care 
for which this information is needed. We require hospitals to submit 
this supplemental information in two separate ``Validation Templates'' 
according to formats specified on QualityNet. We require separate 
CLABSI and CAUTI Validation Templates because different information is 
required to identify candidate CLABSIs and candidate CAUTIs. For a 
detailed discussion of these requirements, we refer readers to our Web 
site at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=1228760487021.
    As stated in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51646), 
for the FY 2012 payment determination and subsequent years, hospitals 
are required to report positive blood cultures for intensive care unit 
patients and are also required to ``self-identify intensive care unit 
patients with a central venous catheter (CVC) that are on this blood 
culture list.'' In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27703 
through 27704), we proposed for the FY 2016 payment determination and 
subsequent years to remove the requirement to note a CVC and replace it 
with a requirement to note a ``central line.'' In other words, we 
proposed to require that hospitals note on the CLABSI Validation 
Template whether patients had a ``central line'' present at any time 
during their hospital stay. We made this proposal to better align with 
current NHSN definitions.
    The FY 2012 IPPS/LTCH PPS final rule (76 FR 51646) also specified 
which organisms should be reported on the

[[Page 50828]]

CLABSI Validation Template, which are also regarded as common 
commensals (often referred to as skin contaminants), and where 
hospitals could find an updated list of these commensals. This list is 
updated annually. When we review the CLABSI Validation Templates for 
the FY 2016 payment determination and subsequent years, we proposed to 
apply the most up-to-date list available at the time of review. The 
current list may be found at: http://www.cdc.gov/nhsn/XLS/master-organism-Com-Commensals-Lists.xlsx.
    We also proposed for the FY 2016 payment determination and 
subsequent years that hospitals must exclude from CAUTI Validation 
Templates urine cultures with more than 2 organisms, even if they have 
greater than or equal to 1,000 colony-forming units (CFUs)/ml. We made 
this proposal because, when we finalized the requirement to include on 
the CAUTI Validation Templates all urine cultures with greater than or 
equal to 1,000 CFUs/ml (77 FR 53542 through 53545), our intention was 
to identify urine cultures that conform to NHSN definitions for CAUTI. 
Although these definitions vary, all require that there be no more than 
2 organisms identified in the result (because multiple organisms often 
indicate contamination).\104\ We invited public comment on this 
proposal.
---------------------------------------------------------------------------

    \104\ ``Catheter-Associated Urinary Tract Infection (CAUTI) 
Event'' http://www.cdc.gov/nhsn/PDFs/pscManual/7pscCAUTIcurrent.pdf, 
last accessed February 19, 2013.
---------------------------------------------------------------------------

    Comment: Commenters supported our proposals to align CMS' 
validation practice with CDC case definitions. Some commenters 
supported CMS' HAI validation of CLABSI, CAUTI, and SSI generally 
without mentioning these specific proposals.
    Response: We thank these commenters for their support.
    After consideration of the public comments we received, we are 
finalizing these policies as proposed.
    We proposed for the FY 2016 payment determination and subsequent 
years to notify hospitals of future changes to the definition of 
candidate HAI events through HAI Validation guidance documents to be 
posted annually on QualityNet. As illustrated by several proposals 
immediately above identifying places where CMS and NHSN are slightly 
misaligned, we believe that these very detailed specifications may more 
appropriately be addressed through sub-regulatory guidance than through 
the rulemaking process. Therefore, we made this proposal to simplify 
future proposed rules regarding validation, to ensure that we are able 
to remain current with NHSN guidance and protocols, and to ensure that 
hospitals are made aware of these updates. We invited public comment on 
this proposal.
    Comment: A few commenters supported this proposal. One commenter 
expressed the need for closer collaboration with the CDC, infection 
control practitioners, and the Association of Professionals in 
Infection Control (APIC) when engaging in this subregulatory process.
    Response: We will continue to consult with CDC as we have 
historically in nearly every aspect of the Hospital IQR Program's HAI 
validation plan. We will consider other collaborations as described 
above in this section.
    Comment: One commenter stated that if a subregulatory process is 
used, hospitals should receive several notices pushed directly to 
hospital leadership describing the guidance. CMS should not just rely 
on line hospital staff to interpret the importance of the validation 
process and ensure its accuracy. Hospital leadership should be included 
in any changes to validation for any measure that significantly affects 
a hospital's overall quality score.
    Response: The Hospital IQR Program has a routine process for 
education and outreach to notify hospital leadership and line staff of 
important updates, such as when hospitals have been selected to 
participate in validation activities. As part of this process, QIOs are 
required to maintain a list of hospital contacts, including leadership 
contacts, which the IQR program then uses for these updates. QIOs will 
periodically contact hospitals to verify hospital staff contacts and to 
keep them current. However, it is important for hospital staff to 
notify their QIO whenever they have staff changes, especially those 
that are in leadership roles so those contacts can be kept current. As 
we already do for other key Hospital IQR Program requirements, we 
intend to use this list to inform key contacts when critical changes to 
NHSN validation requirements are posted on QualityNet.
    After consideration of the public comments we received, we are 
finalizing this policy as proposed.
    For the FY 2016 payment determination and subsequent years, we also 
proposed to exclude from HAI validation all patient episodes of care 
with lengths of stay of more than 120 days. Patient episodes of care 
involving lengths of stay over 120 days are very rare, accounting for 
much less than one percent of the records submitted for Q1 2012 CLABSI 
validation. Because medical records for patients with very long lengths 
of stay may be tens of thousands of pages, the burden and costs of 
validation to hospitals and CMS are disproportionate to the information 
gained from their validation. In addition, this proposed change aligns 
the HAI episode of care maximum length of stay with the Hospital IQR 
Program's clinical process of care measures episode of care maximum 
length of stay of 120 days as detailed in the Specifications Manual for 
the National Hospital Inpatient Quality Measures (http://
www.qualitynet.org). We invited public comment on this proposal.
    Comment: Some commenters supported this proposal. Commenters 
expressed appreciation that CMS proposed policies to reduce validation 
burden.
    Response: We thank the commenters for the support.
    After considering public comments we received, we are finalizing 
this policy as proposed.
    For the FY 2016 payment determination and subsequent years, we also 
proposed to require each hospital to submit data without modifications 
to the format within the Validation Template posted on QualityNet at 
the beginning of each validation cycle. We believe this requirement is 
needed based on our experience with the CLABSI Validation Template for 
the FY 2013 payment determination. We have observed that many hospitals 
enter the required data but alter the format of the downloadable 
Validation Template. For example, hospitals may change the length or 
format of a column or change its column name. Because our contractors 
must process hundreds of these templates in a matter of weeks, even 
minor alterations to formats of the data within the Template create 
significant operational delays. We will continue to give hospitals 
feedback on their Validation Templates prior to the submission 
deadline. To assist hospitals in meeting this formatting requirement, 
we will include formatting in future feedback. We invited public 
comment on this proposal.
    Comment: A commenter recommended that CMS test this process before 
implementing it.
    Response: We understand that the requirements to produce Validation 
Templates are complex. However, these complex requirements were 
finalized for CLABSI and CAUTI in the FY 2012 IPPS/LTCH PPS (76 FR 
51646-51648) and FY 2013 IPPS/LTCH PPS final rules (77 FR 53542 through 
53544), and hospitals have already successfully submitted them for 
CLABSI for 5 quarters and for CAUTI for 1 quarter.

[[Page 50829]]

    The additional requirements that we are finalizing in this final 
rule are technical in nature, intended to reduce the operational delays 
that are caused when hospitals alter the format of the Templates. We 
are finalizing that this requirement be effective with Validation 
Templates to be submitted beginning on May 1, 2014, which will give 
hospitals 9 months to make any system changes necessary to comply. We 
will also provide hospitals with education and feedback to assist them 
in meeting the requirement.
    Comment: A commenter supported this proposal.
    Response: We appreciate this commenter's support.
    After considering the public comments we received, we are 
finalizing this policy as proposed.
(3) HAI Measures to be Added to the Validation Process
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27704 through 
27706), for the FY 2016 payment determination and subsequent years, we 
proposed to validate two new HAI measures: methicillin-resistant 
Staphylococcus aureus (MRSA) bacteremia Laboratory-identified (LabID) 
events and Clostridium difficile (CDI) LabID events. MRSA and CDI were 
finalized for inclusion in the Hospital IQR Program in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51629 through 51631) starting with the 
FY 2015 payment determination. We proposed to validate MRSA and CDI 
consistent with requirements under section 1886(b)(3)(B)(viii)(XI) of 
the Act which requires us to establish a process to validate measures 
included in the Hospital IQR Program as appropriate. We invited public 
comment on this proposal.
    Comment: A commenter stated that QualityNet does not function 
reliably and questioned whether the system can handle the addition of 
validation-related requirements.
    Response: The commenter appears to be concerned that as we continue 
to add validation-related requirements that use QualityNet, these 
performance issues will negatively impact validation. We agree that 
systems issues have created challenges for hospitals as well as for CMS 
and its other contractors. We are taking the following steps to ensure 
reliable access to QualityNet in the future. We are pursuing the use of 
``Axway'', a secure file transfer product. When operational, hospitals 
will be able to transfer files through either a Web-based portal or 
direct from a client using secure file transfer protocol (FTP). We are 
currently testing Axway and intend to make it available to hospitals in 
the Hospital IQR Program within the next 12 to 18 months.
    In the interim, we have archived large amounts of older data to 
off-site storage facilities, which greatly improve QualityNet 
performance. This will allow us to continue to use QualityNet until 
Axway replaces the existing system.
    Comment: Several commenters supported this proposal. One commenter 
mentioned that it was important to validate these infections.
    Response: We agree that it is important to validate MRSA and CDI, 
which is why we are finalizing a policy to do so.
    After consideration of the public comments we received, we are 
finalizing this policy as proposed.
    For MRSA and CDI validation, we proposed a process similar to that 
for CLABSI and CAUTI for the FY 2016 payment determination and 
subsequent years. Specifically, we proposed to require sampled 
hospitals to provide to CMS or its contractor one list of final blood 
cultures positive for MRSA and a second list of all final stool 
specimens toxin positive for CDI. We note that although CMS only 
publicly reports hospital-onset infections, CMS requires hospitals to 
report both hospital and community-onset cases. We require hospitals to 
report community-onset cases because NHSN employs this information in 
risk-adjustment. Validation of MRSA and CDI requires confirmation that 
both hospital and community-onset cases are reported correctly and 
completely. Therefore, for the FY 2016 payment determination and 
subsequent years, we proposed that both types of cases be included on 
the MRSA and CDI Validation Templates.
    For these payment determinations, we proposed to collect the 
following information on the MRSA and CDI Validation Templates needed 
to identify each candidate event: (1) Laboratory accession number, 
collection date, and location; (2) necessary information to identify 
the patient (that is, patient identifier, Medicare Beneficiary number 
also known as the HIC number, sex, and date of birth); (3) the 
patient's admission and discharge dates; and (4) necessary information 
to identify the hospital (NHSN Facility ID, Provider ID/CCN, Hospital 
Name and State, Contact Information for the Person Completing the 
Template).
    Draft versions of the proposed MRSA and CDI Validation Templates 
were posted on the QualityNet Web site at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=1228760487021 during the public comment period. We proposed this approach for 
MRSA and CDI validation, because we believe that this is the best way 
for us to systematically identify candidates that are likely to yield a 
high proportion of cases that should have appropriately been reported 
to NHSN. Consistent with the process we have been using for the CLABSI 
and CAUTI Validation Templates, we proposed that quarterly submission 
deadlines correspond to those for population and sampling data as 
defined in section IX.A.9.e. of the preamble of the proposed rule. We 
invited public comment on this proposal.
    Comment: Commenters indicated that the time of specimen collection 
was unnecessary even though it was included on the draft MRSA and CDI 
Validation Templates.
    Response: We agree that the time of collection is not a necessary 
field. For this reason, we did not propose to require it on the MRSA 
and CDI Validation Templates. We indicated the required fields on these 
Templates with an asterisk, with others being optional. Time was 
included as an optional field. The optional information may assist our 
CDAC abstractors in locating the result in the medical record. In 
addition, because we have proposed that hospitals should only send the 
part of the record that documents the specimens collected, the optional 
information might be of assistance to hospital medical records 
personnel who may also use it to identify the right parts of the 
medical records to submit for validation. This may be especially useful 
if the staff who complete the Validation Templates and those who submit 
medical records for validation work in different hospital departments. 
Hospitals may choose whether to provide this information.
    Comment: Commenters suggested that establishing whether there were 
any hospital discharges for a particular patient in the last 28 days 
should be part of validation. This information may affect how 
community-onset cases are classified.
    Response: We agree that the information about discharges in the 
last 28 days would ideally be used for validation. The information 
contributes to how CDC risk-adjusts the MRSA and CDI statistics 
reported on Hospital Compare. However, in our first year of validation, 
we sought to validate only reporting of the candidate event and the 
date the event occurred, as these two pieces of information are most 
relevant to assessing completeness of reporting hospital-onset cases 
and accurately distinguishing hospital-onset from community-onset cases 
reported to

[[Page 50830]]

NHSN. We believe that this validation effort is sufficiently ambitious 
at this time. Because we are concerned about the hospital burden 
related to validation, we will not yet be distinguishing among types of 
community-onset cases. We will consider refinements to our validation 
strategy in future rulemaking cycles.
    Comment: One commenter stated that ``CMS is now proposing to 
require sampled validation hospitals to provide additional lists (one 
list of final blood cultures positive for MRSA and a second list of all 
final stool specimens toxin positive for CDI).'' The commenter viewed 
this proposal as ``prohibitively burdensome,'' and believes that it 
should be delayed until ``it can be automated through EHRs.''
    Response: Although we agree that the new Validation Templates for 
MRSA and CDI will create some burden for hospitals that are selected 
for validation, we do not believe that this burden is prohibitive or 
outweighs our goal to properly validate these measures. Moreover, we 
carefully considered ways to reduce the burden associated with this 
requirement, and proposed that no hospital would be required to 
complete more than 2 Validation Templates per quarter if selected for 
validation in given year. Accordingly, we believe that this requirement 
will not add a new burden to hospitals, as hospitals will either be 
required to submit (1) MRSA and CDI Validation Templates or (2) CLABSI 
and CAUTI Validation Templates, but not both sets.
    Comment: Some commenters supported the use of Validation Templates. 
One commenter noted support because hospitals are already familiar with 
it.
    Response: We thank the commenters for their support.
    After consideration of the public comments we received, we are 
finalizing this policy as proposed.
    We recognize that the proposal to add two new HAI Validation 
Templates has the potential to increase burden to individual hospitals 
selected for validation. As finalized in the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53551 through 53553), for the FY 2015 payment 
determination and subsequent years, the annual validation sample 
includes 400 randomly selected hospitals and up to 200 hospitals 
sampled based on targeting criteria. To add these new Templates without 
increasing burden for the FY 2016 payment determination and subsequent 
years, we proposed to randomly assign half of hospitals to submit 
templates for CLABSI and CAUTI validation and half of hospitals to 
submit templates for MRSA and CDI validation. We believe this proposal 
will limit hospital burden to that finalized in the FY 2013 IPPS/LTCH 
PPS final rule, because no hospital would be required to submit more 
than two templates per quarter.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53547 through 
53548), we established a sample size of 12 records for HAI validation 
per quarter for the FY 2015 payment determination and subsequent years. 
Each quarterly sample is to be drawn from a list of patient episodes of 
care for all three types of candidate HAIs (CLABSI, CAUTI, and SSI) 
combined in one non-stratified sampling frame. For the FY 2016 payment 
determination and subsequent years, we proposed to target separate 
sampling strata for each type of HAI. We made this proposal because we 
believe that having separate sampling targets for each infection will 
better accommodate the very different incidence of different types of 
HAI events, particularly for hospitals which are to be validated for 
SSI, MRSA, and CDI. This proposal also supports the objective to 
evaluate how well each HAI is reported to NHSN when considered across 
all hospitals combined.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             Number of
                                                                                                             Number of       records/        Number of
            APU determination                             HAI                    Number of hospitals         quarters        quarter/       records per
                                                                                                                             hospital        hospital
--------------------------------------------------------------------------------------------------------------------------------------------------------
FY 2015 (previously finalized)...........  CLABSI, CAUTI, SSI combined.....  Up to 600..................               4           12                 48
--------------------------------------------------------------------------------------------------------------------------------------------------------
In the preamble to the proposed rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
FY 2015..................................  CLABSI, CAUTI, SSI combined.....  Up to 600..................               3           12                 36
FY 2016..................................  CLABSI..........................  Up to 300..................               3            5                 15
FY 2016..................................  CAUTI...........................  Up to 300..................               3            5                 15
FY 2016..................................  MRSA............................  Up to 300..................               3            5                 15
FY 2016..................................  CDI.............................  Up to 300..................               3            5                 15
FY 2016..................................  SSI.............................  Up to 600..................               3            2                  6
FY 2017 and subsequent years.............  CLABSI..........................  Up to 300..................               4          * 3.75              15
FY 2017 and subsequent years.............  CAUTI...........................  Up to 300..................               4          * 3.75              15
FY 2017 and subsequent years.............  MRSA............................  Up to 300..................               4          * 3.75              15
FY 2017 and subsequent years.............  CDI.............................  Up to 300..................               4          * 3.75              15
FY 2017 and subsequent years.............  SSI.............................  Up to 600..................               4          * 1.5                6
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Within each hospital, quarterly targets are 3, 3, and 1 respectively for CLABSI, CAUTI, and SSI and 3, 3, and 1 respectively for MRSA, CDI, and SSI.
  We will randomly allocate 2 additional records per hospital each quarter to meet the fractional case targets on average.

    The sample sizes for each HAI proposed for the FY 2016 payment 
determination are shown in the table above. For hospitals submitting 
CLABSI and CAUTI templates, the infection-specific sample sizes per 
hospital per quarter proposed are: 2 for SSI, 5 for CLABSI, and 5 for 
CAUTI (12 per quarter). For hospitals submitting MRSA and CDI 
Validation Templates, the infection-specific sample sizes per hospital 
per quarter proposed are: 2 for SSI, 5 for MRSA, and 5 for CDI. For 
each hospital, in each quarter, these cases would be drawn randomly 
from each individual Validation Template (or from claims for SSI) from 
among episodes of care containing at least one candidate event. Across 
all hospitals and quarters combined, we are assuming that approximately 
10 percent of patients with candidate CLABSI events had a CLABSI. This 
will yield approximately 450 hospital discharges with actual events. 
Assuming a design effect resulting from clustered data collection of no 
more than 2, this will allow us to estimate accurate reporting (+/- 5 
percentage points with 90 percent confidence) of CLABSI if it occurs 
approximately 75 percent of the time. We developed sample size 
requirements based on a 75 percent score to align with CMS requirements 
for a 75 percent score to pass validation as specified in 42 CFR Sec.  
412.140(d)(2), and using a two-

[[Page 50831]]

tailed 90 percent confidence interval as finalized in the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53551). Based on these statistics, we 
believe this is the smallest sample size needed to meet the objective 
of accurately evaluating how well hospitals report CLABSI data to NHSN.
    Because we have less data on which to base sample size calculations 
for CAUTI, MRSA bacteremia, and CDI than we have for CLABSI, we 
proposed similar sample size targets for these 4 HAIs. By proposing 
similar sample size requirements across these 4 HAIs for the FY 2016 
payment determination and subsequent years, we assure that hospitals 
will be required to submit the same number of records regardless of 
which set of Validation Templates they are assigned to submit.
    For SSI, the proposed sample size assumes that most hospitals will 
not have more than 2 candidate SSIs per quarter. By sampling fewer SSI 
cases over twice as many hospitals, we ensure that the sample size for 
SSI validation is also adequate. Because SSI cases may be sampled 
without the added submission requirement of a Validation Template, we 
foresee no difficulty in requiring all hospitals sampled for validation 
to provide information for SSI. We invited public comment on these 
proposals.
    Comment: A number of commenters supported the proposal to reduce 
the number of records submitted per hospital, and minimizing the number 
of Validation Templates required for each hospital. Commenters 
expressed appreciation for the efforts to reduce burden and encouraged 
us to consider additional ways in which we may reduce burden associated 
with HAI validation, and to work more directly with stakeholders 
including infection preventionists.
    Response: We thank the commenters for their support, and 
acknowledge the need to continue to look for ways to reduce burden 
associated with HAI validation. We have discussed the issue of outreach 
above in section IX.A.10.b.(2) of the preamble to this final rule.
    Comment: One commenter believed that the proposal to split the 
validation sample would only save time/cost for CMS, but not for 
hospitals. The commenter opposed it because it would result in having 
two different standards for validation.
    Response: The proposal is intended to decrease burden for 
hospitals. Instead of having to complete four Validation Templates, 
each hospital only has to complete two. We agree that it is possible 
that some hospitals might find it slightly easier to complete 
requirements for one set of Validation Template requirements or the 
other. We have no reason to believe that the process will be 
inequitable for different hospitals. However, we will monitor this 
concern, and consider changes in the future if we determine that one 
group of hospitals appears more likely to pass validation than the 
other.
    After considering the comments received, we are finalizing the 
policies describing the number of hospitals and number of cases to be 
sampled for each HAI as proposed.
    Within each hospital for each type of HAI event each quarter, a 
random sample would be drawn from among patient episodes of care with 
at least one candidate event identified from the Validation Template 
(or claims data for SSI) to meet the targeted sample size. If there are 
not enough cases in any stratum, we proposed for the FY 2016 payment 
determination and subsequent years to reallocate those cases to any 
stratum or strata that have more than enough cases to meet sample size 
targets. We proposed to reallocate cases because different hospitals 
may have different relative frequencies of each HAI. The proposed 
reallocation process will give CMS the flexibility to meet sample size 
quotas in the event that one hospital has more than enough candidate 
MRSA events but not enough candidate CDI events and the next hospital 
has more than enough candidate CDI events and not enough candidate MRSA 
events. We invited public comment on this proposal.
    We received no specific comments on this proposal, and are 
finalizing this policy as proposed.
    For the FY 2017 payment determination and subsequent years, we 
proposed to reduce the quarterly HAI sample from 12 to 9. Please see 
the chart above. This is to reflect the fact that we proposed to 
collect data for 4 quarters instead of for 3 quarters starting with the 
FY 2017 payment determination (section IX.A.10.a. of the preamble of 
the proposed rule). When we distribute over 4 quarters, the 15 annual 
patient charts each for CLABSI, CAUTI, MRSA, and CDI and 6 annual 
patient charts each for SSI, the process produces fractions. We 
proposed to request 9 patient charts by establishing quarterly targets 
of 3, 3, and 1 respectively for CLABSI, CAUTI, and SSI and 3, 3, and 1 
respectively for MRSA, CDI, and SSI, and then randomly allocating the 
remaining 2 records to meet the hospital target of 9 HAIs for the 
quarter. We invited public comment on these proposals.
    Comment: A few commenters expressed views related to the small 
proposed sample size. One commenter believed that the proposed HAI 
validation strategy is ``statistically underpowered to detect 
substandard performance.'' We interpret this statement to mean that the 
sample size is to too small to meet the goal of detecting inaccurate 
reporting of HAIs within each individual hospital.
    Response: Although we agree with the commenter that our sample 
sizes are small our goal is to validate the accuracy of Hospital IQR 
data as a whole, with as little burden to hospitals as is possible to 
achieve that goal. Therefore, when considering sample size for 
individual hospitals, we did not evaluate the minimum sample size 
needed to assess accuracy for HAIs alone. Because charts sampled for 
the clinical process of care measures are scored for multiple measures, 
the 96 charts per hospital per year proposed yields 180 separate 
measures. We believe this is adequate to estimate the overall 
reliability of the data with satisfactory accuracy and confidence. The 
combined approach also accomplishes the task of validation with much 
lower burden and cost than would be needed to meet the requirement 
suggested by the commenter.
    Our proposal acknowledged that for each individual hospital, 
although we can detect overall reliability, it may be difficult to 
detect errors for reportable HAIs alone. Therefore, we also are 
finalizing below in section IX.A.10.d. of the preamble to this final 
rule our proposal to target any hospital which failed to report to NHSN 
at least half of actual HAI events detected as determined during the 
previous year's validation effort.
    To improve our program, we intend to analyze all the data across 
all hospitals in the validation sample to examine reporting accuracy 
and factors that influence it for individual HAIs. This will allow us 
to provide feedback to all Hospital IQR participating hospitals 
(whether or not included in the validation sample) about how to improve 
their reporting process and provide an overall measure of accuracy for 
the program.
    Comment: One commenter argued that CMS' validation design differs 
markedly from international standards. The commenter provided an 
article detailing a recommended approach to ensuring adequate power 
based on acceptance sampling methods

[[Page 50832]]

developed for quality control in manufacturing.\105\
---------------------------------------------------------------------------

    \105\ Fortuna JA, Brenneman WA, Storli S, Birnbaum D, Brown KL. 
The current state of validating the accuracy of clinical data 
reporting: lessons to be learned from quality and process 
improvement scientists. Infect Control Hosp Epidemiol. 
2013;34(6):611-4.
---------------------------------------------------------------------------

    Response: We found this article to be interesting and will consider 
the extent to which it might be useful as we further develop our 
validation policies.
    After consideration of the public comments we received, we are 
finalizing these policies as proposed.
c. Procedures for Scoring Records for Validation
    We did not propose any changes to the procedures for scoring 
records for validation for the clinical process of care measures for 
the FY 2016 payment determination or subsequent years. This process was 
described in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50226). In the 
FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27706 through 27707), 
however, we proposed changes to the procedures for scoring records for 
validation of HAI measures.
(1) Scoring of CLABSI, CAUTI, and SSI
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53550 through 
53551), for the FY 2015 payment determination and subsequent years, we 
finalized a scoring approach considering all three HAI measures 
simultaneously. In general, if hospitals have matched data on all three 
HAIs, they would receive a score of 1, and if they have a mismatch on 
one or more HAIs, they would receive a score of 0. For example, if a 
patient had a CLABSI during an episode of care and no CAUTI or SSI and 
the CLABSI was properly reported, the hospital received a score of 1 
for that patient. We developed this approach primarily out of an 
interest in maximizing the information available to us about CLABSI, 
CAUTI, and SSI using the same set of records reviewed for all three 
infections at once, and because we recognized that an individual 
infection event could not simultaneously be attributed to more than one 
cause, that is, a particular infection was either a primary CLABSI, 
CAUTI, or SSI, but never all three at once. In addition, the records 
were sampled from a single unduplicated frame. With a single sampling 
frame for all three events, it was not always possible to determine in 
advance which event to evaluate for a particular case. Moreover, it is 
apparent that an event that was sampled because of a MRSA bacteremia 
result does not need to be evaluated for CDI and vice-versa. For both 
of these reasons, we proposed for the FY 2016 payment determination and 
subsequent years, to evaluate and score each case only for the 
infection for which it was sampled as having candidate events. For 
example, episodes of care for patients on the CLABSI Validation 
Template will be evaluated and scored only for CLABSI. We invited 
public comment on this proposal.
    Comment: Two commenters supported these changes. One of these 
commenters supported the proposed individualized process for validating 
each of the HAIs--CLABSI (ICUs), CAUTI (ICUs), and SSI (colon and 
hysterectomy). For SSIs, the commenter agreed that utilizing two charts 
will be necessary to provide a thorough review of the NHSN criteria. 
The other commenter described the change in scoring as ``appropriate.''
    Response: We appreciate the commenters' support.
    After considering the public comments we received, we are 
finalizing the policy to score each HAI individually as proposed.
    We also proposed for the FY 2016 payment determination and 
subsequent years to score charts selected for SSI, CLABSI, and CAUTI in 
the manner that scoring was finalized for CLABSI in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51647). If the CDAC contractor reviews a 
medical record and determines that patient had no CLABSI events and the 
hospital reported no CLABSI to NHSN, the case will receive a score of 
1. If the CDAC contractor determines that the patient had a CLABSI and 
this was reported to NHSN, the case will also receive a score of 1. If 
a mismatch occurs and the CDAC contractor determined that the patient 
had no CLABSI when one is reported, or that the patient had a CLABSI 
that was not reported, the hospital will receive a score of 0. If the 
CMS quarterly validation process identified that 3 out of 4 total 
sampled records accurately reported the presence of CLABSI or did not 
report a CLABSI when none was present, then the hospitals' quarterly 
CLABSI validation score would be \3/4\ or 75 percent. If two or more 
infections are detected for a patient episode of care, the case may 
receive separate scores for each event. For example, if one patient 
episode of care included two CLABSIs, both of which were reported 
correctly, and reported correctly for 2 of the remaining three records 
evaluated for CLABSI, then the validation score for CLABSI that quarter 
would be \4/5\ or 80 percent.
    Comment: One commenter supported this specific proposal.
    Response: We thank the commenter for this support.
    After consideration of the public comments we received, we are 
finalizing these policies as proposed.
(2) Scoring of MRSA and CDI
    MRSA bacteremia and CDI, have very different reporting requirements 
from other HAIs included in the Hospital IQR Program. The major 
difference between the case definitions for MRSA and CDI relative to 
other HAIs being reported as part of IQR is that MRSA and CDI are 
laboratory-identified events that do not require extensive clinical 
judgment on the part of the reporting hospital. If the laboratory 
events and date of hospital admission are reported accurately, CDC 
makes the determination as to whether the event was community or 
hospital onset.
    Our proposal entails evaluating each patient episode of care on a 
minimum of two components, with a score of 1 for each matched component 
and 0 for each mismatched component. We proposed to evaluate each 
laboratory identified event on the following components: (1) Whether it 
was reported to NHSN when it should have been reported; and (2) whether 
the correct dates of admission and event were reported such that NHSN 
correctly classified the event as hospital or community onset. Each of 
these components contributes to an assessment of the accuracy and 
completeness of the public reporting result that appears on Hospital 
Compare, and each is important.
    Because each candidate event will be scored on two different 
components, scores will be reported in multiples of two. For example, 
if a sampled patient episode of care has only one candidate event, and 
1 out of 2 elements matched for that event, the total score for that 
candidate event would be \1/2\. If a particular patient episode of care 
contains multiple candidate events, that patient episode will be 
evaluated on each of these events, increasing the number of possible 
elements to be validated by 2, one for each candidate event evaluated. 
The maximum number of events that we would validate for any episode of 
care would be 4. Therefore, the maximum possible score for any one 
patient episode of care would be 8 (2 x 4). NHSN has an automated 
process to remove events that should not have been reported to NHSN if 
they occurred within 14 days of a previous laboratory-identified event 
for the same infection. Because NHSN excludes these events 
automatically, we proposed for the FY 2016 payment determination and 
subsequent years that hospitals will not be credited or penalized for 
reporting or

[[Page 50833]]

failing to report an automatically excluded event. We invited public 
comment on these proposals.
    Comment: Two commenters suggested that CMS evaluate how well this 
proposal functioned at the end of the first year.
    Response: We are very committed to evaluating our process and will 
take this suggestion into consideration.
    Comment: Some commenters encouraged CMS to give each reportable 
event only 1 point. The commenters argued that both the date and the 
event must be reported correctly for hospitals to have an accurate 
hospital-onset infection rate, and that both are relatively easy to 
report.
    Response: We agree with the comment that giving each reportable 
event only 1 point is better than 2 points per case. This is because 
both pieces of information--the laboratory event and the date for which 
it occurred--contribute to the accuracy of reporting for a single case. 
By adopting a final score of 1 point per candidate event, scoring will 
more closely align with scoring for other HAI and clinical process of 
care measures to be validated. As described in section IX.A.10.c.(1) of 
this preamble, other HAIs receive a maximum of 1 point for each 
candidate event within the same episode of care. Similarly, as 
described in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50226), for 
each clinical process of care measure evaluated, the maximum score 
attainable for a measure is 1 point. We believe that for MRSA and CDI, 
giving each reportable event 1 point, instead of 2 as proposed, is more 
consistent with our policies.
    Based on the public comments we received, we will provide hospitals 
with only one point per candidate MRSA or CDI event. To receive a score 
of 1/1 for each event for up to 4 events, hospitals must correctly 
report both the laboratory event and the event date. Hospitals will 
receive a score of 0/1 for each event if they either fail to report the 
event or report the incorrect event date--in other words, if there is a 
mismatch in data received. In the case when a hospital has no 
reportable events, the hospital would receive a score of 1/1 if none 
were reported to NHSN (a match), and a score of 0/1 if any were 
reported to NHSN (a mismatch). We will provide hospitals with feedback 
on correct reporting of both the infection and the event date via 
QualityNet.
(3) Combined Scores
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53549), we finalized 
the process for combining the clinical process of care and HAI 
validation scores for the FY 2015 payment determination and subsequent 
years scores by weighting them proportionate to the number of measures 
validated in each group. We did not propose any changes to this 
process. Using the finalized procedure for combining the clinical 
process of care and HAI validation scores, the relative weights for the 
FY 2016 payment determination would be 12/17 for the clinical process 
of care measures included in validation and 5/17 for the HAI measures 
included in validation.
    As previously finalized in the FY 2013 IPPS/LTCH PPS payment rule 
for the FY 2015 payment determination and subsequent years (77 FR 
53551), we use the upper bound of a two-tailed 90 percent confidence 
interval around the combined score to determine if a hospital passes or 
fails validation. If this number is greater than or equal to 75 
percent, then the hospital passes validation. We did not propose 
changes to this methodology. We intend to post the specific formulas 
used to compute the confidence interval on the QualityNet Web site at 
least one year prior to computation as we have done in the past 
(https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=1138115987129). These formulas will continue to account appropriately for the 
manner in which patient charts are sampled and scored for the measures 
corresponding to the payment determination period.
    Comment: A commenter supported the process for combining scores.
    Response: We appreciate the commenter's support.
    Comment: One commenter stated that denominators were too small and 
would lead to unreliable results.
    Response: We had difficulty understanding the commenter's concern 
because the size of the denominator in the context of this policy does 
not affect the reliability of results. We therefore wish to clarify 
that this policy does not refer to a sample size, but rather reflects: 
(1) The number of individual clinical process of care and HAI quality 
reporting measures to be validated, and (2) the relative weights for 
those measures. As we indicate above, each hospital will submit up to 
96 charts and will have the opportunity to be evaluated up to 180 
separate times.
    We did not propose any policy changes and we are not finalizing any 
changes to existing policy.
d. Procedures to Select Hospitals for Validation
    In the FY 2013 IPPS/LTCH PPS final rule, for the FY 2015 payment 
determination and subsequent years, we finalized an annual hospital 
validation sample size of 400 randomly selected hospitals and a 
supplemental sample of up to 200 hospitals to be selected for more 
targeted validation (77 FR 53552 through 53553). The supplemental 
sample of up to 200 hospitals will include all hospitals that fail 
validation in the previous year and a random sample of hospitals 
meeting certain targeting criteria for the FY 2015 payment 
determination and subsequent years. The targeting criteria were 
finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53552 through 
53553) for the FY 2016 payment determination and subsequent years. A 
summary of these criteria is set out below.
     Any hospital with abnormal or conflicting data patterns.
     Any hospital with rapidly changing data patterns.
     Any hospital that submits data to NHSN after the Hospital 
IQR Program data submission deadline has passed.
     Any hospital that joined the Hospital IQR Program within 
the previous 3 years, and which has not been previously validated.
     Any hospital that has not been randomly selected for 
validation in any of the previous 3 years.
     Any hospital that passed validation in the previous year, 
but had a two-tailed confidence interval that included 75 percent.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27707), for the 
FY 2016 payment determination and subsequent years, we proposed one 
additional criterion for targeting as follows: any hospital which 
failed to report to NHSN at least half of actual HAI events detected as 
determined during the previous year's validation effort. We made this 
proposal to increase incentives for properly reporting HAI events that 
should have been reported to NHSN. To ensure a fair process for 
validation scoring, we credit hospitals for following NHSN protocols 
correctly. In this regard, hospitals receive credit for not reporting 
to NHSN candidate HAI events that we determine were not actually events 
and reporting candidate HAI events to NHSN that we determine were 
actually HAI events. We anticipate that hospitals may receive credit 
for not reporting many such candidate events. We believe it is 
appropriate to pass hospitals for following NHSN protocols correctly by 
not reporting non-events. However, we recognize that the Hospital VBP 
Program might give hospitals an unintended incentive to underreport HAI 
events because the lower their HAI

[[Page 50834]]

measure rates, the more points they will earn.
    Therefore, we proposed to use evidence of severe under-reporting 
(less than 50 percent) as a targeting criterion for supplemental 
validation. In making this proposal, we recognize that the sample size 
of events, which should have been reported to NHSN, may not be reliable 
as it is a subset of the sample of 36 candidate HAI events per hospital 
per year. For the 30 candidate CLABSI and CAUTI records selected each 
year, we expect less than half of candidate events to be actual events. 
We would not wish to fail hospitals based upon such a small sub-sample. 
Instead, in such situations we would like to gather more data, which is 
why we proposed to add a targeting criterion for hospitals that appear 
to frequently under-report HAIs. We invited public comment on this 
proposal.
    Comment: A few commenters supported this proposal. Commenters 
discussed incentives for accurate reporting. One commenter indicated 
that in previous years they had recommended that CMS include targeting 
criteria for hospital selection.
    Response: CMS appreciates the support for our approach to target 
hospitals potentially inaccurate reporting and also incentivize 
accurate reporting.
    After consideration of the public comments we received, we are 
finalizing this policy as proposed.
e. Procedures for Submitting Records for Validation
(1) Separate Submission Requirements for MRSA Bacteremia and CDI 
Validation
    Under section 412.140(d)(1) of our regulations, a hospital must 
submit to CMS a sample of patient charts that the hospital used for 
purposes of data submission under the program. Historically, we have 
requested the entire medical record where the content of the medical 
record is defined under 42 CFR 482.24. In the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27707 through 27708), for validation of the MRSA 
bacteremia and CDI measures for the FY 2016 payment determination and 
subsequent years, we proposed to require hospitals to submit only those 
two specific parts of the medical record that are needed to validate 
these measures. For each sampled chart, the two required parts are: (1) 
All final positive blood cultures for MRSA and toxin-positive specimens 
for CDI with specimen collection dates; and (2) all documentation of 
the dates on which a patient was admitted to, transferred to, or 
discharged from each location within the hospital during his/her stay. 
We proposed to request only this information because it is all that CMS 
needs to complete validation for these measures. Therefore, this 
proposal will save CMS effort in completing validation, resulting in 
more timely feedback to hospitals. In addition, we believe that this 
more limited request may alleviate burden for many hospitals. Finally, 
this proposal should reduce the cost to CMS in both photocopying and 
shipping compared with submission of the entire patient chart. We 
invited public comment on this proposal.
    Comment: One commenter supported this proposal.
    Response: We thank the commenter for this support.
    After consideration of the public comments we received, we are 
finalizing this policy as proposed.
(2) Secure Transmission of Electronic Versions of Medical Information
    The current regulation at 42 CFR 412.140(d)(1) states:
    ``(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.''
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27708 through 
27709), we proposed that this requirement may be met by employing 
either of the following options each quarter: (1) A hospital may submit 
paper medical records, which is the form in which CMS has historically 
requested them; or (2) a hospital may securely transmit electronic 
versions of medical information for the FY 2016 payment determination 
and subsequent years. The intent of this proposal is to offer an 
additional mode through which hospitals may meet the requirement to 
submit patient charts. The content of the patient charts to be 
submitted are defined at 42 CFR 482.24(c). We did not propose to change 
the content of these charts (except for MRSA bacteremia and CDI as 
discussed in section IX.A.10.e.(1) of the preamble of this final rule). 
We proposed this change because hospitals are rapidly adopting EHR 
systems as their primary source of information about patient care. Our 
understanding is that as of December 2012, more than 4,000 hospitals, 
including 77 percent of hospitals participating in the Hospital IQR 
Program, had enrolled in the Medicare EHR Incentive Program.
    Based on the instructions that we have historically provided with 
written requests for records under 42 CFR 412.140(d)(1), hospitals have 
only been able to submit this information in paper format. For records 
stored electronically, hospitals expend additional resources printing 
records onto paper that may be more efficiently transmitted 
electronically. We pay hospitals at a rate of 12 cents per page, plus 
shipping (70 FR 23667). In addition, the length of paper charts has 
been increasing, and the paper used to submit these records has an 
environmental impact. As shown in the table below, the average patient 
chart based on the most recent available statistics from our CDAC 
contractor, is much larger than when CMS began validating quality 
reporting data.

------------------------------------------------------------------------
                                     Approximate
 IPPS/LTCH PPS  final or proposed   average  page         Citation
             rule FY                   length
------------------------------------------------------------------------
Final 2006.......................             140  70 FR 47702
Final 2009.......................             150  73 FR 49075
Final 2012.......................             275  76 FR 51828
Proposed 2014....................             410  .....................
------------------------------------------------------------------------

    In examining the most recent statistics available, which are based 
on records submitted for 2Q 2012, most of the increase in chart length 
is attributable to including HAI charts in the sample; HAI charts are 
on average 1,500 pages long,

[[Page 50835]]

but other inpatient chart lengths are also larger, now averaging about 
300 pages. Therefore, the proposal to allow hospitals to choose between 
submitting paper copy patient charts and securely transmitting 
electronic versions of medical information has the potential for 
significant reduction in administrative burden, cost, and environmental 
impact. Furthermore, this potential for savings grows as the measures 
selected for Hospital IQR Program chart validation increasingly focus 
on HAIs.
    We proposed for the FY 2016 payment determination and subsequent 
years that those hospitals wishing to securely transmit electronic 
versions of medical information to download or copy the digital image 
of the patient chart onto CD, DVD, or flash drive and ship it following 
instructions similar to those for shipping paper copies of patient 
charts. The precise guidelines to achieve this process will be posted 
on QualityNet and included with CMS' written requests for patient 
charts. This proposal requires hospitals to use this single method for 
secure transmission of electronic versions of medical information, 
because it will enable us to efficiently process records and provide 
timely feedback to hospitals. We recognize that there may be many other 
methodologies under which transmission of electronic versions of 
medical information might occur. After evaluating several different 
potential approaches, we proposed the only one available at this time 
that has been successfully tested. We will continue to develop and test 
additional technologies for secure transmission of electronic versions 
of medical information. We will notify hospitals through QualityNet as 
we acquire any new capabilities for accepting electronic versions of 
medical information, and to update available methodologies through 
future payment rules. We invited public comment on this proposal.
    Comment: Many commenters supported this proposal. Most of these 
commenters encouraged CMS to consider a wider range of options for 
transmitting electronic version of medical records for validation. One 
commenter inquired why the methodology made available to hospitals by 
Recovery Audit Contractors (RACs) was not being made available to 
hospitals for Hospital IQR Program validation.
    Response: We thank commenters for their support and for the 
opportunity to further share our future plans regarding options for 
submission of medical records for validation. CMS evaluated the 
technology used by the RAC program, known as ESMD. We found that ESMD 
was not a scalable option for our quality reporting programs. Among 
ESMD's limitations are its resource-intensive hardware and software 
requirements as well as the frequency of user complaints and problems. 
In addition, ESMD requires the transmitter to either have its own 
software or to submit records through an intermediary. The use of an 
intermediary adds to the cost and complexity of this approach. Instead, 
we are pursuing the use of ``Axway'' a secure file transfer product. 
When operational, hospitals will be able to transfer files through 
either a Web-based portal or direct from a client using secure file 
transfer protocol (FTP). We are testing Axway now and intend to make it 
available to hospitals in the Hospital IQR Program within the next 12 
to 18 months.
    Comment: One commenter expressed concern that medical records could 
not be securely transmitted on CDs, DVDs, or flash drives without 
encryption. The commenter further expressed the opinion that encryption 
may prove ``more cumbersome'' than sending paper charts.
    Response: We thank the commenter for the opportunity to clarify 
that the shipping instructions ``similar'' to those for shipping paper 
copies of patient charts would in fact include information on how to 
encrypt the CDs and how to share this information with CDAC. As noted 
above, we are exploring other options for secure transmission and 
intend to make them available soon. In the meantime, any hospital that 
finds it less cumbersome to send paper charts has the option of doing 
so.
    After consideration of the public comments we received, we are 
finalizing this policy as proposed.
    For the FY 2016 payment determination and subsequent years, we also 
proposed to incentivize the electronic option by offering reimbursement 
for the labor and supply costs of submitting electronic versions of 
medical information. Because hospitals can choose between the current 
paper and the proposed electronic option of submitting validation 
records, we believe that this proposal does not increase cost or burden 
to hospitals. We invited public comment on this proposal.
    Comment: Some commenters supported this proposal. Two commenters 
noted that CMS did not indicate what the reimbursement for medical 
records submitted electronically would be.
    Response: As stated in section XII.B.6. of the preamble of the FY 
2014 IPPS/LTCH PPS proposed rule (78 FR 27749), the amount we proposed 
to reimburse hospitals for the FY 2016 payment determination is $3.00 
per patient chart.
    After consideration of the public comments we received, we are 
finalizing this policy as proposed.
11. Data Accuracy and Completeness Acknowledgement Requirements for the 
FY 2015 Payment Determination and Subsequent Years
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53554), we finalized 
our proposal to require hospitals to continue to electronically 
acknowledge their data accuracy and completeness once annually. For the 
FY 2015 payment determination and subsequent years, the submission 
deadline finalized for the Data Accuracy and Completeness 
Acknowledgement (DACA) was aligned with the final submission quarter 
for each fiscal year. For example, for the FY 2015 payment 
determination, the submission deadline for the Data Accuracy and 
Completeness Acknowledgement is currently May 15, 2014, with respect to 
the reporting period of January 1, 2013, through December 31, 2013.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27709), in order 
to provide the timely feedback to hospitals regarding the APU status, 
we proposed that for the FY 2015 payment determination and subsequent 
years, we would collect the DACA in alignment with the 3rd quarter 
submission deadline. This would mean, for example, the electronic 
acknowledgement of data accuracy and completeness for the FY 2015 
payment determination would be submitted between January 1, 2014 and 
February 15, 2014, with respect to the reporting period of January 1, 
2013 through December 31, 2013. We invited public comment on this 
proposal.
    Comment: Several commenters supported the proposed DACA 
requirements.
    Response: We thank the commenters for their support
    Comment: A few commenters expressed concern that aligning the DACA 
submission with the 3rd quarter submissions would not allow hospitals 
the opportunity to ensure that data submitted in the 4th quarter was 
accurate at the time of the DACA submission.
    Response: We understand the commenters' concern, and agree that 
signing the DACA prior to the 4th quarter would not allow hospitals the 
opportunity to ensure complete and accurate data for the 4th quarter 
prior to the DACA submission.

[[Page 50836]]

    After consideration of the public comments we received, we not 
finalizing our proposal.
12. Public Display Requirements for the FY 2016 Payment Determination 
and Subsequent Years
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51650), we 
continued, 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. In the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53554), we did not make any changes to these requirements. 
For the FY 2016 payment determination and subsequent years, we did not 
propose to make any changes to these requirements. As previously stated 
in section IX.A.9.d. of the preamble of this final rule, we proposed 
that we would not publicly report data collected from hospitals 
choosing to report the four measure sets (VTE, STK, ED and PC) 
electronically in CY 2014.
    We did not receive any public comments on this proposal and we are 
therefore, finalizing the proposal. We note that, as discussed above, 
hospital may voluntarily submit electronic data regarding one or more 
of the measure sets, if they choose.
    The Hospital IQR Program quality measures are typically reported on 
the Hospital Compare Web site at: http://www.medicare.gov/hospitalcompare, but on occasion are reported on other CMS Web sites 
such as http://www.cms.gov and/or https://data.medicare.gov. 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.
13. Reconsideration and Appeal Procedures for the FY 2015 Payment 
Determination and Subsequent Years
    The Hospital IQR Program reconsideration and appeals requirements 
were adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51650 
through 51651) and are found at section 412.140(e) of our regulations. 
The form for reconsiderations and a detailed description of the 
reconsideration process are available on the QualityNet Web site at: 
http://www.qualitynet.org/ > Hospitals-Inpatient > Hospital Inpatient 
Quality Reporting Program > APU Reconsiderations. In the FY 2014 IPPS/
LTCH PPS proposed rule (78 FR 27709), we proposed to interpret this 
requirement to allow for this form to be completed online via the 
secure portion of the QualityNet Web site.
    Comment: Several commenters supported the proposed interpretation.
    Response: We thank the commenters for their support.
    After consideration of the public comments we received, we are 
finalizing as proposed, the policy to allow the reconsideration form to 
be completed via an online module in QualityNet.
    In the past, it has been CMS' process to allow hospitals with a 
quarterly Overall Validation Result of <75 percent to request a review 
by or appeal mismatched data element(s) to their State Quality 
Improvement Organization (QIO). This process requires that the CDAC 
contractor copy and ship all records for any hospital that receives an 
overall validation score of <75 percent to the State QIO. In the past 
two years, none of the mismatched appeals would have resulted in a 
change to the final APU determination. As described at Sec.  412.140(e) 
of our regulations, hospitals can also request a reconsideration of a 
decision by CMS that the hospital has not met the requirements of the 
Hospital IQR Program for a particular fiscal year. This includes 
reconsideration on the basis that CMS concluded it did not meet the 
validation requirements. We believe this process is redundant and, for 
the FY 2015 payment determination and subsequent years, we proposed to 
remove the quarterly appeal of mismatched data elements to the State 
QIO. We invited public comment on this proposal.
    Comment: Several commenters supported the proposed administrative 
changes.
    Response: We thank the commenters for their support.
    After consideration of the public comments we received, we are 
removing the quarterly appeal of mismatched data elements to the State 
QIO from the Hospital IQR Program. We encourage hospitals that believe 
there may be an error in validation to use our reconsideration and 
appeals procedures described at Sec.  412.140(e) of our regulations.
14. Hospital IQR Program Extraordinary Circumstances Extensions or 
Waivers
    The Hospital IQR Program extraordinary circumstances disaster 
extensions or waiver requirements were adopted in the FY 2012 IPPS/LTCH 
PPS final rule (76 FR 51651 through 51652) and can be found at 42 CFR 
Sec.  412.140(c)(2). In the FY 2012 IPPS/LTCH PPS final rule, we 
explained the requirements for disaster extensions or waivers. The 
forms and a detailed description of the extension or waiver process are 
available on the QualityNet Web site at: http://www.qualitynet.org/ > 
Hospitals-Inpatient>Hospital Inpatient Quality Reporting Program.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27709 through 
27710), we proposed to allow for not only a CEO, but also other 
hospital-designated personnel contact to complete and sign waiver/
extraordinary circumstances forms. This proposed change would allow 
hospitals to designate an appropriate, non-CEO, contact at its 
discretion. This individual would be responsible for the submission, 
and would be the one signing the form.
    In addition, we proposed to allow for this form to be completed 
online via the secure portion of the QualityNet Web site.
    We also proposed that we may grant a waiver or extension to 
hospitals if we determine that a systemic problem with one of our data 
collection systems directly affected the ability of the hospitals to 
submit data. Because we do not anticipate that these types of systemic 
errors will happen often, we do not anticipate granting a waiver or 
extension on this basis frequently.
    If we make the determination to grant a waiver or extension, we 
proposed to communicate this decision through routine communication 
channels to hospitals, vendors and QIOs by means of, for example, 
memoranda, emails, and notices on the QualityNet Web site. We invited 
public comment on these proposals.
    Comment: Several commenters supported the proposed changes 
regarding extraordinary circumstances extensions or waivers.
    Response: We thank the commenters for their support.
    After consideration of the public comments we received, we are 
finalizing our proposals to allow hospitals to designate an 
appropriate, non-CEO contact as the contact for the Extraordinary 
Circumstances Extensions or Waivers requests. In addition, we are

[[Page 50837]]

finalizing our proposal to allow the Extraordinary Circumstances 
Extensions or Waivers s form to be completed online. Lastly, we are 
finalizing the proposal to allow CMS to grant a waiver or extension to 
hospitals if we determine that a systemic problem with one of our data 
collection systems directly affected the ability of the hospitals to 
submit data.

B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

1. Statutory Authority
    Section 3005 of the Affordable Care Act added new subsections 
(a)(1)(W) and (k) to section 1866 of the Act. Section 1866(k) of the 
Act establishes a quality reporting program for a hospital described in 
section 1886(d)(1)(B)(v) of the Act (referred to as a ``PPS-Exempt 
Cancer Hospital'' or ``PCH''). Section 1866(k)(1) of the Act states 
that, for FY 2014 and each subsequent fiscal year, a PCH shall submit 
data to the Secretary in accordance with section 1866(k)(2) of the Act 
with respect to such a fiscal year. Section 1866(k)(2) of the Act 
provides that, for FY 2014 and each subsequent fiscal year, each 
hospital described in section 1886(d)(1)(B)(v) of the Act shall submit 
data to the Secretary on quality measures specified under section 
1866(k)(3) of the Act in a form and manner, and at a time, specified by 
the Secretary.
    Section 1866(k)(3)(A) of the Act requires that any measure 
specified by the Secretary must have been endorsed by the entity with a 
contract under section 1890(a) of the Act, unless an exception under 
section 1866(k)(3)(B) of the Act applies. The NQF currently holds this 
contract. The NQF is a voluntary, consensus-based, 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 healthcare 
quality measurement and reporting through its consensus development 
processes. We have generally adopted NQF-endorsed measures in our 
reporting programs. However, section 1866(k)(3)(B) of the Act provides 
an exception. Specifically, it 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, 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.
    Under section 1866(k)(3)(C) of the Act, the Secretary was required 
to publish the measure selection for PCHs no later than October 1, 
2012, with respect to FY 2014.
    Section 1866(k)(4) of the Act requires the Secretary to establish 
procedures for making public the data submitted by PCHs under the PCHQR 
Program. Such procedures must ensure that a PCH has the opportunity to 
review the data that is to be made public with respect to the PCH prior 
to such data being made public. The Secretary must report quality 
measures of process, structure, outcome, patients' perspective on care, 
efficiency, and costs of care that relate to services furnished by PCHs 
on the CMS Web site.
2. Covered Entities
    Section 1886(d)(1)(B)(v) of the Act excludes particular cancer 
hospitals from payment under the IPPS. This final rule covers only 
those PPS-excluded cancer hospitals meeting eligibility criteria 
specified in 42 CFR 412.23(f).
3. Previously Finalized Quality Measures for PCHs for the FY 2014 
Program and Subsequent Years
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53556 through 
53561), we finalized five quality measures for the FY 2014 program and 
subsequent years. Specifically, we finalized two of the CDC's NHSN-
based HAI quality measures (outcome measures): (1) Central Line-
Associated Bloodstream Infection (CLABSI); and (2) Catheter-Associated 
Urinary Tract Infection (CAUTI). We also finalized three cancer-
specific process of care measures: (1) Adjuvant chemotherapy is 
considered or administered within 4 months (120 days) of surgery to 
patients under the age of 80 with AJCC III (lymph node positive) colon 
cancer; (2) Combination chemotherapy is considered or administered 
within 4 months (120 days) of diagnosis for women under 70 with AJCC 
T1c, or Stage II or III hormone receptor negative breast cancer; and 
(3) Adjuvant hormonal therapy.
    The finalized measures are shown below.

PCHQR Program Measures Finalized in the FY 2013 IPPS/LTCH PPS Final Rule
              for the FY 2014 Program and Subsequent Years
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Safety and Healthcare-Associated Infections--HAI
------------------------------------------------------------------------
                                     (NQF 0139) NHSN
                                     Central Line-Associated Bloodstream
                                     Infection (CLABSI) Outcome Measure
                                     (NQF 0138) NHSN
                                     Catheter-Associated Urinary Tract
                                     Infections (CAUTI) Outcome Measure
------------------------------------------------------------------------
Clinical Process/Cancer-Specific Treatments
------------------------------------------------------------------------
                                     (NQF 0223)
                                     Adjuvant Chemotherapy is considered
                                     or administered within 4 months
                                     (120 days) of surgery to patients
                                     under the age of 80 with AJCC III
                                     (lymph node positive) colon cancer
                                     (NQF 0559)
                                     Combination Chemotherapy is
                                     considered or administered within 4
                                     months (120 days) of diagnosis for
                                     women under 70 with AJCC T1c, or
                                     Stage II or III hormone receptor
                                     negative breast cancer
                                     (NQF 0220)
                                     Adjuvant Hormonal Therapy
------------------------------------------------------------------------

    We did not propose to remove or replace any of the previously 
finalized measures from the PCHQR Program for the FY 2015 program and 
subsequent years. We discussed the collection requirements and 
submission timeframes for these measures in the preamble of the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53563 through 53564).
4. Considerations in the Selection of the Quality Measures
    Section 1866(k)(3)(A) of the Act requires that any measure 
specified by the Secretary must have been endorsed by the entity with a 
contract under section 1890(a) of the Act, unless section 1866(k)(3)(B) 
of the Act applies. Section 1866(k)(3)(B) of the Act states 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

[[Page 50838]]

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 2013 IPPS/LTCH PPS final rule (77 FR 53556), we indicated 
that we have taken a number of principles into consideration when 
developing measures for the PCHQR Program, and that many of these 
principles are modeled on those we use for measure development under 
the Hospital IQR Program:
     Public reporting should rely on a mix of standards, 
outcomes, process of care measures, and patient experience of care 
measures, including measures of care transitions and changes in patient 
functional status.
     The measure set should evolve so that it includes a 
focused core set of measures appropriate to cancer hospitals that 
reflects the level of care and the most important areas of service 
furnished by those hospitals. The measures should address gaps in the 
quality of cancer care.
     We also consider input solicited from the public through 
rulemaking and public listening sessions.
     We consider suggestions and input from a PCH Technical 
Expert Panel (TEP), convened by a CMS measure development contractor, 
which rated potential PCH quality measures for importance, scientific 
soundness, usability, and feasibility. The TEP membership includes 
health-care providers specializing in the treatment of cancer, cancer 
researchers, consumer and patient advocates, disparities experts, and 
representatives from payer organizations.
    Like the Hospital IQR Program, the PCHQR Program also supports the 
National Quality Strategy, national priorities, HHS Strategic Plans and 
Initiatives, and CMS Strategic Plans, as well as takes into 
consideration the recommendations of the MAP and strives for burden 
reduction whenever possible.
    We invited public comment on these considerations.
    Comment: Some commenters expressed concern regarding the measures 
CMS had proposed to adopt or continue using for the PCHQR Program. 
These commenters believed that: (1) The previously finalized and newly 
proposed measures are fragmented in nature and most of them only apply 
to a small sub-set of the cancer population; (2) the majority of the 
already finalized and newly proposed measures for the PCHQR Program are 
process-of-care oriented and cannot accurately reflect the quality of 
care at cancer centers; (3) some finalized and newly proposed measures 
have not been used in the cancer population possibly limiting their 
relevance and value for cancer hospitals; and (4) there are critical 
gaps in the NQF-endorsed cancer measures (for example, functional 
status, symptom management, survival and other outcomes). For example, 
these commenters suggested that some of the proposed NQF-endorsed 
measures assess a specific therapeutic regimen or treatment approach, 
which would lock clinicians into one standard of care that may 
represent suboptimal treatment.
    To address these concerns, the commenters supported measure 
selections to include care coordination, functional status, patient 
safety, patient and caregiver experience with care, population/
community health, efficiency, and other outcomes of care that are 
important to patients. These commenters urged CMS to work with cancer 
centers to establish an effective quality reporting program that will 
lead to meaningful improvements in cancer centers.
    Response: We appreciate the commenters' opinions and 
recommendations. We believe that both the previously finalized and 
newly proposed measures address many critical domains identified in the 
Department of Health and Human Services' National Quality Strategy, 
including patient safety, efficiency, patient and family engagement, 
and clinical outcomes, in addition to clinical processes of care. They 
also assess many diagnosis, staging, and treatment modalities provided 
at cancer centers, including chemotherapy, adjuvant treatments, 
surgical care, and radiation therapy. However, we also recognize that 
measurement gaps remain, and we intend to propose in the future to 
adopt additional measures that assess the safety and efficiency of 
diagnosis and treatment of cancer, measures that take into account 
novel diagnostic and treatment modalities, measures that assess 
symptoms and functional status, measures of appropriate disease 
management and care coordination, measures that assess treatment of 
less common cancers such as leukemia and lymphoma, and measures of 
admissions for complications of cancer and treatment for cancer. In 
addition, we will continually reassess and update measures used in the 
PCHQR Program to ensure that they are consistent with optimal standards 
of care.
5. New Quality Measures
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27711), for the 
FY 2015 PCHQR Program and subsequent years, we proposed to adopt one 
new measure: NHSN HAI measure of Surgical Site Infection (SSI).
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27711 through 
27714), for the FY 2016 PCHQR Program and subsequent years, we proposed 
to adopt 13 new measures: six measures of Surgical Care Improvement 
Project (SCIP); six Clinical Process/Oncology Care Measures; and one 
Patient Experience of Care measure (the HCAHPS Survey).
    All 14 of these proposed measures are NQF-endorsed. Some address 
inpatient care, and others address outpatient care. All of the measures 
address treatment provided to cancer patients in PCH inpatient or 
outpatient settings. In addition, the adoption of measures that apply 
to more than one healthcare setting is one of our objectives in 
promoting quality care consistently across all health care settings. 
The 14 proposed measures are a subset of 19 measures that we included 
on a publicly available document entitled ``List of Measures Under 
Consideration for December 1, 2012'' in compliance with section 
1890A(a)(2) of the Act. These measures were reviewed by the MAP, a 
multi-stakeholder body convened by the NQF for the purpose of providing 
input to HHS on the selection of measures, and the MAP's conclusions 
can be found in the ``MAP Pre-Rulemaking Report: 2013 Recommendations 
on Measures Under Consideration by HHS.'' The MAP Report can be 
accessed at: http://www.qualityforum.org/Publications/2013/02/MAP_Pre-Rulemaking_Report__February_2013.aspx.
    We considered the input and recommendations provided by the MAP in 
selecting the 14 measures that we proposed for the PCHQR Program. Of 
these 14 measures, the MAP supported the inclusion of 13 of them in the 
PCHQR Program, and supported the direction of the proposed HCAHPS 
measure, noting that additional experience with the survey is needed so 
that the survey questions are applicable for use in the PCH settings. 
Although we recognize that some stakeholders would prefer that we adopt 
an experience of care measure developed specifically for the cancer 
hospital setting, we believe that other stakeholders think HCAHPS is 
appropriate for the cancer hospital setting, and are aware that 
approximately 27 percent of PCHs are currently administering HCAHPS to

[[Page 50839]]

their patients. For these reasons, we believe that until a new patient 
experience measure is developed specifically for the PCH setting, the 
HCAHPS will provide valuable information to the public on the patient 
experience of care in PCHs.
    In addition, the proposed measures address the National Quality 
Strategy domains of Patient Safety, Clinical Effectiveness, and Patient 
Experience/Engagement, and further our goal of aligning measures across 
programs because they are already in use in either the Hospital IQR 
Program or the PQRS Program. We describe these proposed measures in 
detail below.
    Comment: Several commenters expressed concern that only two outcome 
measures are proposed for FY 2015 and FY 2016 and encouraged CMS to 
focus on developing meaningful outcome measures for the program, for 
example measures of risk-adjusted, stage-specific survival curves for 
various types of cancer. Commenters also supported the inclusion of 
cancer-specific measures and encouraged CMS to validate formally any 
non-cancer specific measures proposed for inclusion in the PCHQR 
Program to ensure their applicability and usability for this program.
    Response: We recognize the importance of outcome measures in 
assessing quality of care and we are continually working with 
contractors, clinical experts, and stakeholders to develop appropriate 
measures. We agree that a robust measure set is one that evolves to 
include a focused core set of measures appropriate to cancer hospitals 
that reflects the level of care and the most important areas of service 
furnished by these hospitals. The PCHQR Program measures also should 
address gaps in the quality of cancer care.
    Comment: One commenter recommended using existing registries and 
data sources to expand and enhance quality reporting to minimize burden 
on hospitals and physicians.
    Response: We appreciate the commenter's suggestion. We strive to 
minimize burden whenever possible and consider multiple data sources 
and potential reporting mechanisms when considering a measure for 
adoption. The current measure set includes measures that are collected 
through registries.
a. New Measure for the FY 2015 Program and Subsequent Years--NHSN 
Healthcare-Associated Infection (HAI) Measure: Surgical Site Infection 
(SSI) (NQF 0753)
    This NQF-endorsed American College of Surgeons/CDC harmonized 
measure of surgical site infection (SSI) meets the measure selection 
requirements at section 1866(k)(3)(A) of the Act, and expands upon the 
existing Healthcare-Associated Infections (HAIs) measurement topic that 
is part of the PCHQR Program. The measure addresses HAIs, a topic area 
widely acknowledged by HHS, the Institute of Medicine, the National 
Priorities Partnership and others as a high priority requiring 
measurement and improvement. HAIs are among the leading causes of death 
in the United States. The CDC estimates that as many as 2 million 
infections are acquired each year in hospitals and that HAIs result in 
approximately 90,000 deaths per year. 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 health care costs.
    HAIs are largely preventable through interventions such as better 
hygiene and advanced scientifically tested techniques for surgical 
patients. Therefore, many health care consumers and organizations have 
called for public disclosure of HAIs, arguing that public reporting of 
HAI rates provides the information health care consumers need to choose 
the safest hospitals, and give hospitals an incentive to improve 
infection control efforts (75 FR 50201).
    Detailed specifications for this proposed measure can be found at: 
http://www.cdc.gov/nhsn/TOC_manual.html. This measure assesses the 
incidence of surgical site infections following colon surgeries and 
abdominal hysterectomies performed by PCHs and include laparoscopic 
procedures. The measure rate is calculated as the Standardized 
Infection Ratio for each procedure type. Adult patients 18 years and 
older with deep incisional and organ space infections during the 30-day 
postoperative period are included in the measure. This measure is risk-
adjusted and reported at the facility level. It is not specific to a 
hospital ward or setting, rather it is applicable to all postoperative 
patients who fall into the numerator criteria. The denominator is 
calculated using logistic regression models, determining the expected 
number of SSI's by facility and procedure type. We invited public 
comment on this proposed SSI measure.
    Comment: A few commenters believed this measure is important to 
positive surgical outcomes and supported its addition to the PCHQR 
Program. However, one commenter cautioned that CMS should exercise 
discretion in publicly reporting the measure in the future. The 
commenter pointed out that many cancer patients are immune-compromised 
and therefore, are more susceptible to infections than other patients. 
The commenter recommended engaging cancer centers to determine whether 
stratifying SSI reporting by type of cancer may allow for a more 
meaningful comparison of rates.
    Response: We appreciate the commenters' support. We understand the 
concern about differences in patient case mix between PCHs and acute 
care hospitals. Like the CLABSI and CAUTI measures previously adopted 
for this program, we believe that the SSI measure in its current form 
is suitably risk-adjusted for the PCH setting. However, we will explore 
with the CDC, the measure developer, whether further stratification of 
the measure is feasible for future implementation.
    Comment: A few commenters suggested modifications to the SSI 
measure, including adding exceptions for patients who are discharged to 
hospice care and for cancer hospital patients on palliative care 
services, formally testing the measure in the cancer population, and 
granting a reporting exception to any PCH performing fewer than 20 
eligible colon and abdominal hysterectomy procedures in the preceding 
calendar year.
    Response: We appreciate the commenters' suggestions. As we noted, 
we believe it is important to align our measures with the Hospital IQR 
Program as much as possible to both streamline the programs and reduce 
burden. At this time, the Hospital IQR Program uses a case minimum of 
10 for the SSI measure (77 FR 53539). As we explained in the FY 2013 
IPPS/LTCH PPS final rule, we chose a case minimum of 10 cases because 
we believe 10 cases will be sufficiently meaningful for the results to 
be publicly displayed while ensuring the availability of the most data 
possible for public reporting (77 FR 53539). For detailed information 
regarding the number of cases, we refer readers to the CDC 
specification manual: http://www.cdc.gov/hai/ssi/ssi.html.
    Comment: One commenter advocated that CMS and NHSN work with the 
National Surgical Quality Improvement Program (NSQIP) to develop a 
single set of specifications for the SSI measure. The commenter noted 
the different data collection timeframes as an example to demonstrate 
the need for alignment: NSQIP requires data collection for 90 days 
while NHSN requires data collection for 30 days post-op for all 
procedures related to breast cancer and

[[Page 50840]]

for craniotomies. The commenter noted that without such definition 
alignments, both data sets will be less actionable and require extra 
communication to enable practice and process changes.
    Response: We agree that it is an important goal to achieve 
alignment of measure specifications if a measure is being collected by 
more than one entity. We also understand that both the CDC, which 
operates the NHSN, and the American College of Surgeons (ACoS), which 
operates the NSQIP, approve the NQF-endorsed SSI measure that we have 
proposed to adopt for the PCHQR Program. Under the harmonized NQF 
endorsed measure specifications, there is a 30-day follow up period for 
SSIs after colon surgeries and abdominal hysterectomies, and our 
understanding is that the NSQIP does not require 90-day follow up for 
SSIs. Breast procedures and craniotomies are not included in the 
harmonized NQF-endorsed SSI measure that we have proposed to adopt for 
the PCHQR Program.
    Comment: One commenter did not support the SSI measure CMS proposed 
for FY 2015, because the commenter believed the proposed measure only 
applies to highly specialized cancer centers.
    Response: We disagree. As we stated in the proposed rule, this 
measure is not specific to a hospital ward or setting, rather it is 
applicable to all postoperative patients who fall into the numerator 
criteria. The measure assesses the incidence of surgical site 
infections following colon surgeries and abdominal hysterectomies 
performed by PCHs and the measure includes laparoscopic procedures.
    After consideration of the public comments we received, we are 
finalizing the SSI measure as proposed for FY 2015 program and 
subsequent years.
b. New Measures for the FY 2016 Program and Subsequent Years
(1) Surgical Care Improvement Project (SCIP) Measures
    Measures from the Surgical Care Improvement Project (SCIP) have 
been collected as part of the Hospital IQR Program for most subsection 
(d) hospitals paid under the IPPS and reported on the Hospital Compare 
Web site for a number of years, because they assess effective care for 
patients undergoing surgery. In general, these measures are also 
applicable to patients undergoing surgery in PCHs. In the FY 2014 IPPS/
LTCH PPS proposed rule (78 FR 27711 through 27712), we proposed to 
adopt six NQF-endorsed, SCIP measures for the PCHQR Program beginning 
with the FY 2016 program year. All six of the measures are NQF-endorsed 
and therefore meet the selection requirements at section 1866(k)(3)(A) 
of the Act.
    In addition, all six of these measures were supported by the MAP 
for inclusion in the PCHQR Program in its February 2013 pre-rulemaking 
report to HHS located at: http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. Four of these 
measures: SCIP--Inf 1 (NQF 0527); SCIP--Inf 2 (NQF 
0528), SCIP--Inf 3 (NQF 0529); and SCIP--Inf 9 (NQF 
0453) assess hospital performance with regard to infection 
prevention practices. SCIP-Card-2 (NQF 0284) assesses the 
continuity of beta blocker treatment during the perioperative period 
for cardiac patients undergoing non-cardiac surgery. SCIP--VTE 2 (NQF 
0218) assesses hospital performance regarding effective 
preventive care for venous thromboembolism.
    These measures are described below, and detailed measure 
specifications for all six of these measures can be found in the 
Hospital IQR Program Specifications Manual located at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228772433589.
(A) SCIP--Inf 1: Prophylactic Antibiotics received Within 1 Hour Prior 
to Surgical Incision (NQF 0527)
    This measure assesses the percent of surgical patients with 
prophylactic antibiotics initiated within one hour prior to surgical 
incision. Patients who received vancomycin or a fluoroquinolone for 
prophylactic antibiotics should have the antibiotics initiated within 2 
hours prior to surgical incision. This measure addresses the National 
Quality Strategy domain of Clinical Effectiveness, and complements the 
proposed SSI measure.
(B) SCIP--Inf 2: Prophylactic Antibiotic Selection for Surgical 
Patients (NQF 0528)
    This measure assesses the percent of surgical patients who received 
prophylactic antibiotics consistent with current guidelines (specific 
to each type of surgical procedure). A goal of prophylaxis with 
antibiotics is to use an agent that is safe, cost-effective, and has a 
spectrum of action that covers most of the probable intraoperative 
contaminants for the operation. This measure addresses the National 
Quality Strategy domain of Clinical Effectiveness, and complements the 
SSI measure.
(C) SCIP--Inf 3: Prophylactic Antibiotic Discontinuation within 24 
Hours after Surgery End Time (NQF 0529)
    This measure assesses the percentage of surgical patients whose 
prophylactic antibiotics were discontinued within 24 hours after 
Anesthesia End Time. A goal of prophylaxis with antibiotics is to 
provide benefit to the patient with as little risk as possible. It is 
important to maintain therapeutic serum and tissue levels throughout 
the operation. Intraoperative re-dosing may be needed for long 
operations. However, administration of antibiotics for more than 24 
hours after the incision is closed offers no additional benefit to the 
surgical patient. Prolonged administration increases the risk of 
Clostridium difficile infection and the development of antimicrobial 
resistant pathogens. This measure addresses the National Quality 
Strategy domain of Clinical Effectiveness and complements the proposed 
SSI measure.
(D) SCIP--Inf 9: Urinary Catheter Removed on Post-Operative Day 1 or 
Post-Operative Day 2 with Day Surgery being Day Zero (NQF 
0453)
    This measure assesses the percent of surgical patients with a 
urinary catheter removed on Postoperative Day 1 or Postoperative Day 2 
with day of surgery being day zero. The risk of catheter-associated 
urinary tract infection (UTI) increases with longer duration of 
indwelling urinary catheterization. This measure complements the CAUTI 
measure currently adopted for the PCHQR Program.
(E) SCIP--Card 2: Surgery Patients on Beta Blocker Therapy Prior to 
Admission Who Received a Beta Blocker during the Perioperative Period 
(NQF 0284)
    This measure assesses the percent of surgery patients on beta 
blocker therapy prior to arrival who received a beta blocker during the 
perioperative period. The perioperative period for this measure is 
defined as the day prior to surgery through postoperative day two, with 
day of surgery being day zero. The American College of Cardiology/
American Heart Association promotes continuation of beta blocker 
therapy in the perioperative period as a class I indication, and 
accumulating evidence suggests that titration to maintain tight heart 
rate control should be the goal. We believe that this measure targets 
an important process of care, beta blocker administration for non-
cardiac surgery patients. Concerns regarding the

[[Page 50841]]

discontinuation of beta blocker therapy in the perioperative period 
have existed for several decades. This measure addresses the National 
Quality Strategy domain of Clinical Effectiveness.
(F) SCIP--VTE 2: Surgical Patients who Received Appropriate VTE 
Prophylaxis within 24 Hours prior to Surgery to 24 Hours after Surgery 
End Time (NQF 0218)
    This measure assesses the percent of surgery patients who received 
appropriate VTE prophylaxis within 24 hours prior to Anesthesia Start 
Time to 24 hours after Anesthesia End Time. The frequency of VTE, which 
includes deep vein thrombosis and pulmonary embolism, is related to the 
type and duration of surgery, patient risk factors, duration and extent 
of postoperative immobilization, and use or nonuse of prophylaxis. 
Despite the evidence that VTE is one of the most common postoperative 
complications and prophylaxis is the most effective strategy to reduce 
morbidity and mortality, it is often underused. We believe that this 
measure will encourage practices to reduce the risk of post-operative 
complications associated with VTE. This measure addresses the National 
Quality Strategy domain of Clinical Effectiveness.
    We invited public comment on these six proposed SCIP measures.
    Comment: Several commenters supported the six proposed SCIP 
measures because they are NQF-endorsed and supported by MAP. A few 
commenters opposed the inclusion of the six SCIP measures, because the 
commenters believed that these proposed measures do not apply to PCHs.
    Response: We appreciate the commenters' support of the proposed 
measures. We believe that the six SCIP measures apply to patient care 
furnished at both acute care hospitals and PCHs. The measures are 
currently used in the Hospital IQR Program, in which they measure care 
furnished to both cancer patients and non-cancer patients. Further, the 
inclusion of these measures promotes alignment between the PCHQR and 
Hospital IQR Program as many hospitals participating in the Hospital 
IQR Program are already reporting these same measures, allowing 
assessments of the quality of surgical care to be made in the same 
manner across these two settings.
    Comment: One commenter did not support the six proposed SCIP 
measures because the measures address procedures that are performed 
rarely at PCHs. The commenter was concerned that these chart-abstracted 
measures would discourage PCHs from focusing on aspects of care that 
are more relevant in the PCH setting. Some commenters encouraged CMS to 
use current registries and claims data for reporting to minimize the 
reporting burden on PCHs.
    Response: While we recognize that resources are required to report 
the measures, the same measures are already reported by the 3,900 
hospitals that participate in the Hospital IQR Program. Furthermore, 
these measures are also part of existing facility level accreditation 
programs that many of the PCHs are already participating in, and for 
that reason, we do not believe that the reporting of these data under 
the PCHQR Program will pose a significant additional burden for those 
PCHs. However, we appreciate the suggestion to use registries and 
alternative data sources. We are working with the American College of 
Surgeons National Cancer Data Base (NCDB) on the feasibility of 
allowing three of the five measures finalized in the FY 2013 IPPS/LTCH 
PPS final rule to be reported via registry in the future, and we also 
intend to explore the feasibility of adopting future measures that can 
be reported via registry.
    Comment: Some commenters recommended that CMS delay adoption of the 
six SCIP measures until: (1) Formal sampling may be performed at PCHs 
to determine whether associated gaps in care exist; (2) we can ensure 
that the measures are validated formally for use in the cancer 
population; and, (3) a formal sampling methodology is developed for 
reporting these measures, such as the existing methodology currently 
used by the Hospital IQR Program, to decrease the burden placed on 
PCHs.
    Response: We appreciate the commenters' views. The SCIP measures 
are important quality of care measures and are currently applied to 
cancer patients across the country through inclusion in the Hospital 
IQR Program. Furthermore, we believe that the measures are appropriate 
for all surgical patients (including those that have cancer) that meet 
the measure inclusion criteria and do not fall into any of the 
exclusion categories. In response to comments regarding the reporting 
burden, we will allow PCHs to report these measures using the same 
sampling methodology that we currently allow for the reporting of the 
same measures by subsection (d) hospitals under the Hospital IQR 
Program (outlined in the specification manual https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=1138115987129).
    After consideration of the public comments we received, we are 
finalizing the adoption of the SCIP measures for the FY 2016 PCHQR 
Program and subsequent years, and will allow PCHs to report the 
measures using the same sampling methodology that we currently allow 
for the reporting of these measures under the Hospital IQR Program.
(2) Clinical Process/Oncology Care Measures
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27712 through 
27714), we proposed to add to the PCHQR Program, for the FY 2016 
program and subsequent years, six measures specific to assessing the 
quality of medical treatment and staging of cancer by PPS-exempt cancer 
hospitals. All six measures are specified and endorsed for outpatient 
settings to evaluate the performance of a cancer treatment team. In 
addition, all six of these measures are NQF-endorsed and address the 
quality of outpatient cancer treatment provided at PCHs; therefore, 
they meet the measure selection requirement at section 1866(k)(3)(A) of 
the Act.
    All six measures also are recommended as priorities for program 
alignment in the PCHQR Program by the MAP in a June 2012 Final Report 
entitled ``Performance Measurement Coordination Strategy for PPS-Exempt 
Cancer Hospitals.'' In addition, the MAP in its 2013 Pre-Rulemaking 
Final Report issued in February 2013 supports all six of the measures 
for inclusion in the PCHQR Program. Both of these MAP reports can be 
located at: http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx.
    Detailed specifications of these six proposed measures can be found 
in Appendix A of the December 2012 NQF Cancer endorsement maintenance 
project report at: http://www.qualityforum.org/Publications/2012/12/Cancer_Endorsement_Maintenance_2011.aspx. We invited public comment 
on these six proposed clinical process/oncology care measures.
    Comment: A few commenters supported the inclusion of cancer-
specific measures. A few commenters opposed the six clinical process/
oncology care measures because the commenters believed that these 
proposed measures do not apply to PCHs. Some commenters encouraged 
using current registries and data sources for reporting to minimize the 
burden on PCHs.

[[Page 50842]]

    Response: We appreciate the commenters' support. We believe that 
the proposed clinical process/oncology care measures are relevant to 
assessing the quality of care provided to cancer patients regardless of 
setting. We appreciate the suggestion to use registries and alternative 
data sources wherever possible and we are investigating the NCDB or 
other cancer registry data for future measures.
    Comment: One commenter requested that CMS delay the implementation 
of these 6 clinical process/oncology care measures until a formal 
sampling methodology is developed for reporting these measures to CMS 
and more meaningful measures are considered for inclusion.
    Response: We have directed our efforts to align our quality 
reporting programs across settings, to the extent possible. For this 
reason, we will allow PCHs to use the same sampling methodology as 
specified in the specification manual for the Physicians Quality 
Reporting System (PQRS) program found on the CMS Web site at http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/PQRS/MeasuresCodes.html.
(A) Clinical Process/Oncology Care--Multiple Myeloma-Treatment with 
Bisphosphonates (NQF 0380)
    This measure assesses the percentage of patients aged 18 years and 
older with a diagnosis of multiple myeloma, not in remission, for which 
intravenous bisphosphonate therapy was prescribed or received within 
the 12-month reporting period. This measure is intended to promote the 
appropriate use of bisphosphonates to reduce morbidity and mortality in 
multiple-myeloma patients. Bisphosphonates specifically decrease 
osteoclast activity, thereby reducing bone pain and fractures in 
patients with multiple myeloma.\106\ This measure addresses the 
National Quality Strategy domain of Clinical Effectiveness.
---------------------------------------------------------------------------

    \106\ NQF. Cancer Endorsement Maintenance 2011.Candidate Review 
Consensus--Phase 1. Available at: http://www.qualityforum.org/Projects/Cancer_Endorsement_Maintenance_2011.aspx#t=2&s=&p=3%7C.
---------------------------------------------------------------------------

    Comment: Some commenters did not support this measure, stating that 
the drug has multiple side effects and would not be appropriate for 
bone stem deterioration in all patients. The commenters stated that 
there may be other drugs that work just as well, if not better. Another 
commenter stated that the data collection for this measure would be 
very labor intensive and burdensome. The commenter also questioned the 
value of this measure given that performance is already high in terms 
of providing guideline-based care. Another commenter stated that this 
measure was intended for a physician setting and that CMS has 
generalized it to apply to the PCH setting without appropriate testing. 
The commenter urged CMS to delay implementation of this measure.
    Response: After review of the public comments we received, we are 
persuaded by the commenters that this measure is not appropriate to be 
included in the PCHQR Program at this time. We acknowledge that 
collecting this measure would be resource intensive, and we are 
sensitive to the fact that new drugs are available for the same 
therapeutic purpose. Based upon the concerns expressed by the 
commenters, we have decided not to finalize this measure for the PCHQR 
Program.
(B) Clinical Process/Oncology Care--Radiation Dose Limits to Normal 
Tissues (NQF 0382)
    This measure assesses the percentage of patients, regardless of 
age, with a diagnosis of pancreatic or lung cancer receiving 3D 
conformal radiation therapy with documentation in the medical record 
that radiation dose limits to normal tissues were established prior to 
the initiation of a course of 3D conformal radiation for a minimum of 
two tissues. This measure is intended to assess the appropriate use of 
3D conformal radiation therapy in the treatment of pancreatic and lung 
cancers. Treatment is important due to the high rate of morbidity and 
mortality associated with these cancers. For example, among cancers in 
US adults, lung cancers are the leading cause of deaths in both men and 
women. It is estimated from 2006--2008 rates that 6.94 percent of U.S. 
men and women born today will be diagnosed with cancer of the lung and 
bronchus at some time during their lifetime.\107\
---------------------------------------------------------------------------

    \107\ NQF. Cancer Endorsement Maintenance 2011.Candidate Review 
Consensus--Phase 1. Available at: http://www.qualityforum.org/Projects/Cancer_Endorsement_Maintenance_2011.aspx#t=2&s=&p=3%7C.
---------------------------------------------------------------------------

    Regarding pancreatic cancer, there has been an increased frequency 
of this cancer since 1998 of 0.8 percent in men and 1.0 percent in 
women.\108\ Based on rates from 2006 through 2008, 1.45 percent of men 
and women born today will be diagnosed with cancer of the pancreas at 
some time during their lifetime. A major goal of radiation therapy is 
the delivery of the desired dose distribution of radiation to target 
tissue while limiting the radiation dose to the surrounding normal 
tissues to an acceptable level.
---------------------------------------------------------------------------

    \108\ NQF. Cancer Endorsement Maintenance 2011.Candidate Review 
Consensus--Phase 1. Available at: http://www.qualityforum.org/Projects/Cancer_Endorsement_Maintenance_2011.aspx#t=2&s=&p=3%7C.
---------------------------------------------------------------------------

    Patients treated with 3D conformal radiation therapy are often 
subjected to radiation dose levels that exceed normal tissue tolerance. 
Precise specification of maximum doses to be received by normal tissues 
during radiation treatment planning is considered a best practice to 
avoid delivering unnecessary radiation to patients.
    Comment: A few commenters recommended that patients with metastatic 
disease receiving palliative care and patients with short life 
expectancy care be excluded from this measure.
    Response: Although palliative care often differs from curative 
cancer treatment, we are not aware of scientific evidence that patients 
receiving 3D conformal radiation therapy for palliative care or with 
short life expectancies should be exempt from dose limits. We believe 
that the measure is appropriate as it is currently specified.
    After consideration of the public comments we received, we are 
finalizing the Clinical Process/Oncology Care--Radiation Dose Limits to 
Normal Tissues measure for the FY 2016 program and subsequent years.
(C) Clinical Process/Oncology Care--Plan of Care for Pain (NQF 
0383)
    This measure assesses the percentage of visits for patients, 
regardless of age, with a diagnosis of cancer currently receiving 
chemotherapy or radiation therapy, who report having pain, with a 
documented plan of care to address that pain. Pain is one of the most 
common symptoms associated with cancer, occurring in approximately one 
quarter of patients with newly diagnosed malignancies, one third of 
patients undergoing treatment, and three quarters of patients with 
advanced disease. Proper pain management is critical to achieving pain 
control. ``Unrelieved pain denies [patients] comfort and greatly 
affects their activities, motivation, interactions with family and 
friends, and overall quality of life.'' \109\ This measure aims to 
improve attention to pain management and requires a plan of care for 
cancer patients who report having pain to allow for individualized 
treatment

[[Page 50843]]

based on clinical circumstances and patient wishes.\110\ This measure 
addresses the National Quality Strategy domain of Patient and Family 
Engagement. This measure is intended to be paired with NQF 
0384 below.
---------------------------------------------------------------------------

    \109\ NQF. Cancer Endorsement Maintenance 2011.Candidate Review 
Consensus--Phase 1. Available at: http://www.qualityforum.org/Projects/Cancer_Endorsement_Maintenance_2011.aspx#t=2&s=&p=3%7C.
    \110\ NQF. Cancer Endorsement Maintenance 2011.Candidate Review 
Consensus--Phase 1. Available at: http://www.qualityforum.org/Projects/Cancer_Endorsement_Maintenance_2011.aspx#t=2&s=&p=3%7C.
---------------------------------------------------------------------------

    Comment: A few commenters appreciated CMS' intent in pairing the 
Oncology: Plan of Care for Pain, and the Oncology: Pain Intensity 
Quantified measures but did not support the measures. Commenters 
believed that pain must be systematically assessed and treated in a 
manner appropriate for the level of pain. Some commenters stated that 
the definition for a plan of care in the ``Oncology: Plan of Care for 
Pain'' measure is ambiguous, with no indication of which interventions 
are appropriate for what type of patients or what level of pain 
requires intervention. Commenters pointed out that pain fluctuates over 
time. A commenter stated that from a patient's perspective, alleviation 
of pain is more important than the documentation of its evaluation. The 
commenter recommended the development of an outcome measure such as 
measuring changes in clinically significant cancer-related pain scores.
    Response: While we agree with many of the commenters' observations, 
we believe the broad definition of a plan of care in the Clinical 
process/Oncology care--Plan of care for pain measure would actually 
promote individualized treatment for each patient. We recognize that 
the alleviation of pain is the goal for both PCHs and patients and 
developing an appropriate plan of care is a necessary step to reach 
that goal. At the same time, we agree that an outcome measure of pain 
would be useful and are exploring how to develop this type of measure 
for the future.
    Comment: One commenter recommended that CMS modify the measure so 
that the numerator includes a minimum threshold for pain (for example, 
3 or more on a 10-point scale) and the denominator includes visits 
outside of chemotherapy and radiation therapy appointments (for 
example, palliative care). The commenter also recommended that the term 
``visit'' be well-defined.
    Response: Consistent with National Comprehensive Cancer Network 
guidelines, we believe that all patients who report pain, even those 
with mild pain, should have a plan of care. This is reflected in the 
denominator of the measure, which includes all patients who report 
having pain. We agree that patients other than those receiving 
radiation therapy or chemotherapy may benefit from plan of care for 
treatment of pain, but the NQF-endorsed version of the measure does not 
include other categories of patients at this time. We also believe that 
many patients will benefit from our adoption of the measure as it is 
currently specified. The term ``visit'' has a detailed definition in 
the current specifications.\111\
---------------------------------------------------------------------------

    \111\ NQF. Cancer Endorsement Maintenance 2011.Candidate Review 
Consensus--Phase 1. Available at: http://www.qualityforum.org/Projects/Cancer_Endorsement_Maintenance_2011.aspx#t=2&s=&p=3%7C.
---------------------------------------------------------------------------

    After consideration of the public comments we received, we are 
finalizing the Clinical Process/Oncology Care--Plan of Care for Pain 
measure for the FY 2016 program and subsequent years.
(D) Clinical Process/Oncology Care--Pain Intensity Quantified (NQF 
0384)
    This measure assesses the percentage of patient visits, regardless 
of patient age, with a diagnosis of cancer currently receiving 
chemotherapy or radiation therapy in which pain intensity is 
quantified. As described above for the Oncology: Plan of Care for Pain 
(NQF 0383) measure, pain is the most common symptom in cancer 
patients and this measure is used in conjunction with NQF 0384 
to encourage consistent assessment of pain intensity to better guide 
the care of pain.\112\ This measure addresses the National Quality 
Strategy domain of Patient and Family Engagement. Higher rates are 
indicative of better performance. This measure is intended to be paired 
with NQF 0383 above.
---------------------------------------------------------------------------

    \112\ NQF. Cancer Endorsement Maintenance 2011.Candidate Review 
Consensus--Phase 1. Available at: http://www.qualityforum.org/Projects/Cancer_Endorsement_Maintenance_2011.aspx#t=2&s=&p=3%7C.
---------------------------------------------------------------------------

    Comment: A few commenters stated that there was ambiguity in the 
measure specifications for the Oncology: Pain Intensity Quantified 
measure which encompasses subjective interpretation, thereby 
undermining efforts to collect reliably the measure data. Commenters 
argued that the list of instrument examples included with the measure 
specifications only captures general types of tools that could be used 
and this could distract from substantive effort to alleviate cancer-
related pain.
    Response: We disagree that the measure is subjective. The 
determination of whether a physician or other health care provider has 
used a tool is objective; the provider either used a tool or did not. 
The option to choose among different types of tools allows providers to 
individualize care for patients. It is not necessary for the tools to 
be cancer-specific. The experience of pain is complex and it is not 
realistic or appropriate to separate cancer-specific pain when the goal 
is to support patients' comfort and quality of life. We believe that 
measuring pain intensity by an appropriate method is a necessary step 
to achieving pain management.
    Comment: One commenter recommended that CMS modify this measure so 
that the denominator includes visits outside of chemotherapy and 
radiation therapy appointments (for example, palliative care).
    Response: We believe that the measure is appropriate as it is 
currently specified. We agree that patients other than those receiving 
radiation therapy or chemotherapy may benefit from plan of care for 
treatment of pain, but the NQF-endorsed version of the measure does not 
include other categories of patients at this time. We also believe that 
many patients will benefit from finalizing the measure as it is 
currently specified.
    After consideration of the public comments we received, we are 
finalizing the Clinical Process/Oncology Care--Pain Intensity 
Quantified measure for the FY 2016 program and subsequent years.
(E) Clinical Process/Oncology Care--Prostate Cancer-Avoidance of 
Overuse Measure-Bone Scan for Staging Low-Risk Patients (NQF 
0389)
    This measure assesses the percentage of patients, regardless of 
age, with a diagnosis of prostate cancer at low risk of recurrence 
receiving interstitial prostate brachytherapy, or external beam 
radiotherapy to the prostate, or radical prostatectomy, or cryotherapy, 
who did not have a bone scan performed at any time since diagnosis of 
prostate cancer.
    Prostate cancer is the most commonly diagnosed cancer and the 
second leading cause of cancer death in men over the age of 40 years in 
the United States. Current guidelines and best practices do not 
recommend bone scans for patients in the low risk stratum for prostate 
cancer bony involvement. The goal of this measure is to reduce the use 
of bone scans that are clinically unnecessary and reduce economic 
burden to the patient and payer.\113\ This

[[Page 50844]]

measure addresses the National Quality Strategy domain of Clinical 
Efficiency.
---------------------------------------------------------------------------

    \113\ NQF. Cancer Endorsement Maintenance 2011. Candidate Review 
Consensus--Phase 1. Available at: http://www.qualityforum.org/Projects/Cancer_Endorsement_Maintenance_2011.aspx#t=2&s=&p=3%7C.
---------------------------------------------------------------------------

    Comment: One commenter stated that, as currently written, the 
wording of the measure implies that a low-risk patient should never 
receive a bone scan. The commenter stated that the measure 
specifications must accommodate patients whose disease manifestations 
warrant a bone scan (for example, short time to relapse, rapid PSA 
doubling time), and the term ``at any time'' should be avoided.
    Response: We agree with the commenter that the measure 
specifications should allow for appropriate use of bone scans when they 
are warranted. The current specifications of this measure account for 
these circumstances through several measure ``exclusions'' that remove 
otherwise low-risk patients with certain symptoms or physical findings 
from the denominator, because they would warrant a bone scan, and we 
agree that scans for these patients should not be counted as overuse.
    Comment: One commenter recommended that CMS modify the measure so 
that the numerator incorporates a literature-based period (for example, 
imaging within X days of diagnosis).
    Response: We believe the measure is appropriate as it is currently 
specified. Bone scans are considered unnecessary for most low-risk 
patients with prostate-cancer, no matter how long a patient might have 
had prostate cancer. There is no scientific evidence that passage of 
time alone, in the absence of a change in clinical status, would 
indicate a valid reason for a bone scan.
    After consideration of the public comments we received, we are 
finalizing the Clinical Process/Oncology Care--Prostate Cancer-
Avoidance of Overuse Measure-Bone Scan for Staging Low-Risk Patients 
measure for the FY 2016 PCHQR program and subsequent years.
(F) Clinical Process/Oncology Care--Prostate Cancer-Adjuvant Hormonal 
Therapy for High-Risk Patients (NQF 0390)
    This measure assesses the percentage of patients, regardless of 
age, with a diagnosis of prostate cancer at high risk of recurrence 
receiving external beam radiotherapy to the prostate, who were 
prescribed adjuvant hormonal therapy (GnRH agonist or antagonist). 
Prostate cancer is the most commonly diagnosed cancer and the second 
leading cause of cancer death in men over the age of 40 years in the 
United States. If patients are receiving external beam radiotherapy as 
primary therapy, those patients that are designated as high risk may be 
prescribed hormonal therapy. Adjuvant hormonal therapy in these 
patients has been shown to increase the effectiveness of the 
radiotherapy and may prolong survival. Further, the American Urological 
Association and the National Comprehensive Cancer Network guidelines 
recommend adjuvant hormonal therapy with radiotherapy for high-risk 
prostate cancer patients for prolonged survival. This measure attempts 
to encourage compliance with this guideline for this specific patient 
population.\114\ This measure addresses the National Quality Strategy 
domain of Clinical Effectiveness.
---------------------------------------------------------------------------

    \114\ NQF. Cancer Endorsement Maintenance 2011. Candidate Review 
Consensus--Phase 1. Available at: http://www.qualityforum.org/Projects/Cancer_Endorsement_Maintenance_2011.aspx#t=2&s=&p=3%7C.
---------------------------------------------------------------------------

    Comment: One commenter recommended that CMS modify the measure so 
that the numerator provides additional specifications to categorize 
patients at ``high risk for recurrence'' and incorporates a literature-
based period (for example, treatment within X days of diagnosis).
    Response: We believe that the measure is appropriate as it is 
currently specified. The specification describes patients at ``high 
risk for recurrence'' as having one or more of the following 
characteristics: PSA > 20 mg/dL, Gleason score of 8 to 10, or 
clinically localized stage T3a1. The measure requires that patients 
receiving External Beam Radiation Therapy (EBRT) receive adjuvant 
hormonal therapy at the same time (concurrently); therefore, the 
measure already contains a time period for the adjuvant hormonal 
therapy.
    After consideration of the public comments we received, we are 
finalizing the Clinical Process/Oncology Care--Prostate Cancer-Adjuvant 
Hormonal Therapy for High-Risk Patients measure for the FY 2016 PCHQR 
program and subsequent years.
(3) Patient Experience of Care Survey: HCAHPS
    To advance patient safety and quality improvement in cancer 
hospital settings, we proposed that for the FY 2016 program and 
subsequent years, PCHs submit data on the HCAHPS Survey of patient 
experience-of-care. We partnered with AHRQ to develop HCAHPS. The 
HCAHPS Survey is the first national, standardized, publicly reported 
survey of patients' experience of hospital care. HCAHPS, also known as 
CAHPS[supreg] Hospital Survey, is a survey instrument and data 
collection methodology for measuring patients' perceptions of their 
hospital experience.
    The HCAHPS Survey asks recently discharged patients 32 questions 
about aspects of their hospital experience that they are uniquely 
suited to address. The core of the survey contains 21 items that ask 
``how often'' or whether patients experienced a critical aspect of 
hospital care. The survey also includes four items to direct patients 
to relevant questions, five items to adjust for the mix of patients 
across hospitals, and two items that support Congressionally-mandated 
reports (77 FR 53513 through 53515).
    Ten HCAHPS measures (six summary measures, two individual items and 
two global items) are currently publicly reported on the Hospital 
Compare Web site (http://www.hospitalcompare.hhs.gov/) for each 
hospital participating in the Hospital IQR Program. One new composite 
item, ``Transition to post-hospital care,'' will be added to the 
Hospital Compare Web site for the Hospital IQR Program once 
participating hospitals have submitted four calendar quarters of data 
on the three Care Transition Measure items that were added to the 
HCAHPS Survey beginning with January 2013 discharges (77 FR 53513 
through 53515).
    Each of the six currently reported summary measures, or composites, 
is constructed from two or three survey questions. The six composites 
summarize how well doctors communicate with patients, how well nurses 
communicate with patients, how responsive hospital staff are to 
patients' needs, how well hospital staff helps patients manage pain, 
how well the staff communicates with patients about medicines, and 
whether key information is provided at discharge. The two individual 
items address the cleanliness and quietness of patients' rooms, while 
the two global items report patients' overall rating of the hospital, 
and whether they would recommend the hospital to family and friends.
    The HCAHPS Survey is administered to a random sample of adult 
inpatients between 48 hours and 6 weeks after discharge. Patients 
admitted in the medical, surgical and maternity care service lines are 
eligible for the survey; the survey is not restricted to Medicare 
beneficiaries. PCHs may use an approved survey vendor, or collect their 
own HCAHPS data (if approved by CMS to do so). To accommodate 
hospitals, HCAHPS can be implemented using one of four different survey 
modes: mail; telephone; mail with telephone follow-up; or active 
interactive voice recognition (IVR). Regardless of the mode used, the 
PCH would be required

[[Page 50845]]

to make multiple attempts to contact patients.
    PCHs may use the HCAHPS Survey alone, or include additional 
questions after the 21 core items discussed above. PCHs must survey 
patients throughout each month of the year, and PCHs participating in 
the PCHQR Program must target at least 300 completed surveys over four 
calendar quarters in order to attain the reliability criterion CMS has 
set for publicly reported HCAHPS scores. The HCAHPS Survey is available 
in official translations in several languages other than English: 
Spanish (mail and telephone modes); Chinese (mail mode); Russian (mail 
mode); and Vietnamese (mail mode). All official translations of the 
HCAHPS Survey instrument are available in the current HCAHPS Quality 
Assurance Guidelines. The survey itself and the protocols for sampling, 
data collection, coding and file submission can be found in the current 
HCAHPS Quality Assurance Guidelines manual, available on the HCAHPS On-
Line Web site located at: http://www.hcahpsonline.org.
    We partnered with AHRQ to develop and test the HCAHPS Survey. AHRQ 
carried out a rigorous and multi-faceted scientific process, including 
a public call for measures; literature review; cognitive interviews; 
consumer focus groups; stakeholder input; a three-State pilot test; 
extensive psychometric analyses; consumer testing; and numerous small-
scale field tests. In addition, we provided three separate 
opportunities for the public to comment on HCAHPS, and responded to 
over 1,000 comments.
    In May 2005, the HCAHPS Survey was NQF-endorsed and in December 
2005 OMB gave its final approval for the national implementation of 
HCAHPS for public reporting purposes. We implemented the HCAHPS Survey 
for the Hospital IQR Program in October 2006 and the first public 
reporting of HCAHPS results under that program occurred in March 2008. 
The survey and its methodology are available on the HCAHPS On-Line Web 
site located at: http://hcahpsonline.org and the survey results are 
available on the Hospital Compare Web site at http://www.hospitalcompare.hhs.gov.
    Currently, nearly 3,900 hospitals that participate in the Hospital 
IQR Program publicly report their HCAHPS scores on Hospital Compare, 
and about 27 percent of PCHs voluntarily administer the HCAHPs Survey. 
We strongly encourage those PCHs that are currently submitting the 
HCAHPS measure to continue their current data submission.
    We invited public comment on our proposals to adopt the HCAHPS 
measure beginning with the FY 2016 program year.
    Comment: One commenter supported inclusion of the HCAHPS measure.
    Response: We appreciate the commenter's support for the adoption of 
the HCAHPS measure for PCHs.
    Comment: Some commenters objected to the HCAHPS inclusion because 
this tool has not yet been tested or NQF-endorsed for use in PCHs, and 
it is limited to the inpatient population whereas the great majority of 
PCH patients receive care in the outpatient setting. Commenters urged 
rapid testing and adoption of a Cancer CAHPS survey.
    Response: The HCAHPS Survey received the endorsement of the 
National Quality Forum (NQF 0166) for use by acute care 
hospitals. In addition, approximately 27 percent of PCHs currently 
participate in HCAHPS on a voluntary basis.
    We believe that the HCAHPS Survey is appropriate to measure 
inpatients' experience of care in the PCH setting. The widespread 
adoption of HCAHPS by acute care hospitals as resulted in benchmarks 
that could be useful to PCHs in their quality improvement efforts. The 
HCAHPS Survey looks at key facets of patient experience that are 
relevant to PCHs, such as communication with patients, responsiveness 
of staff, cleanliness and quietness of the hospital environment and 
discharge instructions. We further note that PCHs have the option to 
add their own supplemental items to the HCAHPS Survey, as explained in 
the current HCAHPS Quality Assurance Guidelines, V8.0, which can be 
found at http://www.hcahpsonline.org. PCHs treat patients on both an 
inpatient and an outpatient basis, and we believe that the HCAHPS 
Survey will provide a starting point to monitor patient experience of 
care in PCHs. We are monitoring the development of other CAHPS tools 
that may be appropriate for cancer care patients in the inpatient/
ambulatory settings.
    Comment: One commenter indicated that although some PCHs may 
currently use the HCAHPS Survey, posting on Hospital Compare will 
compel the institution to agree to participation in the Hospital IQR 
Program. Therefore, information that PCHs are exempt from reporting, 
such as hospital readmission rates, will be posted. If this is correct, 
commenter strongly urged the postponement of implementation of this 
measure until operational challenges such as these have been resolved.
    Response: PCHs are not required to submit any data under the 
Hospital IQR Program because that program does not apply to PCHs. 
However, we are aware that some PCHs currently submit HCAHPS data to 
CMS on a voluntary basis, and we encourage PCHs to continue this 
practice so that they can assess the experience of care of their 
patients against the experience of care of subsection (d) hospital 
patients. In addition, by voluntarily continuing to submit HCAHPS data 
to CMS prior to the time when the data is due under the PCHQR Program, 
PCHs will increase their familiarity with the HCAHPS Survey, its 
implementation, data collection, and data submissions protocols.
    Comment: One commenter recommended that CMS postpone adoption of 
the HCAHPS measure until the development and testing of the cancer 
CAHPS survey is complete. Another commenter supported MAP's 
recommendation to submit the cancer module of the HCAHPS Survey for 
endorsement as soon as possible. One commenter recommended further 
testing to address the cancer population, palliative/end-of-life-care, 
and to include outpatient services in the survey before inclusion in 
the PCHQR Program.
    Response: We continue to monitor AHRQ's development of a cancer 
CAHPS survey. We understand that further development and more extensive 
testing of this instrument are still needed. In the interim, we believe 
that the HCAHPS Survey is an appropriate instrument to measure 
inpatient experience of care in the PCH setting. As noted above, the 
widespread adoption of HCAHPS by acute care hospitals has resulted in 
benchmarks that could be useful to PCHs in their quality improvement 
efforts. The HCAHPS Survey will allow a PCH to assess key facets of 
patient experience that are relevant to hospitals, such as 
communication with patients, responsiveness of staff, cleanliness and 
quietness of the hospital environment and discharge instructions. While 
the HCAHPS Survey was designed for the inpatient setting, it provides a 
starting point to monitor inpatient experience of care in PCHs.
    After consideration of the public comments received, we are 
finalizing the HCAHPS measure for the FY 2016 program and subsequent 
years.
(4) Summary of Measures
    In addition to the five measures that we previously finalized for 
the PCHQR Program, we are finalizing one new SSI measure for reporting 
beginning with

[[Page 50846]]

the FY 2015 PCHQR Program. We are also finalizing six new SCIP, five 
new Clinical Process/Oncology Care Measures and the HCAHPS Survey for 
reporting beginning with the FY 2016 PCHQR Program. We discuss below 
our finalized policies regarding the form, manner, and timing of data 
collection for these measures. The tables below list the previously 
finalized measures and the new finalized measures for the PCHQR Program 
beginning with the FY 2015 PCHQR Program.

------------------------------------------------------------------------
                                      Previously finalized measures for
               Topic                the PCHQR program beginning with the
                                            FY 2014 program year
------------------------------------------------------------------------
Safety and Healthcare-Associated Infection--HAI
------------------------------------------------------------------------
                                     (NQF 0139) NHSN
                                     Central Line-Associated Bloodstream
                                     Infection (CLABSI) Outcome Measure
                                     (NQF 0138) NHSN
                                     Catheter-Associated Urinary Tract
                                     Infections (CAUTI) Outcome Measure
------------------------------------------------------------------------
Clinical Process/Cancer-Specific Treatments
------------------------------------------------------------------------
                                     (NQF 0223)
                                     Adjuvant Chemotherapy is Considered
                                     or Administered Within 4 Months
                                     (120 days) of Surgery to Patients
                                     Under the Age of 80 with AJCC III
                                     (lymph node positive) Colon Cancer
                                     (NQF 0559)
                                     Combination Chemotherapy is
                                     Considered or Administered Within 4
                                     Months (120 days) of Diagnosis for
                                     Women Under 70 with AJCC T1c, or
                                     Stage II or III Hormone Receptor
                                     Negative Breast Cancer
                                     (NQF 0220)
                                     Adjuvant Hormonal Therapy
------------------------------------------------------------------------


------------------------------------------------------------------------
                                      Previously Finalized Measures for
               Topic                the PCHQR Program Beginning with the
                                            FY 2015 Program Year
------------------------------------------------------------------------
Safety and Healthcare-Associated Infection--HAI
------------------------------------------------------------------------
                                     (NQF 0753)
                                     Harmonized Procedure Specific
                                     Surgical Site Infection (SSI)
                                     Outcome Measure
------------------------------------------------------------------------


------------------------------------------------------------------------
                                      Previously Finalized Measures for
               Topic                the PCHQR Program Beginning with the
                                            FY 2016 Program Year
------------------------------------------------------------------------
SCIP
------------------------------------------------------------------------
                                     (NQF 0218) Surgery
                                     Patients who Received Appropriate
                                     VTE Prophylaxis within 24 Hrs Prior
                                     to Surgery to 24 Hrs After Surgery
                                     End Time
                                     (NQF 0453) Urinary
                                     Catheter Removed on Post-Operative
                                     Day 1 or Post-Operative Day 2 with
                                     Day of Surgery Being Day Zero
                                     (NQF 0527)
                                     Prophylactic Antibiotic Received
                                     Within 1 Hr Prior to Surgical
                                     Incision
                                     (NQF 0528)
                                     Prophylactic Antibiotic Selection
                                     for Surgical Patients
                                     (NQF 0529)
                                     Prophylactic Antibiotic
                                     Discontinued Within 24 Hrs After
                                     Surgery End Time
                                     (NQF 0284) Surgery
                                     Patients on Beta Blocker Therapy
                                     Prior to Admission who Received a
                                     Beta Blocker During the
                                     Perioperative Period
------------------------------------------------------------------------
Clinical Process/Oncology Care Measures
------------------------------------------------------------------------
                                     (NQF 0382)
                                     Oncology-Radiation Dose Limits to
                                     Normal Tissues
                                     (NQF 0383)
                                     Oncology: Plan of Care for Pain
                                     (NQF 0384)
                                     Oncology: Pain Intensity Quantified
                                     (NQF 0390)
                                     Prostate Cancer-Adjuvant Hormonal
                                     Therapy for High-Risk Patients
                                     (NQF 0389)
                                     Prostate Cancer-Avoidance of
                                     Overuse Measure-Bone Scan for
                                     Staging Low-Risk Patients
------------------------------------------------------------------------
Patient Engagement/Experience of Care
------------------------------------------------------------------------
                                     (NQF 0166) HCAHPS
------------------------------------------------------------------------

6. Possible New Quality Measure Topics for Future Years
    We seek to develop a comprehensive set of quality measures to be 
available for widespread use for informed decision-making and quality 
improvement in the PPS-exempt cancer hospital setting. Therefore, 
through future rulemaking, we intend to propose to adopt new or updated 
measures, such as measures that assess the safety and efficiency of 
diagnosis and treatment of cancer, measures that take into account 
novel diagnostic and treatment modalities, measures that assess 
symptoms and functional status, measures of appropriate disease 
management and care coordination, and measures of admissions for 
complications of cancer and treatment for cancer, that help us further 
our goal of achieving better health care and improved health for 
Medicare beneficiaries who obtain cancer services through the 
widespread dissemination and use of performance information.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27715), we 
welcomed public comment and suggestions for the following measure 
domains: clinical quality of care, care coordination, patient safety, 
patient and caregiver experience of care, population/community health, 
and efficiency. These domains align with those of the National Quality 
Strategy, and we believe that selecting measures to address these 
domains will promote better cancer care while bringing the PCHQR 
Program in line with other established quality reporting and pay for 
performance programs such as the

[[Page 50847]]

Hospital IQR Program, the Hospital VBP Program, and the Hospital OQR 
Program, and others within our purview.
    Comment: One commenter recommended the inclusion of three MAP 
recommended and NQF-endorsed measures: Oncology: Radiation dose limits 
to normal tissue, prostate cancer; Adjuvant hormonal therapy for high-
risk patients, and prostate cancer; and Avoidance of overuse of bone 
scan for staging low-risk patients. One commenter preferred the 
adoption of more long-term, cancer-specific outcome measures as well as 
measures for less common malignancies. One commenter recommended 
inclusion of more outcome measures in areas such as survival, quality 
of life, infection, VTE rates and mortality. One commenter suggested 
that CMS take a leadership role in developing measures of particular 
relevance to this reporting program, such as measures of risk-adjusted, 
stage-specific survival curves for various types of cancer (for 
example, lung, pancreas, liver, thyroid and esophagus, breast, 
colorectal). Another commenter recommended a multi-drug resistant 
organism (MDRO) measure.
    Response: We appreciate the commenters' comments and suggestions, 
and we will consider them as we develop and select future measures. A 
CMS contractor has actively engaged stakeholders to discuss viable 
strategies to develop valid and reliable measures in these domains.
7. Maintenance of Technical Specifications for Quality Measures
    Many of the quality measures used in different Medicare and 
Medicaid reporting programs are NQF-endorsed. As part of its regular 
maintenance process for endorsed performance measures, the NQF requires 
measure stewards to submit annual measure maintenance updates and 
undergo maintenance of endorsement review every 3 years. In the measure 
maintenance process, the measure steward (owner/developer) is 
responsible for updating and maintaining the currency and relevance of 
the measure and will confirm existing or minor specification changes to 
NQF on an annual basis. NQF solicits information from measure stewards 
for annual reviews and in order to review measures for continued 
endorsement in a specific 3-year cycle.
    Through NQF's measure maintenance process, NQF-endorsed measures 
are sometimes updated to incorporate changes that we believe do not 
substantively change the nature of the measure. We believe these types 
of maintenance changes are distinct from more substantive changes to 
measures that result in what are considered new or different measures, 
and that they do not trigger the same agency obligations under the 
Administrative Procedure Act.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53562), we adopted a 
policy to use a subregulatory process to make nonsubstantive updates to 
NQF-endorsed measures used for the PCHQR Program. We also said that we 
expected to make the determination of what constitutes a substantive 
versus a nonsubstantive change on a case-by-case basis, and provided 
examples of the types of changes that would fall into each category. We 
further said that the policies regarding what is considered substantive 
versus nonsubstantive changes would apply to all PCHQR Program 
measures.
    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 HCAHPS On-Line Web site, 
http://www.hcahpsonline.org. As necessary, HCAHPS Bulletins are issued 
to provide notice of changes and updates to technical specifications in 
HCAHPS data collection systems. The specifications for the other 
measures are posted in the Specifications Manual on the QualityNet Web 
site at www.qualitynet.org.
    The Specifications Manual contains links to measure specifications, 
data abstraction information, data submission information, and other 
information necessary for PCHs to participate in the PCHQR Program. We 
maintain the technical specifications for the quality measures by 
updating this Manual periodically as we continue to expand and update 
our PCHQR Program. These updates include detailed instructions for PCHs 
to use when collecting and submitting data on the required measures and 
are accompanied by notifications to PCHQR Program-participating users, 
providing sufficient time between the change and effective dates in 
order to allow users to incorporate changes and updates to the measure 
specifications into data collection systems. We also revise the 
Specifications Manual and provide links to reflect measure changes 
which are also posted on the QualityNet Web site at: https://www.QualityNet.org.
8. Public Display Requirements for the FY 2014 Program and Subsequent 
Years
    Section 1866(k)(4) of the Act requires the Secretary to establish 
procedures for making the data submitted under the PCHQR Program 
available to the public. Such procedures shall ensure that a PCH has 
the opportunity to review the data that is to be made public with 
respect to the hospital prior to such data being made public. Section 
1866(k)(4) of the Act also provides that the Secretary shall report 
quality measures of process, structure, outcome, patients' perspective 
on care, efficiency, and costs of care that relate to services 
furnished in such hospital on the CMS Web site.
    In order to meet these requirements, in the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53562 through 56563), we finalized our policy to 
publicly display the submitted data on the Hospital Compare Web site 
(http://www.hospitalcompare.hhs.gov/) and established a preview period 
of 30 days prior to making such data public.
    This year we have more information on the state of our systems' 
capability and readiness. Therefore, in the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27716), we proposed to display publicly in 2014 
the data for the measures listed below:
     Adjuvant Chemotherapy is considered or administered within 
4 months (120 days) of surgery to patients under the age of 80 with 
AJCC III (lymph node positive) colon cancer (NQF 0223); and
     Combination Chemotherapy is considered or administered 
within 4 months (120 days) of diagnosis for women under 70 with AJCC 
T1c, or Stage II or III hormone receptor negative breast cancer (NQF 
0559).
    However, we proposed to defer the public reporting of the remaining 
three finalized measures for the FY 2014 PCHQR Program. We are in the 
process of testing and assessing data quality, including the 
reliability and validity of the measure rates, and do not believe that 
the data will be ready for public posting until sometime in the future. 
We will provide more information in future rulemaking.
    We invited public comment on these proposals.
    Comment: Many commenters supported CMS' proposal to defer public 
reporting of the measures in the program while we continue to test and 
assess the quality of the data.
    Response: We appreciate the commenters' support.
    Comment: One commenter recommended that CMS defer public reporting 
of the central line-associated blood stream infection (CLABSI) measure 
for the PCHQR Program until the NQF-endorsed measure has been revised 
to exclude infections unrelated to central line placement to avoid

[[Page 50848]]

erroneous conclusions about infection rates at PCHs.
    Response: We work very closely with the measure developer, the CDC, 
to provide meaningful public reporting data. The current CLABSI measure 
is NQF-endorsed and in use by the CDC and other quality reporting 
programs. Reporting on this measure will help to address the quality of 
care provided in PCH setting. We believe it is important to collect 
data on CLABSI because CLABSI can lead to severe complications that 
interfere with the quality of life of cancer patients. Further, given 
successful use of this measure in the Hospital IQR Program, we think 
that the measure as it is currently specified by the CDC provides 
sufficient information to allow meaningful public reporting.
    Comment: One commenter commended CMS' efforts in including public 
reporting requirements in the PCHQR Program because the commenter 
believed that the public reporting of quality measure performance at a 
centralized Web site will improve a beneficiary's ability to make 
informed health care choices and will facilitate a PCH's ability to 
improve the quality and efficiency of its care. The commenter 
encouraged CMS to make the data for the additional finalized measures 
for 2014 publicly available as quickly as possible.
    Response: We appreciate the commenter's support. It is our goal to 
ensure that the public obtains access to valid and reliable quality of 
care measure data in a timely manner. We intend to make data on these 
measures available to the public as soon as possible.
    Comment: One commenter recommended that CMS require all PCHs to 
display prominently the performance outcomes in patient areas in a 
manner similar to what is required by the ESRD QIP.
    Response: There are no performance score certificates in the PCHQR 
Program, and PCHs are not evaluated based on performance. We will make 
the data publicly available on the Hospital Compare Web site (http://www.hospitalcompare.hhs.gov/). Such public display of the quality 
measure data will inform patients and their caregivers of the quality 
of care provided at PCHs.
    Comment: One commenter recommended that CMS exercise care in 
publicly reporting the SSI measure because reporting the measure for 
cancer patients presents different challenges than reporting the 
measure for general acute care hospital patients.
    Response: We appreciate the commenter's recommendation. At this 
time, this measure is specified for use by NQF for all postoperative 
patients. Therefore, we believe it is appropriate to use for 
postoperative cancer patients.
    After consideration of the public comments we received, we are 
finalizing the public display requirements for the FY 2014 program and 
subsequent years.
9. Form, Manner, and Timing of Data Submission for the FY 2015 Program 
and Subsequent Years
a. Background
    Section 1866(k)(2) of the Act requires that, beginning with the FY 
2014 PCHQR Program, each PCH must submit to the Secretary data on 
quality measures specified under section 1866(k)(3) of the Act in a 
form and manner, and at a time as specified by the Secretary.
    The complete data submission requirements and submission deadlines 
for FY 2014 have been posted on the QualityNet Web site at: https://www.QualityNet.org. We also refer readers to the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53563 through 535567) for more information.
b. Waivers From Program Requirements
    In our experience with other quality reporting and/or performance 
programs, we have noted occasions when providers have been unable to 
submit required quality data due to extraordinary circumstances that 
are not within their control (for example, natural disasters). We do 
not wish to unduly increase their burden during these times. Therefore, 
in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27716), we proposed 
that, beginning with FY 2014, PCHs may request and we may grant waivers 
with respect to the reporting of required quality data when 
extraordinary circumstances beyond the control of the PCH warrant. When 
waivers are granted, we will notify the respective PCH.
    Under the proposed process, in the event of extraordinary 
circumstances not within the control of the PCH, such as a natural 
disaster, the PCH may request a reporting extension or a complete 
waiver of the requirement to submit quality data for one or more 
quarters. Such facilities 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:
     The PCH's CCN;
     The PCH's name;
     Contact information for the PCH's CEO and any other 
designated personnel, including name, email address, telephone number, 
and mailing address (the address must be a physical address, not a post 
office box);
     The PCH's reason for requesting an extension or waiver;
     Evidence of the impact of extraordinary circumstances, 
including but not limited to photographs, newspaper and other media 
articles; and
     A date when the PCH will again be able to submit PCHQR 
Program data, and a justification for the proposed date.
    We proposed that the request form must be signed by the PCH's CEO 
or designee, and must be submitted within 30 days of the date that the 
extraordinary circumstances occurred. Following receipt of the request 
form, we would: (1) Provide a written acknowledgement, using the 
contact information provided in the request, to the CEO and any 
additional designated PCH personnel, notifying them that the PCH's 
request has been received; and (2) provide a formal response to the CEO 
and any additional designated PCH personnel, using the contact 
information provided in the request, notifying them of our decision.
    This proposal does not preclude us from granting waivers or 
extensions to PCHs that have not requested them when we determine that 
an extraordinary circumstance, such as an act of nature (for example, a 
hurricane or other natural disaster that could reasonably affect a 
PCH's ability to compile or report data), affects an entire region or 
locale. If we make the determination to grant a waiver or extension to 
PCHs in a region or locale, we proposed to communicate this decision 
through routine communication channels to PCHs and vendors, by means of 
memoranda, emails, and notices on the QualityNet Web site, among other 
means.
    We invited public comment on this proposal.
    Comment: One commenter supported CMS' proposal.
    Response: We appreciate the commenter's support.
    After consideration of the public comment we received, we are 
finalizing the waiver and extension process for the PCHQR Program.
c. Reporting Periods and Submission Timelines for the Finalized SSI 
Measure
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27716 through 
27717), we proposed that PCHs report the proposed SSI measure beginning 
with January 1, 2014 events. We believe that this date will provide 
enough advance notice for PCHs to prepare to report the measure, and we 
base this

[[Page 50849]]

belief on our experience gained from collecting the SSI measure for the 
Hospital IQR Program.
    We proposed to calculate the SSI measure rate for purposes of the 
FY 2015 program year using data from the first quarter (Q1) of calendar 
year (CY) 2014. We recognize that using data from only one quarter may 
not provide a complete picture of the quality of care provided at a 
PCH. However, our intent is to align the PCHQR reporting timeline with 
the reporting timeline used by the Hospital IQR Program as well as to 
leverage current IT infrastructure to minimize cost and burden.
    We proposed to calculate the SSI measure rate for purposes of the 
FY 2016 program year using data from the last three quarters (Q2, Q3, 
and Q4) of CY 2014, and we proposed to calculate the SSI measure rate 
for purposes of the FY 2017 program year using data from all four 
quarters (Q1, Q2, Q3, and Q4) of CY 2015.
    We proposed that PCHs submit the SSI measure data to the CDC 
through the NHSN database. This is the same procedural/reporting 
mechanism requirement used for the CLABSI and CAUTI measures we 
finalized in FY 2013 IPPS/LTCH PPS final rule (77 FR 53563 through 
53564). The data submission and reporting procedures have been set 
forth by CDC for NHSN participation in general and for submission of 
the SSI measure to NHSN. We refer readers to the CDC's Web site (http://www.cdc.gov/nhsn/) for detailed data submission and reporting 
procedures. After the final submission deadline has passed, we will 
obtain the PCH-specific calculations that have been generated by the 
NHSN for the PCHQR Program.
    As noted above, we proposed to adopt a quarterly submission process 
for the SSI measure that uses a reporting mechanism that is the same as 
the one finalized for the Hospital IQR Program (77 FR 53539). We have 
successfully implemented this reporting mechanism in the Hospital IQR 
Program, and we strongly believe that this type of data submission is 
the most feasible option because PCHs are accustomed to reporting the 
CAUTI and CLABSI measures to the NHSN this way.
    We welcomed public comment on this proposal.
    Comment: Some commenters supported the proposed data collection and 
reporting proposals for the SSI measure.
    Response: We appreciate the commenters' support.
    Comment: One commenter recommended that CMS allow sampling rather 
than chart abstraction whenever possible to reduce the reporting burden 
on PCHs.
    Response: As indicated in the SSI measure specifications, the SSI 
measure applies to all postoperative patients who fall into the 
numerator criteria. We believe that the reporting burden for this 
measure is minimized because PCHs can submit aggregate denominator data 
every quarter. We also note that PCHs are required to report patient-
level infection events only for potentially infected patients, not all 
patients. PCHs are also required to summarize their population of all 
eligible patients receiving the surgical procedures by submitting 
aggregate level counts. We do not allow sampling because previous 
experience in the Hospital IQR Program indicates that PCHs will report 
relatively few patients with potential infections. We believe that 
complete submission of all potential patient-level infection events is 
necessary to perform risk adjustment and ensure sufficient reliability 
for SSI publicly reported measure data.
    Comment: One commenter recommended that CMS calculate measure rates 
for the PCHQR Program based on a full year of data for purposes of 
public reporting.
    Response: We appreciate the commenter's recommendation. As noted 
above, we are attempting to align the PCHQR reporting timeline with the 
reporting timeline used by the Hospital IQR Program, with the goal that 
we will collect and report a full year of data for the SSI measure 
beginning FY 2017. We will continue to consider and strive to report, 
whenever operationally possible, 12 months of data.
    Comment: A few commenters recommended that CMS implement a vendor 
certification program for the PCHQR Program that would allow PCHs to 
reduce redundant data collection and streamline PCHQR Program 
reporting.
    Response: We believe the commenter is recommending that we 
implement something similar to the approved survey vendor list we use 
for the HCAHPS. For the HCAHPS, vendors must undergo rigorous training 
on how to conduct the survey prior to being added to our list of 
approved survey vendors. The reason we require hospitals to either 
receive training on how to conduct the survey or use vendors from our 
list who have been trained to conduct the survey is because the HCAHPS 
requires patient and/or patient caregiver interface to gather 
information on hospitalization experience of care. Therefore, human 
factors influence demand that survey conductors are trained in survey 
administration techniques in order to yield the most objective, 
reliable data. We do not think that there is a need for such a process 
for collecting the other measures which are gathered through chart 
abstraction. PCHs, however, can use any reliable and reputable vendor 
to meet their needs with non-HCAHPS data collection and submission. We 
do not require that such vendors be CMS-approved to submit PCHQR 
Program data.
    After consideration of the public comments we received, we are 
finalizing the reporting periods and submission timelines for the SSI 
measure. The table below outlines the finalized reporting periods and 
submission timeframes for the FY 2015, FY 2016, and FY 2017 programs.

 Finalized SSI Measure Reporting Periods and Submission Timeframes for the FY 2015, FY 2016 and FY 2017 Programs
----------------------------------------------------------------------------------------------------------------
           Program year  (FY)                 Reporting periods  (CY)            Data submission deadlines
----------------------------------------------------------------------------------------------------------------
2015....................................  Q1 2014 events (January 1,       August 15, 2014.
                                           2014--March 31, 2014).
2016....................................  Q2 2014 events (April 1, 2014--  November 15, 2014.
                                           June 30, 2014).
                                          Q3 2014 events (July 1, 2014--   February 15, 2015.
                                           September 30, 2014).
                                          Q4 2014 events (October 1,       May 15, 2015.
                                           2014--December 31, 2014).
2017....................................  Q1 2015 events (January 1,       August 15, 2015.
                                           2015--March 31, 2015).
                                          Q2 2015 events (April 1, 2015--  November 15, 2015.
                                           June 30, 2015).
                                          Q3 2015 events (July 1, 2015--   February 15, 2016.
                                           September 30, 2015).
                                          Q4 2015 events (October 1,       May 15, 2016.
                                           2015--December 31, 2015).
----------------------------------------------------------------------------------------------------------------


[[Page 50850]]

d. Exceptions to Reporting and Data Submission for HAI Measures (CAUTI, 
CLABSI, and SSI)
    Last year we finalized policies for the Hospital IQR Program 
providing exceptions to the reporting and data submission requirements 
for the CLABSI, CAUTI and SSI measures (77 FR 53539). We implemented 
these exceptions because we realize that some hospitals may not have 
locations that meet the NHSN criteria for CLABSI or CAUTI reporting and 
that that some hospitals may perform so few procedures requiring 
surveillance under the SSI measure that the data may not be meaningful 
for Hospital Compare or sufficiently reliable to be utilized for a 
program year. We also finalized last year the CLABSI and CAUTI measures 
for the PCHQR Program starting with FY 2014 (77 FR 53557), but did not 
propose to adopt the same exceptions for those measures. This year, in 
the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27717), we proposed to 
adopt the same exceptions to the CLABSI and CAUTI measures for PCHs, 
which are outlined in CDC's specifications manual, because we realize 
that some hospitals may not have locations that meet the NHSN criteria. 
We refer readers to the CDC's specifications manual for more 
information on location exceptions for the CAUTI \115\ and CLABSI.\116\
---------------------------------------------------------------------------

    \115\ Catheter-Associated Urinary Tract Infection (CAUTI) Event 
at http://www.cdc.gov/nhsn/pdfs/pscManual/7pscCAUTIcurrent.pdf.
    \116\ Central Line-Associated Bloodstream Infection (CLABSI) 
Event at: http://www.cdc.gov/nhsn/pdfs/pscmanual/4psc_clabscurrent.pdf.
---------------------------------------------------------------------------

    In addition, as with the Hospital IQR Program, we recognize that 
some PCHs may perform so few procedures requiring surveillance under 
the proposed SSI measure that the data may not be meaningful for 
Hospital Compare or sufficiently reliable to be utilized for quality 
reporting purposes. We proposed to provide an exception for these PCHs 
from the reporting requirement in any given year if the PCH performed 
less than a combined total of 10 colon and abdominal hysterectomy 
procedures in the calendar year prior to the reporting year.
    We proposed to provide PCHs with a single HAI exception form, to be 
used for seeking an exception for any of the CLABSI, CAUTI, and SSI 
measures. This exception form will be available on QualityNet Web site.
    We invited public comment on this proposal.
    Comment: One commenter recommended that for the SSI measure, CMS 
grant reporting exceptions to any hospital performing fewer than 20 
eligible colon and abdominal hysterectomy procedures in the preceding 
calendar year.
    Response: We appreciate the commenter's recommendation. As we 
noted, we believe it is important to align our measures with the 
Hospital IQR Program as much as possible to both streamline the 
programs and reduce provider burden. At this time, the Hospital IQR 
Program uses a case minimum of 10 for the SSI measure (77 FR 53539). As 
we explained in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53539), we 
chose a case minimum of 10 because we believe 10 cases will be 
sufficiently meaningful for the results to be publicly displayed while 
ensuring the availability of the most data possible for public 
reporting. For detailed information regarding the number of cases, we 
refer readers to the CDC specification manual: http://www.cdc.gov/hai/ssi/ssi.html.
    After consideration of the public comments we received, we are 
finalizing the exceptions to reporting and data submission for the HAI 
Measures (CAUTI, CLABSI, and SSI). PCHs will not be required to report 
these measures if the PCH performed less than a combined total of 10 
colon and abdominal hysterectomy procedures in the calendar year prior 
to the reporting year. We are also finalizing the location exceptions 
listed in the CDC's specifications manual.117 118
---------------------------------------------------------------------------

    \117\ Catheter-Associated Urinary Tract Infection (CAUTI) Event 
at http://www.cdc.gov/nhsn/pdfs/pscManual/7pscCAUTIcurrent.pdf.
    \118\ Central Line-Associated Bloodstream Infection (CLABSI) 
Event at: http://www.cdc.gov/nhsn/pdfs/pscmanual/4psc_clabscurrent.pdf.
---------------------------------------------------------------------------

e. Reporting and Data Submission Requirements for the Finalized 
Clinical Process/Oncology Care Measures
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27717 through 
27718), we proposed that PCHs report the proposed clinical process/
oncology care measures beginning with January 1, 2015 discharges. We 
believe that this date will provide enough advance notice for PCHs to 
prepare to report the measures. We believe that this timeline provides 
PCHs with sufficient time to prepare to report on the new measures. We 
proposed to calculate the clinical process/oncology care measure rates 
for purposes of the FY 2016 program year using data from the first 
quarter (Q1) of CY 2015, and that PCHs submit aggregated data for each 
measure for this quarter during a data submission window that will be 
open from July 1 through August 15, 2015. We proposed to calculate the 
clinical process/oncology care measure rates for purposes of the FY 
2017 program year using data from the last three quarters (Q2, Q3, and 
Q4) of CY 2015. We proposed that PCHs submit aggregated data for each 
measure for each of these quarters during a data submission window that 
will be open from July 1 through August 15, 2016. We proposed to 
calculate the clinical process/oncology care measure rates for purposes 
of the FY 2018 program year using data from the four quarters (Q1, Q2, 
Q3, and Q4) of CY 2016. We proposed that PCHs submit aggregated data 
for each measure for each of these quarters during a data submission 
window that will be open from July 1 through August 15, 2017.
    For data collection, we proposed that PCHs submit aggregate-level 
data through the CMS Web-based Measures Tool. This proposal mirrors the 
requirements we have finalized for the IPFQR Program (77 FR 53655). 
PCHs would submit all the data required for a particular program year 
once annually during the data submission windows we proposed above, and 
would do so via the PCH section on the QualityNet secure Web site. 
However, the data input forms on the QualityNet Web site for such 
submission will require aggregate data for each separate quarter. 
Therefore, PCHs will need to track and maintain quarterly records for 
their data. We refer readers to FY 2013 IPPS/LTCH PPS final rule (77 FR 
53655) for more information on the CMS Web-based aggregated data 
collection tool used in the IPFQR Program, which we proposed to also 
use in the PCHQR Program. We believe that this option is less 
burdensome for PCHs than patient-level reporting.
    We also recognize that aggregate level reporting has the potential 
to result in less accurate measure rates than patient-level reporting; 
however, we have assessed our infrastructure readiness to collect these 
measures in the PCHQR Program and believe that an aggregate data 
submission approach is the most feasible approach at this time.
    We welcomed public comment on the proposed reporting periods and 
data collection methods/modes for the clinical process/oncology care 
measures.
    Comment: One commenter recommended that CMS utilize sampling rather 
than chart abstraction whenever possible to conduct PCHQR reporting to 
reduce burden.
    Response: We appreciate the commenter's recommendation. As we noted 
earlier, we will allow PCHs to report the clinical process/oncology 
care measures using the same sampling methodologies we allow to be used 
to

[[Page 50851]]

report these measures under the PQRS Program. The methodologies can be 
found in the PQRS manual at http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/PQRS/MeasuresCodes.html. In 
future years, we intend to work with the measure developer during the 
measure maintenance period so that we may develop a sampling 
methodology that is tailored to PCH settings.
    Comment: One commenter recommended that CMS calculate measure rates 
for the PCHQR Program based on a full year of data for purposes of 
public reporting.
    Response: A commenter also raised this issue regarding our proposed 
reporting periods and timelines for the SSI measure in section 
IX.B.9.c. of the preamble of this final rule and we refer readers to 
our response in that section.
    Comment: For the clinical process/oncology care measures, a few 
commenters recommended that CMS implement a vendor certification 
program for the PCHQR Program that would allow PCHs to reduce redundant 
data collection and streamline PCHQR Program reporting.
    Response: Commenters also raised this issue regarding our proposed 
reporting periods and timelines for the SSI measure in section 
IX.B.9.c. of the preamble of this final rule and we refer readers to 
our response in that section.
    After consideration of the public comments we received, we are 
finalizing the reporting and data submission requirements for the 
Clinical Process/Oncology Care Measures. The table below outlines the 
finalized reporting periods and submission timeframes for the FY 2016, 
FY 2017, and FY 2018 programs for the clinical process/oncology care 
measures.

Finalized Clinical Process/Oncology Care Measures--Reporting Periods and Submission Timeframes for the FY 2016--
                                                FY 2018 Programs
----------------------------------------------------------------------------------------------------------------
         Program year (FY)            Reporting periods  (CY)               Data submission deadlines
----------------------------------------------------------------------------------------------------------------
2016..............................  Q1 2015 discharges          July 1, 2015-August 15, 2015.
                                     (January 1, 2015--March
                                     31, 2015).
2017..............................  Q2 2015 discharges (April   July 1, 2016-August 15, 2016.
                                     1, 2015--June 30, 2015).
                                    Q3 2015 discharges (July
                                     1, 2015--September 30,
                                     2015).
                                    Q4 2015 discharges
                                     (October 1, 2015--
                                     December 31, 2015).
2018..............................  Q1 2016 discharges          July 1, 2017--August 15, 2017.
                                     (January 1, 2016--March
                                     31, 2016).
                                    Q2 2016 discharges (April
                                     1, 2016--June 30, 2016.
                                    Q3 2016 discharges (July
                                     1, 2016--September 30,
                                     2016).
                                    Q4 2016 discharges
                                     (October 1, 2016--
                                     December 31, 2016).
----------------------------------------------------------------------------------------------------------------

f. Reporting and Data Submission Requirements for the Finalized SCIP 
Measures
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27718), we 
proposed that PCHs report the proposed SCIP measures beginning with 
January 1, 2015 discharges. We believe that this date will provide 
enough advance notice for PCHs to prepare to report the measures, and 
our belief is based on the experience gained from collecting the SCIP 
measures for the Hospital IQR Program.
    We proposed to calculate the SCIP measure rates for purposes of the 
FY 2016 program year using patient-level data from the first quarter 
(Q1) of CY 2015. We recognize that using data from only one quarter may 
not provide a complete picture of the quality of care provided at a 
PCH. However, our intent is to align the PCHQR Program's current 
reporting timeline with the reporting timeline used by the Hospital IQR 
Program, as well as to leverage the current IT infrastructure to 
minimize cost and burden. We proposed to calculate the SCIP measure 
rates for purposes of the FY 2017 program year using the last three 
quarters (Q2, Q3, and Q4) of CY 2015. This will allow us to calculate 
measure rates for FY 2018 using data from all four quarters (Q1, Q2, 
Q3, and Q4) of CY 2016.
    We proposed that PCHs submit patient-level data for each of the 
SCIP measures to CMS through the QualityNet infrastructure. This is the 
same procedural/reporting mechanism requirement used for collecting 
Hospital IQR Program SCIP process of care measures. We have 
successfully implemented this reporting mechanism in the Hospital IQR 
Program and intend to use the same reporting mechanism to collect data 
for the PCHQR Program. We proposed the patient-level data submission 
approach for the SCIP measures so that we can compare the data being 
submitted by PCHs with that being submitted by hospitals under the 
Hospital IQR Program. We also believe that patient-level data will 
provide us with more granular information that we can use to better 
assess the quality of care provided at a PCH.
    We welcomed public comment on the proposed reporting and submission 
requirements for the proposed SCIP measures and welcomed feedback on 
using patient-level versus other types of data submission.
    Comment: Some commenters supported the proposed data collection and 
reporting proposals for the SCIP measures.
    Response: We appreciate the commenters' support.
    Comment: Some commenters urged that, if adopted, CMS implement a 
sampling methodology for reporting the SCIP measures. Commenters noted 
that doing so would reduce burden.
    Response: As we stated above, we will allow PCHs to report the SCIP 
measures using the same sampling methodology that we currently allow 
for the reporting of the same measures by subsection (d) hospitals 
under the Hospital IQR Program (outlined in the specification manual 
https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=1138115987129).
    Comment: One commenter requested that CMS provide clarification 
regarding the use of an approved core measure vendor to meet the 
reporting requirements for the SCIP measures.
    Response: Commenters also raised this issue regarding our proposed 
reporting periods and timelines for the SSI measure in section 
IX.B.9.c. of the preamble of this final rule and we refer readers to 
our response in that section.
    Comment: For the SCIP measures, one commenter recommended that CMS 
calculate measure rates for the PCHQR Program based on a full year of 
data for purposes of public reporting.
    Response: A commenters also raised this issue regarding our 
proposed reporting periods and timelines for the SSI measure in section 
IX.B.9.c. of the preamble of this final rule and we refer readers to 
our response in that section.

[[Page 50852]]

    Comment: For the SCIP measures, a few commenters recommended that 
CMS implement a vendor certification program for the PCHQR Program that 
would allow PCHs to reduce redundant data collection and streamline 
PCHQR Program reporting.
    Response: Commenters also raised this issue regarding our proposed 
reporting periods and timelines for the SSI measure in section 
IX.B.9.c. of the preamble of this final rule and we refer readers to 
our response in that section.
    After consideration of the public comments we received, we are 
finalizing the reporting and data submission requirements for the SCIP 
measures. The table below outlines the finalized reporting periods and 
submission timeframes for the FY 2016, FY 2017, and FY 2018 programs.

Finalized SCIP Measures--Reporting Periods and Submission Timeframes for
                      the FY 2016--FY 2018 Programs
------------------------------------------------------------------------
                         Reporting periods
  Program year (FY)             (CY)           Data submission deadlines
------------------------------------------------------------------------
2016.................  Q1 2015 discharges     August 15, 2015.
                        (January 1, 2015-
                        March 31, 2015).
2017.................  Q2 2015 discharges     November 15, 2015.
                        (April 1, 2015-June
                        30, 2015).
                       Q3 2015 discharges     February 15, 2016.
                        (July 1, 2015-
                        September 30, 2015).
                       Q4 2015 discharges     May 15, 2016.
                        (October 1, 2015--
                        December 31, 2015).
2018.................  Q1 2016 discharges     August 15, 2016.
                        (January 1, 2016--
                        March 31, 2016).
                       Q2 2016 discharges     November 15, 2016.
                        (April 1, 2016--June
                        30, 2016).
                       Q3 2016 discharges     February 15, 2017.
                        (July 1, 2016--
                        September 30, 2016).
                       Q4 2016 discharges     May 15, 2017.
                        (October 1, 2016--
                        December 31, 2016).
------------------------------------------------------------------------

g. HCAHPS Requirements
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27719 through 
27720), we proposed HCAHPS requirements that mirror those used for the 
Hospital IQR Program (77 FR 53537 through 53538). Similarly, we 
proposed that PCHs 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. 
Like acute care hospitals that submit HCAHPS data under the Hospital 
IQR Program, we proposed that PCHs will have approximately 13 weeks 
after the end of a calendar quarter to submit HCAHPS data for that 
quarter to the QIO Clinical Warehouse, also referred to as the ``HCAHPS 
data warehouse.''
    In order for a PCH to participate in the collection of HCAHPS data, 
a PCH must either: (1) Contract with an approved HCAHPS Survey vendor 
that will conduct the survey and submit data on the PCH's behalf to the 
QIO Clinical Warehouse; or (2) self-administer the survey without using 
a vendor provided that the PCH attends HCAHPS training and meets 
Minimum Survey Requirements as specified on the HCAHPS Web site at: 
http://www.hacahpsonline.org. A current list of approved HCAHPS Survey 
vendors can be found on the HCAHPS Web site.
    We proposed that a PCH which chooses 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.) We would strongly encourage PCHs 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 emphasize that PCHs must also provide the administrative data that 
is required for HCAHPS in a timely manner to their survey vendor. This 
includes the patient's 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 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 PCH 
must authorize the survey vendor to submit data via My QualityNet, the 
secure part of the QualityNet Web site, on the PCH's behalf.
    We proposed that the PCHs obtain and submit at least 300 completed 
HCAHPS Surveys in a rolling four-quarter period unless the PCH is too 
small to obtain 300 completed surveys. We proposed that the absence of 
a sufficient number of HCAHPS-eligible discharges will be the only 
acceptable reason for obtaining and submitting fewer than 300 completed 
HCAHPS Surveys in a rolling four quarter period. We proposed that if a 
PCH obtains fewer than 100 completed surveys, the PCH's scores will be 
accompanied by an appropriate 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 PCH 
performance.
    After the survey vendor submits the data to the QIO Clinical 
Warehouse, we strongly recommend that PCHs employing a survey vendor 
promptly review the two HCAHPS Feedback Reports (the Provider Survey 
Status Summary Report and the Data Submission Detail Report) and the 
HCAHPS Review and Correction Report that are available. These reports 
will enable a PCH to ensure that its survey vendor has submitted the 
data on time, the data has been accepted into the QIO clinical 
Warehouse, and the data accepted into the QIO Clinical Warehouse are 
complete and accurate.
    In order to ensure compliance with HCAHPS Survey and administration 
protocols, we proposed that PCHs and survey vendors must participate in 
oversight activities, which will include onsite visits and/or 
conference calls. During the oversight process, the HCAHPS Project Team 
will review the PCH'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

[[Page 50853]]

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 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. We proposed that if we 
determine that a PCH is not compliant with HCAHPS program requirements, 
we may determine that the PCH is not submitting HCAHPS data that meet 
the requirements of the PCHQR Program.
    We strongly encouraged those PCHs that are currently administering 
the HCAHPS Survey and submitting survey data to CMS to continue to do 
so. We welcomed public comment on our proposed HCAHPS requirements for 
PCHs.
    Comment: One commenter did not support the HCAHPS reporting 
proposals because this commenter did not support the adoption of the 
HCAHPS Survey for the PCHQR Program.
    Response: We believe that the HCAHPS Survey is an appropriate 
instrument to measure inpatients' experience of care in the PCH 
setting. The widespread adoption of HCAHPS by acute care hospitals has 
resulted in benchmarks that could be useful to PCHs in their quality 
improvement efforts. The HCAHPS Survey produces comparable measures of 
key facets of patient experience that are relevant to PCHs, such as 
communication with patients, responsiveness of staff, cleanliness and 
quietness of the PCH environment and discharge instructions.
    After consideration of the public comment we received, we are 
finalizing the HCAHPS requirements as proposed. Below is a table 
outlining the finalized HCAHPS reporting and data submission 
requirements.

 HCAHPS Measure--Reporting Periods and Submission Timeframes for the FY
                         2016--FY 2018 Programs
------------------------------------------------------------------------
                         Reporting periods
  Program year (FY)             (CY)           Data submission deadlines
------------------------------------------------------------------------
2016.................  Q2 2014 discharges     October 1, 2014.
                        (April 1, 2014-June
                        30, 2014).
                       Q3 2014 discharges     January 7, 2015.
                        (July 1, 2014-
                        September 30, 2014).
                       Q4 2014 discharges     April 1, 2015.
                        (October 1, 2014-
                        December 31, 2014).
2017.................  Q1 2015 discharges     July 1, 2015.
                        (January 1, 2015-
                        March 31, 2015).
                       Q2 2015 discharges     October 7, 2015.
                        (April 1, 2015-June
                        30, 2015).
                       Q3 2015 discharges     January 6, 2016.
                        (July 1, 2015-
                        September 30, 2015).
                       Q4 2015 discharges     April 6, 2016.
                        (October 1, 2015-
                        December 31, 2015).
2018.................  Q1 2016 discharges     July 6, 2016.
                        (January 1, 2016-
                        March 31, 2016).
                       Q2 2016 discharges     October 5, 2016.
                        (April 1, 2016-June
                        30, 2016).
                       Q3 2016 discharges     January 4, 2017.
                        (July 1, 2016-
                        September 30, 2016).
                       Q4 2016 discharges     April 5, 2017.
                        (October 1, 2016-
                        December 31, 2016).
------------------------------------------------------------------------

C. Long-Term Care Hospital Quality Reporting (LTCHQR) Program

1. Statutory History
    In accordance with section 1886(m)(5) of the Act, as added by 
section 3004 of the Affordable Care Act, the Secretary established the 
Long-Term Care Hospital Quality Reporting (LTCHQR) Program. Under the 
LTCHQR Program, for the FY 2014 annual payment update (which we also 
refer to as the ``payment determination'') and subsequent years, in the 
case of an LTCH that does not submit data to the Secretary in 
accordance with section 1886(m)(5)(C) of the Act with respect to such a 
rate year, any annual update to a standard Federal rate for discharges 
for the hospital during the rate year, and after application of section 
1886(m)(3) of the Act, shall be reduced by two percentage points.
    Section 1886(m)(5)(D)(iii) of the Act required the Secretary to 
publish the selected measures for the LTCHQR Program that will be 
applicable with respect to the FY 2014 payment determination no later 
than October 1, 2012.
    Under section 1886(m)(5)(D)(i) of the Act, the quality measures for 
the LTCHQR Program are measures selected by the Secretary that have 
been endorsed by an entity that holds a contract with the Secretary 
under section 1890(a) of the Act, unless section 1886(m)(5)(D)(ii) of 
the Act applies. This contract is currently held by the National 
Quality Forum (NQF). Additional information regarding NQF and its 
measure review processes is available at: http://www.qualityforum.org/Measuring_Performance/Measuring_Performance.aspx.
    While as a general matter the Secretary must select endorsed 
measures for the LTCHQR Program, section 1886(m)(5)(D)(ii) of the Act 
provides that an exception may be made 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 that 
holds a contract with the Secretary under section 1890(a) of the Act. 
In such a case, section 1886(m)(5)(D)(ii) of the Act authorizes the 
Secretary to specify a measure(s) 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. The 
LTCHQR Program was implemented in section VII.C. of the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51743 through 51756).
2. General Considerations Used for Selection of Quality Measures for 
the LTCHQR Program
    We seek to promote higher quality and more efficient health care 
for the beneficiaries we serve. Quality reporting programs, as well as 
public reporting of that information, furthers such quality improvement 
efforts. Quality measurement remains the key tool to the success of 
these programs. Therefore, the selection of only the highest caliber of 
measures remains a constant priority for CMS.
    We seek to adopt measures for the LTCHQR Program that promote 
better, safer, and more efficient care. Our measure development and 
selection activities for the LTCHQR Program take into account national 
priorities, such as those established by the National Priorities 
Partnership (http://www.qualityforum.org/Setting_Priorities/NPP/National_Priorities_Partnership.aspx), HHS Strategic Plan (http://
www.hhs.gov/secretary/about/priorities/

[[Page 50854]]

priorities.html), and the National Quality Strategy (NQS) (http://www.ahrq.gov/workingforquality/nqs/nqs2011annlrpt.htm).
    We must also consider input from the Measure Applications 
Partnership (MAP) when selecting measures under the LTCHQR Program. The 
MAP is composed of multi-stakeholder groups convened by our current 
section 1890 contractor, the NQF. The NQF must convene these 
stakeholders and provide us with the stakeholders' input on the 
selection of certain categories of quality and efficiency measures as 
part of a pre-rulemaking process described in section 1890A of the Act. 
We, in turn, must take this input into consideration in selecting those 
categories of measures. The NQF provided MAP input to CMS in February 
of 2013, as required under section 1890A(a)(3) of the Act. This input 
appears at: http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partnership.aspx. Measures proposed 
for the LTCHQR Program in the FY 2014 IPPS/LTCH PPS proposed rule (78 
FR 27720 through 27734) were measures CMS included under its List of 
Measures Under Consideration (MUC List) for December 1, 2012\119\, a 
list CMS must make public by December 1 of each year, as part of the 
pre-rulemaking process, as described in section 1890A(a)(2). The list 
is discussed in the MAP Pre-Rulemaking Report available at: http://
www.qualityforum.org/Publications/2013/02/MAP_Pre-Rulemaking_Report_
_-February_2013.aspx (pp. 170-176). The MAP supported the direction 
of each of the proposed measures described below, noting the measure 
concepts as promising for several of them, and requiring further 
testing and development.
---------------------------------------------------------------------------

    \119\ Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72363.
---------------------------------------------------------------------------

    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27724 through 
27730), in the absence of any NQF-endorsed measures for the LTCH 
setting and after due consideration to any measures that may have been 
endorsed or adopted by a consensus organization, we proposed measures 
that are fully supported by the MAP for the LTCHQR Program, or that 
most closely align with the national priorities discussed in section 
IX.C.2. of the preamble of this final rule. In the absence of the MAP's 
full support, we have in some cases deemed it appropriate to propose 
measures for which there is MAP support for the measure concept. 
Further discussion of why a particular measure is high priority in the 
LTCH setting is included for each proposed measure below.
    In addition, to the extent practicable, we have for each proposed 
measure that is not endorsed by the NQF or another consensus 
organization, sought measures that have been recommended by multi-
stakeholder organizations, and/or been developed with the input of 
providers, purchasers/payers, and a variety of other stakeholders.
    While we did not invite public comments on the general 
considerations used for selection of quality measures for the LTCHQR 
Program, we received input from several commenters. We greatly 
appreciate the commenters' views on our previously finalized policies. 
Although we did not make any proposals in the FY 2014 IPPS/LTCH PPS 
proposed rule on these topics or finalized policies, we will consider 
all of these views for future rulemaking and program development. We 
have responded, however, to a few comments in which commenters asked 
only for a clarification related to an existing policy or measure. We 
summarize these comments and our responses, below.
    Comment: Several commenters encouraged CMS to refrain from adopting 
measures into the LTCHQR Program, until after they have been endorsed 
by the NQF for use in the LTCH setting. One commenter also encouraged 
CMS to only include measures that have gone through the full NQF review 
process, as this process is significantly more rigorous than the 
expedited limited endorsement review process. Several commenters 
expressed concerns regarding the expansion of existing measures from 
other healthcare settings to the LTCH setting. These commenters 
encouraged CMS to either develop new measures specifically for the LTCH 
setting, or wait until measures have been re-specified and tested for 
the LTCH setting, before applying for NQF endorsement and eventually 
including these measures in the LTCHQR Program.
    Response: We agree that the NQF endorsement process is an important 
part of measure development. We have generally adopted NQF-endorsed 
measures whenever possible. However, where such measures do not exist 
for the LTCH setting, we may adopt measures that are not NQF-endorsed 
under the Secretary's exception authority set out in section 
1886(m)(5)(D)(ii) of the Act. When measures are not NQF-endorsed, we 
actively work with NQF to re-specify and expand endorsement of these 
measures to the LTCH setting. Given the critical quality and patient 
safety issues we address in the LTCHQR Program, there have been times, 
such as in the case of NQF 0678, Percent of Residents or 
Patients with Pressure Ulcers That Are New or Worsened (Short-Stay), 
that we have finalized an application of a quality measure for the 
LTCHQR Program, while we were still working on re-specification, and 
later obtained NQF endorsement for the expansion. We believe that the 
NQF endorsement process is public and transparent and would encourage 
LTCHs and stakeholders to participate in that process.
    Comment: Several commenters noted that CMS should, in its selection 
of measures, more closely align with the recommendations of MAP. These 
commenters noted that the MAP did not recommend any of the measures 
proposed for the FY 2017 and FY 2018 LTCHQR payment determinations and 
subsequent years, but rather, ``supported the direction'' of these 
measures and suggested that further testing and refinement is needed 
prior to introducing these measures in the LTCHQR Program.
    Response: We agree that MAP guidance is an important part of the 
measure selection process. When the MAP supports only the direction of 
a measure, we carefully consider how that measure will need to be 
modified for expansion to the LTCH setting. However, while submission 
of measures to the MAP and consideration of its recommendations are 
part of our measure selection process, we also consider the input of 
stakeholders, subject matter and industry experts through the technical 
expert panels (TEPs) periodically convened by our measure development 
contractor, as well as national healthcare priorities suggested by 
groups such as MedPAC, and as set forth in the National Quality 
Strategy.
    Comment: Two commenters encouraged CMS to work more closely with 
stakeholders to identify, select and modify quality measures to include 
in the LTCHQR Program. The commenters encouraged CMS to work with LTCHs 
to identify measures they currently use for quality reporting, to take 
advantage of measures from stakeholders such as LTCH associations and 
to use TEPs.
    Response: We appreciate the commenters' suggestions and we stress 
that we place a high value on stakeholder feedback when developing 
quality measures. Throughout the measure selection process, we have 
sought input from a variety of stakeholders, including technical 
experts and LTCHs. A CMS Listening Session was held on November 15,

[[Page 50855]]

2010; Special Open Door Forums were held on December 6, 2010, September 
21, 2011, and April 13, July 26, August 30, September 20, and October 
18 of 2012; and our measure developer contractor convened LTCHQR TEPs 
on January 31, July 6, September 27, and December 13 of 2011, and March 
8 and November 7 of 2012. We will continue to solicit input from 
stakeholders throughout the development and expansion of the LTCHQR 
Program.
    Comment: Several commenters expressed concern regarding the pace 
with which items are being added to the LTCH CARE Data Set, and one 
noted that this may require LTCHs to shift resources from prevention 
activities to reporting activities.
    Response: By building upon preexisting resources for data 
collection and submission, we intend to foster alignment of LTCHQR 
Program measures and measures in other quality reporting programs. This 
should help to reduce the administrative burden related to data 
collection and submission. We are aware that the initial setup and 
acclimation to the data collection vehicle--the LTCH CARE Data Set--has 
already occurred for a vast majority of LTCHs as part of the 
implementation of an application of the measure Percent of Residents or 
Patients with Pressure Ulcers That Are New or Worsened (Short-Stay) 
(NQF 0678) for the LTCHQR Program for the FY 2014 payment 
determination. Further, we anticipate that with the implementation of 
the Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF 
0680) for the LTCHQR Program for the FY 2016 payment 
determination, which we adopted in the FY 2013 IPPS/LTCH final rule, 
LTCHs will be very familiar with the LTCH CARE Data Set through its use 
for the LTCHQR Program by the time when LTCHs are required to submit 
data on the new measures we included in the proposed rule. Therefore, 
we believe the transition to reporting one additional measure via the 
LTCH CARE Data Set may be less burdensome.
3. Process for Retention of LTCHQR Program Measures Adopted in Previous 
Payment Determinations
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53614 through 
53637), for the LTCHQR Program, we adopted a policy that once a quality 
measure is adopted, it is retained for use in subsequent years, unless 
otherwise stated. For the purpose of streamlining the rulemaking 
process, when we initially adopt a measure for the LTCHQR Program for a 
payment determination, this measure will be automatically adopted for 
all subsequent years or until we propose to remove, suspend, or replace 
the measure. For further information on how measures are considered for 
removal, suspension, or replacement, we refer readers to that final 
rule (77 FR 53614 and 53615).
4. Process for Adopting Changes to LTCHQR Program Measures
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53615 through 
53616), we finalized our policy that if the NQF updates an endorsed 
measure that we have adopted for the LTCHQR Program in a manner that we 
consider to not substantively change the nature of the measure, we will 
use a subregulatory process to incorporate those updates to the measure 
specifications that apply to the LTCHQR Program. Examples of such 
nonsubstantive changes could be updated diagnosis or procedure codes, 
medication updates for categories of medications, changes to exclusions 
to the patient population, or minor changes to definitions. Examples of 
changes that we might consider to be substantive would be those in 
which the changes are so significant that the measure is no longer the 
same measure, or when a standard of performance assessed by a measure 
becomes more stringent. Specific examples of what we might consider 
substantive are changes in acceptable timing of medication, procedure/
process, or test administration, or expansion of the measure to a new 
setting. The subregulatory process for nonsubstantive changes will 
include revision of the LTCHQR Program Manual and posting of updates on 
our LTCHQR Program Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.htm.
    While we did not propose changes to this process for adopting 
changes to LTCHQR Program measures, we received input from several 
commenters. We greatly appreciate the commenters' views on these topics 
and previously finalized measures. We will consider all of these views 
for future rulemaking and program development. We summarize these 
comments on existing policies and/or measures and our responses, below.
    Comment: Several commenters recommended that CMS more clearly 
define the process involved in adopting changes to LTCHQR Program 
quality measures and allow for public comment before adopting, 
changing, or removing approved measures, as minor changes to 
definitions can result in a substantive change to a quality measure. 
Many commenters noted that clear definitions are essential to the 
successful implementation of quality measures in the LTCH setting. More 
specifically, this commenter suggested that LTCHs must fully understand 
the specifics of each measure and CMS must communicate the standards 
for measuring quality measure performance and improvement. Further, 
commenters suggested that the proposed quality measures be subject to 
periodic review, including public comment. One commenter stated that 
CMS did not provide clear information regarding the process by which 
substantive changes will be made to quality measures.
    Response: We appreciate these commenters' input and agree on the 
importance of allowing for public comment as part of the process of 
adopting changes to LTCHQR Program measures. Information on this 
process, as well as the process by which substantial changes will be 
made to quality measures, is described in the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53615 through 53616). We will review these comments 
and take them into consideration when considering future changes.
    We agree that clear definitions are required for the successful 
implementation of quality measures in the LTCH setting. When available, 
we include detailed measure definitions in proposed rulemaking. 
Following rulemaking, we will release the final technical data 
submission specifications and updated LTCHQR Program Manual. We also 
plan to offer ongoing training related to all CMS- and CDC-stewarded 
measures adopted into the LTCHQR Program as we move forward in our 
expansion of this program. We will continue to provide multiple 
resources that include detailed measure information to continue the 
successful implementation of the LTCHQR Program. We invite the public 
to visit the LTCHQR Program Web site for future updates on our training 
activities and ongoing activities we have undertaken as part of LTCHQR 
Program implementation at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html.
    We plan to provide specific information regarding the standards for 
measuring quality measure performance and improvement. We have alerted 
providers with letters of non-compliance for October 1, 2012 through 
December 31, 2012 quarter for CAUTI,

[[Page 50856]]

CLABSI, and Pressure Ulcer quality measure data.
    Regarding the suggestion that proposed quality measures be subject 
to periodic review, we have outlined the criteria that it will use to 
consider a quality measure for removal (77 FR 53614 through 53615). If 
we consider a measure for removal, the public will be given the 
opportunity to comment through the rulemaking process. In addition, we 
participate in a periodic review of all NQF-endorsed measures by 
submitting these measures for NQF maintenance review every three years.
5. Previously Adopted Quality Measures for the FY 2014 and FY 2015 
Payment Determinations and Subsequent Years
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53616 through 
53623), we retained the application of NQF 0678 to the LTCH 
setting (initially adopted in the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51745 through 51750)) and adopted updated versions of NQF 
0138 and NQF 0139, for the FY 2014 and FY 2015 
payment determinations and subsequent years as listed in the following 
table:

  LTCHQR Program Quality Measures Finalized in the FY 2013 IPPS/LTCH PPS Final Rule for the FY 2014 and FY 2015
                                   Payment Determinations and Subsequent Years
----------------------------------------------------------------------------------------------------------------
                   NQF Measure ID                                            Measure title
----------------------------------------------------------------------------------------------------------------
NQF 0138...................................  National Health Safety Network (NHSN) Catheter-associated
                                                       Urinary Tract Infection (CAUTI) Outcome Measure.
NQF 0139...................................  National Health Safety Network (NHSN) Central line-
                                                       associated Blood Stream Infection (CLABSI) Outcome
                                                       Measure.
Application of NQF 0678....................  Percent of Residents with Pressure Ulcers That are New or
                                                       Worsened (Short-Stay).
----------------------------------------------------------------------------------------------------------------

    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53619 through 53623 and 53667 through 53672) for a discussion of the 
data collection and submission methods for these measures for the FY 
2014 payment determination and subsequent years and for references to 
the descriptions of and specifications for these measures.
    While CMS did not propose any changes in the FY 2014 IPPS/LTCH PPS 
proposed rule to these previously adopted quality measures for the FY 
2014 and FY 2015 payment determinations and subsequent years, CMS 
received input from several commenters. We greatly appreciate the 
commenters' views on these previously finalized policies, and will 
consider all of these views for future rulemaking and program 
development. We have responded below, however, to a few comments in 
which commenters asked only for a clarification related to an existing 
policy and/or measure.
    Comment: One commenter suggested that the definition of the CAUTI 
measure (NQF 0138) be broadened to include the entire 
hospital, and not just intensive care unit (ICU) stays. Another 
commenter expressed concern about the adaptation of the CAUTI measure 
to the long-term care environment. Of particular concern is that LTCHs 
may need resources to enroll, receive training, and educate staff on 
CDC's NSHN basics, including surveillance definitions and processes.
    Response: The CAUTI measure (NQF 0138), as currently 
specified and finalized for the LTCHQR Program (77 FR 53616 through 
53623), is applicable at the hospital level. It is not solely for ICU 
stays. With respect to the concern of resources and training, before 
the implementation of the LTCHQR Program, many LTCHs were already 
submitting data to the CDC's National Health Safety Network (NHSN) 
either voluntarily or as part of mandatory State reporting requirements 
for HAIs. For these LTCHs, the burden related to coping with the 
requirements of the LTCHQR Program was reduced because of pre-existing 
familiarity with the NHSN submission process. Further, we provided free 
training in May 2012, and both CDC and CMS have made extensive 
resources available to support providers and other stakeholders with 
the implementation of the LTCHQR Program. We plan to offer ongoing 
training related to all CMS- and CDC-stewarded measures adopted into 
the LTCHQR Program as we move forward in our expansion of this program. 
Please continue to check the LTCHQR Program Web site for updates on our 
training activities at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html.
    Comment: One commenter noted that CAUTI rates would not be 
comparable with different populations, as LTCHs comprise a very mixed 
population.
    Response: Under the LTCHQR Program, CAUTI data will be analyzed 
solely for LTCHs. LTCHQR Program CAUTI data will not be compared to any 
data collected from hospitals, IRFs, or SNFs Because of the patient 
safety concerns CAUTIs pose to the patients with multiple comorbities 
in the LTCH setting, the burden they create on the healthcare system as 
well as available guidelines for prevention of CAUTIs, we continue to 
believe the measure remains relevant for the LTCHQR Program and believe 
it promotes awareness and encourages implementation of CAUTI prevention 
and control procedures in the LTCH setting. Further measure information 
is available on the NQF Web site at http://www.qualityforum.org/QPS/0138.
    Comment: One commenter expressed concern regarding the changes that 
have been made to the NHSN definition effective January 1, 2013. For 
example, in the past, hospitals did not have to report CAUTIs when the 
hospital determined that the CAUTI was not the primary site of 
infection. With the recent change in definition, hospitals are now 
required to report CAUTIs in addition to the primary infection.
    Response: The CAUTI measure was previously finalized for the LTCHQR 
Program for the FY 2014 payment determination in the FY 2012 IPPS/LTCH 
PPS final rule (76 FR 51745 through 51747). For this measure, 
facilities have never been able to state that a CAUTI was secondary to 
another site of infection (unlike CLABSIs). According to the measure 
steward (CDC), NHSN's definition of CAUTI did not change in 2013, and 
the revised criteria in 2013 for what constitutes an healthcare-
associated infection (HAI) amounts to providing operational guidance--
already widely in use before the guidance was published--that makes 
identifying and reporting HAIs more consistent across healthcare 
facilities. There was no change in the NQF measure specification; the 
CAUTI measure remains the same. As a result, CAUTI data reported for 
infections occurring in 2013 can be compared to the CAUTI baseline 
established using CAUTI data reported for infections occurring in 2012. 
In short, there was no significant change in the measure and the 
changes in HAI criteria have no bearing on reporting obligations.

[[Page 50857]]

    Therefore, we do not believe that this should be addressed through 
rulemaking, as the NQF measure remains fully endorsed and NQF measure 
specifications criteria or the definition in the NHSN. Additional 
information related to the change in HAI definition is available at 
http://www.cdc.gov/nhsn/pdf/pscmanual/errata2013.pdf.
    Comment: One commenter suggested that the definition of the CLABSI 
measure (NQF 0139) be broadened to include the entire 
hospital, and not just intensive care unit (ICU) stays. Another 
commenter expressed concern about the adaptation of the CLABSI measure 
to the long-term care environment. Of particular concern is that LTCHs 
may need resources to enroll, receive training, and educate staff on 
CDC's NSHN basics, including surveillance definitions and processes.
    Response: The CLABSI measure (NQF 0139), as currently 
specified and finalized for the LTCHQR Program in the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53616 through 53623), is applicable at the 
hospital level. It is not solely for ICU stays. With respect to the 
concern of resources and training, before the implementation of the 
LTCHQR Program, many LTCHs were already submitting data to the NHSN 
either voluntarily or as part of mandatory State reporting requirements 
for HAIs. For these LTCHs, the burden related to coping with the 
requirements of the LTCHQR Program was reduced because of pre-existing 
familiarity with the NHSN submission process. Further, we provided free 
training in May 2012 and both CDC and CMS have made extensive resources 
available to support LTCHs and other stakeholders with the 
implementation of the LTCHQR Program.
    Comment: One commenter noted that CLABSI rates would not be 
comparable with different populations, as LTCHs comprise a very mixed 
population.
    Response: Under the LTCHQR Program, CLABSI data will be analyzed 
solely for LTCHs. LTCHQR Program CLABSI data will not be compared to 
any data collected from hospitals, IRFs, or SNFs. Because of the 
patient safety problem posed by CLABSIs to the chronically ill patient 
population in the LTCH setting, as well as its burden on the healthcare 
system, we believe it is appropriate to adopt this measure for the 
LTCHQR Program in order to promote awareness and encourage 
implementation of CLABSI control procedures in the LTCH setting. 
Further measure information is available on the NQF Web site at http://www.qualityforum.org/QPS/0139.
    For comments received in response to the pressure ulcer measure, as 
well as to our proposed revisions to this measure, please see section 
IX.C.7.c of the preamble of this final rule.
6. Previously Adopted Quality Measures for the FY 2016 Payment 
Determination and Subsequent Years
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53624 through 
53636), we adopted two additional quality measures for the LTCHQR 
Program for the FY 2016 payment determination and subsequent years, in 
addition to the three previously adopted measures (CAUTI measure, 
CLABSI measure, and Pressure Ulcer measure).
    Set out below are the quality measures, both previously adopted 
measures retained in the LTCHQR Program and measures adopted in FY 2013 
IPPS/LTCH PPS final rule, for the FY 2016 payment determination and 
subsequent years.

    LTCHQR Program Quality Measures Finalized in the FY 2013 IPPS/LTCH PPS Final Rule for the FY 2016 Payment
                                       Determination and Subsequent Years
----------------------------------------------------------------------------------------------------------------
                   NQF Measure ID                                            Measure Title
----------------------------------------------------------------------------------------------------------------
NQF 0138...................................  National Health Safety Network (NHSN) Catheter-associated
                                                       Urinary Tract Infection (CAUTI) Outcome Measure.*
NQF 0139...................................  National Health Safety Network (NHSN) Central line-
                                                       associated Blood Stream Infection (CLABSI) Outcome
                                                       Measure.*
Application of NQF 0678....................  Percent of Residents with Pressure Ulcers That are New or
                                                       Worsened (Short-Stay).*
NQF 0680...................................  Percent of Residents or Patients Who Were Assessed and
                                                       Appropriately Given the Seasonal Influenza Vaccine (Short-
                                                       Stay).**
NQF 0431...................................  Influenza Vaccination Coverage among Healthcare
                                                       Personnel.**
----------------------------------------------------------------------------------------------------------------
* Adopted for the FY 2014 payment determination and subsequent years.
** Adopted for the FY 2016 payment determination and subsequent years.

    For comments received in response to changes we proposed in the FY 
2014 proposed rule relating to the Percent of Residents or Patients Who 
Were Assessed and Appropriately Given the Seasonal Influenza Vaccine 
(Short-Stay) (NQF 0680) measure, as well as general comments 
on this measure, please see section IX.C.7.b. of the preamble of this 
final rule.
    For comments received in response to changes we proposed in the FY 
2014 proposed rule relating to the Influenza Vaccination Coverage Among 
Healthcare Personnel (NQF 0431) measure, please see section 
IX.C.7.a. of the preamble of this final rule.
7. Revisions to Previously Adopted Quality Measures
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27721 through 
27724), we proposed the following revisions to the quality measures we 
have previously adopted for the LTCHQR Program.
a. Proposed Revisions for Influenza Vaccination Coverage Among 
Healthcare Personnel (NQF 0431) for FY 2016 Payment 
Determination and Subsequent Years
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53630 through 53631) 
we finalized that for Influenza Vaccination Coverage among Healthcare 
Personnel (NQF 0431), LTCHs should begin to submit data for 
January 1, 2014, through December 31, 2014 (CY 2014) for the FY 2016 
payment determination. There is unique seasonality in the timing of 
influenza activity each year. The CDC, the steward of this measure, 
notes (http://www.cdc.gov/flu/pastseasons/1213season.htm) that while 
influenza activity most commonly peaks in January or February in the 
United States, it can begin as early as October and can continue to 
occur as late as May. The CDC recommends that people get vaccinated 
against influenza as long as influenza viruses are circulating. Thus, 
influenza vaccination season usually begins in early fall.
    Therefore, we proposed that, for the LTCHQR Program, the Influenza 
Vaccination Coverage among Healthcare Personnel measure (NQF 
0431) have its

[[Page 50858]]

own reporting period to align with the influenza vaccination season, 
which is defined by the CDC as October 1 (or when the vaccine becomes 
available) through March 31. Instead of beginning data collection and 
submission in the middle of the 2013-2014 influenza season, as is the 
case when reporting begins on January 1, 2014 (as finalized in FY 2013 
IPPS/LTCH PPS final rule), we proposed that data collection begin on 
October 1, 2014, or when the influenza vaccine becomes available (as 
defined by the CDC) and continue through March 31, 2015 for the 2014-
2015 influenza season. This change allows LTCHs to collect and report 
data on influenza vaccination for the entirety of the 2014-2015 
influenza season for the FY 2016 payment determination. This change is 
presented in the following table for the FY 2016 and FY 2017 payment 
determinations:

 Timeline for Submission of LTCHQR Program Quality Data for the FY 2016
     and FY 2017 Payment Determinations: NQF 0431 Influenza
             Vaccination Coverage Among Healthcare Personnel
------------------------------------------------------------------------
                                Final submission           Payment
  Data collection timeframe         deadlines           determination
------------------------------------------------------------------------
October 1, 2014 (or when the  May 15, 2015........  FY 2016.
 influenza vaccine becomes
 available)--March 31, 2015.
October 1, 2015 (or when the  May 15, 2016........  FY 2017.
 influenza vaccine becomes
 available)--March 31, 2016.
------------------------------------------------------------------------

    While LTCHs can enter information in CDC's NHSN (www.cdc.gov/nhsn/) 
at any point during the influenza season for NQF 0431, data 
submission is only required once per year, unlike the other measures 
finalized for the LTCHQR Program that also utilize NHSN (CAUTI measure 
NQF 0138 and CLABSI measure NQF 0139). For example, 
LTCHs can choose to submit influenza vaccination data for NQF 
0431 on a monthly basis. However, each time an LTCH submits 
these data, it will be asked to provide a cumulative total of 
vaccinations for the ``current'' influenza season. Thus, entering this 
information at the end of the influenza season would yield the same 
total number of vaccinations. The NHSN system will not track the 
individual number of vaccinations on a monthly basis, but, rather, will 
track the cumulative total of vaccinations for the ``current'' 
influenza season. Also, we note that the data collection period for 
this measure is not 12 months, as with other measures, but is 
approximately 6 months (October 1 (or when the vaccine becomes 
available) through March 31). The final deadlines associated with 
submitting data, approximately 45 days after the end of the data 
collection timeframe for the FY 2016 payment determination and 
subsequent years, remain consistent with other measures in the LTCHQR 
Program, except that the other measures have quarterly data collection 
periods, with submission deadlines approximately 45 days after the 
close of each quarter.
    We note that these changes are applicable only to NQF 0431 
Influenza Vaccination Coverage among Healthcare Personnel, and not 
applicable to any other LTCHQR Program measures, proposed or adopted, 
unless explicitly stated. The specifications for this measure can be 
found at http://www.cdc.gov/nhsn/PDFs/HPS-manual/vaccination/HPS-flu-vaccine-protocol.pdf. We invited public comments on our proposal to 
revise the data collection and reporting timeline for this influenza 
vaccination measure (NQF 0431) for the FY 2016 and FY 2017 
payment determinations and subsequent years.
    Comment: Several commenters expressed support for the proposed 
revisions to the data collection and reporting timeline for the quality 
measure Influenza Vaccination Coverage Among Healthcare Personnel (NQF 
0431). Commenters were pleased that the new timeline would 
align with the influenza season and allow LTCHs to collect and report 
data on influenza vaccination for the entirety of the influenza season.
    Response: We appreciate the commenters' support to revise the data 
collection and reporting timeline for the Influenza Vaccination 
Coverage Among Healthcare Personnel (NQF 0431) measure to 
better align with the influenza season and account for the unique 
seasonality in the timing of influenza activity each year.
    After consideration of the public comments we received, we are 
finalizing the proposed revision to the data collection and reporting 
timeline for the Influenza Vaccination Coverage Among Healthcare 
Personnel measure (NQF 0431) for the FY 2016 payment 
determination and subsequent years.
b. Revisions for Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF 
0680) for the FY 2016 Payment Determination and Subsequent 
Years
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53624 through 
53627), we finalized that for NQF 0680, Percentage of 
Residents or Patients Who Were Assessed and Appropriately Given the 
Seasonal Influenza Vaccine (Short-Stay), LTCHs should begin to collect 
and submit data on January 1, 2014, through December 31, 2014 (CY 
2014), for the FY 2016 payment determination. This measure, stewarded 
by CMS, will be collected using items included in the LTCH CARE Data 
Set (Version 2.01).\120\ The LTCH CARE Data Set was approved on June 
10, 2013, by the Office of Management and Budget in accordance with the 
Paperwork Reduction Act (PRA); the OMB Control Number is 0938-1163. 
Later in 2013, we will release the final technical data submission 
specifications and updated LTCHQR Program Manual for the LTCH CARE Data 
Set (Version 2.01) containing items related to NQF 0680. 
Further, CMS and CDC have collaborated in the past with implementation 
of the LTCHQR Program and will continue to collaborate on training 
opportunities for providers.
---------------------------------------------------------------------------

    \120\ The LTCH CARE Data Set Version 2.01 was approved on June 
10, 2013 by OMB in accordance with the PRA. The OMB Control Number 
is 0938-1163. Expiration Date June 30, 2016. Available at http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
---------------------------------------------------------------------------

    In order to allow time and opportunity for LTCHs and vendors to 
participate in CMS-sponsored training activities pertaining to the 
implementation of the LTCH CARE Data Set (Version 2.01), as well as 
time to plan for and incorporate changes into their data collection and 
entry systems, we proposed to revise the previously finalized start 
date of January 1, 2014 for collecting data for this measure to April 
1, 2014. We also noted that for CY 2014, data collection will continue 
through December 31, 2014. We proposed that data for admissions and 
discharges for an LTCH during April 1, 2014, through December 31, 2014, 
will be used for the FY 2016 payment determination. We also proposed 
that data for January 1, 2015, through December 31, 2015 (CY 2015), 
will be used for the FY 2017

[[Page 50859]]

payment determination. Further, we proposed that, thereafter, data for 
January 1 through December 31 of each year will be used for subsequent 
years. The proposed timeline is illustrated in the table below for the 
FY 2016 and FY 2017 payment determinations.

 Proposed Timeline for Submission of LTCHQR Program Quality Data for the
FY 2016 and FY 2017 Payment Determinations: NQF 0680 Percentage
 of Residents or Patients Who Were Assessed and Appropriately Given the
                       Seasonal Influenza Vaccine
                              [Short-Stay]
------------------------------------------------------------------------
                                                           Payment
 Data collection timeframes   Submission deadlines      determination
------------------------------------------------------------------------
April 1, 2014-June 30, 2014.  August 15, 2014.....  FY 2016.
July 1, 2014-September 30,    November 15, 2014.
 2014.
October 1, 2014-December 31,  February 15, 2015.
 2014.
January 1, 2015-March 31,     May 15, 2015........  FY 2017.
 2015.
April 1, 2015-June 30, 2015.  August 15, 2015.
July 1, 2015-September 30,    November 15, 2015...
 2015.
October 1, 2015-December 31,  February 15, 2016...
 2015.
------------------------------------------------------------------------

    Further, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27723), 
we proposed that while an LTCH's compliance with reporting quality data 
for NQF 0680 will be based on the calendar year, the measure 
calculation and public reporting of this measure (once public reporting 
is instated) will continue to be based on the influenza vaccination 
season starting on October 1 (or when vaccine becomes available) and 
ending on March 31 of the subsequent year. We also noted that, for 
example, while data collection is based on April 1, 2014, through 
December 31, 2014, for the FY 2016 payment determination, we will base 
the calculation of the measure for public reporting purposes on the 
2014-2015 influenza vaccination season (October 1, 2014 (or when the 
vaccine becomes available)--March 31, 2015). Similarly for the 
following year, CMS noted that we will base data collection on January 
1, 2015, through December 31, 2015, for the FY 2017 payment 
determination and calculation of the measure for public reporting 
purposes on the 2015-2016 influenza vaccination season (October 1, 2015 
(or when vaccine becomes available)--March 31, 2016).
    All LTCHs will be required to collect data using the LTCH CARE Data 
Set (Version 2.01).\121\ The Quality Improvement and Evaluation System 
(QIES) Assessment Submission and Processing (ASAP) System will remain 
the data submission mechanism for the LTCH CARE Data Set. Further 
information on data submission of the LTCH CARE Data Set for the LTCHQR 
Program Reporting using the QIES ASAP system is available at: https://www.qtso.com/ and http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCHTechnicalInformation.html.
---------------------------------------------------------------------------

    \121\ The LTCH CARE Data Set Version 2.01 was approved on June 
10, 2013 by OMB in accordance with the PRA. The OMB Control Number 
is 0938-1163. Expiration Date June 30, 2016. Available on the Web 
site at: http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
---------------------------------------------------------------------------

    We noted that these changes are applicable only to the Percent of 
Residents or Patients Who Were Assessed and Appropriately Given the 
Seasonal Influenza Vaccine (Short-Stay) (NQF 0680) for the 
LTCHQR Program, and not applicable to any other LTCHQR Program 
measures, proposed or adopted, unless explicitly stated.
    We invited public comments on our proposal to revise the data 
collection and reporting timeline for this influenza vaccination 
measure (NQF 0680) for the FY 2016 and FY 2017 payment 
determinations and subsequent years.
    Comment: Some commenters expressed support for the proposed 
revisions to the data collection and reporting timelines for Percent of 
Residents or Patients Who Were Assessed and Appropriately Given the 
Seasonal Influenza Vaccine (Short-Stay) (NQF 0680). Commenters 
believed that the proposed delay in the data collection and reporting 
timeline would allow needed time for the LTCH community and vendors to 
train, plan for and incorporate necessary changes into their data entry 
systems, prior to beginning data collection. A few commenters also 
appreciated that the proposed change in the timeline for calculation of 
the measure would better align with the traditional influenza season.
    However, several commenters recommended that CMS align the data 
collection timeline for this measure to align with the data collection 
timeline for the Influenza Vaccination Coverage Among Healthcare 
Personnel measure (NQF 0431), resulting in a data collection 
period of October 1, 2014 (or when the influenza vaccine becomes 
available), through March 31, 2015, for the FY 2016 payment 
determination and October 1, 2015 (or when the influenza vaccine 
becomes available), through March 31, 2016, for the FY 2017 payment 
determination. These commenters added that it was confusing to follow a 
data collection period that does not correspond to the influenza 
season, when CMS plans to base the measurement calculation and 
subsequent public reporting of the measure on the influenza season 
(October 1-March 31). In addition, commenters felt that having two 
different data collection periods for the two influenza vaccination 
measures (NQF 0680 and NQF 0431) is confusing and is 
likely to lead to errors. One commenter noted concern that a data 
collection start date of April 1, 2014, does not allow sufficient time 
for LTCHs to prepare for and train their staff for data collection, and 
noted a start date of October 1, 2014, would be more sufficient.
    Response: We appreciate the commenters' support for our proposal to 
revise the data collection and reporting timelines for Percent of 
Residents or Patients Who Were Assessed and Appropriately Given the 
Seasonal Influenza Vaccine (Short-Stay) (NQF 0680). We also 
appreciate commenters' concerns with submitting data during a timeframe 
that could be considered ``off season.'' Upon review of comments, and 
in response to those comments, we have revised the data collection 
timeframe to more closely align with the influenza vaccination season. 
Starting with the 2014-2015 influenza season, we will require LTCHs to 
collect data for all LTCH patients admitted or discharged between 
October 1 and April 30. At this

[[Page 50860]]

point, our data reporting and submission infrastructure for the LTCH 
CARE Data Set requires LTCHs to submit data on patient admissions and 
discharges (or death) separately. As a result, allowing reporting 
through April will allow us to capture the influenza vaccination status 
of LTCH patients admitted in March and discharged in April. For 
example, any patient admitted to an LTCH in March is automatically 
included in the denominator of this measure. Requiring LTCHs to respond 
to, and report quality data items related to the Patient Influenza 
measure (0680) through April 30th of any given year will allow 
LTCHs to show if those patients that were included in the denominator 
were vaccinated. If we were only to require LTCHs to answer the Patient 
Influenza items in the LTCH CARE Data Set through March 31st (as is 
required for the Healthcare Personnel Vaccination measure (NQF 
0431), those patient admitted, but not discharged prior to 
March 31st would be excluded from the measure, and LTCHs would not 
receive credit for any Influenza vaccinations administered to those 
patients. Further, this revision will reduce the burden of data 
collection changing it from the previously finalized year-round data 
collection to seasonal data collection, which addresses concerns 
regarding year-round data collection. Further guidance for data 
collection will be released in the LTCHQR Program Manual and other 
subregulatory mechanisms (such as the special open door forums, 
provider training, etc.) later this year.
    Comment: One commenter requested clarification regarding this 
(Percent of Residents or Patients Who Were Assessed and Appropriately 
Given the Seasonal Influenza Vaccine) quality measure. Specifically, 
the commenter asked whether screening patients for the influenza 
vaccine was required during the non-influenza season (April through 
December).
    Response: In order to fully capture all LTCH patients who were in 
the LTCH during the influenza vaccination season, LTCHs will need to 
screen patients for influenza vaccination status during the data 
collection period of October 1st through April 30th only. However, for 
purposes of measure calculation and public reporting, we will use data 
collected and submitted beginning in October 1 of that year and ending 
on March 31 of the following year. We will issue operational guidance 
regarding the collection and submission of this data in the LTCH QR 
Program Manual version 2.0, which will be finalized and released upon 
publication of this rule.
    Comment: A few commenters expressed concerns regarding patients who 
were transferred to the LTCH from an acute inpatient facility. 
Specifically, these commenters remarked that acute inpatient hospitals 
paid under the IPPS are required to report on the vaccination status of 
their patients as part of the Hospital IQR Program. As a result, these 
commenters believed that the inclusion of the Percent of Residents or 
Patients Who Were Assessed and Appropriately Given the Seasonal 
Influenza Vaccine (Short-Stay) (NQF 0680) as part of the 
LTCHQR Program is redundant, and expressed concerns that the inclusion 
of the measure in both quality reporting programs could result in 
duplicate vaccinations of the same patient leading to patient safety 
concerns.
    Response: We greatly appreciate the commenters' views on these 
topics. Although we did not make proposals in the FY 2014 IPPS/LTCH PPS 
proposed rule on some of the topics or inclusion of this finalized 
measure in the LTCHQR Program, we are mindful of the concerns for 
redundancy and duplicate vaccination of the same patient that could 
result from the use of this measure in the Hospital IQR and LTCHQR 
Programs. However, we wish to clarify that the items on the LTCH CARE 
Data Set Version 2.01 for use in collecting data for the LTCHQR Program 
and specifications for the Percent of Residents or Patients Who Were 
Assessed and Appropriately Given the Seasonal Influenza Vaccine (short-
stay) measure directly address and alleviate these concerns.
    Specifically, we note that item O0250 on LTCH CARE Data Set Version 
2.01 and guidance provided in the Draft LTCHQR Program Manual Version 
2.00 is designed to ensure LTCHs follow current clinical guidelines to 
assess whether a patient should receive an influenza vaccine and to 
ensure that, when clinically indicated, each patient only receives one 
influenza vaccine, thus addressing patient safety concerns. For 
patients who did not receive the influenza vaccine in the facility, 
item O0250 allows LTCHs to indicate why a patient did not receive the 
vaccine. Choices include: (1) Patient not in facility during this 
year's influenza vaccination season; (2) Received outside of this 
facility; (3) Not eligible--medical contraindication; (4) Offered and 
declined; (5) Not offered; (6) Inability to obtain vaccine due to a 
declared shortage; and (9) None of the above. These options are 
designed to both ensure that influenza vaccinations occur within 
clinical guidelines and, with regard to option number 2, that patients 
are not vaccinated twice.
    In addition, the specifications of this quality measure are 
designed so that facilities will only vaccinate when the patient has 
not already received the vaccination in another setting. Specifically, 
the numerator statement of the measure separately reports (and gives 
credit for): (1) Those who received the influenza vaccine during the 
most recent influenza season, either in the facility or outside the 
facility; (2) the number who were offered and declined the influenza 
vaccine; or (3) the number who were ineligible due to 
contraindication(s). LTCHs can report that a patient received the 
vaccine at another facility prior to arriving at the LTCH and still 
receive credit in the numerator. The use of this measure in the LTCHQR 
Program assumes and supports ongoing efforts of LTCHs and acute care 
hospitals for care coordination and sharing of clinical information 
between health care settings as part of patient transfer and discharge 
records.
    Comment: One commenter recommended that the title of this measure 
be updated to reflect its application to LTCH patients.
    Response: We greatly appreciate the commenter's input. Although we 
did not make proposals in the FY 2014 IPPS/LTCH PPS proposed rule on 
this topic, we will consider this view for future rulemaking and 
program development. We believe that the current title (which is the 
same as the title of the measure we finalized in the FY 2013 IPPS/LTCH 
PPS final rule) ``Percent of Residents or Patients Who Were Assessed 
and Appropriately Given the Seasonal Influenza Vaccine (short-stay)'' 
(revised from the previous title ``Percent of Residents Who Were 
Assessed and Appropriately Given the Seasonal Influenza Vaccine (short-
stay)'' to reflect expansion to the LTCH (and IRF) patient population 
in addition to Skilled Nursing Facility/Nursing Home Short-Stay 
residents) sufficiently reflects its applicability to the LTCH setting. 
The addition of the word ``patients'' in the measure title was done at 
the time of NQF review of this measure and endorsement by the NQF Board 
of Directors on May 2, 2012, for the LTCH (and IRF) settings.
    Comment: One commenter expressed concerns regarding the importance 
of Percent of Residents or Patients Who Were Assessed and Appropriately 
Given the Seasonal Influenza Vaccine (short-stay) (NQF 0680) 
within the LTCH setting. This commenter suggested that given CMS' 
limited resources, CMS should focus on measures that are most important 
for the LTCH setting and have

[[Page 50861]]

the greatest impact on patients cared for in the LTCH setting.
    Response: We greatly appreciate the commenter's view on this topic 
and this previously finalized measure. We will consider this input for 
future rulemaking and program development. We refer the commenter to 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53624 through 53625) for a 
discussion of the importance, rationale, and relevance finalized for 
this measure for the FY 2016 payment determination and subsequent 
years, and for references to the description of and specifications for 
this measure.
    We recognize that there are many critical issues facing LTCHs and 
their patients and additional appropriate quality measures that we 
should consider for the LTCHQR Program. We continue to focus on 
developing and implementing measures for our various quality reporting 
programs that will have the greatest impact on patient populations 
cared for in each setting. Further, we remain committed to identifying 
quality measures in each quality reporting program, including the 
LTCHQR Program, to align with the aims and priorities outlined in the 
National Quality Strategy.\122\ In future years, we will continue to 
identify and assess the relevance of both setting-specific and cross-
setting quality measures to strengthen our quality reporting programs, 
including the LTCHQR Program.
---------------------------------------------------------------------------

    \122\ U.S. Department of Health and Human Services. 2011 Report 
to Congress: National Strategy for Quality Improvement in Health 
Care. Washington, DC: U.S. Department of Health and Human Services, 
2011. Available at: http://www.ahrq.gov/workingforquality/nqs/nqs2011annlrpt.htm. Accessed on July 16, 2013.
---------------------------------------------------------------------------

    After consideration of the public comments we received, we are 
finalizing a revised data collection and reporting timeline. Starting 
with the 2014-2015 influenza vaccination season, data collection for 
the Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (short-stay) measure 
(NQF 0680) will be required for any patient admitted or 
discharged between October 1 and April 30. Submission deadlines for the 
FY 2016 and FY 2017 payment determinations are illustrated in the table 
below. However, we note that, as discussed above, similar timeframe and 
deadlines apply to subsequent years. In addition, we are finalizing our 
proposal that the measure calculation and public reporting of this 
measure (once public reporting is instated) will be based on the 
influenza vaccination season of the subsequent year.

 Final Timeline for Submission of LTCHQR Program Quality Data for the FY
2016 and FY 2017 Payment Determinations: NQF 0680 Percentage of
   Residents or Patients Who Were Assessed and Appropriately Given the
                       Seasonal Influenza Vaccine
                              [Short-Stay]
------------------------------------------------------------------------
                                                           Payment
 Data collection timeframes   Submission deadlines      determination
------------------------------------------------------------------------
October 1, 2014-April 30,     May 15, 2015........  FY 2016.
 2015.
October 1, 2015-April 30,     May 15, 2016........  FY 2017.
 2016.
------------------------------------------------------------------------

c. Revisions for Percent of Residents or Patients With Pressure Ulcers 
That Are New or Worsened (Short-Stay) (NQF 0678) for the FY 
2015 Payment Determination and Subsequent Years
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51748 through 
51750), we adopted an application of NQF 0678 Percent of 
Residents with Pressure Ulcers That are New or Worsened (Short-Stay) 
for the FY 2014 payment determination, and retained this application of 
the measure in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53615 
through 53619) for the FY 2015 payment determination and subsequent 
years. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51748 through 51750) for a discussion of the rationale, data collection 
methods, and submission methods finalized for this measure for the FY 
2014 payment determination and subsequent years, and for references to 
the description and specifications of this measure.
    At the time we completed our work on the FY 2013 IPPS/LTCH PPS 
final rule, NQF 0678 was not yet NQF-endorsed for use in the 
LTCH setting and was undergoing ad hoc review at the NQF for expansion 
to the LTCH setting. As a result, we were only able to adopt an 
application of the endorsed measure in our FY 2013 IPPS/LTCH PPS final 
rule. NQF 0678 underwent review for expansion to the LTCH 
setting by the NQF Consensus Standards Approval Committee (CSAC) on 
July 11, 2012 and was subsequently ratified by the NQF Board of 
Directors for expansion to the LTCH setting on August 1, 
2012.123 124 The title of the measure was changed to Percent 
of Residents or Patients with Pressure Ulcers that are New or Worsened 
(Short-Stay) to reflect this expansion. Updated specifications, 
reflecting the expansion are available on the NQF Web site at: http://www.qualityforum.org/QPS/0678.
---------------------------------------------------------------------------

    \123\ National Quality Forum, Consensus Standards Approval 
Committee Wednesday, July 11, 2012. Transcript. Available on the Web 
site at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=71612.
    \124\ Press Release: NQF Removes Time-Limited Endorsement Status 
for 13 Measures, Measures Now Have Endorsed Status. August 1, 2012. 
Available on the Web site at: http://www.qualityforum.org/News_And_Resources/Press_Releases/2012/NQF_Removes_Time-Limited_Endorsement_for_13_Measures;--Measures--Now--Have--Endorsed--
Status.aspx.
---------------------------------------------------------------------------

    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53615 through 
53616), we stated that we would continue to use the rulemaking process 
to adopt changes to measures when NQF review substantively changes the 
measure. We stated that one example of a substantive change would be 
the change the NQF makes to a previously endorsed measure when it 
extends that measure to a new setting. In the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27723 through 27724), because NQF 0678 
has received endorsement for the LTCH setting, we proposed to adopt the 
updated measure NQF 0678 Percent of Residents or Patients with 
Pressure Ulcers that are New or Worsened (Short-Stay) for the FY 2015 
payment determination and subsequent years.
    This change would not alter the data collection, data submission, 
or burden finalized in the FY 2013 IPPS/LTCH PPS final rule since there 
have been no changes to the data elements in the LTCH CARE Data Set 
(version 1.01), data submission system (QIES ASAP) and technical 
submission specifications for the LTCH CARE Data Set used for this 
measure for the FY 2015 payment determination. The only difference 
between our previously finalized application of the measure (NQF 
0678 Percent of Residents with Pressure

[[Page 50862]]

Ulcers that are New or Worsened (Short-Stay)) and this expanded measure 
(NQF 0678 Percent of Residents or Patients with Pressure 
Ulcers that are New or Worsened (Short-Stay)) is the change in name and 
NQF-endorsed expansion of this measure to the LTCH (and IRF) patient 
population in addition to Skilled Nursing Facility/Nursing Home Short-
Stay residents.
    We invited public comment on this proposal to adopt NQF 
0678 Percent of Residents or Patients with Pressure Ulcers 
that are New or Worsened (Short-Stay) for the LTCHQR Program.
    Comment: Several commenters were supportive of the CMS proposal to 
adopt NQF 0678 Percent of Residents or Patients with Pressure 
Ulcers that are New or Worsened (Short-Stay) for the LTCHQR Program. 
Commenters commended CMS for completing the re-specification process 
for this measure and applying for and receiving the NQF endorsement for 
expansion of this measure to the LTCH (and IRF) settings.
    Response: We appreciate the commenters' support and recognition of 
the importance of our work to re-specify and expand this measure to the 
LTCH setting and NQF endorsement for LTCH setting.
    Comment: One commenter expressed concern regarding pressure ulcers 
that develop at another facility during a 3-day interrupted stay. The 
commenter mentioned that when a patient is discharged from an LTCH to 
another facility, the LTCH is not able to control the care provided in 
the other facility and does not have a professional responsibility for 
the care of the patient. The commenter expressed that it is 
unreasonable to impose a payment reduction on an LTCH, for a pressure 
ulcer that occurs in another facility during a 3-day stay interruption. 
In addition, this commenter believed that it would be misleading to the 
public to report a pressure ulcer as having occurred at an LTCH, when 
it was acquired at another facility during an interrupted stay. The 
commenter recommended that CMS use a new data collection item to 
capture information on whether a pressure ulcer is acquired during an 
interrupted stay.
    Response: We refer readers to our response to these specific 
concerns in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53618).
    Comment: A few commenters did not believe NQF 0678 Percent 
of Residents or Patients with Pressure Ulcers that are New or Worsened 
(Short-Stay) is an appropriate quality measure for the LTCH setting. 
While these commenters recognized the importance of pressure ulcer 
prevention and management, they believed that it was inappropriate for 
CMS to implement a measure in the LTCH setting that was originally 
developed for the nursing home setting. Two commenters recommended that 
a more appropriate measure would be one that specifically measures 
pressure ulcer healing. Commenters pointed out that many LTCHs have 
expertise in wound healing and often admit patients in order to address 
a non-healing wound. One commenter also recommended that CMS consider a 
measure of hospital acquired infections of pressure ulcers or wounds.
    Response: We greatly appreciate the commenters' views on the 
appropriateness of the pressure ulcer measure in the LTCHQR Program. We 
will consider all of these views for future rulemaking and program 
development. Please note that the commenters' concerns regarding the 
appropriateness of this measure in the LTCHQR Program were discussed in 
detail when this measure was originally finalized in the FY 2012 IPPS/
LTCH PPS final rule. We refer readers to the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51748 through 51749) for a discussion of our 
rationale for finalizing this measure for the FY 2014 payment 
determination and subsequent years, and for references to the 
description and specifications of this measure. Further, we wish to 
clarify and reiterate that although this measure was originally 
developed for the SNF/nursing home patient population, it has been re-
specified for the LTCH (and IRF) settings and undergone NQF review and 
received NQF endorsement for expansion to the LTCH (and IRF) settings 
on August 1, 2012. NQF endorsement of this measure demonstrates 
appropriateness of this measure in the LTCH setting.
    We appreciate the commenters' recommendations that CMS consider 
additional quality measures related to pressure ulcers and is committed 
to taking this input under consideration to inform our ongoing work on 
further development and implementation of the LTCHQR Program.
    Comment: One commenter expressed concern regarding the assumptions 
made in the development, selection, and re-specification of this 
measure. The commenter suggests that the measure does not take into 
account unavoidable pressure ulcers, or ulcers that are not caused by 
poor quality care. This commenter also pointed out that not all 
pressure ulcers progress through the numeric stages that are included 
in the data elements that LTCHs must report on and that worsening 
should not be defined as a pressure ulcer which increases in stage.
    Response: While we agree that some pressure ulcers are unavoidable, 
clinical evidence suggests that many or most pressure ulcers can be 
avoided through application of appropriate standards of care. We refer 
readers to FY 2012 IPPS/LTCH PPS final rule for further discussion (76 
FR 51749). However, the purpose of this measure is not to capture 
whether or not a pressure ulcer is or is not avoidable. That is a 
clinical determination outside of the scope of the measure. The measure 
only reflects the number of Stage 2-4 pressure ulcers that are new or 
worsened.
    With regard to the commenters concern regarding the relationship 
between pressure ulcers and poor quality care, we agree that poor 
quality care cannot be determined solely by the pressure ulcer 
measures. A determination of poor quality of care would require a full 
medical chart and an assessment of whether or not the care given to a 
specific patient was appropriate based on the clinical assessment of 
the patient. This determination would be made by regulatory and 
certifying bodies, and not via the LTCHQR Program.
    Finally, pressure ulcer worsening and healing is complex and multi-
faceted, and takes into account several different factors including 
(but not limited to) increased exudate, erythema, lack of 
epithelialization, increase in surface area, continued degeneration of 
tissue and comorbidities. For the purposes of the LTCHQR Program, we 
define worsening of a wound as ``a pressure ulcer that has progressed 
to a deeper level of tissue damage and is therefore staged at a higher 
number using a numerical scale of 1-4 (using the staging assessment 
classifications assigned to each stage; starting at stage 1, and 
increasing in severity to stage 4) on a discharge assessment as 
compared to the admission assessment.'' (Draft LTCHQR Program Manual 
Version 2.00, page M-25, http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/Downloads/LTCH-QR-Program-Manual-v20-DRAFT.zip.) The staging system 
used for this measure is a modified version of the National Pressure 
Ulcer Advisory Panel (NPUAP) staging system, which has been tested for 
validity, accuracy, clarity, succinctness, utility, and 
discrimination.\125\
---------------------------------------------------------------------------

    \125\ National Pressure Ulcer Advisory Panel. NPUAP Pressure 
Ulcer Stages/Categories. Accessed June 28, 2013. Available: http://www.npuap.org/resources/educational-and-clinical-resources/npuap-pressure-ulcer-stagescategories/.

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

[[Page 50863]]

    After consideration of the public comments we received, we are 
finalizing our proposal to adopt the expanded measure NQF 0678 
Percent of Residents or Patients with Pressure Ulcers that are New or 
Worsened (Short-Stay) for the LTCHQR Program for FY 2015 payment 
determination and subsequent years.
8. New LTCHQR Program Quality Measures for the FY 2017 and FY 2018 
Payment Determinations and Subsequent Years
a. Considerations in Updating and Expanding Quality Measures Under the 
LTCHQR Program for the FY 2017 Payment Determination and Subsequent 
Years
    As noted in section IX.C.2. of the preamble of this final rule, we 
consider input from the MAP (http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partnership.aspx) in 
selecting measures for the LTCHQR Program. Measures proposed for the 
LTCHQR Program in the proposed rule were included on CMS' List of 
Measures under Consideration for December 1, 2012 (MUC List), and 
discussed in the MAP Pre-Rulemaking Report available at: http://
www.qualityforum.org/Publications/2013/02/MAP_Pre-Rulemaking_Report_
_-February_2013.aspx (pp. 170-176). MAP supported the direction of 
each proposed measure.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27724 through 
27730), in the absence of any NQF-endorsed measures for the LTCH 
setting and after due consideration to any measures that may have been 
endorsed or adopted by a consensus organization, we proposed measures 
that are fully supported by the MAP for the LTCHQR Program, or that 
most closely align with the national priorities discussed in section 
IX.C.2. of the preamble of this final rule. In the absence of the MAP's 
full support, we have in some cases deemed it appropriate to propose 
measures for which there is MAP support for the measure concept. 
Further discussion of why a particular measure is high priority in the 
LTCH setting is included for each proposed measure below.
    In addition, to the extent practicable, we have for each proposed 
measure that is not endorsed by the NQF or another consensus 
organization, sought measures that have been recommended by multi-
stakeholder organizations, and/or been developed with the input of 
providers, purchasers/payers, and a variety of other stakeholders.
b. New LTCHQR Program Quality Measures for the FY 2017 Payment 
Determination and Subsequent Years
    We proposed the following three new quality measures for the LTCHQR 
Program to affect the FY 2017 payment determination and subsequent 
years:
(1) Quality Measure 1: National Healthcare Safety Network 
(NHSN) Facility-Wide Inpatient Hospital-Onset Methicillin-Resistant 
Staphylococcus aureus (MRSA) Bacteremia Outcome Measure (NQF 
1716)
    NQF 1716 is a standardized infection ratio (SIR) of 
hospital-onset unique blood source MRSA laboratory-identified events 
among all inpatients in the facility. It was adopted by the Hospital 
IQR Program in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51630) for 
the FY 2015 payment determination, with data collection having begun on 
January 1, 2013. The measure was developed by the CDC and is NQF-
endorsed.
    Methicillin-Resistant Staphylococcus aureus (S. aureus) (MRSA) 
infections are caused by a strain of S. aureus bacteria that has become 
resistant to antibiotics commonly used to treat these infections. 
Between 2003 and 2004, an estimated 4.1 million persons in the United 
States had nasal colonization with MRSA.\126\ In addition, in 2005 it 
is estimated that there were 94,000 invasive MRSA infections in the 
United States associated with about 18,000 deaths.\127\ Currently, 
there are eight States that have implemented a MRSA Prevention 
Collaborative.\128\ For Medicare populations, MRSA is a source of 
increased cost, lengths of stay, morbidity and mortality, and can be a 
consequence of poor quality of care.129 130
---------------------------------------------------------------------------

    \126\ Gorwitz RJ, Kruszon-Moran D, McAllister SK, et al. Changes 
in the prevalence of nasal colonization with Staphylococcus aureus 
in the United States, 2001-2004. J Infect Dis2008; 197: 1226-34.
    \127\ Department of Health and Human Services. National Action 
Plan to Prevent Healthcare-Associated Infections: Roadmap to 
Elimination. Available at http://www.hhs.gov/ash/initiatives/hai/infection.html.
    \128\ Centers for Disease Control and Prevention. State Has 
Implemented a MRSA Prevention Collaborative. Available at http://www.cdc.gov/hai/stateplans/states-w-MRSA-collaborative.html.
    \129\ Centers for Disease Control and Prevention. People at Risk 
of Acquiring MRSA Infections. Available at http://www.cdc.gov/mrsa/riskfactors/index.html.
    \130\ Centers for Disease Control and Prevention. Management of 
Multidrug-Resistant Organisms in Healthcare Settings, 2006. 
Available at http://www.cdc.gov/hicpac/pdf/guidelines/MDROGuideline2006.pdf.
---------------------------------------------------------------------------

    Older adults and patients in healthcare settings are most 
vulnerable to MRSA infections, as these patients have weakened immune 
systems. LTCHs are characterized by having highly acutely ill patients 
with multiple comorbidities and longer lengths of stay, thereby making 
LTCH patients at risk for acquisition of an antibiotic-resistant 
infection like MRSA infection.\131\ According to analysis of ICD-9 
codes reported on Medicare claims, LTCHs reported 5,853 cases of MRSA 
in 2009. Present-on-admission (POA) indicators are not available on 
LTCH claims; therefore, we are unable to say whether these conditions 
are present on admission or acquired during the LTCH stay. Therefore, 
it was not possible to determine which of these infections occurred in 
the LTCH. However, we note that on the majority of claims, the primary 
diagnosis is the admitting diagnosis and is considered to be present on 
admission and therefore, the secondary diagnoses can be assumed to 
provide a count of conditions that could have been acquired in the 
LTCH.\132\ When it was assumed that a MRSA infection recorded in the 
primary diagnosis code was likely present on admission and an MRSA 
infection recorded in the secondary diagnosis code was acquired in the 
LTCH, there were 5,826 reported cases that may have been acquired in 
the LTCH.\133\ Further, healthcare-associated MRSA infections occur 
frequently in patients who have invasive devices, such as catheters or 
ventilators.\134\ We included the proposed MRSA measure in the December 
1, 2012, MUC list. The MAP supported the direction of this 
measure.\135\
---------------------------------------------------------------------------

    \131\ Furuno JP, Hebden JN, Standiford HC, et al. Prevalence of 
methicillin-resistant Staphylococcus aureus and Acinetobacter 
baumannii in a long-term acute care facility. Am J Infect Control 
2008;36:468-71.
    \132\ Centers for Medicare & Medicaid Services Center for 
Medicare & Medicaid Innovation. Hospital Acquired Conditions (HAC)--
Report to Congress. Available at http://innovation.cms.gov/Files/x/HospAcquiredConditionsRTC.pdf.
    \133\ Bernard SL, Dalton K, Lenfestey N F, Jarrett NM, Nguyen 
KH, Sorensen AV, Thaker S, West ND. Study to support a CMS Report to 
Congress: Assess feasibility of extending the hospital-acquired 
conditions--present on admission IPPS payment policy to non-IPPS 
payment environments. Prepared for the Centers for Medicare & 
Medicaid Services (CMS Contract No. HHSM-500-T00007). 2011.
    \134\ Centers for Disease Control and Prevention. Protect 
Yourself from MRSA. Available at http://www.cdc.gov/features/mrsainhealthcare/.
    \135\ National Quality Forum. Measure Applications Partnership 
Pre-Rulemaking Report: 2013 Recommendations of Measures Under 
Consideration by HHS: February 2013. Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738.
---------------------------------------------------------------------------

    We proposed to use the CDC's NHSN reporting and submission 
infrastructure for reporting of the proposed NHSN

[[Page 50864]]

Facility-Wide Inpatient Hospital-onset MRSA Bacteremia Outcome Measure 
(NQF 1716). CDC's NHSN is the data collection and submission 
framework currently used for reporting the CAUTI (0138), 
CLABSI (0139), and Influenza Vaccination Coverage among 
Healthcare Personnel (0431) measures. Details related to the 
procedures for using NHSN for data submission and information on 
definitions, numerator data, denominator data, data analyses, and 
measure specifications for the proposed NHSN Facility-Wide Inpatient 
Hospital-onset MRSA Bacteremia Outcome Measure (NQF 1716) can 
be found at: http://www.qualityforum.org/QPS/1716 and http://www.cdc.gov/nhsn/PDFs/pscManual/12pscMDRO_CDADcurrent.pdf. For January 
2012 through January 2013, an estimated 42 LTCHs reported laboratory-
identified MRSA event data into NHSN.\136\ By building on the CDC's 
NHSN reporting and submission infrastructure, we intend to reduce the 
administrative burden related to data collection and submission for 
this measure under the LTCHQR Program. We refer readers to section 
IX.C.9. of the preamble of this final rule for more information on data 
collection and submission. We invited public comment on this proposed 
measure and data collection and submission for the proposed measure for 
the FY 2017 payment determination and subsequent years.
---------------------------------------------------------------------------

    \136\ Data from CMS-CDC correspondence on February 1, 2013.
---------------------------------------------------------------------------

    Comment: A number of commenters expressed support of our proposal 
to include NHSN Facility-wide Inpatient Hospital-onset MRSA Infection 
Outcome Measure (NQF 1716), citing relevance of healthcare-
acquired infections to the LTCH setting. One commenter also 
acknowledged the importance of MRSA prevention and control. One 
commenter noted that healthcare-acquired infections are a common reason 
for 30-day hospital readmission. Another commenter stated that pay-for-
reporting programs are an important mechanism for raising awareness of 
conditions such as MRSA, especially when the data are publicly reported 
and institutions can compare their performance against the performance 
of other facilities. Two commenters appreciated the effort of CMS to 
align LTCHQR Program measures with measures in other quality reporting 
initiatives.
    Response: We appreciate the commenters' recognition and support of 
our efforts to adopt measures for the LTCHQR Program that emphasize 
high-priority patient safety concerns and harmonize measures across 
settings, when applicable.
    Comment: Many commenters objected to the proposed MRSA SIR 
healthcare-acquired infection measure, citing lack of NQF endorsement 
for the LTCH setting. These commenters urge CMS to request formal NQF 
review, using the Consensus Development Process, of this proposed 
measure for the LTCH setting before deciding whether to adopt it for 
the LTCHQR Program.
    Many commenters objected to inclusion of MRSA SIR because they are 
concerned that, while the proposed MRSA measure received a ``support 
direction'' vote from the MAP, it was not granted full approval. 
Commenters cited the MAP's conclusion that the measure is ``Not ready 
for implementation,'' ``the measure concept is promising but requires 
modification or further development,'' and the ``Measure should be 
specified and tested for the LTCH setting.'' Commenters agreed with MAP 
reviewers that the measure has not been adequately developed, specified 
or tested in the LTCH setting.
    Some commenters noted it is inappropriate to apply this measure to 
the LTCH setting, which has more medically complex patients with acute 
hospital needs, since it was developed for another setting. One 
commenter noted that although a number of LTCHs voluntarily reported 
MRSA data to the CDC's NHSN between January 2012 and January 2013, this 
voluntary reporting activity does not constitute formal testing. 
Commenters stated that it is essential that measures are rigorous 
enough to produce credible results given that LTCHQR Program measure 
scores will ultimately be publicly reported. Another commenter 
suggested delaying the collection and submission of this measure until 
such time as the data currently submitted to NHSN has been reviewed for 
validity and reliability.
    Response: The National Healthcare Safety Network (NHSN) Facility-
wide Inpatient Hospital-onset MRSA Outcome Measure was endorsed as NQF 
1716 as of December 14, 2012, and is endorsed for use in 
several settings, including LTCHs. Because of the scope of the patient 
safety problem posed by MRSA to the chronically ill patient population 
in the LTCH setting, as well as its burden on the healthcare system, we 
believe it in the best interest of patients to adopt this measure for 
the LTCHQR Program in order to promote awareness and encourage 
implementation of MRSA control procedures in the LTCH setting. The CDC 
states that rates will be calculated for this measure in the LTCH 
setting (referred to as the Long-Term Acute Care [LTAC] setting by the 
CDC's NHSN) until appropriate risk adjustment can be determined for an 
SIR calculation. Data will be analyzed separately for the LTCHs so no 
inappropriate comparisons will be made between LTCH and other 
healthcare settings. The measure is on the list of NQF-endorsed 
measures and can be found on the NQF Web site at http://www.qualityforum.org/QPS/1716.
    We appreciate the commenters' input on finalizing a measure for 
which the MAP supported direction. We note that we have taken the MAP's 
input into consideration in selecting quality measures, as we are 
required to do under section 1890(a)(4) of the Act. However, we are not 
required to follow the MAP's recommendations, but to take them into 
account when selecting measures for proposal. In addition to MAP input, 
we take a variety of other factors into account in selecting measures. 
In this instance, for example, the National Healthcare Safety Network 
(NHSN) Facility-wide Inpatient Hospital-onset Methicillin-resistant 
Staphylococcus aureus (MRSA) Bacteremia Outcome Measure (NQF 
1716) is NQF-endorsed for the LTCH setting, an indication that 
it is appropriate for LTCH patients. In addition, this measure is 
appropriate in light of the fact that illness from MRSA most commonly 
affects older adults in hospitals or in facilities with longer lengths 
of stay. For the reasons listed above, this measure is appropriate for 
LTCH patients.
    Comment: Commenters also expressed strong concern that CMS' failure 
to convene a TEP for any of the new proposed quality measures 
demonstrates the questionable nature of the proposed measures. The 
commenters believed that TEPs are integral to developing healthcare 
setting appropriate quality measures.
    Response: We appreciate the commenter's concern, and agree that 
TEPs are an integral step for assessing a measure's appropriateness for 
a care setting. The MRSA measure was evaluated by a TEP. The TEP 
evaluated the measure on Importance, Scientific Soundness, Usability, 
and Feasibility. The TEP indicated that MRSA was of high importance and 
the measure was scientifically sound.
    Comment: Several commenters suggested that inclusion of a POA code 
for LTCH Medicare claims may help quantify the problem and avoid the 
costly implementation of very labor-intensive data collection for MRSA

[[Page 50865]]

infections. One commenter expressed concern that the MRSA performance 
data cited in the rule are based on 2009 Medicare claims data and that 
CMS acknowledged that LTCH claims lack a POA indicator that would help 
determine whether the MRSA was acquired before or during 
hospitalization.
    Response: Although Medicare claims data for LTCHs lack the POA 
indicator, we believe that the data from our previous analysis provides 
evidence that MRSA infections do occur within the LTCH setting.\137\ 
The data sources for the NQF endorsement of this measure do not rely on 
claims data. (We refer readers to http://www.qualityforum.org/QPS/1716 
for a list of data sources for this measure.)
---------------------------------------------------------------------------

    \137\ Centers for Medicare & Medicaid Services Center for 
Medicare & Medicaid Innovation. Hospital Acquired Conditions (HAC)--
Report to Congress. Available at http://innovation.cms.gov/Files/x/HospAcquiredConditionsRTC.pdf.
---------------------------------------------------------------------------

    We agree that using a POA indicator would permit a claims-based 
MRSA measure, which would not require LTCHs to collect data. However, 
we previously considered implementation of a claims-based MRSA measure 
for the Hospital IQR Program but found that it was not feasible to do 
so in a valid and reliable manner. We believe that the very same issues 
related to validity and reliability would apply in the LTCHQR Program, 
since the programs are not distinguishable in any way that might affect 
the reliability or validity of using a claims based-measure. As a 
result, we do not believe at this time that it is feasible to implement 
a claims-based MRSA measure for the LTCHQR Program. However, we will 
continue to explore the feasibility of adding a POA indicator to LTCH 
Medicare claims data.
    We also note that the definition of MRSA Laboratory-identified 
events (LabID events) (as required by this measure) allows laboratory 
testing data to be used without clinical evaluation of the patient, 
allowing for a much less labor-intensive method to track MRSA 
infections. This provides a proxy infection measure of MRSA healthcare 
acquisition, exposure burden, and infection burden based almost 
exclusively on laboratory data and limited admission date data, 
including patient care location. Further, we note that the definition 
of MRSA LabID events (as required by this measure) specifically 
addresses attribution through categorization of MRSA LabID events based 
on date admitted to facility and date specimen collected, as well as by 
the current date and prior dates of specimen collection. As specified 
in the measure, Community-Onset (CO) is a LabID Event collected as an 
outpatient or an inpatient <=3 days after admission to the facility 
that is, days 1, 2, or 3 of admission), while Healthcare Facility-Onset 
(HO) is defined as a LabID Event collected from a patient >3 days after 
admission to the facility (that is, days 4 or later of admission). Data 
from outpatient locations (for example, outpatient encounters) are not 
included in this reporting of CO and HO Events. The CO definition 
accounts for infections acquired outside the LTCH setting, either in 
the community or in other healthcare settings. The measure to be used 
for comparison is the hospital-onset unique blood source MRSA LabID 
events among all inpatients in the facility. LabID events use NHSN 
forms to collect all required data, using the definitions of each data 
field.
    Comment: Several commenters recommended that CMS delay the adoption 
of this proposed measure until such time as LTCH personnel can be 
trained in quality measure collection and submission procedures. 
Commenters were concerned that hospitals and States had not had enough 
time to develop the proper infrastructure to report these data, because 
only three States currently require hospitals to report these data. 
Commenters furthermore recommended development of robust training and 
technical support for NHSN collection. One 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: As of May 15, 2013, based on CMS and CDC analysis of 
first quarter (October 1-December 31, 2012) data reporting for CLABSI 
and CAUTI measures, there is current and successful use of CDC's NHSN 
reporting infrastructure by about 399 of the approximately 440 
certified LTCHs. This widespread adoption of NHSN reporting in 
certified LTCHs clearly indicates that training, technical and 
infrastructure support for NHSN data collection has been adequate. By 
utilizing CDC's NHSN for MRSA reporting, we intend to build upon LTCHs 
ongoing experience with data reporting via NHSN, thus avoiding adding 
in new systems and infrastructure requirements for the LTCHQR Program.
    Comment: One commenter believed that the interpretation of MRSA 
SIRs will be challenging because laboratory-based infection definitions 
are confounded by differences in the sensitivity and mechanisms of 
hospital testing procedures. This commenter was concerned that the 
resulting difference in MRSA SIR measurement may unfairly portray 
hospitals that use the more sensitive testing technology as having more 
MRSA cases.
    Response: Variability in sensitivities of MRSA test methods is not 
a problem, as it is for C. difficile testing. For the purpose of this 
measure, all standardized laboratory methods to identify MRSA are 
acceptable for reporting. Therefore, test method is not included in the 
risk adjustment for calculation of the MRSA SIR. Important factors that 
are included in this calculation are facility bed size, medical school 
affiliation, and admission prevalence rate.
    After consideration of the public comments we received, we are 
finalizing the MRSA SIR measure as proposed (NQF 1716) for the 
FY 2017 payment determination and subsequent years.
(2) Quality Measure 2: National Healthcare Safety Network 
(NHSN) Facility-Wide Inpatient Hospital-Onset Clostridium difficile 
Infection (CDI) Outcome Measure (NQF 1717)
    This measure is a standardized infection ratio (SIR) of hospital-
onset C. difficile-associated infection (CDI) Laboratory-identified 
events among all inpatients in the facility, and was adopted by the 
Hospital IQR Program in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51630 through 51631) for the FY 2015 payment determination, with data 
collection having begun on January 1, 2013. The measure was developed 
by the CDC and is NQF-endorsed.
    Clostridium difficile (C. difficile) can cause a range of serious 
symptoms including diarrhea, serious intestinal conditions, sepsis, and 
death.\138\ In the United States, C. difficile is responsible for an 
estimated 337,000 infections and 14,000 deaths annually.\139\ Based on 
the HHS National Action Plan to Prevent Healthcare-Associated 
Infections, C. difficile rates have increased in recent years.\140\ The 
CDC estimates that CDIs cost more than $1 billion in additional

[[Page 50866]]

health care costs each year.\141\ In recent years, CDIs have become 
more frequent, more severe and more difficult to treat. Mortality rates 
for CDIs are highest in elderly patients.\142\ Between 1996 and 2009, 
rates of CDI among hospitalized patients aged 65 years and older 
increased 200 percent, while deaths related to C. difficile increased 
400 percent between 2000 and 2007, which is partly attributed to a 
stronger germ strain.\143\ \144\ Further, an estimated 90 percent of 
the C. difficile-related deaths occur in patients 65 and older. C. 
difficile is a source of increased costs in patient care, lengths of 
stay, morbidity and mortality, and can be a consequence of poor quality 
of care for Medicare patients.\145\
---------------------------------------------------------------------------

    \138\ McDonald LC, Coignard B, Dubberke E, et al. 
Recommendations for surveillance of Clostridium difficile-associated 
disease. Infect Control Hosp Epidemiol 2007;28:140-145. Available 
at: http://www.jstor.org/stable/pdfplus/10.1086/511798.pdf?acceptTC=true.
    \139\ Centers for Disease Control and Prevention. Investigating 
Clostridium difficile Infections Across the U.S. Available at http://www.cdc.gov/hai/eip/pdf/Cdiff-factsheet.pdf.
    \140\ Department of Health and Human Services. National Action 
Plan to Prevent Healthcare-Associated Infections: Roadmap to 
Elimination. Available at http://www.hhs.gov/ash/initiatives/hai/infection.html.
    \141\ Centers for Disease Control and Prevention. Making Health 
Care Safer: Stopping C. difficile Infections. Available at: http://www.cdc.gov/VitalSigns/HAI/index.html.
    \142\ Centers for Disease Control and Prevention. Investigating 
Clostridium difficile Infections Across the U.S. Available at: 
http://www.cdc.gov/hai/eip/pdf/Cdiff-factsheet.pdf.
    \143\ Centers for Disease Control and Prevention. QuickStats: 
Rates of Clostridium difficile Infection Among Hospitalized Patients 
Aged =65 Years,* by Age Group -- National Hospital 
Discharge Survey, United States, 1996--2009.MMWR, 60(34); 1171. 
Available at: http://www.cdc.gov/mmwr/preview/mmwrhtml/mm6034a7.htm.
    \144\ Centers for Disease Control and Prevention. Making Health 
Care Safer: Stopping C. difficile Infections. Available at: http://www.cdc.gov/VitalSigns/HAI/index.html.
    \145\ Dubberke ER, Reske KA, Olsen MA, McDonald LC, Fraser VJ. 
Short- and long-term attributable costs of Clostridium difficile-
associated disease in nonsurgical inpatients. Clin Infect Dis 2008; 
46:497-504. Available at: http://cid.oxfordjournals.org/content/46/4/497.long.
---------------------------------------------------------------------------

    Illness from C. difficile most commonly affects older adults in 
hospitals or in facilities with longer lengths of stay, where germs 
spread easily, antibiotic use is common, and people are especially 
vulnerable to infection.\146\ Considering CDIs are increasing in LTCHs 
and that the LTCH population is highly vulnerable to CDI, it is 
important to measure these rates in LTCHs.\147\ According to analysis 
of ICD-9 codes reported on Medicare claims, LTCHs reported 12,282 cases 
of C. difficile-associated disease in 2009. POA indicators are not 
available on LTCH claims, therefore we are unable to say whether these 
conditions are present on admission or acquired during the LTCH stay. 
Therefore, it was not possible to determine which of these infections 
occurred in the LTCH. However, we note that on the majority of claims, 
the primary diagnosis is the admitting diagnosis and is considered to 
be present on admission and, therefore, the secondary diagnoses can be 
assumed to provide a count of conditions that could have been acquired 
in the LTCH.\148\ When it was assumed that a CDI recorded in the 
primary diagnosis code was likely present on admission and a C. 
difficile-associated infection recorded in the secondary diagnoses code 
may have been acquired in the LTCH, there were 11,384 reported cases 
that may have been acquired in the LTCH.\149\ In addition, there is 
evidence that CDIs are preventable, and therefore surveillance and 
measuring infection rates is important to reducing infections and 
improving patient safety.
---------------------------------------------------------------------------

    \146\ Centers for Disease Control and Prevention. Frequently 
Asked Questions about Clostridium difficile for Healthcare 
Providers. Available at: http://www.cdc.gov/HAI/organisms/cdiff/Cdiff_faqs_HCP.html.
    \147\ Goldstein EJC, Polonsky J, Touzani M, Citron DM. C. 
difficile infection (CDI) in a long-term acute care facility (LTAC). 
Anaerobe 2009;15:241-243. Available at: http://www.sciencedirect.com/science/article/pii/S1075996409001176.
    \148\ Centers for Medicare & Medicaid Services Center for 
Medicare & Medicaid Innovation. Hospital Acquired Conditions (HAC)--
Report to Congress. Available at: http://innovation.cms.gov/Files/x/HospAcquiredConditionsRTC.pdf.
    \149\ Bernard SL, Dalton K, Lenfestey N F, Jarrett NM, Nguyen 
KH, Sorensen AV, Thaker S, West ND. Study to support a CMS Report to 
Congress: Assess feasibility of extending the hospital-acquired 
conditions--present on admission IPPS payment policy to non-IPPS 
payment environments. Prepared for the Centers for Medicare & 
Medicaid Services (CMS Contract No. HHSM-500-T00007). 2011.
---------------------------------------------------------------------------

    Currently, there are three States that require hospitals to report 
C. difficile data to NHSN. Fifteen States have implemented a C. 
difficile Prevention Collaborative.\150\ The goal for this proposed C. 
difficile measure is to provide a common mechanism (CDC's NHSN) for all 
LTCHs to report and analyze these data that will inform infection 
control staff of the impact of targeted prevention efforts. We included 
the proposed C. difficile measure in the December 1, 2012, MUC list. 
The MAP supported the direction of this measure.\151\
---------------------------------------------------------------------------

    \150\ Centers for Disease Control and Prevention. State Has 
Implemented a C. diff Prevention Collaborative. Available at: http://www.cdc.gov/hai/stateplans/states-w-CDI-collaborative.html.
    \151\ National Quality Forum. Measure Applications Partnership 
Pre-Rulemaking Report: 2013 Recommendations of Measures Under 
Consideration by HHS: February 2013. Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738.
---------------------------------------------------------------------------

    We proposed to use the CDC's NHSN reporting and submission 
infrastructure for reporting of the proposed NHSN Facility-wide 
Inpatient Hospital-onset Clostridium difficile Outcome Measure (NQF 
1717). CDC's NHSN is the data collection and submission 
framework currently used for reporting the CAUTI, CLABSI and Influenza 
Vaccination Coverage among Healthcare Personnel measures. Similar to 
the NHSN MRSA Bacteremia Outcome Measure we proposed above, details 
related to the procedures for using NHSN for data submission and 
information on definitions, numerator data, denominator data, data 
analyses, and measure specifications for the proposed NHSN Facility-
wide Inpatient Hospital-onset Clostridium difficile Outcome Measure 
(NQF 1717) can be found at: http://www.qualityforum.org/QPS/1717 and http://www.cdc.gov/nhsn/PDFs/pscManual/12pscMDRO_CDADcurrent.pdf. For January 2012 through January 2013, an estimated 46 
LTCHs reported laboratory-identified C. difficile event data into 
NHSN.\152\ By building on the CDC's NHSN reporting and submission 
infrastructure, we intend to reduce the administrative burden related 
to data collection and submission for this measure under the LTCHQR 
Program.
---------------------------------------------------------------------------

    \152\ Data from CMS-CDC correspondence on February 1, 2013.
---------------------------------------------------------------------------

    We refer readers to section IX.C.9. of the preamble of this final 
rule for more information on data collection and submission. We invited 
public comment on this proposed measure and data collection and 
submission for the proposed measure for the FY 2017 payment 
determination and subsequent years.
    Comment: A number of commenters supported the CMS proposal to 
include NHSN Facility-wide Inpatient Hospital-onset Clostridium 
difficile Infection (CDI) Outcome Measure (NQF 1717) in the 
LTCHQR Program. Several commenters based their support on the relevance 
of healthcare-acquired infections to the LTCH setting, and one 
commenter noted that healthcare-acquired infections are a common reason 
for 30-day hospital readmission. Another commenter expressed the 
opinion that pay-for-reporting programs are an important mechanism for 
raising awareness of conditions such as CDI, especially when the data 
are publicly reported and institutions can compare their performance 
against the performance of other facilities. Two commenters appreciated 
the effort of CMS to align LTCHQR measures with other quality reporting 
initiatives.
    Response: We appreciate the commenters' support and recognition of 
the importance of the expansion of the LTCHQR Program to include this 
measure.
    Comment: Many commenters objected to the proposed CDI measure, 
citing lack of NQF endorsement for the LTCH setting. These commenters 
urge CMS to request formal NQF review, using the Consensus Development 
Process, of this proposed measure for the LTCH setting

[[Page 50867]]

before deciding whether to adopt it for the LTCHQR Program.
    Many commenters strongly objected to inclusion of the CDI measure 
because they are concerned that, while the proposed CDI measure 
received a ``support direction'' vote from the MAP, it was not granted 
full approval. Commenters cited the MAP's conclusions that the measure 
is ``[n]ot ready for implementation,'' ``the measure concept is 
promising but requires modification or further development,'' and the 
``[m]easure should be specified and tested for the LTCH setting.'' The 
commenters recognized the importance of CDI prevention and control, but 
believed that it was inappropriate to apply a measure that was 
developed for another setting to LTCHs given the more medically complex 
and acute hospital needs of LTCH patients, and therefore agreed with 
MAP reviewers that the measure has not been adequately developed, 
specified or tested in the LTCH setting.
    One commenter noted that although a number of LTCHs voluntarily 
reported C. difficle data to the National Healthcare Safety Network 
between January 2012 and January 2013, this voluntary reporting 
activity does not constitute formal testing. Several commenters stated 
that it is essential that the measures are rigorous enough to produce 
credible results given that LTCHQR measure scores will ultimately be 
publicly reported, and another commenter suggested delaying the 
collection and submission of these measures until such time as the data 
currently submitted to NHSN has been reviewed for validity and 
reliability.
    Response: The National Healthcare Safety Network (NHSN) Facility-
wide Inpatient Hospital-onset Clostridium difficile Infection (CDI) 
Outcome Measure was endorsed as NQF 1717 as of December 14, 
2012, and is endorsed for use in several settings, including the LTCH 
setting. As with the MRSA SIR, because of the scope of the patient 
safety problem posed by CDI to the very vulnerable LTCH population, as 
well as its burden on the healthcare system, we believe it is in the 
best interest of patients to adopt this measure in order to promote 
awareness and encourage immediate implementation of CDI control 
procedures within the LTCH setting. The measure is on the list of NQF-
endorsed measures and can be found on the NQF Web site at http://www.qualityforum.org/QPS/1717.
    We appreciate the commenters' input on finalizing a measure for 
which the MAP supported direction. We note that we have taken the MAP's 
input into consideration in selecting quality measures, as we are 
required to do under section 1890(a)(4) of the Act. However, we are not 
required to follow the MAP's recommendations, but to take them into 
account when selecting measures for proposal. In addition to MAP input, 
we take a variety of other factors into account in selecting measures. 
In this instance, for example, the National Healthcare Safety Network 
(NHSN) Facility-wide Inpatient Hospital-onset Clostridium difficile 
Infection (CDI) Outcome Measure (NQF 1717) is NQF-endorsed for 
the LTCH setting, an indication that it is appropriate for LTCH 
patients. In addition, this measure is appropriate in light of the fact 
that illness from CDI most commonly affects older adults in hospitals 
or in facilities with longer lengths of stay. For all of the reasons we 
have discussed, we believe this measure is appropriate for LTCH 
patients.
    Comment: Commenters expressed strong concern that CMS' failure to 
convene a TEP for any of the new proposed quality measures demonstrates 
the questionable nature of the proposed measures.
    Response: We agree that TEPs are an integral step for assessing a 
measure's appropriateness for a care setting. The CDI measure was 
evaluated by a TEP. The TEP evaluated the measure on Importance, 
Scientific Soundness, Usability, and Feasibility. The TEP indicated 
that CDI was of high importance and that the measure was scientifically 
sound.
    Comment: Several commenters suggested that inclusion of a POA code 
for LTCH Medicare claims may help quantify the problem and avoid the 
costly implementation of very labor-intensive data collection for C. 
difficile infections. One commenter expressed concern that the CDI 
performance data cited in the rule are based on 2009 Medicare claims 
data and that CMS acknowledged that LTCH claims lack a POA indicator 
that would help determine whether the CDI was acquired before or during 
hospitalization.
    Response: Although Medicare claims data for LTCHs lack the POA 
indicator, we believe that the data from our previous analysis provides 
evidence that CDIs do occur within the LTCH setting.\153\ Further, the 
data sources for the NQF endorsement of this measure do not rely on 
claims data. (We refer readers to http://www.qualityforum.org/QPS/1717 
for a list of data sources for this measure.) We previously considered 
implementation of a claims-based CDI measure for the Hospital IQR 
Program, but found that it was not feasible to do so in a valid and 
reliable manner and as a result, by extension, at this time, we do not 
believe it is feasible to implement a claims-based MRSA measure for the 
LTCHQR Program. We will continue to explore the feasibility of adding a 
POA indicator to LTCH Medicare claims data.
---------------------------------------------------------------------------

    \153\ Centers for Medicare & Medicaid Services Center for 
Medicare & Medicaid Innovation. Hospital Acquired Conditions (HAC)--
Report to Congress. Available at http://innovation.cms.gov/Files/x/HospAcquiredConditionsRTC.pdf.
---------------------------------------------------------------------------

    The definition of CDI LabID events inherently accounts for the 
problem of attribution, through categorization of CDI LabID events 
based on date admitted to facility and date specimen collected, as well 
as by the current date and prior dates of specimen collection. As 
specified in Community-Onset (CO) is a LabID Event collected as an 
outpatient or an inpatient at most 3 days after admission to the 
facility (that is, days 1, 2, or 3 of admission), while Community-Onset 
Healthcare Facility-Associated (CO-HCFA) is defined as a CO LabID Event 
collected from a patient who was discharged from the facility at most 4 
weeks prior to current date of stool specimen collection. Data from 
outpatient locations (for example, outpatient encounters) are not 
included in this reporting. A Healthcare Facility-Onset (HO) is a LabID 
event collected more than 3 days after admission to the facility (that 
is, on or after day 4). Together, these definitions account for 
infections acquired outside the LTCH setting, either in the community 
or in other healthcare settings. The CDI measure is already in use in 
the hospital inpatient setting, where similar concerns have been raised 
and successfully addressed.
    We also note that the definition of CDI LabID events (as required 
by this measure) allows laboratory testing data to be used without 
clinical evaluation of the patient, allowing for a much less labor-
intensive method to track CDIs. This provides a proxy infection measure 
of CDI healthcare acquisition, exposure burden, and infection burden 
based almost exclusively on laboratory data and limited admission date 
data, including patient care location. LabID events use NHSN forms to 
collect all required data, using the definitions of each data field.
    Comment: Some commenters recommended that CMS delay the adoption of 
this proposed measure until such time as LTCH personnel can be trained 
in the quality measure collection and submission procedures. Commenters 
were concerned that hospitals and states had not had enough time to 
develop the proper

[[Page 50868]]

infrastructure to report these data, because only 3 States currently 
require hospitals to report these data. Other commenters noted that the 
burden of data collection must be considered in order to allow these 
facilities to acquire the resources to focus on improvement efforts and 
not completely on data collection and submission alone. Commenters 
furthermore recommended development of robust training and technical 
support for NHSN collection. One 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: As of May 15, 2013, based on CMS and CDC analysis of 
first quarter (October 1-December 31, 2012) data reporting for CLABSI 
and CAUTI measures, there is current and successful use of CDC's NHSN 
reporting infrastructure by about 399 of the approximately 440 
certified LTCHs. This widespread adoption of NHSN reporting in LTCHs 
clearly indicates that training, technical and infrastructure support 
for NHSN data collection has been adequate. By utilizing CDC's NHSN for 
CDI reporting, we intend to build upon LTCHs ongoing experience with 
data reporting via NHSN, thus avoiding adding in new systems and 
infrastructure requirements for the LTCHQR Program.
    Comment: Some commenters believed that the calculation of CDI SIRs 
will be challenging because hospitals use testing mechanisms with 
differing sensitivity to identify the presence of CDI. These commenters 
were concerned that the resulting difference in CDI SIR measurement may 
unfairly portray hospitals that use the more sensitive testing 
technology as having more CDI cases.
    Response: CDC acknowledges that differences in the sensitivity of 
CDI laboratory testing methods make a difference in the numbers of CDI 
events that hospitals identify and report. CDI laboratory event data is 
a combination of laboratory results and admission/discharge/transfer 
data. CDI facility-wide LabID event reporting is risk-adjusted by 
facility bed size, medical school affiliation, and CO admission 
prevalence rate. In addition, NHSN uses a question from the required 
annual facility survey that asks about the type of CDI testing the lab 
conducts and this information is used for additional risk-adjustment. 
And, for improved accuracy of this test type representation, CDC will 
be asking this question on a quarterly basis beginning in 2014.
    Comment: Some commenters believed that the CDI SIR is an 
inappropriate measure for use among LTCHs because LTCHs are not 
sufficiently represented in baseline calculations. The commenters noted 
that, in the NQF Measure submission and evaluation worksheet 5.0, dated 
September 14, 2011, testing results in section 2b4.3 show that only 4 
percent of the facilities used to construct the standard population 
that reported their facility type were LTCHs. The commenters believed 
that because the denominator identified in section 2a1.4, the 
hospital's onset CDI LabID event rate for the same types of facilities 
(obtained from the standard population) will be part of the 
calculation, LTCHs would be judged against a standard population that 
is only 4 percent LTCHs. The commenters argued that LTCHs should only 
be judged against their peers, that is, other LTCHs, and that such a 
peer comparison approach is even more important because a large risk 
factor for CDI is the patient's length of stay. Commenters believed 
that LTCHs would be at a distinct disadvantage since the average length 
of stay for LTCH patients is greater than 25 days.
    Response: We agree with the commenters regarding the importance of 
statistically appropriate measures. The NQF Measure submission and 
evaluation worksheet incorporated numbers that were available at that 
time as a demonstration for the endorsement process. Calculations of 
CDI SIR for the LTCHQR Program will be based on a standard population 
that includes all reporting LTCHs, which after full implementation we 
believe will number over 400. At this time, we do not intend to compare 
LTCHs with any other hospital type.
    Comment: Commenters noted that there are different types of 
microbiology tests available to test for CDI, and that the variety of 
tests available may result in up to a twofold difference in results. 
Commenters expressed that the more sensitive CDI tests will capture 
more true positives and that LTCHs that utilize these more expensive, 
more sensitive tests (for example, nucleic acid tests) will be 
penalized for ``showing a higher rate''.
    Commenters also noted that certain tests for CDI can show positive 
results for up to 6-9 weeks after the resolution of symptoms and 
recommended that CMS conduct further research of the timeline 
associated with duplicate positive CDI tests. Commenters also believed 
that the measure should be defined to exclude repeat tests on the same 
patient, in order to allow for confirmation of positive results. 
Finally, commenters were concerned that there is a high probability of 
an elderly patient who has diarrhea for an unrelated reason, falsely 
testing positive for CDI, thus falsely elevating the rates.
    Commenters recommended that CMS postpone this measure until further 
testing is conducted regarding the varying sensitivities of the 
multiple tests available that are needed to satisfy this measure, and 
risk adjustment methodologies are developed to address this variation 
for these variations. CMS should conduct further research of the 
timeline associated with duplicate positive tests. Commenters also 
recommended that CMS postpone the measure until an algorithm is 
developed made available in all clinical laboratories that would help 
LTCHs avoid scenarios in which an elderly patient presenting symptoms 
for unrelated reasons also tests positive for C. difficile-associated 
infection and, thus, falsely elevates hospital rates.
    Response: We appreciate the commenters' concerns. However, we wish 
to note that the CDC has taken into account repeat testing results by 
building a 14-day algorithm into the protocol that requires users to 
wait a full 14 days between positive results from the laboratory before 
another CDI LabID event should be reported into the NHSN system for a 
patient in a specific care location. Further, and in addition to the 
14-day testing algorithm, the CDC defines recurrent CDI as a positive 
test within 8 weeks of previous positive test. If a patient test 
positive a second time within this timeframe, the infection is not 
counted as a new infection. In addition to this protocol guidance, CDC 
has posted recommended guidance on its Web site that is designed to 
improve the diagnosis and management of CDI in adult patients. This 
document includes first test and repeat testing guidance, in order to 
standardize the process and minimize false-positive results.
    After consideration of the public comments we received, we are 
finalizing the CDI SIR measure National Healthcare Safety Network 
(NHSN) Facility-wide Inpatient Hospital-onset Clostridium difficile 
Infection (CDI) Outcome Measure (NQF 1717) as proposed for the 
FY 2017 payment determination and subsequent years.
(3) Quality Measure 3: All-cause Unplanned Readmission Measure 
for 30 days Post- Discharge from Long-Term Care Hospitals
    LTCHs treat patients who, on average, are hospitalized 25 days or 
greater with medically complex problems, including prolonged mechanical 
ventilation or multiple organ failure. In 2011, as reported by MedPAC, 
about 123,000 Medicare beneficiaries received care for

[[Page 50869]]

almost 140,000 LTCH stays in roughly 424 LTCHs nationwide, with 
payments of $5.4 billion.\154\ For patients discharged from LTCH 
settings, the unadjusted rate of readmission to LTCHs and IPPS 
hospitals in the 30 days after an LTCH discharge was about 26 percent 
in 2010 and 2011.\155\ With such a large proportion of patients being 
readmitted to an acute level of care (that is, to either an LTCH or to 
an IPPS hospital), we are interested in monitoring the rates for each 
facility and reducing rates that are inappropriately high. Thus, we 
proposed a risk-adjusted measure of readmission rates, the All-cause 
Unplanned Readmission Measure for 30 days Post Discharge from Long-Term 
Care Hospitals.
---------------------------------------------------------------------------

    \154\ Medicare Payment Advisory Commission, Report to the 
Congress: Medicare Payment Policy. Available at: http://www.medpac.gov/documents/Mar13_EntireReport.pdf, March 2013, see 
Chapter 11, Long-term care hospital services, pg. 237-257.
    \155\ RTI analysis of 2010-2011 Medicare MedPAR claims data 
under CMS contract HHSM-500-2008-00021I.
---------------------------------------------------------------------------

    This measure will enhance efforts to promote patient safety, reduce 
healthcare-associated infections, improve coordination of care and care 
transitions, and reduce healthcare costs. Readmissions are costly to 
the Medicare program and have been identified as sensitive to 
improvements in coordination of care and discharge planning for 
patients.\156\ Literature on readmissions is mainly focused on 
discharges from short-term acute care hospitals. However, processes 
that may affect readmission rates, such as discharge planning, 
communications, and coordination, also occur at other inpatient 
facilities.
---------------------------------------------------------------------------

    \156\ Federal Register, Vol. 76, No. 160, Thursday, August 18, 
2011/Rules and Regulations, IV.C.1.a.
---------------------------------------------------------------------------

    While some readmissions are unavoidable, such as those resulting 
from the inevitable progression of disease or worsening of chronic 
conditions, readmissions may also result from poor quality of care or 
inadequate transitions between care settings. Randomized controlled 
trials in short-stay acute care hospitals have shown that improvement 
in the following areas can directly reduce hospital readmission rates: 
quality of care during the initial admission; improvement in 
communication with patients, their caregivers and their clinicians; 
patient education; pre-discharge assessment; and coordination of care 
after discharge. Successful randomized trials have reduced 30-day 
readmission rates by 20 to 40 
percent,157 158 159 160 161 162 163 and a 2011 meta-analysis 
of randomized clinical trials found evidence that interventions 
associated with discharge planning helped to reduce readmission 
rates,\164\ illustrating how hospitals may influence readmission rates 
through best practices.
---------------------------------------------------------------------------

    \157\ Jack BW, Chetty VK, Anthony D, Greenwald JL, Sanchez GM, 
Johnson AE, et al. A reengineered hospital discharge program to 
decrease rehospitalization: a randomized trial. Ann Intern Med 
2009;150(3):178-87.
    \158\ Coleman EA, Smith JD, Frank JC, Min SJ, Parry C, Kramer 
AM. Preparing patients and caregivers to participate in care 
delivered across settings: the Care Transitions Intervention. J Am 
Geriatr Soc 2004;52(11):1817-25.
    \159\ Courtney M, Edwards H, Chang A, Parker A, Finlayson K, 
Hamilton K. Fewer emergency readmissions and better quality of life 
for older adults at risk of hospital readmission: a randomized 
controlled trial to determine the effectiveness of a 24-week 
exercise and telephone follow-up program. J Am Geriatr Soc 
2009;57(3):395-402.
    \160\ Garasen H, Windspoll R, Johnsen R. Intermediate care at a 
community hospital as an alternative to prolonged general hospital 
care for elderly patients: a randomised controlled trial. BMC Public 
Health 2007;7:68.
    \161\ Koehler BE, Richter KM, Youngblood L, Cohen BA, Prengler 
ID, Cheng D, et al. Reduction of 30- day postdischarge hospital 
readmission or emergency department (ED) visit rates in high-risk 
elderly medical patients through delivery of a targeted care bundle. 
J Hosp Med 2009;4(4):211- 218.
    \162\ Naylor M, Brooten D, Jones R, Lavizzo-Mourey R, Mezey M, 
Pauly M. Comprehensive discharge planning for the hospitalized 
elderly. A randomized clinical trial. Ann Intern Med 
1994;120(12):999- 1006.
    \163\ Naylor MD, Brooten D, Campbell R, Jacobsen BS, Mezey MD, 
Pauly MV, et al. Comprehensive discharge planning and home follow-up 
of hospitalized elders: a randomized clinical trial. Jama 
1999;281(7):613-20.
    \164\ Naylor MD, Aiken LH, Kurtzman ET, Olds DM, Hirschman 
KB.The Importance of Transitional Care in Achieving Health Reform. 
Health Affairs 2011; 30(4):746-754.
---------------------------------------------------------------------------

    Because many studies have shown readmissions to be related to 
quality of care, and that interventions have been able to reduce 30-day 
readmission rates, we believe it is appropriate to include All-cause 
Unplanned Readmission Measure for 30 days Post Discharge from Long-Term 
Care Hospitals as a quality measure in the LTCHQR Program. Promoting 
quality improvements leading to successful transitions of care for 
patients moving from the LTCH setting to the community or another post-
acute care setting, and reducing preventable facility-wide readmission 
rates, is consistent with the NQS aims of safer, better coordinated 
care and lower costs.
    Our approach to developing this measure is similar to the approach 
we took in developing NQF-endorsed Hospital-Wide Risk-Adjusted All-
Cause Unplanned Readmission Measure (NQF 1789) (Hospital-Wide 
Readmission or HWR measure) (http://www.qualityforum.org/QPS/1789), 
finalized for the Hospital IQR Program in the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53521 through 53528). We proposed to use the same 
statistical approach, the same time window and a similar set of patient 
characteristics. To the extent appropriate, the proposed LTCH measure 
is being harmonized with this HWR measure (NQF 1789) \165\ and 
other measures of readmission rates being developed or proposed for 
post-acute care (PAC) settings, including the All-cause Unplanned 
Readmission Measure for 30 days Post Discharge from Inpatient 
Rehabilitation Facilities. This reflects MAP recommendations to promote 
alignment across care settings.\166\
---------------------------------------------------------------------------

    \165\ QualityNet. Hospital-wide All-Cause Unplanned Readmission 
(HWR) Measure. Available at http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228772504318. As obtained on March 20, 2013.
    \166\ National Quality Forum. Measure Applications Partnership 
Pre-Rulemaking Report: 2013 Recommendations of Measures Under 
Consideration by HHS: February 2013. Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738.
---------------------------------------------------------------------------

    LTCH patients, on average, require long stays at a hospital level 
of care and need care even after discharge. The setting chosen for 
placement of the discharged patient, and coordination with caregivers 
after discharge, are important for the stability of these patients. The 
rate of readmission to an acute level of care (short- or long-term) for 
such patients will be sensitive to appropriate discharge placement. The 
All-cause Unplanned Readmission Measure for 30 days Post Discharge from 
Long-Term Care Hospitals assesses return to short-stay acute care 
hospitals or LTCHs within 30 days of discharge from an LTCH to the 
community or another care setting of lesser intensity than an acute 
care setting. Patient readmissions are tracked using Medicare FFS 
claims data for 30 days after discharge, or the date of patient death 
if the patient dies within 30 days of discharge.
    In the Hospital IQR Program, two readmission measurement approaches 
were taken: (1) Measures related to patients with specific medical 
conditions, such as heart failure, pneumonia, and acute myocardial 
infarction,\167\ and (2) a hospital-wide measure. In LTCHs, patients 
tend to be complex and not easily classified into specific condition or 
procedure types. In addition, LTCHs have relatively small numbers of 
patients. Even ventilator patients, who are reasonably definable,

[[Page 50870]]

are not numerous enough to provide good, stable indicators of quality. 
Therefore, a hospital-wide all-cause readmission measure reflects a 
broader assessment of the quality of care in LTCHs, and may 
consequently better promote quality improvement and inform consumers 
about quality of care.
---------------------------------------------------------------------------

    \167\ Refer to 77 FR 53377 and table on 77 FR 53531 for current 
condition-specific readmission measures used in the Hospital IQR 
Program, available at: http://www.gpo.gov/fdsys/pkg/FR-2012-08-31/pdf/2012-19079.pdf.
---------------------------------------------------------------------------

    In applying the All-cause Unplanned Readmission Measure for 30 days 
Post Discharge from Long-Term Care Hospitals, we will follow patients 
for 30 days after the LTCH discharge date, or date of death if the 
patient dies within the 30 day post-discharge period, using Medicare 
FFS claims data. Because patients differ in morbidity and complexity, 
the measure is risk-adjusted for patient case-mix. The measure also 
excludes planned readmissions because these are not considered to be 
indicative of poor quality care on the part of the LTCH.
    A model developed by a CMS measure development contractor predicts 
admission rates while accounting for patient demographics, primary 
condition in the prior short stay, comorbidities, and a few other 
patient factors. The use of such risk adjusters will account for case-
mix differences that affect patient readmission rates among facilities. 
While estimating the predictive power of the patient characteristics, 
the model also estimates a facility specific effect common to patients 
treated at that facility. Similar to the Hospital IQR Program hospital-
wide readmission measure, the proposed LTCHQR Program measure is the 
ratio of the number of risk-adjusted predicted unplanned readmissions 
for each individual LTCH, including the estimated facility effect, to 
the average number of risk-adjusted predicted unplanned readmissions 
for the same patients treated at a facility with the average effect on 
readmissions. A ratio above one indicates a higher than expected 
readmission rate, or lower level of quality, while a ratio below one 
indicates a lower than expected readmission rate, or higher level of 
quality. (The construction of the Hospital IQR Program hospital-wide 
measure and an NQF technical report outlining the findings of the 
expedited review process for the Patient Outcomes:
    All--Case Readmission Measures may be downloaded from: http://www.qualityforum.org/Publications/2012/07/Patient_Outcomes_All-Cause_Readmissions_Expedited_Review_2011.aspx.)
    The patient population for the All-cause Unplanned Readmission 
Measure for 30 days Post Discharge from Long-Term Care Hospitals 
includes LTCH patients who:
     Were discharged alive from the LTCH;
     Had 12 months of Medicare Part A, fee-for-service coverage 
prior to the LTCH stay;
     Had 30 days of Medicare Part A, fee-for-service coverage 
post discharge;
     Had an acute care facility (IPPS, CAH, or psychiatric 
hospital) stay within the 30 days prior to the LTCH stay; and
     Were aged 18 years or above when admitted to the LTCH.
    In this final rule, we are revising the terminology ``Had an IPPS 
hospital stay within the 30 days prior to the LTCH stay'' we used in 
the proposed rule and instead using ``Had an acute care facility (IPPS, 
CAH, or psychiatric hospital) stay within the 30 days prior to the LTCH 
stay'' to include acute care, including critical access hospitals 
(CAHs), IPPS hospitals, and inpatient psychiatric hospitals and units 
(IPFs). Patients from the IPPS and CAH settings with psychiatric 
diagnoses are included in the measure. As a result, including patients 
with an IPF stay for psychiatric diagnoses preceding the LTCH stay is 
also appropriate. There were about 0.5 percent of such stays in the 
measure using 2010-2011 data.
    As in the Hospital IQR Program hospital-wide readmission measure, 
patients with medical treatment for cancer are excluded. Studies of 
this population that were reviewed for the Hospital IQR Program 
readmission measure showed them to have a different trajectory of 
illness and mortality than other patient populations.\168\ The measure 
also excludes patients who were discharged against medical advice.
---------------------------------------------------------------------------

    \168\ National Quality Forum. ``Patient Outcomes: All-Cause 
Readmissions Expedited Review 2011''. July 2012. pp12.
---------------------------------------------------------------------------

    Readmissions that are not included in the measure are:
     Transfers from an LTCH to another LTCH or acute care 
facility; and
     Readmissions within the 30 day window that are usually 
considered planned due to the nature of the procedures and principal 
diagnoses of the readmission.
     LTCH stays with data that are problematic. (The Medicare 
data files occasionally have anomalous records that indicate a person 
is in two facilities or stays that overlap in dates, or are otherwise 
potentially erroneous or contradictory.)
    The planned readmission list for the All-cause Unplanned 
Readmission Measure for 30 days Post Discharge from Long-Term Care 
Hospitals includes the planned procedures specified in the Hospital-
Wide All-Cause Unplanned Readmission (HWR) Measure (NQF 1789) 
used in the Hospital IQR Program, plus other procedures that were 
determined in consultation with a TEP. The list of procedures 
considered planned may be found in the LTCH Readmissions Measure 
Specifications file, which was made available for download at the time 
of release of the proposed rule at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/. In addition to the list of planned procedures this file 
includes a list of diagnoses, which, if found as the principal 
diagnosis on the readmission claim, would indicate that the procedure 
occurred during an unplanned readmission. Another readmission type that 
is counted as planned for this measure is any readmission to a 
psychiatric hospital or unit. This had not been explicitly noted in the 
proposed rule.
    A patient discharged from an LTCH is tracked until one of the 
following occurs: (1) The 30-day period post-discharge ends; (2) the 
patient dies; or, (3) the patient is readmitted to an acute level of 
care (short- or long-term). If multiple readmissions occur, only the 
first is considered for this measure. If the first readmission is 
unplanned, it is counted as a readmission in the measure rate. The 
occurrence of a planned readmission ends the 30-day window of the index 
discharge from the LTCH.
    Readmission rates are risk-adjusted for patient case-mix 
characteristics, independent of quality. The risk adjusted model 
accounts for demographic characteristics, principal diagnosis, 
comorbidities, length of stay in the prior acute care facility, 
critical care days in the prior acute care facility, number of acute 
care facility stays in the prior year, and the occurrence of various 
surgery types in the prior acute care facility stay.
    In modeling LTCH readmissions, all patients are included in a 
single model, an approach different from the five-cohort approach of 
the Hospital IQR Program HWR measure, adapted to account for a 
substantially smaller patient population in the LTCH setting. Separate 
models for patient types, as was done for the Hospital IQR Program 
measure, are not feasible. The number of cases is much smaller in the 
LTCHs than in the IPPS hospitals and patients are generally not as 
strongly characterized by one major admitting diagnosis or condition. 
Patient characteristics are captured by diagnoses and prior surgeries, 
with a

[[Page 50871]]

marker for prolonged mechanical ventilation also included.
    Because there are approximately 120,000 LTCH admissions per year, 
and approximately 110,000 of those admissions meet the criteria for 
inclusion, the proposed measure will use a model that merges two years 
of Medicare claims data. This approach is similar to that used by the 
Hospital IQR Program condition-specific readmission measures, which use 
three years of claims data (77 FR 53523). Merging multiple years of 
data produces more precise estimates of the effects of all the risk 
adjusters, and increases the sample size associated with each facility. 
Larger patient samples are better able to meaningfully distinguish 
facility performance.
    Under the exception authority in section 1886(m)(5)(D)(ii) of the 
Act, we proposed to use this measure in the LTCHQR Program. This 
section 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, 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 case of this measure, we did not 
find a feasible or practical NQF-endorsed measure that would be 
appropriate for the LTCH setting, or any other appropriate measure that 
has been adopted or endorsed by an appropriate consensus organization. 
The measure most similar in concept, and which has been endorsed by 
NQF, is the CMS Hospital-Wide All-Cause Unplanned Readmission Measure 
(NQF 1789) described below. This measure is for the short-term 
acute stay hospitals.
    In 2012, NQF endorsed two hospital-wide readmission measures, the 
National Committee for Quality Assurance (NCQA) measure intended for 
health plans, Plan All-Cause Readmissions (NQF 1768), and CMS' 
Hospital-Wide All-Cause Unplanned Readmission Measure (HWR) (NQF 
1789). The latter measure is the model for the All-cause 
Unplanned Readmission Measure for 30 days Post Discharge from Long-Term 
Care Hospital measure, we proposed in the FY 2014 IPPS/LTCH PPS 
proposed rule. We selected the latter measure as the model for the LTCH 
measure since it uses Medicare claims data and is in current use for 
the Hospital IQR Program, while the former uses health plans data. This 
measure was present on CMS' List of Measures Under Consideration for 
MAP 2012 and the most recent MAP Pre-Rulemaking Report noted that 
``readmission measures are also examples of measures that MAP 
recommends be standardized across settings, yet customized to address 
the unique needs of the heterogeneous Post-Acute Care (PAC)/LTC 
population. The MAP has continually noted the need for care transition 
measures in PAC/LTC performance measurement programs, and in 2013 
supported the direction of this measure.\169\ The readmission measure 
such as the one we proposed would address the need for an evidence-
based measure that could promote alignment across the care continuum 
and PAC/LTC settings while ensuring appropriate risk adjustment to 
accommodate uniqueness of the LTCH population.
---------------------------------------------------------------------------

    \169\ National Quality Forum. Measure Applications Partnership 
Pre-Rulemaking Report: 2013 Recommendations of Measures Under 
Consideration by HHS: February 2013. Available at http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738.
---------------------------------------------------------------------------

    We intend to seek NQF endorsement of the All-cause Readmission 
Measure for 30 days Post Discharge from Long-Term Care Hospital. As 
this is a claims-based measure not requiring reporting of new data by 
LTCHs, this measure will not be used to determine LTCH reporting 
compliance for the LTCHQR Program. We proposed to begin reporting 
feedback to LTCHs on performance of this measure in CY 2016. The 
initial feedback will be based on FY 2013 and FY 2014 Medicare claims 
data related to LTCH readmissions. The readmission measure will be part 
of the LTCH public reporting program once public reporting is instated. 
We intend to provide details pertaining to public reporting, such as 
LTCH preview of performance results of this measure, in our future 
rulemaking.
    We invited public comment on these proposals.
    Comment: A number of commenters noted that the measure is not NQF-
endorsed and this NQF endorsement should occur before implementation. 
Further, commenters noted the MAP did not fully support this measure.
    Response: We are aware this measure is not yet NQF-endorsed. We 
intend to submit this measure for NQF review for endorsement. We are 
also aware that the MAP did not fully support this measure, but note 
that but note that we have taken the MAP's input into consideration in 
selecting quality measures, as we are required to do under section 
1890(a)(4) of the Act. However, we are not required to follow the MAP's 
recommendations, but to take them into account when selecting measures 
for proposal. In addition to MAP input, we take a variety of other 
factors into account in selecting measures. In this instance, for 
example, the All-cause Unplanned Readmission Measure for 30 days Post-
Discharge from Long-Term Care Hospitals is appropriate in light of the 
fact that such a large proportion of patients being readmitted to an 
acute level of care (that is, to either an LTCH or to an acute care 
facility). For the reasons listed above, this measure is appropriate 
for LTCH patients. Further, we have the authority to finalize non-NQF 
endorsed measures under the exception authority when NQF-endorsed 
measures are not available or appropriate for a setting, as described 
above. We proposed the readmissions measure under this exception 
authority.
    Comment: Some commenters suggested that the readmission measure be 
created for only a few LTCH conditions.
    Response: The initial set of readmission measures for short-term 
acute hospitals took this condition-specific approach. There is also an 
HWR measure for short-term acute care hospitals, which served as the 
starting point for the development of the LTCH readmissions measure. 
The HWR measure is NQF-endorsed.
    There are a number of reasons not to use subsets of patients to 
develop condition-specific readmissions measures for the LTCH setting. 
First, LTCH stays number fewer than 150,000 per year. Therefore, 
patient sample size for particular DRGs or even larger patient 
subgroups would be relatively small. Second, the LTCH patient 
population tends to have multiple comorbidities and are typically not 
as distinctively classified into condition-specific categories as can 
be done for the short-term acute care hospital patient population. 
Third, the TEP convened by CMS' measure development contractor did not 
recommend separating groups of patients or even stratifying the model 
by patient types. The model includes indicators of the principal 
diagnosis in the prior short-term acute care hospital setting. In 
addition, we include an indicator in the model to adjust for the 
important subgroup of LTCH patients on prolonged mechanical ventilation 
in LTCHs. While making separate models for separate subgroups of 
patients is not desirable for the LTCH population, the inclusion of 
many characteristics of the patients, such as diagnoses, comorbidities, 
surgeries, etc., does provide risk adjustment to account for patient 
mix that varies across facilities.

[[Page 50872]]

    Comment: Some commenters stated that the LTCH measure should be 
made especially appropriate for and tailored for LTCHs.
    Response: The risk-adjustment model has been customized for LTCHs 
and includes predictors that are not present in the HWR model and a 
customized planned readmissions list. There is harmonization with other 
measures where reasonable and customization where appropriate. The 
tailoring of the measure is in the inclusion of particular risk 
adjustment variable types, such as the diagnoses, surgeries, intensive 
care days in the prior acute stay, and counts of prior acute 
admissions, as well as the statistical estimation of the effects of 
these variables using data specific to LTCH stays.
    Comment: One commenter suggested that, just as patients discharged 
against medical advice (AMA) are not counted in the measure, 
readmissions for patients deemed non-compliant with medical advice or a 
discharge plan should not be counted in the measure.
    Response: We believe the analogy to exclusion of discharges against 
medical advice is inaccurate. The AMA discharges are readily 
identifiable on claims submitted by LTCHs, the source of information 
used in the measure. These cases are completely excluded from the 
numerator and denominator. Non-compliance after discharge differs in 
that it can occur in degrees and be either voluntary or involuntary, 
such as when a patient does not have the assistance he or she needs to 
comply appropriately. We do not believe there is a clear marker for the 
point at which the patient should be excluded. We believe that the 
identification of such patients would be impractical at this time. For 
these reasons it is not possible to implement a non-compliance 
exclusion at this time.
    Comment: Some commenters believed that socioeconomic factors and 
dual eligibility for Medicaid should be accounted for in the model as 
well as other contextual factors.
    Response: The inclusion of factors related to socioeconomic status 
(SES) has been raised in the context of the Hospital IQR Program 
measures and our policy in that program omits them as explicit risk 
adjusters. Medicaid dual eligibility, which is related to income, is a 
socioeconomic factor, and is also not accounted for explicitly in 
Hospital IQR Program measures. The LTCH harmonizes with the other 
readmission measures in that respect (the Hospital IQR and the proposed 
IRFQR readmission measure). The effect of SES is similar in the case of 
LTCHs to the effects in the IPPS setting and the reasoning for not 
explicitly accounting for SES is similar. The effect of levels of SES 
is captured to a great extent by other variables included in the model. 
The proposed readmission measure is a risk-standardized readmission 
measure that adjusts 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, comorbid diseases and a history of repeat admissions) that are 
clinically relevant and/or have been found to have strong relationships 
with the outcome. To the extent that race or socioeconomic status 
results in certain patient groups having a worse medical condition 
profile, those factors are accounted for in the measure.
    However, these measures are not specifically adjusted for factors 
such as race, SES, or English language proficiency. 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. In 
addition, 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.
    The issue of the quality of care available after discharge is of 
concern to us and is being addressed by quality measures being proposed 
across the spectrum of care. The issue is also related to our major 
concern regarding the quality of transitions on discharge from the LTCH 
and care coordination.
    Comment: Some comments suggested that access to care in a 
community, from accessibility of providers to transportation, could 
affect readmission rates. They suggest that these factors be accounted 
for so that facilities are not disadvantaged.
    Response: We understand the concern about the effect of such 
factors and will consider how they might be accounted for during our 
future measure development efforts.
    Comment: One commenter recommended adding discharges to an IRF or 
IPF to the discharge destinations that serve as exclusions for the 
proposed measure.
    Response: We consider the IRF level of care for rehabilitation to 
be a non-acute level for this measure. Discharges to this setting do 
not serve as excluded cases and are treated the same as discharges to 
skilled nursing facilities, home health care and to the community 
without formal home health care. Direct discharges to an IPF are 
excluded from the measure. Readmissions to an IPF that are detected 
during the measure window are treated as planned and not counted in the 
numerator of the measure.
    Comment: Some commenters suggested exclusion of interrupted stays 
in the measure and clarification of treatment of discharges to 
collocated hospitals.
    Response: The proposed measure requires that a patient who has been 
discharged from an LTCH be considered for inclusion in the measure. 
Admissions occurring during an LTCH stay are not part of the measure. 
Interruptions may occur during the LTCH stay. Interruptions of 3 days 
or less do not result in a claim with a discharge and charges for any 
inpatient or outpatient treatment are sent to the LTCH. Stay 
interruptions longer than 3 days may result in Medicare receiving a 
separate bill from the other provider, though the patient is not 
formally discharged from the LTCH. An interruption of 4 to 9 days to an 
IPPS hospital is an example of this. There are also interrupted stays 
in which the patient is discharged to an IRF or a SNF. Those 
interruptions have longer defined spans. None of these is relevant for 
this measure. The Medicare claim for the LTCH stay must be for a 
discharged patient to be considered for inclusion in the measure. We 
evaluate the discharge record as to whether it is to a lower level of 
care. The rule for discharges to collocated hospitals depends on 
whether an interruption rule applies. If the claim shows that the 
patient is discharged to a collocated facility, not for an 
interruption, the treatment of the LTCH stay for the quality measure 
depends on the type of facility the patient is discharged to. The 
standard exclusions pertain. The special payment provisions for LTCHs 
that transfer more than 5 percent of cases to a collocated facility do 
have a direct relation to the quality measure. Whether cases are 
included in the measure depends the discharge claims observed in the 
Medicare data.
    Comment: Some commenters note that burn patients often need repeat 
hospitalizations and that the model does not account for that.

[[Page 50873]]

    Response: The LTCH model could not include severe burn patients as 
a separate primary diagnosis group because the sample size in the 
national data was too small. The burn patients are included in the skin 
injury CCS diagnosis group. It was necessary to aggregate patient types 
with small numbers to include them in the model. As a very small group, 
such patients will have a small effect on the facility measure as a 
whole, and it is better to aggregate patient types to get a 
statistically significant average effect than to drop the small groups. 
The groupings were reviewed by a physician as they were being created, 
using clinical, sample size and estimated coefficients. In addition, we 
note that the Hospital-Wide All-Cause Unplanned Readmission Measure 
Final Technical Report (http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228772504318) had enough sample size to look at the burn patients. This report 
is in the NQF submission (NQF 1789). The readmission rate 
following discharge from the IPPS setting was reported as average. To 
the extent the commenter's concern is the number of readmissions that 
might occur, both the HWR measure and the LTCH measure do not count the 
number of readmissions in the post-discharge window, just the presence 
of at least one unplanned readmission.
    Comment: Some commenters wanted the list of planned readmissions to 
be larger and/or that the countable readmissions include only those 
related to the LTCH admission and/or those deemed preventable. One 
commenter proposed that the LTCHs themselves could code the planned 
readmissions.
    Response: The issue of all-cause readmissions, as opposed to a more 
focused set of readmission types, has been raised in other contexts, 
such as the Hospital IQR measure. Section 2.2.3 of the technical report 
in the HWR NQF Measure Submission Form for NQF 1789 
explains our decision regarding this issue. The link is on the 
QualityNet Web site.\170\ The same logic applies to the LTCH setting. 
Discussions with technical experts have led to our preference in the 
LTCH, as for the HWR measure, for using an all-cause measure rather 
than a measure specific to a narrow set of conditions. The latter is 
possible when the population being measured is narrowly defined and 
certain complications are being targeted. For broader measures, 
covering patients with multiple medical conditions, a narrow set of 
readmission types is not desirable.
---------------------------------------------------------------------------

    \170\ QualityNet. Hospital-wide All-Cause Unplanned Readmission 
(HWR) Measure. Available at http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1228772504318. As obtained on July 8, 2013.
---------------------------------------------------------------------------

    In addition, readmissions may be clinically related even if they 
are not related to the principal diagnosis of the patient. One of the 
primary purposes of the measure is to encourage improved transitions at 
discharge and choice of discharge destination. Some readmissions can 
occur that are less related to the primary condition being treated in 
the LTCH than to the coordination of care post-discharge. For instances 
where the readmission is likely random, such as a car accident, we 
expect these events not to be systematically distributed among the 
LTCHs. Therefore, we have chosen to reduce the all-cause readmission 
set by excluding readmissions that are frequently planned or expected. 
The Hospital IQR set of planned readmissions has been augmented for 
LTCHs by further recommendations by technical experts in the field of 
post-acute care. In 2010-2011 data, nearly 9 percent of readmissions 
are considered planned.
    As to the suggestion that LTCHs code the planned readmissions, many 
of these do not occur during the LTCH stay and so could not be coded. 
Some planned readmissions would be interruptions of a stay and not be 
part of the measure. Some long interruptions could become discharges 
and could be coded, in principle, but these discharges would not be 
included in the measure because the readmission would have been a 
direct discharge to the acute hospital. The remaining post-discharge 
planned admissions that occur in the measure window are not under the 
control of the LTCH to code. We intend to continue its measure 
development work to further refine the planned readmission set after 
implementation of the proposed measure.
    Comment: Some commenters suggested that more than two years of data 
be included in the measure to increase sample size.
    Response: The two years of data for each report period is a 
compromise between sample size and timeliness. In this case the total 
number of LTCH stays in one year of national data is much smaller than 
the number of IPPS stays. The HWR measure uses one year of data. 
However, though the number of LTCH stays in the national data is small 
relative to the IPPS stays, two years of data yield good sample sizes 
at the LTCH level. In the 2010-2011 data, 95 percent of LTCHs have more 
than 100 patients averaged in their measure. The number of stays at the 
LTCH level is important for the precision of the LTCH measure. We do 
not think that three years of data are needed and the measure can be 
more current with 2 years.
    Comment: Some commenters are concerned about the statistical power 
of the model and specifically the C statistic.
    Response: The C statistic is one of the statistical criteria used 
in evaluating risk adjustment models. The acuity of patients in LTCHs 
is not uniform, though it is concentrated at the higher end of the 
spectrum. The relatively high readmission rate for LTCH patients post-
discharge indicates that differentiating among the patients who have 
multiple medical conditions is challenging at the individual level. We 
note, however, that the risk-adjusted rates for LTCHs are not being 
compared to other facility types with a different patient mix. Though 
the LTCH C statistic is not as high as in some patient populations with 
a greater acuity span, the range of discrimination from the lowest to 
highest deciles of probability of readmission for individuals is quite 
good. The lowest decile has an average probability of an unplanned 
readmission of about 13 percent; the average in the highest decile is 
about 43 percent. The full range of patient readmission probabilities 
in the observed data (2010-2011) ranges from about 5 percent to about 
64 percent. The risk adjustment model has a wide range of 
discrimination. In addition, other tests indicate the over- and under-
prediction values throughout the deciles of predicted probability are 
good.
    Comment: A few commenters requested that data for all patients be 
made available to LTCHs to track the patients after discharge. One 
commenter suggested monthly or quarterly transmissions of notices of 
readmission and made the case that the identifiable data would be 
HIPAA-compliant. Commenters also requested that historical rates be 
made available to the facilities.
    Response: We recognize the value for LTCHs being able to track 
patients' readmissions to other hospitals in real time both for an 
LTCH's internal quality improvement purpose and for validating our 
readmission measure criteria. Further, we appreciate commenters request 
for historical rates. We will consider whether it is operationally 
possible to provide these data to LTCHs and whether sharing these data 
would be consistent with patient privacy considerations. Further, we 
note that the readmission rates will be made available to each LTCH 
from the first dry run

[[Page 50874]]

year, prior to implementation of the readmission measure as part of the 
LTCHQR Program.
    Comment: A few commenters were concerned about the appropriateness 
of a time window of 30 days post-discharge as a measure of readmission 
rate.
    Response: We have observed a continuous curve as readmissions 
increase over time. There is no discontinuity on which to base a cut-
off point. The TEP has considered longer and shorter time intervals, 
but did not find a clear case that the measures for facilities, 
relative to each other, would vary meaningfully. A much shorter 
interval would have fewer events, making each event relatively more 
important in computing a rate. A much longer interval would bring in 
more random events. The 30-day interval is an interval that harmonizes 
with other measures and was found reasonable by the technical panel, 
which included industry representation. We will include a graph of 
readmissions over time as illustrative material in the final technical 
specifications prior to measure implementation.
    Comment: Two comments pointed out that LTCHs often discharge to 
another provider and that the attribution of any readmission might not 
belong to the LTCH because of limited control of the care at that 
point.
    Response: We have harmonized this measure with the other inpatient 
readmission measures in this respect. Stays that result in a discharge 
to another acute provider are not included in the measure. Patients 
that are discharged to a lower level of care are those for which 
attribution is made to the LTCH. There are two main considerations in 
making this decision: (1) The discharging facility should be making a 
best effort to discharge its patients to the best setting and provider 
for the patients in the transition planning; and (2) it is intended the 
discharging facility will be sharing responsibility with the admitting 
provider for any readmission in the common part of their observation 
windows. Measures are being developed for other providers that will 
result in attribution of responsibility to these providers as well.
    Comment: Some commenters expressed concern that CMS had not 
convened a TEP for this measure and requested that one be convened.
    Response: Our measure development contractor has convened several 
meetings of a TEP (including representatives of the LTCH community). 
During these meetings, TEP members were consulted to inform our measure 
development efforts, including selection of the list of planned 
readmissions.
    Comment: One commenter expressed concern over burden of data 
collection for the LTCH readmission measure.
    Response: As we noted in the proposed rule and the measure 
specifications, this measure is based on claims and enrollment data. We 
do not require LTCHs to submit any data of a non-routine nature for the 
purpose of this measure. Therefore, there is no additional data 
collection or reporting burden associated with this measure.
    Comment: One commenter requested that the statement in the measure 
specification concerning definitions of planned readmissions be 
explicitly stated in the rule.
    Response: We included definitions of planned readmissions in the 
draft LTCH Readmissions Measure Specifications file available for 
download at the time of release of the proposed rule at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/. Generally, we include Web links to 
measure specifications rather than including the specification in the 
proposed or final rule.
    Comment: One commenter wanted CMS to clarify that the LTCH stays 
included in the measure are only for patients discharged to the 
community or another setting of lesser intensity than an acute care 
facility.
    Response: We addressed this clearly in the proposed rule as well as 
in the measure specifications. The measure excludes patients discharged 
and directly admitted to an IPPS hospital, CAH or LTCH at the time of 
an LTCH discharge. In addition, the measure excludes discharges against 
medical advice (as noted in measure specifications).
    After consideration of the public comments we received, we are 
finalizing the All-cause Unplanned Readmission Measure for 30 days 
Post-Discharge from Long-Term Care Hospitals, as proposed.
c. New LTCHQR Program Quality Measure for the FY 2018 Payment 
Determination and Subsequent Years
    We proposed one new quality measure, Application of the Percent of 
Residents Experiencing One or More Falls with Major Injury (Long Stay) 
(NQF 0674), for the LTCHQR Program for the FY 2018 payment 
determination and subsequent years.
    This NQF-endorsed measure is an outcome measure that reports the 
percentage of residents (or patients for the LTCH setting) who 
experienced falls with major injury over a 12-month period. This 
measure was developed by CMS and is NQF-endorsed for the Nursing Home/
Skilled Nursing Facility setting. Similar to our measure development 
work for the Pressure Ulcer measure (NQF 0678) and expansion 
to the LTCH setting, we anticipate re-specifying and expanding this 
measure to the LTCH setting through NQF ad hoc review and future 
rulemaking.
    Research indicates that fall-related injuries are the most common 
cause of accidental death in people aged 65 and older, with 
approximately 41 percent of accidental deaths annually.\171\ Rates 
increase to 70 percent of accidental deaths amongst individuals ages 75 
and older.\172\ In addition to death, falls can lead to fracture, soft 
tissue or head injury, fear of falling, anxiety and depression.\173\ 
Research also indicates that approximately 75 percent of nursing 
facility residents fall at least once a year, twice the rate of their 
counterparts in the community.\174\ Similar data are not available for 
the LTCH setting. Falls also represent a significant cost burden to the 
entire health care system, with injurious falls accounting for 6 
percent of medical expenses among those age 65 and older.\175\
---------------------------------------------------------------------------

    \171\ Currie LM. Fall and injury prevention. Annu Rev Nurs Res. 
2006;24:39-74.
    \172\ Fuller GF. Falls in the elderly. Am Fam Physician. Apr 1 
2000;61(7):2159-2168, 2173-2154.
    \173\ Premier Inc. Causes of Falls. 2013. Available: https://www.premierinc.com/quality-safety/tools-services/safety/topics/falls/causes_of_falls.jsp.
    \174\ Rubenstein LZ, Josephson KR, Robbins AS. Falls in the 
nursing home. Ann Intern Med. 1994 Sep 15; 121(6):442-51.
    \175\ Rubenstein LZ, Powers CM, MacLean CH. Quality indicators 
for the management and prevention of falls and mobility problems in 
vulnerable elders (ACOVE). Ann Intern Med. 2001 Oct 16;135(8 Pt 
2):686-93.
---------------------------------------------------------------------------

    According to analysis of ICD-9 codes reported on Medicare claims, 
LTCHs reported 2,567 major injuries due to falls in 2009. POA 
indicators are not available on LTCH claims; therefore, we are unable 
to say whether these conditions are present on admission or acquired 
during the LTCH stay. Therefore, it was not possible to determine which 
of these falls occurred in the LTCH. However, we note that on the 
majority of claims, the primary diagnosis is the admitting diagnosis 
and is considered to be present on admission and therefore, the 
secondary diagnoses can be assumed to provide a count of conditions 
that could have been acquired in the LTCH.\176\ When it

[[Page 50875]]

was assumed that a fall recorded in the primary diagnosis code was 
likely present on admission and that a fall recorded in the secondary 
diagnosis code was acquired in the LTCH, there were 2,049 reported 
injuries that may have been acquired in the LTCH.\177\
---------------------------------------------------------------------------

    \176\ Centers for Medicare & Medicaid Services Center for 
Medicare & Medicaid Innovation. Hospital Acquired Conditions (HAC)--
Report to Congress. Available at http://innovation.cms.gov/Files/x/HospAcquiredConditionsRTC.pdf.
    \177\ Bernard SL, Dalton K, Lenfestey N F, Jarrett NM, Nguyen 
KH, Sorensen AV, Thaker S, West ND. Study to support a CMS Report to 
Congress: Assess feasibility of extending the hospital-acquired 
conditions--present on admission IPPS payment policy to non-IPPS 
payment environments. Prepared for the Centers for Medicare & 
Medicaid Services (CMS Contract No. HHSM-500-T00007). 2011.
---------------------------------------------------------------------------

    According to Morse (2002), 78 percent of falls are anticipated 
physiologic falls. Anticipated physiological falls are falls amongst 
individuals who scored high on a risk assessment scale, meaning their 
risk could have been identified in advance of the fall.\178\ To date, 
studies have identified a number of risk factors for falls.\179\ \180\ 
\181\ \182\ \183\ \184\ \185\ \186\ \187\ The identification of such 
risk factors suggests the potential for health care facilities to 
reduce and prevent the incidence of falls for their patients.
---------------------------------------------------------------------------

    \178\ Morse, J. M. (2002) Enhancing the safety of 
hospitalization by reducing patient falls. Am J Infect Control 2002; 
30(6): 376-80.
    \179\ Rothschild JM, Bates DW, Leape LL. Preventable medical 
injuries in older patients. Arch Intern Med. 2000 Oct 9; 
160(18):2717-28.
    \180\ Morris JN, Moore T, Jones R, et al. Validation of long-
term and post-acute care quality indicators. CMS Contract No: 500-
95-0062/T.O. 4. Cambridge, MA: Abt Associates, Inc., June 
2003.
    \181\ Avidan AY, Fries BE, James ML, Szafara KL, Wright GT, 
Chervin RD. Insomnia and hypnotic use, recorded in the minimum data 
set, as predictors of falls and hip fractures in Michigan nursing 
homes. J Am Geriatr Soc. 2005 Jun; 53(6):955-62.
    \182\ Fonad E, Wahlin TB, Winblad B, Emami A, Sandmark H. Falls 
and fall risk among nursing home residents. J Clin Nurs. 2008 Jan; 
17(1):126-34.
    \183\ Currie LM. Fall and injury prevention. Annu Rev Nurs Res. 
2006;24:39-74.
    \184\ Ellis AA, Trent RB. Do the risks and consequences of 
hospitalized fall injuries among older adults in California vary by 
type of fall? J Gerontol A Biol Sci Med Sci. Nov 2001;56(11):M686-
692.
    \185\ Chen XL, Liu YH, Chan DK, Shen Q, Van Nguyen H. Chin Med J 
(Engl). Characteristics associated with falls among the elderly 
within aged care wards in a tertiary hospital: a retrospective. 2010 
Jul;123(13):1668-72.
    \186\ Frisina PG, Guellnitz R, Alverzo J. A time series analysis 
of falls and injury in the inpatient rehabilitation setting. Rehabil 
Nurs. 2010 Jul-Aug;35(4):141-6, 166.
    \187\ Lee JE, Stokic DS. Risk factors for falls during inpatient 
rehabilitant. Am J Phys Med Rehabil. 2008 May;87(5):341-50; quiz 
351, 422.
---------------------------------------------------------------------------

    In light of the evidence discussed above, we proposed an 
application of the measure NQF 0674 Percent of Residents 
Experiencing One or More Falls with Major Injury (Long Stay), for the 
LTCHQR Program for the FY 2018 payment determination and subsequent 
years.
    We note that, while NQF 0674 is currently endorsed only 
for long stay nursing home residents, we believe that an application of 
this measure is highly relevant for the LTCH setting. As stated above, 
many patients receiving care in the LTCH setting are elderly and are at 
high risk for death and other injuries due to falls. A TEP convened by 
our measure development contractor discussed potential quality measures 
for the LTCH setting and stressed that falls with major injury are a 
major concern in LTCH setting.
    In section 1886(m)(5)(D)(ii) of the Act, the exception authority 
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 NQF's consensus endorsed 
measures and were unable to identify any NQF-endorsed measures for 
falls with major injury in the LTCH setting. We are unaware of any 
other measures for falls with major injury that have been endorsed or 
adopted by another consensus organization for the LTCH setting.
    Therefore, we proposed to adopt an application of the NQF-endorsed 
measure Percent of Residents Experiencing One or More Falls with Major 
Injury (Long Stay) (NQF 0674) for use in the LTCH setting for 
the LTCHQR Program under the Secretary's authority to select non-NQF-
endorsed measures. As mentioned previously, we are considering applying 
for NQF review for endorsement of this measure to the LTCH setting as 
part of the measure expansion process. Additional information regarding 
NQF 0674, on which our application of the measure is based, 
including measure specifications, is available at: http://www.qualityforum.org/QPS/0674. The use of different applications of the 
same quality measure across multiple healthcare settings is also 
consistent with the 2008 NQF steering committee recommendation that 
``in the interest of standardization and minimizing the burden for 
those implementing and using measures, measure harmonization is an 
important consideration in evaluating and recommending measures for 
endorsement.'' \188\ Data on NQF 0674 is currently collected 
and reported on Nursing Home Compare as part of the Nursing Home 
Quality Initiative.\189\
---------------------------------------------------------------------------

    \188\ National Quality Forum (2008, December) National Voluntary 
Consensus Standards for influenza and pneumococcal vaccinations. 
Available from: http://www.qualityforum.org/Publications/2008/12/National_Voluntary_Consensus_Standards_for_Influenza_and_Pneumococcal_Immunizations.aspx.
    \189\ Nursing Home Quality Initiative, Quality Measures. 
December 2012. Available: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/NursingHomeQualityInits/NHQIQualityMeasures.html.
---------------------------------------------------------------------------

    We proposed that data for the proposed application of NQF 
0674 will be collected through the LTCH CARE Data Set,\190\ 
with submission through the QIES ASAP System, as described in the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53619 through 53621). For more 
information on LTCHQR Program reporting using the QIES ASAP system, we 
refer readers to the Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCHTechnicalInformation.html. We intend to revise the LTCH CARE Data 
Set to include new items which assess the presence of falls and falls 
with major injury. These new items will be applied to all LTCH patients 
and will not distinguish between long stay versus short stay patients 
since this categorization is not applicable to the LTCH setting.
---------------------------------------------------------------------------

    \190\ The LTCH CARE Data Set Version 2.01 was approved on June 
10, 2013 by OMB in accordance with the PRA. The OMB Control Number 
is 0938-1163. Expiration Date June 30, 2016. Available at http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
---------------------------------------------------------------------------

    The items used for the application of the quality measure are based 
on the items from the Minimum Data Set (MDS) 3.0, version 1.13.0 (1/17/
13) items J1800 (Any Falls Since Admission/Entry or Reentry or Prior 
Assessment) and J1900A., B. and C. (Number of Falls (A. with no injury, 
B. with injury (except major), C. with Major injury)) since Admission/
Entry or Reentry or Prior Assessment), available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/NursingHomeQualityInits/NHQIMDS30TechnicalInformation.html. 
The calculation of the proposed application of the measure will be 
based on item J1900C, Number of Falls with major injury, since 
admission. The specifications and data elements for NQF 0674 
are available in the MDS 3.0 Quality Measures User's Manual Version 6.0 
available on our Web site at http://www.cms.gov/

[[Page 50876]]

Medicare/Quality-Initiatives-Patient-Assessment-Instruments/
NursingHomeQualityInits/MDS30RAIManual.html.
    By building on the existing reporting and submission infrastructure 
for LTCHs, (the LTCH CARE Data Set, which we began using for data 
collection on October 1, 2012, for the Pressure Ulcer measure), we 
intend to reduce the burden related to data collection and submission 
for this measure under the LTCHQR Program. We refer readers to section 
IX.C.9. of the preamble of this final rule for more information on data 
collection and submission.
    We invited public comment on this proposed measure and data 
collection and submission for the proposed measure for the FY 2018 
payment determination and subsequent years.
    Comment: A few commenters supported the adoption of an Application 
of the Percent of Residents Experiencing One or More Falls with Major 
Injury (Long Stay) (NQF 0674) for the LTCHQR Program for the 
FY 2018 payment determination and subsequent years. The commenters 
expressed that falls with major injury are an important safety concern 
in LTCHs, especially amongst frail and elderly patients, and this 
measure would reinforce efforts of LTCHs to provide high quality care.
    Response: We thank the commenters for their support of this measure 
for the LTCHQR Program and agree that falls with major injury are an 
important patient safety concern in LTCHs.
    Comment: Several commenters expressed concerns regarding the 
implementation of Percent of Residents Experiencing One or More Falls 
with Major Injury (Long Stay) (NQF 0674) to the LTCH setting 
prior to NQF endorsement and expansion to the LTCH setting. These 
commenters stated that this measure was developed for the long-stay 
nursing home population and that the patient populations in LTCHs and 
nursing homes are very different due to the medically complex and acute 
hospital needs of LTCH patients. Further, these commenters argued that 
the measure has not been adequately developed, specified or tested for 
the LTCH setting. While these commenters supported alignment and 
harmonization across settings, they strongly encouraged CMS to obtain 
NQF endorsement of this measure prior to expansion to the LTCH setting. 
Further, one commenter stated that this measure should undergo full NQF 
review, using the Consensus Development Process, rather than time-
limited review. The commenter also stated that although the MAP 
supported the direction of the measure, but it concluded that the 
measure was ``not ready for implementation,'' ``requires modification 
or further development,'' and ``should be specified and tested for the 
LTCH setting.'' Finally one commenter remarked that CMS should convene 
a TEP, which includes experts from the LTCH setting to review the 
applicability of this measure to that setting.
    Response: Although we agree that LTCHs are different from nursing 
homes in terms of medical complexity and patient needs, we do not agree 
that the definition of falls with major injury as well as guidelines 
for prevention of falls in health care settings is substantially 
different across nursing homes versus LTCHs. We appreciate the 
commenters' concerns regarding NQF endorsement and recognize that 
obtaining NQF endorsement is an important step in the measure 
development process. However, given the fact that falls with major 
injury is an important patient safety concern in LTCHs, along with the 
lack of availability of NQF endorsed measures for the LTCH setting, or 
measures endorsed by any other consensus organizations, we proposed 
this measure under the exception authority given to the Secretary in 
section 1886(m)(5)(D)(ii) of the Act, that allows CMS to apply a 
measure to the LTCH setting that is not NQF-endorsed for the LTCH 
setting. While this measure is currently endorsed for the nursing home 
setting, we believe the data collection items, measure definition and 
measure specifications are applicable across multiple healthcare 
settings, including the LTCH setting. In addition, our measure 
development contractor has convened a TEP that provided feedback on 
this measure and supported the importance of a quality measure to 
address falls with major injury.
    We appreciate the commenters' input on finalizing a measure for 
which the MAP supported direction. We note that we have taken the MAP's 
input into consideration in selecting quality measures, as we are 
required to do under section 1890(a)(4) of the Act. However, we are not 
required to follow the MAP's recommendations, but to take them into 
account when selecting measures for proposal. In addition to MAP input, 
we take a variety of other factors into account in selecting measures. 
In this instance, for example, an application of the Percent of 
Residents Experiencing One or More Falls with Major Injury (Long Stay) 
measure (NQF 0674) is NQF-endorsed for the LTCH setting, an 
indication that it is appropriate for LTCH patients. In addition, this 
measure is appropriate in light of the fact that fall-related injury is 
an important patient safety concern for LTCH patients. For the reasons 
listed above, this measure is appropriate for LTCH patients.
    Comment: One commenter expressed concern regarding the definition 
of falls with major injury. The commenter suggests that CMS work with 
LTCHs to establish common definitions of both falls and major injuries, 
as there are currently inconsistencies of the definitions used across 
facilities. The commenter expressed that the definitions need to be 
developed for the specific needs of the LTCH population. In addition, 
since LTCHs may care for long-term behavioral patients, falls will need 
to relate separately to medical and behavioral patients treated in 
those settings.
    Response: We agree with the commenters that it is important to 
develop definitions of both falls and major injury, and this goal 
aligns with the NQF steering committee recommendation for measure 
harmonization across settings.\191\ We believe that the definition of 
falls with major injury should be harmonized across healthcare settings 
since falls with major injury are setting-neutral concepts, should be 
defined and applied in the same way to all patients across healthcare 
settings, where appropriate, and that special exceptions to such 
definitions should not be made based on a specific patient population 
(such as behavioral patients). The definitions for these concepts were 
carefully developed and tested in the nursing home setting and data 
suggests both validity and reliability for the definitions included in 
this measure.
---------------------------------------------------------------------------

    \191\ National Quality Forum (2008, December) National Voluntary 
Consensus Standards for influenza and pneumococcal vaccinations. 
Available from: http://www.qualityforum.org/Publications/2008/12/National_Voluntary_Consensus_Standards_for_Influenza_and_Pneumococcal_Immunizations.aspx.
---------------------------------------------------------------------------

    Although this measure was developed in nursing homes, and measure-
specific data analysis and data reporting falls with major injury among 
the elderly has primarily been conducted in nursing homes, and while 
LTCHs are not entirely identical to nursing homes, these two post-acute 
settings have overlap in their patient populations and their risk 
factors. A 2009 report prepared by RTI International found similarities 
in age, race and illness severity across LTCHs and nursing homes 
(http://aspe.hhs.gov/health/reports/09/pacihs/report.pdf). This study 
also found that the location of a

[[Page 50877]]

PAC referral is sometimes made based on nonclinical factors such as 
geographic availability and hospital affiliations. The similarities 
between the facilities and the potential overlap in patients, along 
with nonclinical factors that affect where a patient is treated, all 
suggest that research regarding nursing home residents, the MDS 3.0, 
and the use of quality measures in the nursing home setting, is 
applicable to LTCHs and the LTCH CARE Data Set.
    After consideration of the public comments we received, we are 
finalizing our proposal to adopt the Application of the Percent of 
Residents Experiencing One or More Falls with Major Injury (Long Stay) 
(NQF 0674), for the LTCHQR Program for the FY 2018 payment 
determination and subsequent years.
d. LTCHQR Program Quality Measures and Concepts Under Consideration for 
Future Years Payment Determinations
    We are considering the measures and measure topics in the table 
below for future years in the LTCHQR Program. In the FY 2014 IPPS/LTCH 
PPS proposed rule (78 FR 27730), we invited public comment on these 
measures and measure topics, specifically comments regarding the 
clinical importance, feasibility of data collection and implementation, 
current use, and usability of data to inform quality improvements in 
the LTCH setting.

   Future Measures and Measure Topics Under Consideration for the LTCH
                        Quality Reporting Program
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
National Quality Strategy Priority: Safety and Healthcare-Associated
 Infections HAIs:
     Surgical Site Infection.
     Ventilator-Associated Event.
     Ventilator Bundle.
National Quality Strategy Priority: Safety and Healthcare-Acquired
 Conditions: Avoidable Adverse Events and Serious Reportable Events:
     Manifestations of Poor Glycemic Control.
National Quality Strategy Priority: Effective Clinical Processes:
     Severe Sepsis and Septic Shock: Management Bundle.
     Application of Venous Thromboembolism Prophylaxis (NQF
     0371).
     Ventilator Weaning Rate.
National Quality Strategy Priority: Patient Safety.
     Application of Hospital-Based Inpatient Psychiatric
     Services (HBIPS)--2 Hours of Physical Restraint Use (NQF 0640).
     Application of Percent of Residents Who Were Physically
     Restrained (Long-Stay) (NQF 0687).
National Quality Strategy Priority: Patient and Caregiver-Centered Care:
     Depression Assessment and Management.
     Functional Change.
     Application of HCAHPS (NQF 0166).
     Application of Pain Management (for example, Percent of
     Residents Who Self-Report Moderate to Severe Pain (Short-Stay) (NQF
     0677)).
National Quality Strategy Priority: Communication and Coordination of
 Care:
     Application of Medication Reconciliation (NQF 0097).
     Application of Medication Reconciliation Post-Discharge
     (NQF 0554).
     Reconciled Medication List Received by Discharged Patients
     (NQF 0646).
     Transition Record with Specified Elements Received by
     Discharged Patients (NQF 0647).
     Timely Transmission of Transition Record (NQF 0648).
------------------------------------------------------------------------

    Comment: Several commenters expressed the need for a care 
coordination measure. Commenters supported implementation of two care 
coordination measures, the Hospital Consumer Assessment of Healthcare 
Providers and Systems Survey (HCAHPS) and the Care Transition Measure 
3-Question Survey (CTM-3). One commenter noted that it would be helpful 
if CMS required a standardized LTCH patient satisfaction survey. 
Another commenter specifically noted that in order for CMS to take the 
lead in identifying palliative care measures appropriate for LTCHs, the 
HCAHPS survey should be a high priority in continuing measure 
development. One commenter advocated for the development and 
implementation of an LTCH-specific HCAHPS, which would broaden the 
survey to family members and surrogates if the patient is unable to 
self-report. This commenter also suggested that the survey be 
disseminated at the time of discharge to avoid having to locate the 
patient later.
    Response: We appreciate the commenters' support of these measures, 
and we will take their comments into consideration in our measure 
development efforts as well as in our ongoing efforts to identify and 
propose appropriate measures for the LTCHQR Program in the future.
    Comment: Two commenters encouraged CMS to consider implementing 
palliative care-related measures into the LTCHQR Program. Both 
commenters supported measures related to pain management, and one of 
the commenters recommended that depression assessment and management 
and functional change measures should continue to be priorities for 
LTCHQR Program measure development. These commenters urged CMS to work 
with measure developers to create and test these measures to be 
specifically appropriate for the LTCH setting.
    Response: We thank the commenters for the comments and suggestions 
and will take these into consideration as we develop future measures 
for the LTCHQR Program.
    Comment: One commenter expressed specific support for the 
Ventilator Weaning Rate measure and noted that it would serve as an 
indication of how well the LTCH is able to remove CCI patients from 
being dependent on ventilators. One commenter supported Surgical Site 
Infection (SSI) and sepsis measures and recommended that they should 
continue to be priorities in LTCHQR Program measure development. One 
commenter proposed the inclusion of a malnutrition-related quality 
measure for future use in the LTCHQR Program, as malnourishment can be 
associated with many other areas of quality measurement that are 
already implemented in the LTCHQR Program. The commenter suggested that 
adding a malnourishment measure to the LTCHQR Program would address 
this significant ``gap'' area and align

[[Page 50878]]

priorities and incentives across care settings.
    Response: We appreciate the commenters' support of these measures 
and we will take their comments into consideration as we develop future 
measures for the LTCHQR Program.
    Comment: One commenter suggested that CMS consider the MAP 
recommendations to pursue measures of Experience of Care, Care 
Planning, Implementing Patient/Family/Caregiver Goals, and Avoiding 
Unnecessary Hospital and ED Admissions. The commenter encouraged CMS to 
take the lead in identifying measures to address these concepts in the 
LTCH setting.
    Response: We will continue to work with the MAP as well as LTCH 
stakeholders to identify measure concepts and measures that address HHS 
priorities, align with quality initiatives in other settings, are 
evidence-based, have a low probability of unintended adverse 
consequences, and may drive quality improvement.
    We thank the commenters for the comments and suggestions and we 
will consider them as we develop future measures.
9. Form, Manner, and Timing of Quality Data Submission for the FY 2016 
Payment Determination and Subsequent Years
a. Background
    Section 1886(m)(5)(C) of the Act requires that, for the FY 2014 
payment determination and subsequent years, each LTCH submit to the 
Secretary data on quality measures specified by the Secretary and that 
such data shall be submitted in a form and manner, and at a time, 
specified by the Secretary. As required by section 1886(m)(5)(A)(i) of 
the Act, for any LTCH that does not submit data in accordance with 
section 1886(m)(5)(C) of the Act with respect to a rate year, the 
Secretary will reduce any annual update to the standard Federal rate 
for discharges for the hospital during the rate year by two percentage 
points.
    All LTCHs will be required to collect data using the LTCH CARE Data 
Set (Version 2.01).\192\ The LTCH CARE Data Set (Version 2.01) was 
approved on June 10, 2013, by the Office of Management and Budget in 
accordance with the Paperwork Reduction Act (PRA); the OMB Control 
Number is 0938-1163. Later in 2013, we will release the final technical 
data submission specifications and updated LTCHQR Program Manual for 
the LTCH CARE Data Set (Version 2.01) containing items related to NQF 
0680. The Quality Improvement and Evaluation System (QIES) 
Assessment Submission and Processing (ASAP) System will remain the data 
submission mechanism for the LTCH CARE Data Set. Further information on 
data submission of the LTCH CARE Data Set for the LTCHQR Program 
Reporting using the QIES ASAP system is available at: https://www.qtso.com/ and http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCHTechnicalInformation.html.
---------------------------------------------------------------------------

    \192\ The LTCH CARE Data Set Version 2.01 was approved on June 
10, 2013 by OMB in accordance with the PRA. The OMB Control Number 
is 0938-1163. Expiration Date June 30, 2016. Available on the Web 
site at: http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
---------------------------------------------------------------------------

b. Finalized Timeline for Data Submission Under the LTCHQR Program for 
the FY 2016 Payment Determination
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53636 through 
53637), we finalized the data submission timeline for measures for the 
FY 2016 payment determination. LTCHs are required to submit data on 
LTCH admissions and discharges occurring from January 1, 2014 through 
December 31, 2014 (CY 2014) for the FY 2016 payment determination. We 
adopted this timeframe because we believe this will provide sufficient 
time for LTCHs and CMS to put processes and procedures in place to meet 
the additional quality reporting requirements. We also finalized in 
this rule the quarterly submission deadlines for the FY 2016 payment 
determination as approximately 45 days after the end of each quarter, 
as outlined in the table below. This is the date by which all data 
collected during that quarter must be submitted to CMS for measures 
using the LTCH CARE Data Set and to CDC for measures using the CDC's 
NHSN.

Finalized Timeline for Submission of LTCHQR Program Quality Data for the
                      FY 2016 Payment Determination
------------------------------------------------------------------------
 Data collection timeframe: CY 2014           Submission deadline
------------------------------------------------------------------------
Q1 (January-March 2014).............  May 15, 2014.
Q2 (April-June 2014)................  August 15, 2014.
Q3 (July-September 2014)............  November 15, 2014.
Q4 (October-December 2014)..........  February 15, 2015.
------------------------------------------------------------------------

c. Timeline for Data Submission for the NQF 0431 Influenza 
Vaccination Coverage Among Healthcare Personnel Measure for the FY 2016 
Payment Determination and Subsequent Years
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53630 through 53631) 
we finalized the adoption of the Influenza Vaccination Coverage among 
Healthcare Personnel (NQF 0431) measure for the FY 2016 
payment determination. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53636) we also finalized the data collection period for the FY 2016 
payment determination to be January 1, 2014 through December 31, 2014. 
As noted in IX.C.7.a. of the preamble to the proposed rule, there is a 
unique seasonality in the timing of influenza activity each year. The 
CDC, the steward of this measure, recommends that people get vaccinated 
against influenza as long as influenza viruses are circulating. We 
proposed that, for the LTCHQR Program, the Influenza Vaccination 
Coverage among Healthcare Personnel measure (NQF 0431) have 
its own reporting period to align with the influenza vaccination 
season, which is defined by the CDC as October 1 (or when the vaccine 
becomes available) through March 31of the subsequent year for the 
influenza season. This timeline is consistent with how the NQF 
specifies this measure. Further details related to the procedures for 
using the CDC's NHSN for data submission and measure specifications for 
the Influenza Vaccination Coverage among Healthcare Personnel (NQF 
0431) measure can be found at: http://www.qualityforum.org/QPS/0431 and http://www.cdc.gov/nhsn/LTACH/hcp-flu-vac/index.html.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27731), we stated

[[Page 50879]]

that if our proposal in IX.C.7.a. of the preamble to the proposed rule 
is finalized, LTCHs would be required to report data on the Influenza 
Vaccination Coverage among Healthcare Personnel (NQF 0431) 
measure from October 1, 2014 or the date on which the vaccine becomes 
available, whichever occurs first, through March 31, 2015 for the 2014-
2015 influenza season for FY 2016 payment determination. We also 
proposed that this October (or when vaccine becomes available) through 
March reporting period for the Influenza Vaccination Coverage among 
Healthcare Personnel (NQF 0431) measure would apply to the FY 
2016 payment determination and subsequent years.
    Comment: Several commenters provided input on the proposed data 
collection and reporting timelines for NQF 0431, Influenza 
Vaccination Coverage Among Healthcare Personnel.
    Response: We refer readers to section IX.C.7.a. of the preamble of 
this final rule for responses to the comments regarding the timelines 
for this measure.
    After consideration of the public comments we received (as 
discussed in section IX.C.7.a. of the preamble of this final rule), we 
are finalizing the data collection and reporting timeline for NQF 
0431, Influenza Vaccination Coverage Among Healthcare 
Personnel for the FY 2016 payment determination and subsequent years.
d. Timeline for Data Submission for the NQF 0680 Percent of 
Residents or Patients Who Were Assessed and Appropriately Given the 
Seasonal Influenza Vaccine (Short Stay) Measure for the FY 2016 Payment 
Determination and Subsequent Years
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53624 through 
53627), we finalized the adoption of the Percent of Residents or 
Patients Who Were Assessed and Appropriately Given the Seasonal 
Influenza Vaccine (Short Stay) (NQF 0680) measure for the FY 
2016 payment determination. In the FY 2013 IPPS/LTCH PPS final rule (77 
FR 53637) we also finalized the data collection period for the FY 2016 
payment determination to begin January 1, 2014 and continue through 
December 31, 2014. This measure will be collected using the LTCH CARE 
Data Set. The LTCH CARE Data Set (version 2.01),\193\ the proposed data 
collection instrument for this measure, was approved on June 10, 2013, 
by the Office of Management and Budget in accordance with the Paperwork 
Reduction Act (PRA); the OMB Control Number is 0938-1163.
---------------------------------------------------------------------------

    \193\ The LTCH CARE Data Set Version 2.01 was approved on June 
10, 2013 by OMB in accordance with the PRA. The OMB Control Number 
is 0938-1163. Expiration Date June 30, 2016. Available at http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
---------------------------------------------------------------------------

    We generally allow 9-12 months for LTCHs to comply with and 
integrate the requisite changes to new versions of data sets into their 
existing IT infrastructure, and to train staff members. In the FY 2014 
IPPS/LTCH PPS proposed rule (78 FR 27731 through 277322), because 
summer 2013 approval of the LTCH CARE Data Set version 2.01 would only 
allow 6 months for LTCHs to put plans and procedures into place, we 
proposed to move the start date for data collection of this measure to 
April 1, 2014, instead of the previously finalized start date of 
January 1, 2014. Data collection and submission of this measure will 
continue through December 31, 2014, for the FY 2016 payment 
determination. This proposed change would only affect CY 2014 
reporting. We proposed that for all subsequent years this measure will 
be collected on a calendar year basis beginning on January 1 and 
continuing through December 31 of each year.
    We invited public comment on these proposed data collection and 
submission timeframes for NQF 0680 for the FY 2016 payment 
determination.
    Comment: Several commenters provided input on the proposed data 
collection and reporting timelines for NQF 0680, Percent of 
Residents or Patients Who Were Assessed and Appropriately Given the 
Seasonal Influenza Vaccine (Short Stay). We present these comments, in 
detail, in section IX.C.7.b. of the preamble of this final rule.
    Response: We refer readers to section IX.C.7.b. of the preamble of 
this final rule for responses to the comments regarding the timelines 
for this measure.
    After consideration of the public comments we received, we are 
finalizing a revised data collection and reporting timeline. Starting 
with the 2014-2015 influenza vaccination season, data collection for 
the Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (short-stay) measure 
(NQF 0680), will be required for any patient admitted or 
discharged between October 1 and April 30. Data collection and 
submission deadlines for the FY 2016 payment determination are 
illustrated in the table below. We note that similar deadlines apply in 
subsequent years. In addition, we are finalizing our proposal that the 
measure calculation and public reporting of this measure (once public 
reporting is instated) will be based on the influenza vaccination 
season. Further, we are also finalizing that the start date for LTCH 
CARE Data Set Version 2.01 will be July 1, 2014 in place of April 1, 
2014 allowing providers and vendors an additional 3-months to prepare 
for the implementation of LTCH CARE Data Set Version 2.01, which 
contains the data items that will be used by LTCHs to submit quality 
measure data for this measure. The items for NQF 0680 on the 
LTCH CARE Data Set Version 2.01 will be required starting on October 1, 
2014.
    Set out below are the data collection timelines and submission 
deadlines for the FY 2016 payment determination.

 Timeline for Data Collection of LTCHQR Program Quality Data for the FY
                       2016 Payment Determination
------------------------------------------------------------------------
              NQF Measure ID                  Data collection timeframe
------------------------------------------------------------------------
NQF 0138*........................  January 1, 2014-December 31,
                                             2014.
NQF 0139*........................  January 1, 2014-December 31,
                                             2014.
NQF 0678*........................  January 1, 2014-December 31,
                                             2014.
NQF 0680**.......................  October 1, 2014-April 30,
                                             2015.**
NQF 0431**.......................  October 1, 2014 (or when
                                             vaccine becomes available)-
                                             March 31, 2015.**
------------------------------------------------------------------------
* The data collection period for this measure was finalized in the FY
  2013 IPPS/LTCH PPS final rule.
** This data collection timeframe for this measure is finalized in this
  final rule.


[[Page 50880]]


 Timeline for Submission of LTCHQR Program Quality Data for the FY 2016
Payment Determination NQF 0138*, NQF 0139*, NQF 0678*
------------------------------------------------------------------------
                                      Final submission deadlines for the
 Data collection timeframe: CY 2014     LTCHQR Program FY 2016 payment
                                                 determination
------------------------------------------------------------------------
Q1 (January-March 2014).............  May 15, 2014.
Q2 (April-June 2014)................  August 15, 2014.
Q3 (July-September 2014)............  November 15, 2014.
Q4 (October-December 2014)..........  February 15, 2015.
------------------------------------------------------------------------
* The data collection period for this measure was finalized in the FY
  2013 IPPS/LTCH PPS final rule.


 Timeline for Submission of LTCHQR Program Quality Data for the FY 2016
   Payment Determination: NQF 0680 Percentage of Residents or
     Patients Who Were Assessed and Appropriately Given the Seasonal
                     Influenza Vaccine (Short Stay)
------------------------------------------------------------------------
                                      Final submission deadlines for the
      Data collection timeframe         LTCHQR Program FY 2016 payment
                                                 determination
------------------------------------------------------------------------
October 1, 2014-April 30, 2015......  May 15, 2015.
------------------------------------------------------------------------


 Timeline for Submission of LTCHQR Program Quality Data for the FY 2016
 Payment Determination: NQF 0431 Influenza Vaccination Coverage
                       Among Healthcare Personnel
------------------------------------------------------------------------
                                      Final submission deadlines for the
      Data collection timeframe         LTCHQR Program FY 2016 payment
                                                 determination
------------------------------------------------------------------------
October 1, 2014 (or when vaccine      May 15, 2015.
 becomes available)-March 31, 2015.
------------------------------------------------------------------------

e. Timeline for Data Submission Under the LTCHQR Program for the FY 
2017 Payment Determination
    As previously stated, in the FY 2013 IPPS/LTCH PPS final rule (77 
FR 53636 through 53637), we finalized the data submission timeline for 
the FY 2016 payment determination. In the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27732), for the FY 2017 payment determination, we 
proposed to require data submission for the LTCHQR Program on all LTCH 
admissions and discharges occurring January 1, 2015 through December 
31, 2015 (CY 2015), with the exception of Influenza Vaccination among 
Healthcare Personnel (NQF 0431). We proposed that the data 
collection timeframe for this measure (NQF 0431) be in 
alignment with the CDC measure specifications, because CDC is the 
steward for this NQF-endorsed measure. We refer readers to section 
IX.C.9.c. of the preamble of this final rule for additional information 
on this measure's timelines.
    We noted that the All-cause Unplanned Readmission Measure for 30 
days Post-Discharge from Long-Term Care Hospitals is a Medicare claims-
based measure; therefore, no new data need to be collected or reported 
by the facility. We will use CY 2013 and CY 2014 Medicare claims data 
to calculate the All-cause Unplanned Readmission Measure for 30 days 
Post-Discharge from Long-Term Care Hospitals.
    For each quarter outlined in the table below during which the LTCHs 
are required to collect data, we proposed final submission deadlines 
occurring approximately 45 days after the end of any given quarter by 
which all data collected during that quarter must be submitted. We 
believe that this is a reasonable amount of time to allow LTCHs to 
submit data and make any necessary corrections. We proposed these 
timeframes because we believe this will provide sufficient time for CMS 
and LTCHs to put processes and procedures in place to meet the quality 
reporting requirements for quality measures (except for the 
readmissions measure, which is a claims based measure, and therefore, 
does not pose any requirements on LTCHs) under the LTCHQR Program.
    We invited public comment on this proposal.
    Comment: A few commenters supported the proposed timeline for data 
submission under the LTCHQR Program for the FY 2017 payment 
determination.
    Response: We thank the commenters for their support of the proposed 
timeline for data submission for FY 2017 payment determination.
    Comment: One commenter expressed concern regarding the data 
collection timeline for both the FY 2017 and FY 2018 payment 
determinations and the burden of adding several quality measures over 2 
years. This commenter remarked that LTCHs will need to acquire 
additional resources to accommodate the needs of additional data 
collection, as well as resources to focus on quality improvement issues 
and noted concern that the limited existing resources at LTCHs will be 
moved from prevention activities to reporting activities.
    Response: As we stated in section IX.B.9. of the preamble of this 
final rule, by building upon preexisting resources for data collection 
and submission, we intend to foster alignment between measures that 
help to reduce the administrative burden related to data

[[Page 50881]]

collection and submission. We are aware that the initial setup and 
acclimation to the data collection process using the LTCH CARE Data Set 
and QIES ASAP has occurred for a vast majority of LTCHs as part of the 
implementation of the Pressure Ulcer measure (NQF 0678) 
starting October 1, 2012, for the LTCHQR Program for the FY 2014 
payment determination as well as the implementation of the Patient 
Influenza Vaccination measure for the LTCHQR Program for the FY 2016 
payment determination. Similarly, we are aware that the initial setup 
and acclimation to the data collection process using the CDC's NHSN has 
occurred for a vast majority of LTCHs as part of the implementation of 
the CAUTI and CLABSI measures (NQF 0138 and NQF 0139) 
starting October 1, 2012, for the LTCHQR Program. Therefore, we believe 
the addition of measures that employ the LTCH CARE Data Set and QIES 
ASAP or the CDC's NHSN for FY 2017 and FY 2018 may be less burdensome.
    We also are aware of the need to improve quality of care for health 
care services provided within the LTCH and other health care settings 
while recognizing availability of limited resources. However, we 
believe that the cost of quality reporting programs is outweighed by 
the potential for gain in health and health care outcomes as well as 
potential cost savings from preventing avoidable conditions such as: 
Avoidable readmissions; HAIs such as CAUTI, CLABSI, C. Difficile and 
MRSA infections; HACs such as pressure ulcers; and falls with major 
injury.
    After consideration of the public comments we received, we are 
finalizing the timelines we proposed, as proposed for all measures 
except NQF 0680, related to the measures affecting the FY 2017 
payment determination. In this final rule, we revised the data 
collection and submission timeline for the Percent of Residents or 
Patients Who Were Assessed and Appropriately Given the Seasonal 
Influenza Vaccine (short-stay) measure (NQF 0680). Data 
collection for this measure will be required for any patient admitted 
or discharged between October 1 and April 30. We refer readers to 
section IX.C.9.b. of the preamble of this final rule for additional 
information on this measure's timeline. The timelines for data 
collection and submission for the measures for the FY 2017 payment 
determination are listed in the following tables.

 Timeline for Collection of Certain LTCHQR Program Quality Data for the
                      FY 2017 Payment Determination
------------------------------------------------------------------------
              NQF Measure ID                  Data collection timeframe
------------------------------------------------------------------------
NQF 0138.........................  January 1, 2015-December 31,
                                             2015.
NQF 0139.........................  January 1, 2015-December 31,
                                             2015.
NQF 0678.........................  January 1, 2015-December 31,
                                             2015.
NQF 0680.........................  October 1, 2015-April 30,
                                             2016.
NQF 0431.........................  October 1, 2015 (or when
                                             vaccine becomes available)-
                                             March 31, 2016.
NQF 1716.........................  January 1, 2015-December 31,
                                             2015.
NQF 1717.........................  January 1, 2015-December 31,
                                             2015.
------------------------------------------------------------------------


 Timeline for Submission of LTCHQR Program Quality Data for the FY 2017
Payment Determination: NQF 0138, NQF 0139, NQF 0678, NQF 1716, NQF 1717
------------------------------------------------------------------------
                                          Final submission deadlines for
   Data collection timeframe: CY 2015       the LTCHQR Program FY 2017
                                              payment determination
------------------------------------------------------------------------
Q1 (January-March 2015)................  May 15, 2015.
Q2 (April-June 2015)...................  August 15, 2015.
Q3 (July-September 2015)...............  November 15, 2015.
Q4 (October-December 2015).............  February 15, 2016.
------------------------------------------------------------------------


 Timeline for Submission of LTCHQR Program Quality Data for the FY 2017
   Payment Determination: NQF 0680 Percentage of Residents or
     Patients Who Were Assessed and Appropriately Given the Seasonal
                     Influenza Vaccine (Short Stay)
------------------------------------------------------------------------
                                      Final submission deadlines for the
      Data collection timeframe         LTCHQR Program FY 2017 payment
                                                 determination
------------------------------------------------------------------------
October 1 2015-April 30, 2016.......  May 15, 2016.
------------------------------------------------------------------------


 Timeline for Submission of LTCHQR Program Quality Data for the FY 2017
 Payment Determination: NQF 0431 Influenza Vaccination Coverage
                       Among Healthcare Personnel
------------------------------------------------------------------------
                                      Final submission deadlines for the
      Data collection timeframe         LTCHQR Program FY 2017 payment
                                                 determination
------------------------------------------------------------------------
October 1 2015 (or when vaccine       May 15, 2016.
 becomes available)-March 31, 2016.
------------------------------------------------------------------------


[[Page 50882]]

f. Timeline for Data Submission Under the LTCHQR Program for the FY 
2018 Payment Determination
    For measures for the FY 2018 payment determination, we proposed to 
require data collection on LTCH discharges occurring from January 1, 
2016, through December 31, 2016, with the exception of Influenza 
Vaccination among Healthcare Personnel (NQF 0431). We proposed 
that the data collection timeframe for this measure (NQF 0431) 
be in alignment with measure specifications per advisement of the CDC, 
the steward for this NQF-endorsed measure. LTCHs would follow the 
proposed deadlines presented in the tables below to complete submission 
of data for each quarter for each proposed measure for the FY 2018 
payment determination. For each quarter outlined in the table below 
during which LTCHs are required to collect data, we proposed a final 
submission deadline occurring approximately 45 days after the end of 
each quarter by which all data collected during that quarter must be 
submitted. We believe that this is a reasonable amount of time to allow 
LTCHs to submit data and make any necessary corrections.
    We invited public comment on this proposal.
    Comment: A few commenters support the proposed timeline for data 
submission under the LTCHQR Program for FY 2018 payment determination.
    Response: We thank the commenters for their support of the proposed 
timeline for data submission for FY 2018 payment determination.
    After consideration of the public comments we received, we are 
finalizing, as proposed for all measures except for NQF 0680, 
all timelines related to FY 2018. For NQF 0680, in this final 
rule, we revised the data collection and submission timeline. Data 
collection for this measure will be required for all patients admitted 
or discharged from the LTCH between October 1 and April 30. We refer 
readers to section IX.C.9.b. of the preamble of this final rule for 
additional information on this measure's timeline. The timelines for 
data collection and submission for the measures for the FY 2018 payment 
determination are listed in the following tables.

 Timeline for Data Collection of LTCHQR Program Quality Data for the FY
                       2018 Payment Determination
------------------------------------------------------------------------
              NQF Measure ID                  Data collection timeframe
------------------------------------------------------------------------
NQF 0138.........................  January 1, 2016-December 31,
                                             2016.
NQF 0139.........................  January 1, 2016-December 31,
                                             2016.
NQF 0678.........................  January 1, 2016-December 31,
                                             2016.
NQF 0680.........................  October 1, 2016-April 30,
                                             2017.
NQF 0431.........................  October 1, 2016 (or when
                                             vaccine becomes available)-
                                             March 31, 2017.
NQF 1716.........................  January 1, 2016-December 31,
                                             2016.
NQF 1717.........................  January 1, 2016-December 31,
                                             2016.
Application of NQF 0674..........  January 1, 2016-December 31,
                                             2016.
------------------------------------------------------------------------


 Timeline for Submission of LTCHQR Program Quality Data for the FY 2018
  Payment Determination for All Measures Except 0431 Influenza
    Vaccination Coverage Among Healthcare Personnel and 0680
 Percentage of Residents or Patients Who Were Assessed and Appropriately
            Given the Seasonal Influenza Vaccine (Short Stay)
------------------------------------------------------------------------
                                      Final submission deadlines for the
 Data collection timeframe: CY 2016     LTCHQR Program FY 2018 payment
                                                 determination
------------------------------------------------------------------------
Q1 (January-March 2016).............  May 15, 2016.
Q2 (April-June 2016)................  August 15, 2016.
Q3 (July-September 2016)............  November 15, 2016.
Q4 (October-December 2016)..........  February 15, 2017.
------------------------------------------------------------------------


 Timeline for Submission of LTCHQR Program Quality Data for the FY 2018
Payment Determination: 0680 Percentage of Residents or Patients
Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine
                              (Short Stay)
------------------------------------------------------------------------
                                      Final submission deadlines for the
      Data collection timeframe         LTCHQR Program FY 2018 payment
                                                 determination
------------------------------------------------------------------------
October 1, 2016-April 30, 2017......  May 15, 2017.
------------------------------------------------------------------------


[[Page 50883]]


 Timeline for Submission of LTCHQR Program Quality Data for the FY 2018
 Payment Determination: NQF 0431 Influenza Vaccination Coverage
                       Among Healthcare Personnel
------------------------------------------------------------------------
                                      Final submission deadlines for the
      Data collection timeframe         LTCHQR Program FY 2018 payment
                                                 determination
------------------------------------------------------------------------
October 1 2016 (or when vaccine       May 15, 2017.
 becomes available)-March 31, 2017.
------------------------------------------------------------------------

10. Public Display of Data Quality Measures for the LTCHQR Program
    Under section 1886(m)(5)(E) of the Act, the Secretary is required 
to establish procedures for making any quality data submitted by LTCHs 
under section 1886(m)(5)(C) of the Act available to the public. Section 
1886(m)(5)(E) of the Act requires that such procedures shall ensure 
that a LTCH has the opportunity to review the data that is to be made 
public with respect to its facility, prior to such data being made 
public. The Act also requires that the Secretary report quality 
measures that relate to services furnished in LTCHs on CMS' Internet 
Web site. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53637), we 
received and responded to public comment regarding the procedures we 
could adopt for the public reporting of quality data under the LTCHQR 
Program.
    Currently, we are developing plans regarding the implementation of 
these provisions. We appreciate the need for transparency into the 
processes and procedures that will be implemented to allow for public 
reporting of the LTCHQR Program data and to afford LTCHs the 
opportunity to preview that data before it is made public. At this 
time, we have not established procedures or timelines for public 
reporting of data, but we intend to include related proposals in future 
rulemaking. In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27733), 
we welcomed public comment on what we should consider when developing 
future proposals related to public reporting of quality measures for 
the LTCHQR Program.
    Comment: One commenter urged CMS to publicly report the LTCHQR 
Program data on the Hospital Compare Web site: http://www.medicare.gov/hospitalcompare. This commenter further noted that the lack of 
established procedures or timelines for public reporting of these data 
is inappropriate and does not reflect the commitment to accountability 
and transparency CMS has shown in other quality reporting programs.
    Response: We appreciate the need for accountability and 
transparency for the LTCHQR Program similar to other quality reporting 
programs. To this end, we are continuing to undertake efforts to 
establish procedures and a timeline for the public reporting of data 
for the LTCHQR Program. We will communicate this information through 
future rulemaking.
    Comment: Another commenter urged CMS to provide LTCHs with ample 
time to review and make changes to their data before it is made 
available to the public. A commenter suggested that an initial review 
period greater than the typical 30-day period is critical for LTCHs.
    Response: We are considering policies and procedures that would 
allow LTCHs sufficient time to review their quality data prior to it 
being made public.
    Comment: One commenter urged CMS to seek input from stakeholders as 
to the best way to ensure the data made public is easily understood by 
providers and consumers.
    Response: We appreciate the need to ensure that the data made 
publicly available is easily understood by stakeholders such as the 
providers and consumers. At this time, we are working to establish 
procedures for public reporting, including procedures that provide the 
opportunity for LTCHs to review their data before it is made public, 
and will propose such procedures through future rulemaking allowing for 
stakeholder input.
    We thank the commenters for the input and suggestions, and we will 
consider them as we develop proposals for public reporting of quality 
measures in future rulemaking.
11. LTCHQR Program Submission Waiver Requirements for the FY 2015 
Payment Determination and Subsequent Years
    Our experience with other quality reporting programs has shown that 
there are times when providers are unable to submit quality data due to 
extraordinary circumstances beyond their control (for example, natural 
or man-made disasters). We define a ``disaster'' as any natural or man-
made catastrophe which causes damages of sufficient severity and 
magnitude to partially or completely destroy or delay access to medical 
records and associated documentation. Natural disasters could include 
events such as hurricanes, tornadoes, earthquakes, volcanic eruptions, 
fires, mudslides, snowstorms, and tsunamis. Man-made disasters could 
include such events as terrorist attacks, bombings, floods caused by 
man-made actions, civil disorder, and explosions. A disaster may be 
widespread and impact multiple structures or be isolated and impact a 
single site only.
    In certain instances of either natural or man-made disasters, an 
LTCH may have the ability to conduct a full patient assessment, and 
record and save the associated data either during or before the 
occurrence of an extraordinary event. In this case, the extraordinary 
event has not caused the facility's data files to be destroyed, but it 
could hinder the LTCH's ability to meet the quality reporting program's 
data submission deadlines. In this scenario, the LTCH would potentially 
have the ability to report the data at a later date, after the 
emergency circumstances have subsided. In such cases, a temporary 
waiver of the LTCH's responsibility to report quality measure data may 
be appropriate.
    In other circumstances of natural or man-made disaster, an LTCH may 
not have had the ability to conduct a full patient assessment, and 
record and save the associated data before the occurrence of an 
extraordinary event. In such a scenario, the facility does not have 
data to submit to CMS as a result of the extraordinary event. We 
believe that it is appropriate, in these situations, to grant a full 
waiver of the reporting requirements.
    We do not wish to penalize LTCHs in these circumstances or to 
unduly increase their burden during these times. Therefore, in the FY 
2014 IPPS/LTCH PPS proposed rule (78 FR 27733 through 27734), we 
proposed a process, for the FY 2015 payment determination and 
subsequent years, for LTCHs to request and for CMS to grant waivers 
with respect to the reporting of required

[[Page 50884]]

quality data when there are extraordinary circumstances beyond the 
control of the LTCHs. When a waiver is granted, an LTCH will not incur 
payment reduction penalties for failure to comply with the requirements 
of the LTCHQR Program. For LTCHQR Program reporting and submission of 
quality measure data for the FY 2014 payment determination, we have 
issued guidance on the waiver process via the LTCHQR Program Web site 
at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/.
    Under the proposed process for the FY 2015 payment determination 
and subsequent years, an LTCH may request a waiver of the requirement 
to submit quality data for one or more quarters. We proposed a process 
that, in the event that an LTCH seeks to request a waiver for quality 
reporting purposes for the FY 2015 payment determination and subsequent 
years, the LTCH may request a waiver for one or more quarters by 
submitting a written request to CMS. We proposed that the LTCH compose 
a letter to CMS that documents the waiver request, with the information 
below, and submit the letter to CMS via email to the LTCH Quality 
Waiver mailbox at [email protected].
    We note that the subject of the email must read ``Disaster Waiver 
Request'' and the letter must contain the following information:
     LTCH CCN;
     LTCH name;
     CEO or CEO-designated personnel contact information 
including name, telephone number, title, email address, and mailing 
address (the address must be a physical address, not a post office 
box);
     LTCH's reason for requesting a waiver;
     Evidence of the impact of extraordinary circumstances, 
including but not limited to photographs, newspaper and other media 
articles; and
     A date when the LTCH believes it will be able to again 
submit LTCHQR Program data and a justification for the proposed date.
    We proposed that the letter documenting the disaster waiver request 
be signed by the LTCH's CEO or CEO-designated personnel, and must be 
submitted within 30 days of the date that the extraordinary 
circumstances occurred. Following receipt of the letter, we would: (1) 
Provide a written acknowledgement, using the contact information 
provided in the letter, to the CEO or CEO-designated contact notifying 
them that the request has been received; and (2) provide a formal 
response to the CEO or any CEO-designated LTCH personnel, using the 
contact information provided in the letter, indicating our decision.
    This proposal does not preclude us from granting waivers to LTCHs 
that have not requested them when we determine that an extraordinary 
circumstance, such as an act of nature, affects an entire region or 
locale. If we make the determination to grant a waiver to LTCHs in a 
region or locale, we proposed to communicate this decision through 
routine communication channels to LTCHs and vendors, including, but not 
limited to, issuing memos, emails, and notices on http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html.
    We invited public comment on this proposal.
    Comment: Many commenters expressed support of CMS' proposal for the 
inclusion of a waiver process in the LTCHQR Program to ensure that 
LTCHs are not penalized in the event of an extraordinary circumstance 
beyond the control of the LTCH.
    Response: We thank commenters for their support.
    Comment: One commenter noted the waiver policies of other quality 
reporting programs and urged us to develop consistent waiver policies 
for the LTCHQR Program waiver process with at least the following 
elements: (1) a minimum of 30 days should be allowed after the 
extraordinary event for submitting waivers; (2) a standardized form 
should be provided for requesting waivers; (3) the waiver process 
should be in addition to the payment reduction appeal process, however 
the appeal process should allow for decisions that waive penalties 
retroactively; and (4) CMS should be able to grant waivers without an 
LTCH's request when the LTCH is located in an area impacted by a 
natural disaster or other extraordinary situation. In addition, the 
commenter recommended that CMS provide for a broad definition of 
``extraordinary circumstances'' that allows for unanticipated 
situations.
    Response: We are aware that our other quality reporting programs 
include an opportunity for providers to request a waiver due to the 
occurrence of an extraordinary circumstance. It is our goal to align 
our policies with those of existing quality reporting programs to the 
extent appropriate for the LTCH setting. We will not be providing a 
standard form for LTCH waiver requests at this time. However, we are 
aware of the benefits of standardized forms for providers and for CMS, 
and we intend to create such forms for waiver requests in the future. 
In addition, we do allow 30 days from the date of the ``extraordinary 
event'' during which an LTCH must submit their request for a waiver and 
this process will be separate from the reconsideration and appeals 
process proposed and finalized except for the FY 2014 payment 
determination, which we explain in our next response. In response to 
the commenter's statement that the CMS LTCH reconsideration process 
should allow for decisions that waive penalties retroactively, it is 
not clear to CMS to what penalties the commenter is referring. The CMS 
reconsideration process only reviews decisions of non-compliance the 
provider feels were made in error for one data reporting/submission 
period. In addition, any APU reduction that results from a finding of 
non-compliance takes place only after the provider has had a chance to 
request reconsideration and receive a final determination based on that 
request. Thus, there is no penalty which could be waived retroactively. 
The CMS reconsideration process will only review determinations of non-
compliance made for a given FY's APU determination and not any previous 
determinations. Finally, we proposed and are finalizing a disaster 
waiver process for LTCHs in which we state that CMS may, in certain 
circumstances, grant a disaster waiver to LTCHs in particular region of 
the country that is affected by a natural disaster or extraordinary 
event without a request from these LTCHs if it is deemed necessary.
    Comment: Some commenters sought clarification as to why the 
proposed waiver processes begin with the FY 2015 payment determination. 
The commenters requested that the proposed policies be implemented in 
time for the FY 2014 payment determination.
    Response: This final rule will become effective October 1, 2013, 
the start of FY 2014 and, by that time, the FY 2014 annual payment 
determinations will be complete based on LTCHs compliance with the 
reporting requirements outlined in the FY 2012 IPPS/LTCH PPS final 
rule. As posted on the LTCHQR Program Web site, we made initial 
compliance determinations for the FY 2014 payment determination and 
issued notifications to non-compliant LTCHs in July 2013, at which time 
each LTCH had the opportunity to request a reconsideration. Any request 
for a waiver related to quality measure reporting and submission 
required for October 1, 2012-December 31, 2012 would have needed to be 
made through the FY 2014 reconsideration process as

[[Page 50885]]

CMS did not have a waiver process in place during that reporting 
period. We will have already evaluated those reconsideration or waiver 
requests related to FY 2014 APU determinations and will have already 
made final payment determinations for FY 2014 in September 2013. 
Therefore, it would not be appropriate to proposed and finalize a FY 
2014 waiver process as any related payment determinations will be 
complete prior to this rule becoming effective.
    Furthermore, we would like to clarify that for purposes of the FY 
2015 payment determination, because this final rule will become 
effective October 1, 2013, any LTCH that experiences an extraordinary 
circumstance on or after such date will be held to the requirement that 
waiver requests be received by CMS within 30 days of the event 
occurrence. If an extraordinary circumstance occurs prior to October 1, 
2013 when this process and policy become final and effective, and if an 
LTCH wishes to request a waiver from the FY 2015 reporting 
requirements, the LTCH should communicate any extraordinary 
circumstances that prevented them from submitting data related to the 
FY 2015 APU during the reconsideration period for the FY 2015 payment 
determination. That is, if CMS issues a finding of non-compliance and 
the LTCH experienced an extraordinary event that prevented them from 
submitting data, but had no waiver process available to them at that 
time, the LTCH will need to use the reconsideration process in order to 
communicate their circumstances to CMS. This is the same process 
available to LTCHs to request a waiver from the reporting requirements 
of the FY 2014 payment determination as CMS did not have a waiver 
process in place during the reporting period affecting the FY 2014 APU 
determination. Further details of the LTCHQR Program reconsideration 
process can be found in this final rule and on the Program's Web site 
at http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html.
    After consideration of the public comments we received, we are 
finalizing the LTCHQR Program waiver process as proposed. LTCHs will 
have 30 days after the date of an extraordinary circumstance, as 
described above, to submit a waiver request to CMS via email that meets 
all of the finalized requirements. In the event that any extraordinary 
circumstance occurs prior to the effective date of this rule, October 
1, 2013, LTCHs may utilize the FY 2015 reconsideration process to 
request a waiver, as the FY 2015 waiver policy and process will not be 
finalized and in effect until October 1, 2013. In addition, CMS may 
also grant waivers to LTCHs that have not requested them if it is 
determined that an extraordinary circumstances affects an entire region 
or local. More information on the LTCHQR Program Waiver process and all 
related announcements may be found on http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html.
12. LTCHQR Program Reconsideration and Appeals for the FY 2014 and FY 
2015 Payment Determination and Subsequent Years
    At the conclusion of any given quality data reporting and 
submission period, we will review the data received from each LTCH 
during that reporting period to determine if the LTCH has met the 
quality data reporting requirements. LTCHs that are found to be non-
compliant with the reporting requirements set forth for that reporting 
cycle will receive a reduction in the amount of 2.0 percentage points 
to their annual payment update for the upcoming fiscal year.
a. LTCHQR Program Reconsideration and Appeals for the FY 2014 Payment 
Determination
    We are aware that some of our other quality reporting programs, 
such as the Hospital IQR Program, include an opportunity for providers 
to request a reconsideration of our initial non-compliance 
determination. We are also aware, for the purposes of the LTCHQR 
Program, that we recently made compliance determinations for the FY 
2014 payment determinations and that there was a need for providers to 
be able to request a reconsideration if their circumstances warranted. 
We provided details pertaining to the reconsideration process, and the 
mechanisms related to provider requests for reconsiderations of their 
payment determination, such as filing requests, required content, 
supporting documentation, and mechanisms of notification and final 
determinations on the LTCHQR Program Web site in spring 2013 prior to 
any LTCH's need for information on the CMS reconsideration process for 
the FY 2014 payment determination and subsequent years at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/. CMS' subregulatory approach to the 
FY 2014 reconsideration process was necessary, as any other form of the 
reconsideration process that we might propose and finalize in this rule 
would not be final and in effect until October 1, 2013. This would have 
the effect of proposing and finalizing a FY 2014 process for 
reconsiderations that should already be completed. For this reason, we 
decided to post all information related to the FY 2014 reconsideration 
process on the CMS LTCHQR Program Web site listed above. We note that 
we are finalizing the policy that this subregulatory approach to the 
reconsideration process will remain in effect until we can propose and 
finalize a regulatory version of the reconsideration process in future 
rulemaking.
    We invited public comment on our subregulatory approach for 
reconsideration and appeals for FY 2014 payment determination and 
subsequent years.
    Comment: Many commenters expressed support for CMS' FY 2014 
reconsideration and appeals process.
    Response: We thank commenters for their support of the inclusion of 
reconsideration and appeals processes in the LTCHQR Program.
    Comment: Some commenters suggested that the proposed 
reconsideration and appeals processes should be made available to LTCHs 
for the FY 2014 payment determination, citing that the proposals stated 
that the processes would be applicable to the FY 2015 payment 
determination and subsequent years.
    Response: In the proposed rule, we communicated our intent to 
provide guidance pertaining to the reconsideration process for the FY 
2014 payment determination on the LTCHQR Program Web site in addition 
to proposing processes for the FY 2015 payment determination. As posted 
on the LTCHQR Program Web site, we made initial compliance 
determinations for the FY 2014 payment determination and issued 
notifications to non-compliant LTCHs in July 2013, at which time each 
LTCH had the opportunity to request reconsideration. CMS considered 
those requests and final payment determinations were made in September 
2013. While we did not propose and finalize an LTCH reconsideration 
process for FY 2014 we did make the process available to all LTCHs. We 
note that the reconsideration process is voluntary and only one of 
several processes in place, including the Provider Reimbursement Review 
Board (PRRB) or federal court, that an LTCH can use to have the CMS 
initial determination of non-compliance reevaluated.

[[Page 50886]]

    Comment: One commenter stated that the proposed rule provided no 
information on the FY 2014 reconsideration and appeals process and 
instead referred readers to the LTCHQR Program Web page. The commenter 
suggested that this process must be proposed and finalized through 
regulation.
    Response: We believe that we were justified in our subregulatory 
approach to the FY 2014 reconsideration process. Please see previous 
comment and response for a detailed explanation outlining our 
intentions and subsequent actions regarding the FY 2014 reconsideration 
process for LTCHs.
    Comment: One commenter requested clarification as to CMS' authority 
to require providers to go through a reconsideration process that is 
not adopted through rulemaking before appealing to the PRRB referring 
to our subregulatory approach to the implementation of the FY 2014 LTCH 
reconsideration processes and procedures.
    Response: While we provide a process for reconsideration should 
LTCHs choose to request to use this process, we would like note a 
change in policy. In the FY 2014 IPPS/LTCH PPS proposed rule, we stated 
that LTCHs must first apply for reconsideration through CMS prior to 
appealing our initial finding of non-compliance to the PRRB. In light 
of this commenter's concern that CMS did not provide procedural details 
of the reconsideration process through rulemaking and concern that CMS 
ensure that sufficient outreach and education are available, we have 
decided to continue with an LTCHQR Program reconsideration process that 
is voluntary for the time being in order to fully address these 
concerns. We are therefore only recommending that LTCHs use the 
reconsideration process prior to appealing to the PRRB. We note that we 
have had good success under the Hospital IQR Program with a process 
that is very similar to the one we proposed for the LTCHQR Program. 
Further, from the LTCH perspective, it allows for the opportunity to 
resolve issues early in the process when we have dedicated resources to 
considering all reconsideration requests before payment changes are 
applied to LTCH's annual payment.
b. LTCHQR Program Reconsideration and Appeals for the FY 2015 Payment 
Determination
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27734), to be 
consistent with other established quality reporting programs and to 
provide an opportunity for LTCHs to seek reconsideration of our initial 
non-compliance decision, we proposed a process that will allow LTCHs to 
request reconsiderations pertaining to the FY 2015 annual update and 
subsequent annual updates.
    As part of this process, LTCHs that are non-compliant with the 
reporting requirements during a given reporting cycle will be notified 
of that finding. The purpose of this notification is to put the LTCH on 
notice of the following: (1) That the LTCH has been identified as being 
non-compliant with the LTCHQR Program's reporting requirements for the 
reporting cycle in question; (2) that the LTCH will be scheduled to 
receive a reduction in the amount of two percentage points to the 
annual payment update for the upcoming fiscal year; (3) that the LTCH 
may file a request for reconsideration if they believe that the finding 
of non-compliance is erroneous, or that if they were non-compliant, 
they have a valid and justifiable excuse for this non-compliance; and 
(4) that the LTCH must follow a defined process on how to file a 
request for reconsideration, which will be described in the 
notification.
    Upon the conclusion of our review of each request for 
reconsideration, we will render a decision. We may reverse our initial 
finding of non-compliance if: (1) The LTCH provides proof of compliance 
with all requirements during the reporting period; or (2) the LTCH 
provides adequate proof of a valid or justifiable excuse for non-
compliance if the LTCH was not able to comply with requirements during 
the reporting period. We will uphold our initial finding of non-
compliance if the LTCH cannot show any justification for non-
compliance. The full reconsideration request process is available at 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-QUality-Reporting-Reconsideration-and-Disaster-Wavier-Request.html.
    We invited public comment on the proposed procedures for 
reconsideration and appeals for FY 2015 payment determination and 
subsequent years.
    Comment: Many commenters expressed support for CMS' proposed 
reconsideration and appeals process.
    Response: We thank commenters for their support of the inclusion of 
reconsideration and appeals processes in the LTCHQR Program.
    Comment: One commenter noted the reconsideration processes for 
other quality reporting programs and urged us to develop consistent 
reconsideration policies for the LTCHQR Program with at least the 
following elements: (1) A minimum of 30 days should be allowed after 
the determination of reporting non-compliance to submit a request for 
reconsideration; (2) a standardized form should be provided for 
requesting reconsideration; (3) the appeal process should be in 
addition to the waiver process, however the appeal process should allow 
for decisions that waive penalties retroactively; (4) the regulations 
should specifically state that an LTCH may file an appeal with the PRRB 
if it is dissatisfied with the result of CMS' reconsideration, similar 
to the provision at 42 CFR 412.434(c) for IPFs.
    Response: We are aware that our other quality reporting programs 
include an opportunity for providers to request reconsideration of the 
reporting requirements for any given fiscal year's payment 
determination. It is our goal to align our policies with those of 
existing quality reporting programs to the extent appropriate for the 
LTCH setting. To that end, we proposed and are finalizing a 
reconsideration policy that does allow 30 days from the date of 
notification for a LTCH to file a request for reconsideration. In 
addition to this, the reconsideration process proposed and finalized in 
this rule is separate from and in addition to the disaster waiver 
process we proposed in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 
27733 through 277344) and are finalizing in section IX.C.11. of the 
preamble of this final rule.
    At this time, we will not be providing a standard form for LTCH 
reconsideration requests. However, we are aware of the benefits of 
standardized forms for providers and for CMS, and we intend to create 
such forms for reconsideration requests in the future.
    Further, we would like to clarify that LTCHs dissatisfied with CMS' 
decision rendered at the reconsideration level may appeal to the PRRB 
under 42 CFR Part 405, Subpart R. In the FY 2014 IPPS/LTCH PPS proposed 
rule we stated that LTCHs that are dissatisfied with an initial CMS 
determination of non-compliance must first apply for reconsideration 
through CMS prior to appealing our initial finding of non-compliance to 
the PRRB. In light of a commenter's concern that CMS did not provide 
procedural details of the reconsideration process through rulemaking 
and concern that CMS ensure that sufficient outreach and education are 
available, we have decided to continue with an LTCHQR Program 
reconsideration process that is voluntary for the time being in order 
to fully address these concerns. We are therefore only recommending 
that LTCHs use the reconsideration process prior to appealing to the 
PRRB. We note

[[Page 50887]]

that we have had good success under the Hospital IQR Program with a 
process that is very similar to the one we proposed for the LTCHQR 
Program. Further, from the LTCH perspective, it allows for the 
opportunity to resolve issues early in the process when we have 
dedicated resources to considering all reconsideration requests before 
payment changes are applied to LTCH's annual payment update, thereby 
allowing for more efficient operations at the PRRB level.
    Comment: One commenter requested that CMS specify a timeframe by 
which CMS will render all reconsideration decisions. The commenter 
suggested that CMS should make reconsideration decisions within 60 days 
from the receipt of an LTCH's request for reconsideration.
    Response: We will strive to render reconsideration decisions in a 
timely manner. Reconsideration decisions will be issued prior to the 
application of payment adjustment to LTCH's standard Federal rate for a 
fiscal year. That is, we will assess an LTCH's compliance against 
program requirements, issue non-compliance notification, and 
communicate reconsideration decisions prior to October 1 annually. 
Therefore, all reconsideration decisions will generally be made within 
60 days of CMS' receipt of a reconsideration request for the applicable 
fiscal year. We expect that the timeline for subsequent years' payment 
determinations will be similar to the FY 2014 timeline currently 
outlined on the reconsideration page of the LTCHQR Program Web site at 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html.
    Comment: One commenter urged CMS to clearly set forth the process 
and standards CMS will use to measure a LTCH's compliance with LTCHQR 
Program reporting requirements in order to determine if a LTCH will 
receive a full annual payment update.
    Response: As we have noted in previous rulemaking, all previous and 
current administrative and data submission requirements finalized 
through rulemaking must be met in order for an LTCH to receive their 
full annual payment update. All CMS quality data reporting requirements 
are discussed in detail in our LTCH QR Program Manual available for 
download on our LTCH QRP Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html.
    Comment: One commenter suggested that the two-percentage point 
reduction in payment to a LTCH's annual update for the upcoming fiscal 
year should be stayed while a request for reconsideration is pending or 
until the PRRB appeal is concluded.
    Response: Any determination of non-compliance made through CMS' 
initial review of data submitted by a provider, and subsequently upheld 
through the CMS reconsideration process will result in a 2.0 percentage 
point reduction to the provider's annual payment update. CMS will not 
stay any payment reduction while an appeal of our initial decision is 
pending review by an independent review board, such as the PRRB.
    Comment: Several commenters suggested that CMS establish an appeal 
process for the LTCHQR Program that would allow LTCHs to seek review of 
any non-compliance determination to challenge the payment reduction. 
These commenters also suggested that this process be similar to 
established appeals processes of other quality reporting programs.
    Response: We are aware that other quality reporting programs 
include processes for providers to appeal a non-compliance 
determination made by CMS. As stated above, LTCHs dissatisfied with our 
initial finding of non-compliance, or a decision rendered at the CMS 
reconsideration level may appeal the decision with the PRRB under 42 
CFR Part 405, Subpart R. In the FY 2014 IPPS/LTCH PPS proposed rule we 
stated that LTCHs that are dissatisfied with an initial CMS 
determination of non-compliance must first apply for reconsideration 
through CMS prior to appealing our initial finding of non-compliance to 
the PRRB. We would like to clarify that we recommend, rather than 
require, LTCHs use this order of appeals. We note that the CMS 
reconsideration process is voluntary, and that we have had good success 
with it under the Hospital IQR Program. Further, from the LTCH 
perspective, it allows for the opportunity to resolve issues early in 
the process when CMS has dedicated resources to considering all 
reconsideration requests before payment changes are applied to LTCH's 
annual payment, thereby allowing for more efficient operations at the 
PRRB appeals level.
    After consideration of the public comments we received, and with 
the exception that the prescribed order of appeals CMS listed is 
recommended rather than required, we are finalizing the FY 2015 LTCHQR 
Program reconsideration and appeals processes as proposed. Annually, we 
will notify LTCHs found to be non-compliant with the LTCHQR Program 
reporting requirements that they may be subject to the two percentage 
point reduction in their annual payment update. LTCHs may request a 
reconsideration of this non-compliance determination. If an LTCH are 
dissatisfied with our initial finding of non-compliance or a CMS 
decision rendered at the reconsideration level, it can appeal the 
decision with the PRRB under 42 CFR Part 405, Subpart R. An LTCH must 
submit a request for reconsideration, as described above and in the 
manner that is provided on the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/.

D. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program

1. Statutory Authority
    Section 1886(s)(4) of the Act, as added and amended by sections 
3401(f) and 10322(a) of the Affordable Care Act, requires the Secretary 
to implement a quality reporting program for inpatient psychiatric 
hospitals and psychiatric units. Section 1886(s)(4)(A)(i) of the Act 
requires that, for rate year (RY) 2014 and each subsequent rate year, 
the Secretary shall reduce any annual update to a standard Federal rate 
for discharges occurring during such rate year by 2.0 percentage points 
for any inpatient psychiatric hospital or psychiatric unit that does 
not comply with quality data submission requirements with respect to an 
applicable rate year.
    We note that section 1886(s)(4)(A)(i) of the Act uses the term 
``rate year.'' Beginning with the annual update of the inpatient 
psychiatric facility prospective payment system (IPF PPS) that took 
effect on July 1, 2011 (RY 2012), we aligned the IPF PPS update with 
the annual update of the ICD-9-CM codes, which are effective on October 
1 of each year. The change allows for annual payment updates and the 
ICD-9-CM coding update to occur on the same schedule and appear in the 
same Federal Register document, thus making updating rules more 
administratively efficient. To reflect the change to the annual payment 
rate update cycle, we revised the regulations at 42 CFR 412.402 to 
specify that, beginning October 1, 2012, the 12-month period of October 
1 through September 30 is referred to as a fiscal year (FY) (76 FR 
26435). For more information regarding this terminology change, we 
refer readers to section III. of the RY 2012 IPF PPS final rule (76 FR 
26434 through 26435). For purposes of

[[Page 50888]]

the discussion below, the term ``rate year'' and ``fiscal year'' both 
refer to the period beginning October 1 and ending September 30. To 
avoid any confusion that may be caused by using the term ``rate year'' 
with respect to the inpatient psychiatric hospitals and psychiatric 
units quality reporting program, we will use the term ``fiscal year'' 
rather than ``rate year'' throughout this final rule, even when we are 
referring to statutory provisions that refer to ``rate year.''
    As provided in section 1886(s)(4)(A)(ii) of the Act, the 
application of the reduction for failure to report under section 
1886(s)(4)(A)(i) of the Act may result in an annual update of less than 
0.0 percent for a fiscal year, and may result in payment rates under 
section 1886(s)(1) of the Act being less than such payment rates for 
the preceding year. In addition, section 1886(s)(4)(B) of the Act 
requires that the application of the reduction to a standard Federal 
rate update be noncumulative across fiscal years. Thus, any reduction 
applied under section 1886(s)(4)(A) of the Act will apply only with 
respect to the fiscal year rate involved and the Secretary shall not 
take into account such reduction in computing the payment amount under 
the system described in section 1886(s)(1) of the Act for subsequent 
years.
    Section 1886(s)(4)(C) of the Act requires that, for FY 2014 
(October 1, 2013 through September 30, 2014) and each subsequent year, 
each psychiatric hospital and psychiatric unit shall submit to the 
Secretary data on quality measures as specified by the Secretary. Such 
data shall be submitted in a form and manner, and at a time, specified 
by the Secretary. Under section 1886(s)(4)(D)(i) of the Act, measures 
selected for the quality reporting program must have been endorsed by 
the entity with a contract under section 1890(a) of the Act. The 
National Quality Forum (NQF) currently holds this contract. The NQF is 
a voluntary, consensus-based, 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 generally 
prefer to adopt NQF-endorsed measures in our reporting programs with 
some exceptions as provided by law.
    For purposes of the Inpatient Psychiatric Facilities Quality 
Reporting (IPFQR) Program, section 1886(s)(4)(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, 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. Finally, pursuant to section 
1886(s)(4)(D)(iii) of the Act, the Secretary shall publish the measures 
applicable to the FY 2014 IPFQR Program no later than October 1, 2012.
    Section 1886(s)(4)(E) of the Act requires the Secretary to 
establish procedures for making public the data submitted by inpatient 
psychiatric hospitals and psychiatric units under the IPFQR Program. 
Such procedures must ensure that a facility has the opportunity to 
review its data prior to such data being made public. The Secretary 
must report quality measures that relate to services furnished by the 
psychiatric hospitals and units on a CMS Web site.
2. Application of the Payment Update Reduction for Failure To Report 
for the FY 2014 Payment Determination and Subsequent Years
    Beginning in FY 2014, section 1886(s)(4)(A)(i) of the Act requires 
the application of a 2.0 percentage point reduction to the applicable 
annual update to a Federal standard rate for those psychiatric 
hospitals and psychiatric units that fail to comply with the quality 
reporting requirements implemented in accordance with section 
1886(s)(4)(C) of the Act, as detailed below. The application of the 
reduction may result in an annual update for a fiscal year that is less 
than 0.0 percent and in payment rates for a fiscal year being less than 
the payment rates for the preceding fiscal year. Pursuant to section 
1886(s)(4)(B) of the Act, any such reduction is not cumulative and it 
will apply only to the fiscal year involved. In the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53678), we adopted requirements regarding the 
application of the payment reduction to the annual update of the 
standard Federal rate for failure to report data on measures selected 
for the FY 2014 payment determination and subsequent years and added 
new regulatory text at 42 CFR 412.424 to codify these requirements.
3. Covered Entities
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53645), we 
established that the IPFQR Program's quality reporting requirements 
cover those psychiatric hospitals and psychiatric units that are paid 
under Medicare's IPF PPS (42 CFR 412.404(b)). Generally, psychiatric 
hospitals and psychiatric units within acute care and critical access 
hospitals that treat Medicare patients are paid under the IPF PPS. For 
more information on the application of and exceptions to payments under 
the IPF PPS, we refer readers to section IV. of the November 15, 2004 
IPF PPS final rule (69 FR 66926). As we noted in the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53645), we use the term ``inpatient psychiatric 
facility'' (IPF) to refer to both inpatient psychiatric hospitals and 
psychiatric units. This usage follows the terminology we have used in 
the past in our IPF PPS regulations (42 CFR 412.402).
4. Considerations in Selecting Quality Measures
    For purposes of the IPFQR Program, section 1886(s)(4)(D)(i) of the 
Act requires that any measure specified by the Secretary must have been 
endorsed by the entity with a contract under section 1890(a) of the 
Act. However, the statutory requirements under section 
1886(s)(4)(D)(ii) of the Act provide an exception 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, 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 implementing the IPFQR Program, our overarching objective is to 
support the HHS National Quality Strategy's three-part aim of better 
health care for individuals, better health for populations, and lower 
costs for health care services: http://www.healthcare.gov/news/reports/quality03212011a.html#na. Implementation of the IPFQR Program will help 
achieve the three-part aim by creating transparency around the quality 
of care provided at IPFs to support patient decision-making and quality 
improvement. Over time, the IPFQR Program will help align the goals for 
quality measurement and improvement at IPFs with those of other 
providers in the health care system.
    We seek to collect data in a manner that balances the need for 
information related to the full spectrum of quality performance and the 
need to minimize the burden of data collection and reporting. We have 
focused on measures that have high impact and support CMS

[[Page 50889]]

and HHS priorities for improved quality and efficiency of care provided 
by IPFs. As we stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53645 through 53646), we will use the following considerations for the 
development and selection of measures:
     Given the availability of well-validated measures and the 
need to balance breadth with minimizing burden, the measures should 
address, as fully as possible, the six domains of measurement that 
arise from the six priorities of the National Quality Strategy (NQS): 
Clinical care; person- and caregiver-centered experience and outcomes; 
safety; efficiency and cost reduction; care coordination; and 
community/population health.
     Public reporting should rely on a mix of standards, 
outcomes, process of care measures, and patient experience of care 
measures, including measures of care transitions and changes in patient 
functional status, with an emphasis on measurement as close to the 
patient-centered outcome of interest as possible.
     The measure sets should evolve so that they include a 
focused set of measures appropriate to IPFs that reflects the level of 
care and the most important areas of service and measures for IPFs as 
well as measures addressing a core set of measure concepts that align 
quality improvement objectives across all provider and supplier types 
and settings.
     Measures should address gaps in quality of inpatient 
psychiatric care.
     As part of our burden reduction efforts, we continuously 
seek to weigh the relevance and utility of the measures compared to the 
burden on IPFs submitting data under the IPFQR Program. As appropriate, 
we will align our measures with other Medicare and Medicaid quality 
programs and may consider how we can incorporate data reporting by 
means of electronic reporting mechanisms, so that 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 take into account widely accepted 
criteria established in medical literature. We consider suggestions and 
input from technical expert panels (TEPs), convened by CMS contractors, 
which evaluate IPFQR quality measures for importance, scientific 
soundness, usability, and feasibility.
    We also take into account national priorities and HHS Strategic 
Plans and Initiatives:
     HHS engaged a wide range of stakeholders to develop the 
National Quality Strategy, as required by the Affordable Care Act, 
which pursues three aims (better care, healthy people, and affordable 
care) that establish a framework with six identifiable priorities 
http://www.ahrq.gov/workingforquality/nqs/nqsfactsheet1.htm:
     Ensuring that each person and family is engaged as 
partners in their care.
     Promoting effective communication and coordination 
of care.
     Promoting the most effective prevention and 
treatment practices for the leading causes of mortality, starting with 
cardiovascular disease.
     Working with communities to promote wide use of 
best practices to enable healthy living.
     Making quality care more affordable for 
individuals, families, employers, and governments by developing and 
spreading new health care delivery models.
     Making care safer by reducing harm caused in the 
delivery of care.
     We consider recommendations of the Measures Application 
Partnership (MAP) for the inclusion of clinical quality measures http://www.qualityforum.org/MAP/. The MAP is a public-private partnership 
convened by the NQF for the primary purpose of providing input to HHS 
on selecting performance measures for quality reporting programs and 
pay-for-reporting programs.
     HHS is the United States Government's principal department 
for protecting the health of all Americans. HHS accomplishes its 
mission through programs and initiatives. The goals of the HHS 
Strategic Plan for FYs 2010 through 2015 are: Strengthen Health Care; 
Advance Scientific Knowledge and Innovation; Advance the Health, 
Safety, and Well-Being of the American People; Increase Efficiency, 
Transparency, and Accountability of HHS Programs; and Strengthen the 
Nation's Health and Human Services Infrastructure and Workforce (http://www.hhs.gov/secretary/about/priorities.html). HHS will update this 
strategic plan every 4 years and measure its progress in addressing 
specific national problems, needs, or mission-related challenges.
    HHS prioritizes policy and program interventions to address the 
leading causes of death and disability in the United States, including 
heart disease, cancer, stroke, chronic lower respiratory diseases, 
unintentional injuries, and preventable behaviors. Initiatives such as 
the HHS Action Plan to Reduce Healthcare-Associated Infections in 
clinical settings and the Partnership for Patients exemplify these 
programs.
5. Quality Measures for the FY 2015 Payment Determination and 
Subsequent Years
a. Background
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53646 through 
53652), we adopted the following six chart-abstracted IPF quality 
measures for the FY 2014 payment determination and subsequent years 
shown in the table below:

       Previously Adopted IPFQR Program Quality Measures Beginning With the FY 2014 Payment Determination
----------------------------------------------------------------------------------------------------------------
   National quality strategy priority       NQF No.           Measure ID               Measure description
----------------------------------------------------------------------------------------------------------------
Patient Safety..........................         0640  HBIPS-2                   Hours of Physical Restraint
                                                                                  Use.
                                                 0641  HBIPS-3                   Hours of Seclusion Use.
Clinical Quality of Care................         0552  HBIPS-4                   Patients Discharged on Multiple
                                                                                  Antipsychotic Medications.
                                                 0560  HBIPS-5                   Patients Discharged on Multiple
                                                                                  Antipsychotic Medications with
                                                                                  Appropriate Justification.
Care Coordination.......................         0557  HBIPS-6                   Post-Discharge Continuing Care
                                                                                  Plan Created.
                                                 0558  HBIPS-7                   Post-Discharge Continuing Care
                                                                                  Plan Transmitted to Next Level
                                                                                  of Care Provider Upon
                                                                                  Discharge.
----------------------------------------------------------------------------------------------------------------


[[Page 50890]]

    We note that, at the time of the finalization of the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53258), providers were using ICD-9-CM codes, 
but as of October 1, 2014 ICD-10-CM codes will be in effect. We do not 
at this time anticipate that this change will have substantive effects 
on any measures.
    Measures adopted for the IPFQR Program will remain in the quality 
reporting program for all subsequent years unless specifically stated 
otherwise (for example, through removal or replacement). In the FY 2014 
IPPS/LTCH PPS proposed rule (78 FR 27737), we did not propose to remove 
or replace any of the previously adopted measures from the IPFQR 
Program or add any new measures to the IPFQR Program for the FY 2015 
payment determination. We believe that keeping the same measures for 
the FY 2015 payment determination will allow IPFs one additional year 
during which they could ramp up recordkeeping and improve quality of 
care on existing measures. We discussed the collection requirements and 
submission timeframes for these measures in section VIII.F.7. of the 
preamble of the FY 2013 IPPS/LTCH PPS final rule (77 FR 53654 through 
53658).
    Comment: One commenter expressed appreciation that CMS did not 
propose additional data collection for the FY 2015 payment 
determination, because it will allow IPFs to improve data collection 
and documentation processes.
    Response: We thank the commenter for its support.
    Comment: In reference to the HBIPS-6 and HBIPS-7 measures, a 
commenter stated that according to the instructions for chart-
abstraction for these two measures, even if a patient leaves Against 
Medical Advice (AMA), providers are still required to offer a referral 
to a next level-of-care provider. Therefore, currently, patients who 
leave AMA are not automatically excluded from either HBIPS-6 or HBIPS-7 
measures unless the patients refuse a referral. The commenter noted 
that there was no hand-off of care involved and therefore, believed 
uncomfortable to release a copy of the continuing plan of care (to any 
providers) as this action could be construed as a HIPAA violation. 
Based on the belief of potential HIPAA violations, the commenter 
requested that patients with a discharge status of AMA be excluded from 
HBIPS-6 and HBIPS-7.
    Response: We do not believe there is a potential HIPAA violation 
issue as we collect aggregate-level data and not patient-level data. 
Furthermore, a HIPAA covered entity is permitted to make the disclosure 
under HIPAA under the ``required by law'' provisions at 45 CFR 
164.512(a). That is, if the reporting of that measure is mandatory, 
``required by law'' is the applicable HIPAA basis for disclosure.
    Comment: One commenter opposed the inclusion of HBIPS-4 because the 
commenter believed that the assumption that any patient discharged on 
multiple antipsychotic medications is an automatic indication of poor 
practice is unwarranted, particularly for acute care psychiatric 
facilities that treat distressed patients for a very short period.
    Response: We disagree with the commenter's assumptions regarding 
the measure. The intent of the measure is not to prevent all instances 
of antipsychotic polytherapy, but rather to reduce the rate of 
discharge on two or more routinely prescribed antipsychotics without 
clinical justification. We acknowledge that circumstances, such as 
shorter inpatient stays, may require hospitals to discharge a patient 
on multiple antipsychotics. We believe that in these circumstances 
patients should be discharged with an aftercare plan to transition to 
monotherapy when clinically appropriate, and the facility should 
coordinate with post-discharge care providers. We also acknowledge that 
there are clinical circumstances when antipsychotic polytherapy may be 
clinically appropriate.
b. New Quality Measures for the FY 2016 Payment Determination and 
Subsequent Years
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27737 through 
277340), we proposed three new measures for the FY 2016 payment 
determination and subsequent years for the IPFQR Program. The measures 
are: (1) SUB-1: Alcohol Use Screening (Submitted for NQF review); (2) 
SUB-4: Alcohol & Drug Use: Assessing Status After Discharge (Submitted 
for NQF review); and (3) Follow-Up After Hospitalization for Mental 
Illness (FUH) (NQF 0576).
    The three proposed measures were included in a publicly available 
document entitled ``List of Measures under Consideration for December 
1, 2012'' in compliance with section 1890A(a)(2) of the Act, and they 
were reviewed by the MAP in its ``MAP Pre-Rulemaking Report: 2013 
Recommendations on Measures Under Consideration by HHS,'' which is 
available on the NQF Web site at http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partnership.aspx. We 
considered the input and recommendations provided by the MAP in 
selecting measures to propose for the IPFQR Program at this time. The 
MAP supported the inclusion of the third proposed measure in the IPFQR 
Program, and supported the direction of the first two measures, noting 
that their recommendation is contingent on NQF endorsement. The first 
two measures were submitted to the NQF in 2012. Currently, the dates 
for their review have not been established.
    The first two of these measures have been developed by and are 
maintained by The Joint Commission (TJC) (the measure steward) and the 
third measure has been developed by and is maintained by the National 
Committee for Quality Assurance (NCQA) (the measure steward). These 
measures are appropriate for the purposes of assessing the quality of 
inpatient psychiatric services and align with the National Quality 
Strategy goals of promoting effective prevention and treatment 
practices (clinical quality of care), and promoting effective 
communication and coordination of care. Technical specifications for 
measures ``SUB-1: Alcohol Use Screening'' and ``SUB-4: Alcohol & Drug 
Use: Assessing Status After Discharge'' can be found on the TJC Web 
site at: https://manual.jointcommission.org/bin/view/Manual/WebHome. 
Technical specifications for the measure ``Follow-Up After 
Hospitalization for Mental Illness'' (FUH) (NQF 0576) can 
currently be found on the NCQA Web site at: http://www.ncqa.org/portals/0/Follow-Up%20After%20Hospitalization%20for%20Mental%20Illness.pdf.
    The three proposed measures for FY 2016 and subsequent years are 
described in more detail below.
(1) SUB-1: Alcohol Use Screening (NQF Review Pending)
    Individuals with mental health conditions experience substance use 
disorders (SUDs) at a much higher rate than the general population. 
Individuals with the most serious mental illnesses have the highest 
rates of such disorders. Co-occurring SUDs often go undiagnosed and, 
without treatment, contribute to a longer persistence of disorders, 
poorer treatment outcomes, lower rates of medication adherence, and 
greater impairments to functioning. Accordingly, this proposed measure, 
and the one immediately following, are intended to assess efforts by 
IPFs to screen for the most common type of such disorder, alcohol 
abuse, and to follow up after discharge with individuals who screen 
positive for

[[Page 50891]]

alcohol abuse or who received a diagnosis of alcohol or drug disorder 
during the inpatient stay.
    In late 2008, TJC received funding from the Partnership for 
Prevention and HHS' Substance Abuse and Mental Health Services 
Administration (SAMHSA) to develop, specify, and test standardized 
performance measures addressing alcohol screening and cessation 
counseling. Four alcohol/substance use performance measures were pilot 
tested in the spring/summer of 2010. The four alcohol/substance use 
measures (SUB measure set) were approved as a core measure set for use 
in TJC's accreditation programs (http://www.jointcommission.org/core_measure_sets.aspx). The SUB measures can be found in the TJC's 
Specification Manual for National Hospital Inpatient Quality Measures 
at: https://manual.jointcommission.org/bin/view/Manual/WebHome.
    The SUB-1: Alcohol Use Screening proposed measure assesses the 
number of patients 18 years of age and older who were screened for 
alcohol use using a validated screening questionnaire for unhealthy 
drinking during their inpatient stay, and is reported as a percentage. 
The numerator includes the number of patients who were screened for 
alcohol use using a validated screening questionnaire for unhealthy 
drinking. The denominator includes the number of hospitalized 
inpatients 18 years of age or older. Higher rates on the measure are 
indicative of better performance. The measure excludes the following 
populations: patients younger than 18, cognitively impaired patients, 
and patients admitted for less than 1 day or greater than 120 days.
    This measure is specified for collection through chart abstraction. 
We proposed the form, manner, and timing of collection in section 
IX.D.9. of the preamble of the proposed rule. Full specifications for 
this measure are available at: https://manual.jointcommission.org/bin/view/Manual/WebHome.
    The SUB-1: Alcohol Use Screening proposed measure meets the measure 
selection exception requirements for the IPFQR Program under 
1886(s)(4)(D)(ii) of the Act as discussed in Section 4 (Considerations 
in Selecting Quality Measures) of this rule. Although the proposed 
measure is not currently NQF-endorsed, we considered available measures 
that have been endorsed or adopted by a consensus organization and 
found no other feasible and practical measures on the topic of 
substance use disorder screening for the inpatient population.
    We invited public comment on this proposed measure.
    Comment: Some commenters supported inclusion of the SUB-1 measure 
because it promotes effective treatment practices, effective 
communication, and care coordination, as well as the ability to address 
issues of substance abuse. These commenters supported the proposed 
start date of January 1, 2013. Another commenter supported adoption of 
the SUB-1 measure because it promotes effective treatment and best 
care. This commenter noted that data for this measure can be retrieved 
by facilities, thereby promoting a standard of care that is within the 
control of the organization. One commenter supported CMS' efforts in 
recognizing the clinical importance of routinely screening patients 
admitted for psychiatric conditions for risky alcohol use.
    Response: We thank the commenters for their support of our 
proposal. In response to the commenters who supported the adoption of 
the SUB-1 measure with a reporting start date as of January 1, 2013, we 
note that, as we stated in our proposal, the reporting start date for 
the FY 2016 payment determination is January 1, 2014, and not January 
1, 2013 as the commenters stated.
    Comment: One commenter agreed with CMS' proposal to add the SUB-1 
measure to the IPFQR Program, but urged that, since there has been no 
reliability determination for such measure, we allow for a period of 
public reporting before attaching measures to payment.
    Response: We thank the commenter for the recommendation. We note 
that the IPFQR Program is a pay-for-reporting and not a pay-for-
performance program. This means that IPFs that participate in the IPFQR 
Program and meet its requirements will receive full payment.
    Comment: Some commenters commended CMS for recognizing the clinical 
importance of routinely screening patients admitted to hospitals for 
psychiatric conditions for risky alcohol use. These commenters, 
however, also raised concerns regarding the fact that TJC's four 
substance use measures were developed and tested for use with all 
hospitalized patients, while the SUB-1 measure would only be used for 
IPF hospitals/units under the IPFQR Program.
    Response: We thank the commenters for their support. Although the 
SUB-1 measure was developed using all hospitalizations in general acute 
care, we believe that SUB-1 is equally applicable to freestanding IPFs 
and psychiatric units within acute care facilities because risky 
alcohol use is an area of high comorbidity for populations hospitalized 
in freestanding IPFs and populations hospitalized in psychiatric units 
of general acute care facilities just as it is for all hospitalized 
patients.
    Comment: Some commenters indicated that the SUB-1 measure should be 
adopted concurrently with SUB-2 (brief intervention) and SUB-3 
(treatment initiation) measures in the IPFQR Program because these 
measures are critical to providing quality care as screening and 
intervention significantly reduce health risks and generate cost-
savings. Commenters recommended that CMS add all four SUB measures 
because the measures are complementary to each other and are meant to 
be used as an entire set by hospitals to evaluate four key processes 
related to substance use.
    Response: We thank the commenters for these suggestions for future 
consideration. We did not elect to adopt both of the suggested measures 
at this time due to concerns regarding the burden of chart-abstraction 
should both the SUB-1 and SUB-4 measures be adopted. However, we will 
consider whether this is still the case during future rulemaking 
cycles.
    Comment: One commenter sought clarification on the kind of 
instrument to be used for alcohol screening with SUB-1.
    Response: There is no specific instrument specified by the measure. 
We believe that the assessment tool used may vary depending on age and 
other characteristics of the patient. We refer readers to the following 
document published by the National Institute on Alcohol Abuse and 
Alcoholism (NIAAA) which lists commonly used screening and assessment 
instruments, along with their scientific properties: http://pubs.niaaa.nih.gov/publications/AssessingAlcohol/index.pdf.
    Comment: One commenter opposed inclusion of the proposed SUB-1 
measure because collecting data for such measure would require 
expenditure of significant resources from the facility because TJC does 
not collect data for this measure. Another commenter indicated that it 
does not have the capacity to report the SUB-1 measure because it does 
not collect or report such data to TJC.
    Response: While IPFs may not currently be collecting this measure, 
we believe that our implementation timeline will allow sufficient time 
for facilities to make the necessary infrastructure changes to begin 
collecting and reporting the measure. In addition, although this 
measure would add burden, we do not believe that the

[[Page 50892]]

burden concerns override the importance of collecting information on 
such a measure. As we noted in this preamble, individuals with mental 
health conditions experience substance use disorders (SUDs) at a much 
higher rate than the general population. We also note that individuals 
abusing alcohol comprise a subset of all individuals with mental health 
conditions with SUDs. Individuals with the most serious mental 
illnesses have the highest rates of such disorders. Co-occurring SUDs 
often go undiagnosed and, without treatment, contribute to a longer 
persistence of disorders, poorer treatment outcomes, lower rates of 
medication adherence, and greater impairments to functioning. The SUB-1 
measure is intended to assess efforts by IPFs to screen for the most 
common type of such disorder, alcohol abuse, during the inpatient stay. 
Accordingly, we believe that the commenters' burden concerns are 
outweighed by the important role that such measure plays in patient 
quality of care.
    Comment: Some commenters opposed the inclusion of the proposed SUB-
1 measure because they believe that using a validated alcohol use 
screening tool in an acute care, short-term treatment setting is 
challenging and implies an IPF's ability to establish a treatment 
option, which potentially may not be available in the aftercare 
setting.
    Response: We do not agree that use of an alcohol use screening tool 
in acute care would be challenging because we have previously 
implemented similar screening measures for other topics (such as 
tobacco use) in the acute care settings, and did not receive reports of 
implementation challenges in putting them in place. As we noted in the 
description of SUB-1, individuals with mental health conditions 
experience SUDs at a much higher rate than the general population, and 
individuals with the most serious mental illnesses have the highest 
rates of such disorders. The failure to identify and treat SUDs 
potentially contributes to a longer persistence of disorders, poorer 
treatment outcomes, lower rates of medication adherence, and greater 
functional impairment. Accordingly, assessment of such disorders is an 
important part of quality treatment planning in the IPF setting. 
Further, discharge planning, care coordination, and follow-up after 
hospitalization are critical in sustaining effective treatment that has 
begun in the acute care setting. The possibility that necessary 
treatment options may not exist in some circumstances does not justify 
a failure to assess the need for them.
    Comment: Some commenters disagreed with the definition of the SUB-1 
measure and argued that, although blood alcohol level is equivalent to 
screening for unhealthy alcohol use, one instance of excessive drinking 
does not require post-hospitalization for alcohol treatment.
    Response: We disagree with the commenter. We do not believe that a 
blood alcohol level is equivalent to screening, or that it is 
sufficient to assess unhealthy alcohol use--chronic or otherwise. The 
measure is a screening measure, and therefore does not assess the need 
for or require post-hospitalization treatment.
    Comment: Some commenters urged CMS not to finalize the SUB-1 
measure because it has not been endorsed by the NQF or supported by the 
MAP.
    Response: The MAP's assessment of SUB-1 was ``support direction.'' 
Recommendation of the measure by the MAP is contingent upon NQF 
endorsement. We note that at a recent meeting (June 2013), the NQF 
Behavioral Health Steering Committee recommended NQF endorsement of the 
SUB-1 measure.
    Comment: Some commenters opposed finalizing the SUB-1 measure 
because they considered it to be very limited relative to the needs of 
hospitalized psychiatric patients as this measure does not include: (1) 
Patients who are using/abusing other substances; (2) what period of 
use/abuse is being assessed; and (3) patients under 18 years of age. In 
addition, these commenters argue that the measure does not specify when 
the screening should be completed, whether IPFs should request data 
from collateral sources, or the clinical credentials of the persons 
permitted to complete the screening. These commenters recommended using 
the HBIPS-1 measure instead because it contains a requirement for all 
psychoactive substance use screening, in addition to alcohol use 
screening, and covers the last 12 months of each patient's life. In 
addition, IPFs have been using this measure since 2010.
    Response: We believe that adoption of this measure will allow 
future alignment in the general acute care setting. This alcohol use 
screening measure is the first screening measure adopted by this 
program for psychiatric inpatients, and represents an important first 
step for this program. We recognize that the SUB-1 measure only 
assesses alcohol use, and that screening for risky use/abuse of other 
substances would be also be desirable. We intend to incorporate 
substance use measures into the program in the future. We also clarify 
that the SUB-1 measure does not require the collection of data from 
collateral sources, or credentialing requirements. The primary focus of 
the measure is to screen inpatients for unhealthy drinking. We also 
agree that it may be preferable to include screening measures with a 
broader age range and a distinct period during the inpatient stay 
during which screening is performed. As suggested by commenters, we 
will consider the HBIPS-1 measure as well as other substance use 
screening measures for future rulemaking cycles.
    Comment: One commenter did not support the SUB-1 measure because it 
believed that CMS should not add chart-abstracted measures during the 
transition to electronic measures.
    Response: We support the adoption of EHRs, and will in the future 
adopt electronic measures. In the interim, however, we think that there 
is an immediate need to capture the quality of care provided to mental 
health patients. Therefore, while we do not disagree with the commenter 
in principle, we believe that the current needs of measuring quality of 
care in the IPF setting cannot wait until a later time.
    After consideration of the public comments we received, we are 
finalizing this measure as proposed for the FY 2016 payment 
determination and subsequent years.
(2) SUB-4: Alcohol and Drug Use: Assessing Status After Discharge (NQF 
Review Pending)
    The SUB-4: Alcohol and Drug Use proposed measure assesses whether 
discharged patients are contacted between 7 and 30 days after hospital 
discharge in order to collect post-discharge follow-up information 
regarding their alcohol or drug use status. The measure applies to 
patients 18 years of age or older who screened positive for alcohol 
abuse, or who received a diagnosis of alcohol or drug disorder during 
their inpatient stay. The numerator includes the number of discharged 
patients that are contacted between 7 and 30 days after hospital 
discharge and follow-up information regarding alcohol or drug use 
status is collected. The denominator includes the number of discharged 
patients 18 years of age and older who screened positive for alcohol 
abuse or who received a diagnosis of alcohol or drug use disorder 
during their hospital stay. Higher rates on the measure are indicative 
of better performance.
    The following patients are excluded from the measure:
     Patients less than 18 years of age;
     Patients who are cognitively impaired;

[[Page 50893]]

     Patients who were not screened or refused to be screened 
for alcohol use;
     Patients who expired;
     Patients who have a duration of stay less than or equal to 
1 day or greater than 120 days;
     Patients who do not screen positive for alcohol abuse;
     Patients discharged to another hospital;
     Patients who left against medical advice;
     Patients discharged to another health care facility;
     Patients discharged to home or other health care facility 
for hospice care;
     Patients who do not reside in the United States;
     Patients who do not have a phone or cannot provide any 
contact information;
     Patients discharged to a detention facility, jail, or 
prison; and
     Patients who are readmitted within the follow-up time 
frame.
    This measure is specified for collection through chart abstraction. 
We proposed the form, manner, and timing of collection in section 
IX.D.9. of the preamble of the proposed rule. Full specifications for 
this measure are available at: https://manual.jointcommission.org/bin/view/Manual/WebHome.
    The SUB-4: Alcohol and Drug Use: Assessing Status After Discharge 
proposed measure meets the measure selection exception requirements for 
the IPFQR Program under section 1886(s)(4)(D)(ii) of the Act as 
discussed in section IX.D.4. of the preamble of the proposed rule. 
Because this measure is not currently NQF-endorsed, we considered other 
available measures that have been endorsed or adopted by a consensus 
organization. We found no other feasible and practical measures on the 
topic of post-discharge alcohol and drug assessment for inpatients who 
screened positive for substance abuse.
    We invited public comment on this proposed measure.
    Comment: Some commenters opposed the addition of the proposed SUB-4 
measure for the following reasons:
     They believed that there would be no added benefit to 
patients because hospital staff are unable to answer patients' clinical 
questions once patients leave the hospital.
     They believed the measure to be beyond the scope of 
psychiatric hospitals' responsibility.
     They argued that many free-standing psychiatric facilities 
do not currently submit the data to TJC, thus, making data collection 
burdensome.
     They asserted that sampling requirements for the measure 
are incompatible with those of the HBIPS measures.
     They asserted that measure collection will require hiring 
and training new employees.
     They believed that measure collection will require release 
of information forms.
     They believed that because the measure excludes patients 
under 18 years of age, it may be of limited utility.
     They argued that the measure will be financially 
burdensome to IPFs.
     They argued that IPFs have limited or no contact 
information for some patients because IPF patients are a highly mobile 
population and temporary addresses pose difficulties for conducting 
follow-up.
    Response: We thank the commenters for articulating their concerns 
regarding this measure. We are aware that for some IPFs, this measure 
requires a process for following up with individuals with substance use 
disorders (SUDs) that may not now be in existence. Further, we are 
sensitive to the difficulties that may be created concerning 
differences between this measure and the other follow-up measure we 
proposed--the Follow-Up After Hospitalization for Mental Illness (FUH) 
measure. Most importantly, while the FUH measure only requires 
assessment of whether discharged patients with mental illness had 
contact with a specialty provider immediately after discharge, this 
measure requires contacting and obtaining clinically-related 
information from the patients themselves, a more difficult standard to 
meet. We recognize the burden to both facilities and patients to 
report, collect, and submit this information needed to report SUB-4 to 
CMS. We also considered calculating SUB-4 using Medicare claims and 
believe that this approach is not appropriate for this measure, since 
detailed information about the patient's follow-up visit necessary to 
calculate SUB-4 is not collected on Medicare claims. Accordingly, we 
are not finalizing this measure for the IPFQR Program at this time. We 
nevertheless will continue to explore the development and adoption of 
measures that assess the status and treatment of all patients in the 
period immediately following discharge, including those with SUDs.
    Comment: Some commenters supported inclusion of the SUB-4 measure 
because it promotes effective treatment practices, effective 
communication, and care coordination, as well as addressing substance 
abuse issues. These commenters supported the proposed start date.
    Some commenters were supportive of the CMS proposal, but also 
offered suggestions to risk-adjust the SUB-4 measure to: (1) Prevent 
discrepancies in performance resulting from differences in patient 
demographics; and (2) to allow for public reporting prior to attaching 
measures to reimbursement since there has been no reliability 
determination for this measure. One commenter urged CMS to exclude 
halfway houses and voluntary community locations of care from this 
measure because these facilities are not healthcare facilities. Some 
commenters commended CMS for recognizing the clinical importance of 
routinely screening patients admitted to hospitals for psychiatric 
conditions for risky alcohol use, but raised concerns over the fact 
that TJC's four substance use measures were developed and tested for 
use with all hospitalized patients and SUB-4 would only be used for IPF 
hospitals/units for the IPFQR Program.
    Some commenters urged CMS to concurrently include SUB-2 (brief 
intervention) and SUB-3 (treatment initiation) with SUB-4 in the IPFQR 
final rule because these measures are critical to providing quality 
care as screening and intervention significantly reduce health risks 
and generate cost-savings. The commenters recommended that CMS add all 
four SUB measures because the measures are complementary to each other 
and are meant to be used as an entire set by hospitals to evaluate four 
key processes related to substance use.
    Response: We thank the commenters for supporting our proposal to 
adopt SUB-4. However, we are not finalizing the SUB-4 measure for the 
IPFQR Program at this time for the reasons we have described above. We 
will refer the measure refinement suggestions to the measure steward, 
and will consider the additional measures recommended by the commenters 
for future rulemaking.
    After consideration of the public comments we received, we are not 
finalizing the SUB-4 measure for the FY 2016 payment determination and 
subsequent years.
(3) Follow-Up After Hospitalization for Mental Illness (FUH) (NQF 
0576)
    Mental illness accounts for a very large disease burden and it is 
estimated that half of first-time psychiatric patients are readmitted 
within two years of hospital discharge. Continuity of treatment and 
appropriate follow-up care and management of chronic diseases, such as 
mental illnesses, are known to reduce the risk of repeated 
hospitalizations. Proper follow-up treatment for psychiatric 
hospitalization

[[Page 50894]]

can lead to improved quality of life for patients, families, and 
society as a whole.
    The Follow-Up After Hospitalization for Mental Illness measure 
assesses the percentage of discharges for patients 6 years of age and 
older who were hospitalized for treatment of selected mental health 
disorders, and who subsequently had an outpatient visit or an intensive 
outpatient encounter with a mental health practitioner, or received 
partial hospitalization services. The measure separately identifies the 
percentage of patients who received follow-up within 7 and 30 days of 
discharge. The detailed technical specifications for this measure can 
be found at: http://www.ncqa.org/portals/0/Follow-Up%20After%20Hospitalization%20for%20Mental%20Illness.pdf.
    The measure is specified by the steward for either collection 
through chart abstraction or calculation using claims-based data. We 
considered using claims-based data for patients discharged from IPFs to 
calculate the measure, and in the FY 2014 IPPS/LTCH PPS proposed rule 
(78 FR 27738), we welcomed public feedback on this approach. However, 
we proposed to collect chart-abstracted data for this measure in order 
to maintain consistency with the approach used for existing measures in 
the IPFQR Program, and solicited comment on this proposal. We also 
considered using claims-based data for patients discharged from IPFs to 
calculate the measure, and welcomed public feedback on this alternative 
approach. We proposed the form, manner, and timing of collection in 
section IX.D.9. of the preamble of the proposed rule.
    The Follow-Up After Hospitalization for Mental Illness (FUH) 
proposed measure meets the measure selection criteria under section 
1886(s)(4)(D)(i) of the Act, because it is NQF-endorsed.
    We invited public comment on this proposed measure.
    Comment: Some commenters supported inclusion of the FUH measure 
because it promotes effective treatment practices, effective 
communication, and care coordination, as well as provides the ability 
to address issues of substance abuse. These commenters supported the 
proposed start date. Another commenter supported the FUH measure and 
indicated that it has used it with some success to refer patients to 
the next level of care. This commenter stated that case management is 
needed for this measure. One commenter stated that the data for this 
measure could be retrieved by facilities, thereby promoting a standard 
of care that is within the control of the organization. One commenter 
expressed concern that 7-30 days is not sufficient time for the FUH 
measure, especially in rural hospitals where access to specialty 
physicians is limited, thus making it difficult for patients to see the 
physicians within 30 days of discharge. One commenter suggested CMS 
require a uniform tool for collecting post-discharge information for 
the FUH measure so that outcomes can be appropriately compared.
    Response: We thank the commenters for supporting our proposal to 
implement this measure in the IPFQR Program. We agree that effective 
treatment is sustained and enhanced through case management activities 
such as care coordination, provider communication, and follow up after 
discharge. We may consider case management-related measures in the 
future. The timeframe specified by this measure is a consensus-based 
timeframe within which initial follow-up should occur. A specialty 
physician is not required for the follow-up visit, and so rural 
hospitals should not be adversely affected. We will consider for future 
rulemaking the suggestion that we require a uniform tool for collecting 
post-discharge information for this measure.
    Comment: A number of commenters sought clarification on the patient 
population criteria and exceptions and expressed other concerns about 
the measure. One commenter inquired whether the FUH measure applies to 
a patient enrolled in a Medicare Advantage plan with an insurance 
carrier that is fully at risk. One commenter inquired whether the FUH 
measure excludes patients who have been discharged to a non-CMS 
reimbursable service such as an intermediate care facility for 
individuals with mental retardation (ICF-MR), residential facility, 
group home, or jail, or when the patient is readmitted. Another 
commenter requested that CMS consider excluding homeless patients from 
the FUH measure. Another commenter requested information regarding how 
homeless patients or patients in shelters or boarding homes should be 
contacted. Another commenter indicated that the FUH measure is not 
appropriate for the ``forensic'' patient population because it is not 
possible to track these patients once they are released from jail.
    One commenter recommended risk-adjusting the FUH measure to prevent 
discrepancies in performance resulting from differences in patient 
demographics. One commenter requested clarification about who is 
responsible for initiating follow-up for patients discharged from an 
acute care facility to an extended treatment facility for drugs and 
alcohol. This commenter was concerned that a patient who is currently 
being treated in an extended treatment program may have restricted 
contact. One commenter indicated that because a visit on the day of 
discharge is acceptable to meet the FUH measure requirements, adopting 
the measure may result in IPFs using same-day visits to meet the 
requirements of the measure rather than encouraging IPFs to coordinate 
care closely for follow-up treatment. One commenter noted that patients 
who are not involuntarily committed and make the decision to leave 
should not reflect poorly on the hospital.
    Response: The FUH measure includes persons discharged to an 
ambulatory care setting/home (including homeless beneficiaries, and 
those discharged to a residential facility or group home). However, the 
IPF patient population criteria and exceptions for the IPF FUH measure 
would apply to these discharges. Therefore, we would exclude those 
Medicare FFS beneficiaries who are transferred to another inpatient or 
institutional setting (for example, another hospital, IPF, Skilled 
Nursing Facility, ICF-MR, nursing home, jail/prison). Regarding partial 
hospitalization or outpatient chemical dependency programs, these 
services are not considered inpatient discharges, but rather are 
outpatient services; and thus, are not part of IPF PPS or the IPFQR 
Program. In addition, Medicare Advantage beneficiaries are not included 
in the Medicare FFS program; therefore Medicare Advantage beneficiaries 
are excluded from the FUH measure. The measure does not focus on the 
forensic population, and since treatment of that population is covered 
by the State rather than Medicare, these patients would not be included 
in the measure.
    We currently have no indication that same-day visits will be 
employed to a greater extent to meet the measure requirement once the 
measure is adopted, but we will monitor the measure for unintended 
consequences and changes in utilization patterns. We feel that certain 
disposition codes (involuntary commitment, left against medical advice) 
may be used improperly should we exclude these discharges from the 
measure, but will examine this issue further as well. We will consider 
the suggestions for additional exclusions and for risk adjustment of 
the IPF FUH measure.
    Comment: A few commenters opposed the addition of the proposed

[[Page 50895]]

FUH measure because it was perceived to be incompatible with the 
existing HBIPS measures. Some commenters stated that the FUH measure is 
incompatible with existing HBIPS measures because it requires follow-up 
at 7 and 30 days, whereas the timeframe for HBIPS is 12 months. The 
commenters were also concerned that sampling is not allowed for the FUH 
measure, but is allowed for the HBIPS measures. The commenters believed 
these differences will impose burdens on facilities.
    Response: We do not believe that the FUH measure is incompatible 
with the HBIPS measure. We believe that the commenters misinterpreted 
the collection and submission requirements for the HBIPs measures 
currently in the IPFQR Program. Data for the HBIPS measures currently 
included in the IPFQR Program (HBIPS 2 through 7) are collected 
quarterly by IPFs. This information is then submitted to CMS once every 
12 months via QualityNet. We acknowledge that the FUH measure's lack of 
sampling may pose a burden, and in response to concerns about burden, 
we are finalizing the adoption of this measure as a claims-based 
measure.
    Comment: Some commenters opposed the addition of the FUH measure 
because it is specified for use by health plans and not IPFs. 
Therefore, these commenters argued that requiring IPFs to provide such 
data would impose great burden because they would need to develop 
systems to capture such data. Other commenters stated that psychiatric 
hospitals do not have such data. Some commenters indicated that 
collecting information for this measure raises confidentiality concerns 
and increases the risk of liability for hospitals. Other commenters 
argued that the FUH measure would require IPFs to put forth additional 
efforts to obtain Release of Information forms prior to patient 
discharge. Some commenters opposed the FUH measure because it would 
require psychiatric hospitals to reach out to aftercare providers to 
obtain the information needed for the measure, and thus impose a burden 
on IPFs. One commenter noted that the burden is further exacerbated 
because the measure specifications do not allow for sampling.
    One commenter noted that patients, rather than IPFs, should take 
the lead in their follow-up care. Another commenter stated that IPFs 
could not be responsible for what patients do post-discharge. This 
commenter also noted that this measure is problematic because it relies 
on patients being honest about their follow-up care. One commenter 
recommended that CMS use claims/administrative data for the FUH 
measure.
    Response: Because we are finalizing this measure as claims-based 
instead of chart-abstracted as we had initially proposed, IPFs would 
not need to obtain any sort of release of information form. These forms 
are not a requirement of the IPFQR Program or CMS, but we are aware 
that many IPFs obtain them to comply with State, HITECH, and HIPAA 
requirements, in order to contact aftercare providers to obtain 
information on patient follow-up care status. Based upon the public 
comments received above regarding burden and privacy concerns for FY 
2016 payment determination and subsequent years, we are finalizing the 
FUH measure with a change in order to alleviate these concerns. We will 
calculate the measure using Part A and Part B claims data that are 
already received by Medicare for payment purposes. This approach 
requires no additional data collection or reporting by IPFs. However, 
in the future, we will consider transitioning this measure to chart-
abstracted data collection, and will take these comments into account 
should we do so.
    After considering the public comments we received, we are 
finalizing the FUH measure as a claims-based measure because we believe 
it will reduce the burden to IPFs since we will calculate this measure 
by linking Medicare FFS claims submitted by IPFs and subsequent 
outpatient providers for Medicare FFS IPF discharges.
    In summary, we are retaining all six of the chart-abstracted 
measures previously adopted for the FY 2014 payment determination and 
subsequent years. We are not removing or replacing any of the 
previously adopted measures from the IPFQR Program or adding any new 
measures to the IPFQR Program for the FY 2015 payment determination and 
subsequent years.
    For the FY 2016 payment determination and subsequent years, we are 
adding one new chart-abstracted measure for the IPFQR Program: SUB-1: 
Alcohol Use Screening (NQF review pending) as proposed. We are also 
adding another new measure: Follow-Up After Hospitalization for Mental 
Illness (FUH) (NQF 0576) with a change that data collection be 
claims-based. This change will apply to the FY 2016 payment 
determination and subsequent years, unless we change it through future 
rulemaking.
    We are finalizing the collection requirements for these measures in 
section IX.D.9. of the preamble of this final rule. The table below 
lists the previously adopted measures for the FY 2014 payment 
determination and subsequent years and the additional measures for the 
FY 2016 payment determination and subsequent years.

    Previously Adopted Quality Measures and Quality Measures Adopted in This Final Rule for the IPFQR Program
----------------------------------------------------------------------------------------------------------------
 National Quality Strategy Priority            NQF No.                Measure ID          Measure description
----------------------------------------------------------------------------------------------------------------
Patient Safety.....................  0640......................  HBIPS-2              Hours of Physical
                                                                                       Restraint Use.*
                                     0641......................  HBIPS-3              Hours of Seclusion Use.*
Clinical Quality of Care...........  0552......................  HBIPS-4              Patients Discharged on
                                                                                       Multiple Antipsychotic
                                                                                       Medications.*
                                     0560......................  HBIPS-5              Patients Discharged on
                                                                                       Multiple Antipsychotic
                                                                                       Medications with
                                                                                       Appropriate
                                                                                       Justification.*
Care Coordination..................  0557......................  HBIPS-6              Post-Discharge Continuing
                                                                                       Care Plan Created.*
                                     0558......................  HBIPS-7              Post-Discharge Continuing
                                                                                       Care Plan Transmitted to
                                                                                       Next Level of Care
                                                                                       Provider Upon Discharge.*
Clinical Quality of Care...........  Review Pending............  SUB-1                Alcohol Use Screening.**
                                     0576......................  FUH                  Follow-Up After
                                                                                       Hospitalization for
                                                                                       Mental Illness.**
----------------------------------------------------------------------------------------------------------------
* Previously adopted quality measures for the FY 2014 payment determination and subsequent years.
** New quality measures adopted in this final rule for the FY 2016 payment determination and subsequent years.


[[Page 50896]]

c. Maintenance of Technical Specifications for Quality Measures
    We will provide a user manual that will contain links to measure 
specifications, data abstraction information, data submission 
information, a data submission mechanism known as the Web-based Measure 
Tool, and other information necessary for IPFs to participate in the 
IPFQR Program. This manual will be posted on the QualityNet Web site 
at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=1228772250192. We will maintain the technical specifications for the quality 
measures by updating this manual periodically and including detailed 
instructions for IPFs to use when collecting and submitting data on the 
required measures. These updates will be accompanied by notifications 
to IPFQR Program participants, providing sufficient time between the 
change and effective dates in order to allow users to incorporate 
changes and updates to the measure specifications into data collection 
systems.
    Many of the quality measures used in different Medicare and 
Medicaid reporting programs are NQF-endorsed. As part of its regular 
maintenance process for NQF-endorsed performance measures, the NQF 
requires measure stewards to submit annual measure maintenance updates 
and undergo maintenance of endorsement review every 3 years. In the 
measure maintenance process, the measure steward (owner/developer) is 
responsible for updating and maintaining the currency and relevance of 
the measure and will confirm existing or minor specification changes 
with NQF on an annual basis. NQF solicits information from measure 
stewards for annual reviews, and it reviews measures for continued 
endorsement in a specific 3-year cycle.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53652), we stated 
that the NQF regularly maintains its endorsed measures through annual 
and triennial reviews, which may result in the NQF making updates to 
the measures. We believe that it is important to have in place a 
subregulatory process to incorporate nonsubstantive updates made by the 
NQF into the measure specifications we have adopted for the IPFQR 
Program so that these measures remain up-to-date.
    Through NQF's measure maintenance process, NQF endorsed measures 
are sometimes updated to incorporate changes that we believe do not 
substantially change the nature of the measure. We believe these types 
of maintenance changes are distinct from more substantive changes to 
measures that result in what are considered new or different measures, 
and that they do not trigger the same agency obligations under the 
Administrative Procedure Act.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53653), we adopted a 
policy to use a subregulatory process to make nonsubstantive updates to 
NQF-endorsed measures used for the IPFQR Program. We also stated that 
we expected to make the determination of what constitutes a substantive 
versus a nonsubstantive change on a case-by-case basis, and provided 
examples of the types of changes that would fall into each category.
    Examples of nonsubstantive changes to measures might include 
updated diagnosis or procedure codes, medication updates for categories 
of medications, broadening of age ranges, and exclusions for a measure 
(such as the addition of a hospice exclusion to the 30-day mortality 
measures). We believe that non-substantive changes may include updates 
to NQF-endorsed measures based upon changes to guidelines upon which 
the measures are based. As stated in the FY 2013 IPPS/LTCH PPS final 
rule, we will revise the Specifications Manual so that it clearly 
identifies the updates and provide links to where additional 
information on the updates can be found. We also will post the updates 
on the QualityNet Web site at https://www.QualityNet.org. We will 
provide sufficient lead time for facilities to implement the changes 
where changes to the data collection systems would be necessary.
    We will continue to use rulemaking to adopt substantive updates 
made by the NQF to the endorsed measures we have adopted for the IPFQR 
Program. Examples of changes that we might consider to be substantive 
would be those in which the changes are so significant that the measure 
is no longer the same measure, or when a standard of performance 
assessed by a measure becomes more stringent (for example: changes in 
acceptable timing of medication, procedure/process, or test 
administration). Another example of a substantive change would be where 
the NQF has extended its endorsement of a previously endorsed measure 
to a new setting, such as extending a measure from the inpatient 
setting to hospice.
    We believe that the policy finalized in the FY 2013 IPPS/LTCH PPS 
final rule adequately balances our need to incorporate non-substantive 
NQF updates to NQF-endorsed IPFQR Program measures in the most 
expeditious manner possible, while preserving the public's ability to 
comment on updates that so fundamentally change an endorsed measure 
that it is no longer the same measure that we originally adopted. We 
also note that the NQF process incorporates an opportunity for public 
comment and engagement in the measure maintenance process. These 
policies regarding what is considered substantive versus non-
substantive apply to all measures in the IPFQR Program.
6. Request for Voluntary Information--IPF Assessment of Patient 
Experience of Care
    As indicated previously, we strive to address each of the six 
priorities of the HHS National Quality Strategy in our quality 
reporting programs. One priority area currently unaddressed in the 
IPFQR Program is that of patient and family engagement and experience 
of care. We included on our ``List of Measures under Consideration for 
December 1, 2012,'' the measure ``Inpatient Consumer Survey of 
Inpatient Behavioral Healthcare Services'' (NQF 0726). The MAP 
provided input on this measure supporting its inclusion in the IPFQR 
Program.
    We believe that while the specific survey instrument incorporated 
in that measure addressed an important area of quality care, and in the 
FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27740), we did not propose 
to adopt the measure at this time because of several issues. These 
issues include potential reporting and information collection burdens 
in a new program, and compatibility with the content and format of 
other similar CMS beneficiary surveys. We intend to pursue the adoption 
of a standardized measure of patient experience of care for the IPFQR 
Program in the near future.
    In an effort to proceed cautiously with the selection of an 
assessment instrument and collection protocol, we instead proposed to 
collect information from IPFs participating in the IPFQR Program 
regarding whether the IPF assesses patient experience of inpatient 
behavioral health services using a standardized instrument (Yes/No). We 
would also ask those IPFs that answer ``Yes'' to indicate the name of 
the survey that they administer. Submission of this information would 
be voluntary and would not affect an IPF's FY 2016 payment 
determination.
    We will use information we collect from this request for voluntary 
information to assess readiness of IPFs to report patient experience of 
care

[[Page 50897]]

measure data in the IPFQR Program. We intend to propose to make this 
request for voluntary information a mandatory measure in future 
rulemaking.
    Section IX.D.9. of the preamble of the proposed rule, which covered 
the form, manner, and timing of data submissions, included our proposal 
for collection requirements that would apply to any information IPFs 
voluntarily submit. Section X.D.9. of the preamble of the proposed rule 
also included more information about the request for voluntary 
information.
    We welcomed comments on this approach as well as recommendations 
concerning future measurement of this domain, including recommendations 
of specific instruments for surveying patient and family engagement and 
experience of care in inpatient psychiatric settings.
    Comment: Some commenters supported CMS' efforts to implement a 
patient experience of care survey and offered to assist CMS to find 
patient experience of care measures that are appropriate for 
psychiatric settings. One commenter indicated that it is difficult to 
obtain experience of care information from geriatric psychiatric 
patients suffering from dementia and recommended using a readmission 
measure to assess whether the patient has improved. One commenter 
requested that when CMS selects a patient experience of care measure, 
it consider excluding patients committed involuntarily, because their 
views will be negatively influenced by the involuntary commitment. Some 
commenters urged CMS to work with stakeholders before implementing this 
measure to understand further the opportunities and challenges of 
various survey tools. Other commenters indicated that they developed 
their own surveys after determining that some of the questions in the 
NRI survey were not relevant to their patient population.
    Response: We recognize the challenges of measuring patient 
experience of care, particularly for involuntary cases and geriatric 
psychiatric patients suffering from dementia. We also recognize that 
IPFs may have developed their own survey instruments, and we seek to 
learn more about these instruments prior to requiring collection of a 
patient experience of care survey for the IPFQR Program. For this 
reason, we seek to implement this request for voluntary information 
assessing whether IPFs currently assess patient experience of care, and 
to learn from the opportunities and challenges that our stakeholders 
have experienced.
    After consideration of the public comments we received, we will 
implement the Request for Voluntary Information--IPF Assessment of 
Patient Experience of Care.
7. Request for Recommendations for New Quality Measures for Future 
Years
    We seek to develop a comprehensive set of quality measures to be 
available for widespread use for informed decision-making and quality 
improvement in the inpatient psychiatric setting. Therefore, through 
future rulemaking, we intend to propose new measures that will help us 
further our goal of achieving better health care and improved health 
for Medicare beneficiaries who obtain inpatient psychiatric services, 
through the widespread dissemination and use of performance 
information.
    We plan to continue developing a comprehensive set of quality 
measures to be available for widespread use for informed decision-
making and quality improvement in IPFs. Accordingly, we are soliciting 
recommendations concerning future measures to assess the domains that 
arise from the six NQS priorities: clinical care; person- and 
caregiver-centered experience and outcomes; safety; efficiency and cost 
reduction; care coordination; and community/population health. This 
approach will enhance better psychiatric care while bringing the IPFQR 
Program in line with other established quality reporting and 
performance improvement programs who also aim to align with the NQS 
priorities such as the Hospital Inpatient Quality Reporting (IQR) 
Program, the Hospital Outpatient Quality Reporting (OQR) Program, the 
Hospital Value-Based Purchasing (VBP) Program, the End-Stage Renal 
Disease Quality Incentive Program (ESRD QIP), and other CMS quality 
programs. Recommendations for consideration of individual measures 
should address the importance of the measure, its scientific evidence, 
its relevance for quality improvement, and the feasibility of 
collection and reporting.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27740), we 
welcomed all recommendations related to any of the identified domains. 
However, we stated that we are particularly interested in measure and 
domain recommendations concerning: (1) Inpatient psychiatric treatment 
and quality of care of geriatric patients and other adults, 
adolescents, and children; (2) quality of prescribing for 
antipsychotics and antidepressants; (3) readmissions; (4) access to 
care; (5) screening for suicide and violence; and (6) screening and 
treatment for nonpsychiatric, comorbid conditions for which patients 
with mental or substance use disorders are at higher risk. In addition, 
we sought recommendations on any other measures related to patient 
experience of care and overall quality of care for IPFs.
    We welcomed public comment on considerations of additional measure 
topics for the IPFQR Program in future rulemaking.
    Comment: In response to our request for comments we received the 
following additional measure topic suggestions:
     Suicide screening and violence
     HBIPS-1
     SUB-2
     SUB-3
     Readmission
    Response: We thank the commenters for their suggestions for future 
measure selection. We will take them into consideration for the IPFQR 
Program.
8. Public Display Requirements for the FY 2014 Payment Determination 
and Subsequent Years
    Section 1886(s)(4)(E) of the Act requires the Secretary to 
establish procedures for making the data submitted under the IPFQR 
Program available to the public. Such procedures shall ensure that an 
IPF has the opportunity to review the data that is to be made public 
with respect to the IPF prior to such data being made public. In the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53653 through 53654), we finalized 
our procedures for the FY 2014 payment determination and subsequent 
years regarding public display. We previously finalized that the data 
collected under the IPFQR Program would be displayed on a CMS Web site 
and that public display would begin in the first quarter of the 
calendar year following the respective payment determination year (77 
FR 53654). Last year, we also finalized a 30-day preview period that 
would allow IPFs to review their data before it became public. The 
previously finalized preview period is September 20 through October 19 
of the respective payment determination year (77 FR 53654).
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27740 through 
27741), we proposed to change our finalized policies, however, in an 
attempt to align the IPFQR Program preview and display periods with 
that of the Hospital IQR Program. We proposed that for the FY 2014 
payment determination and subsequent years, we would publicly display 
the submitted data on a CMS Web site in April of each calendar year 
following the start of the respective payment determination year.

[[Page 50898]]

In other words, the public display period for the FY 2014 payment 
determination would be April 2014; the public display periods for the 
FY 2015 and FY 2016 payment determinations would be April 2015 and 
April 2016 respectively, and so forth.
    We also proposed that the preview period for the FY 2014 payment 
determination and subsequent years be modified to 30 days approximately 
twelve weeks prior to the public display of the data. This is to align 
with the Hospital IQR Program's preview and display periods and, as a 
result, reduce burden to facilities.
    We welcomed public comment on these proposals.
    Comment: Many commenters supported our proposal to align the IPFQR 
Program public reporting and display periods with that of the Hospital 
IQR Program (April of each calendar year) and agreed that it will give 
IPFs the opportunity to review the data that is to be made public prior 
to its being made so.
    Response: We thank commenters for their support.
    Comment: One commenter believed that publicly reported quality data 
should be updated more than once per year so that hospitals have more 
current data in order to develop and track quality improvement.
    Response: We agree with the commenter that continuous review of the 
most current data is important to quality improvement. At this time, 
however, we only require providers to input data for the IPFQR Program 
once per year. Thus, it is not operationally possible for us to post 
this data publicly on a quarterly basis. In addition, at this time, we 
do not believe it is appropriate for us to require data entry on a more 
frequent basis because this would impose a larger burden on IPFs. As 
IPFs become more comfortable with the program, however, the frequency 
of data entry may be less of a burden and may then be more appropriate. 
We will consider requiring reporting more than once per year and 
publicly reporting data on a more frequent basis for future rulemaking.
    After consideration of the public comments we received, we are 
finalizing the public display requirements for the FY 2014 payment 
determination and subsequent years as proposed. Set out below is a 
table that displays the new public display timeline. Although we have 
listed the public display timeline only for the FYs 2014 through 2016 
payment determinations, this policy applies to the FY 2014 payment 
determination and subsequent years.

    Public Display Timeline for the FY 2014 Payment Determination and
                            Subsequent Years
------------------------------------------------------------------------
Payment determination     Reporting period     Public display (calendar
  year (fiscal year)      (calendar year)                year)
------------------------------------------------------------------------
2014.................  Q4 2012 (October 1,    April 2014.
                        2012-December 31,
                        2012).
                       Q1 2013 (January 1,
                        2013-March 31, 2013).
2015.................  Q2 2013 (April 1,      April 2015.
                        2013-June 30, 2013).
                       Q3 2013 (July 1, 2013-
                        September 30, 2013).
                       Q4 2013 (October 1,
                        2013-December 31,
                        2013).
2016.................  Q1 2014 (January 1,    April 2016.
                        2014-March 31, 2014).
                       Q2 2014 (April 1,
                        2014-June 30, 2014).
                       Q3 2014 (July 1, 2014-
                        September 30, 2014).
                       Q4 2014 (October 1,
                        2014-December 31,
                        2014).
------------------------------------------------------------------------

9. Form, Manner, and Timing of Quality Data Submission for the FY 2014 
Payment Determination and Subsequent Years
a. Background
    Section 1886(s)(4)(C) of the Act requires that, for the FY 2014 
payment determination and each subsequent year, each IPF submit to the 
Secretary data on quality measures as specified by the Secretary. Such 
data shall be submitted in a form and manner, and at a time, specified 
by the Secretary. As required by section 1886(s)(4)(A) of the Act, for 
any IPF that fails to submit quality data in accordance with section 
1886(s)(4)(C) of the Act, the Secretary will reduce any annual update 
to a standard Federal rate for discharges occurring during such fiscal 
year by 2.0 percentage points. The complete data submission 
requirements, submission deadlines, and data submission mechanism, 
known as the Web-Based Measure Tool, is posted on the QualityNet Web 
site at: http://www.qualitynet.org/. The Web-Based Measure Tool is an 
Internet database for IPFs to submit their aggregate data. In the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53654 through 53658), we required 
that IPFs submit data in accordance with the specifications for the 
appropriate proposed reporting periods to the Web-Based Measures Tool 
found in the IPF section on the QualityNet Web site (http://www.qualitynet.org/).
b. Procedural Requirements
    In order to participate in the IPFQR Program, in the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53654 through 53655), we required IPFs to 
comply with certain procedural requirements. We have aligned these 
procedural requirements with the Hospital IQR Program to avoid imposing 
additional burden on providers and to increase efficiencies by virtue 
of allowing providers to use similar submission requirements across 
programs. Under these adopted policies, IPFs must--
     Register with QualityNet before the IPF begins reporting, 
regardless of the method used for submitting the 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 (NOP). IPFs that wish 
to participate in the IPFQR Program must complete an online NOP. 
Submission of a NOP is an indication that the IPF agrees to participate 
in the IPFQR Program and public reporting of their measure rates. The 
timeframe for completing the NOP is between January 1 and August 15 
before each respective payment determination year. For example, for the 
FY 2015 payment determination year, the timeframe for completing the 
NOP is between January 1, 2014 and August 15, 2014.
     Any IPF that receives a new CMS Certification Number (CCN) 
on or after the beginning of the respective payment determination year 
and wishes to participate in the IPFQR Program, but has not otherwise 
submitted a NOP using the new CCN, must submit a completed NOP no later 
than 180 days from the date identified as the open date (that is, the 
Medicare acceptance date)

[[Page 50899]]

on the approved CMS Quality Improvement Evaluation System to 
participate in the IPFQR Program.
     Withdrawals from the IPFQR Program will be accepted no 
later than August 15 before the beginning of each respective payment 
determination year. We believe the August 15 deadline will give us 
sufficient time to update payment determinations for each respective 
year. For example, under current policies, the withdrawal period for 
the FY 2015 payment determination year is between January 1, 2014 and 
August 15, 2014. If in a given payment determination year, an IPF 
withdraws from the program, it will receive a reduction of 2.0 
percentage points to that year's applicable percentage increase. Once 
an IPF has submitted an NOP, it is considered to be an active IPFQR 
Program participant until such time as the IPF submits a withdrawal 
form to CMS.
     We determine if an IPF has complied with our data 
submission requirements by validating each IPF's CCN and their 
aggregated data submission on the QualityNet Web site.
     IPFs must submit the aggregated numerator and denominator 
data for all age groups, for all measures, to avoid the 2.0 percentage 
point reduction.
c. Submission Requirements for the FY 2016 Payment Determination and 
Subsequent Years
    Currently, IPFs choosing to participate in the IPFQR Program must 
meet the specific data collection and submission requirements as 
described on the QualityNet Web site at http://www.qualitynet.org/ and 
by TJC, the HBIPS measure steward (77 FR 53655). As we indicated in the 
FY 2013 IPPS/LTCH PPS final rule, the specifications for the HBIPS 
measures can be found on the TJC Web site at: https://manual.jointcommission.org/bin/view/Manual/WebHome.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27741 through 
27742), for the FY 2016 payment determination, we proposed that, for 
the proposed chart-abstracted measures listed in the preamble of the 
proposed rule, participating IPFs meet the same specific data 
collection and submission requirements when reporting quality measure 
data. The specifications for the SUB-1 and SUB-4 measures can be found 
on the TJC Web site at: http://www.jointcommission.org/specifications_manual_for_national_hospital_inpatient_quality_measures.aspx. 
Please note, however, that we are not finalizing the SUB-4 measure in 
this rule. The specifications for the FUH measure are posted on the 
NCQA Web site at: http://www.ncqa.org/portals/0/Follow-Up%20After%20Hospitalization%20for%20Mental%20Illness.pdf. We note that 
for the FUH measure, based on comments we received, we are finalizing 
claims-based submission instead of chart-abstraction as we proposed; 
therefore, the chart-abstraction requirements described herein apply 
only to the SUB-1 measure.
    We finalized a policy in the FY 2013 IPPS/LTCH PPS final rule (77 
FR 53655 through 53656) requiring that IPFs submit aggregate data on 
measures on an annual basis via the Web-Based Measures Tool found in 
the IPF section on the QualityNet Web site. While this policy applies 
on an annual basis beginning in FY 2014, it is listed under a sub-
heading labeled ``Reporting and Submission Requirements for the FY 2014 
Payment Determination'' (77 FR 53655). To avoid reader confusion, we 
clarify that these reporting and submission requirements finalized in 
the FY 2013 IPPS/LTCH PPS final rule apply to all subsequent years 
unless we change our policy through future rulemaking. It is our intent 
to require that IPFs submit aggregate data on measures on an annual 
basis via the Web-Based Measures Tool found in the IPF section on the 
QualityNet Web site for the FY 2014 payment determination and 
subsequent years.
    The data input forms on the QualityNet Web site for such submission 
will require aggregate data for each separate quarter. Therefore, IPFs 
will need to track and maintain quarterly records for their data.
    Comment: One commenter objected to the submission deadline for the 
HBIPS measures, arguing that hospitals are not clear on expectations 
for data entry into the Web-based tool, which has yet to become 
operational. In addition, this commenter opposed the use of non-
validated data for pay-for-performance programs.
    Response: We would like to clarify that the IPFQR Program is a pay-
for-reporting and not, as the commenter indicated, a pay-for-
performance program. Last year, we finalized the measures amid 
overwhelming support from the public. We have held several Webinars 
listed on QualityNet to inform the public on program requirements. 
Although, as we noted, non-validated data may have some shortcomings, 
we believe that asking IPFs to acknowledge the accuracy and 
completeness of the data they submit will mitigate this problem. For 
more information, we refer readers to the IPFQR Program discussion in 
section VIII.F. of FY 2013 IPPS/LTCH PPS final rule (77 FR 53655 
through 53656).
    Comment: One commenter inquired whether Releases of Information 
forms are required to track data on behalf of CMS.
    Response: We thank the commenter for seeking clarification. We 
believe the commenter is asking whether a release of information form--
an institutional form that many hospitals require upon releasing 
sensitive patient information--is necessary for the IPFQR Program. The 
release of information form is not applicable to the IPFQR Program 
because we are collecting aggregate-level data, which do not contain 
sensitive patient information.
    Comment: Some commenters sought clarification as to how the 
specifications of the proposed Follow-Up After Hospitalization for 
Mental Illness measure, which require that the denominator list data 
for 11 months, align with our requirement that measures be reported by 
quarter. Some commenters sought clarification as to how the FUH measure 
would be converted since it is specified for annual and not monthly 
reporting.
    Response: As we have noted earlier in this preamble, based on 
comments received, we are finalizing the FUH measure with a change that 
it initially be collected as a claims-based measure, which will remove 
the need for IPFs to collect, calculate, and submit chart-abstracted 
data. We will calculate this measure utilizing Part A and Part B claims 
data, in accordance with measure specifications. To allow for the lag 
in claims submission, for the FY 2016 payment determination and 
subsequent years, we will calculate the measure for the period from 
July 1 of the year immediately preceding the reporting period for 
chart-abstracted measures to June 30 of the following year. Thus, the 
first FUH measure calculation period for the FY 2016 payment 
determination would be from July 1, 2013 to June 30, 2014.
    Comment: Some commenters sought clarification on whether separate 
rates would be expected for different payers for the FUH measure since 
the measure specifications require that the data reported is payer-
specific, whereas our proposal seeks data on ``all payers.''
    Response: As we have noted earlier in this rule, based on comments 
received, for the FY 2016 payment determination and subsequent years, 
we are finalizing the FUH measure with a change that it initially be 
collected as a claims-based measure. We will collect the data from 
Medicare Part A and Part B claims.

[[Page 50900]]

    Comment: One commenter inquired as to what will be accepted as 
``proof'' of follow-up for the FUH measure.
    Response: As we have noted earlier in this rule, based on comments 
received, we are finalizing the FUH measure with a change that it 
initially be collected as a claims-based measure; thus, there is no 
``proof'' of follow-up for the FUH submission requirements.
    Comment: One commenter opposed the addition of the proposed 
measures because developing, improving and testing the integrity of a 
data process can take up to a year. Another commenter recommended 
postponing the implementation of the newly proposed measures until FY 
2015 because these measures are new for many facilities and the data 
collection for the initial six measures only began in October 2012.
    Response: We note that, contrary what the commenter suggested 
above, the measures will first apply to the FY 2016 payment 
determination and that the reporting period does not start until 
January 1, 2014. Since we are only finalizing one new chart-abstracted 
measure, we believe that facilities will have sufficient time to 
prepare for data collection and submission.
    With respect to the NCQA's FUH measure, we proposed all-payer Web-
based collection to maintain consistency throughout the measures we 
have selected for the IPFQR Program, but welcomed comments for 
alternative forms of data submission. Based on the public comments we 
received, we are finalizing that for the FY 2016 payment determination 
and subsequent years we will collect FUH measure using claims-based 
data.
    After consideration of the public comments we received, we are 
finalizing the Submission Requirements for the FY 2016 Payment 
Determination and Subsequent Years policy for SUB-1 as proposed. For 
the FUH measure, we are finalizing a claims-based data collection and a 
reporting period for the FY 2016 payment determination and subsequent 
years, as illustrated for the FY 2016 payment determination in the 
table below.

   Reporting Period for the Follow-Up After Hospitalization for Mental
          Illness Measure for the FY 2016 Payment Determination
------------------------------------------------------------------------
Payment determination     Reporting period     Public display  (calendar
 year  (fiscal year)      (calendar year)                year)
------------------------------------------------------------------------
2016.................  July 1, 2013-June 30,  April 2016.
                        2014.
------------------------------------------------------------------------

    As noted earlier in the preamble, NQF 0726 ``Inpatient 
Consumer Survey of Inpatient Behavioral Healthcare Services'' is a 
patient experience measure covering information not measured by 
existing program measures. While we are not adopting NQF 0726 
at this time, we are finalizing our proposal to request voluntary 
information about survey administration, asking whether IPFs assess 
patient experience of inpatient behavioral health services using a 
standardized instrument. IPFs would only have to provide a ``yes'' or 
``no'' response. We will also ask those IPFs that answer ``yes'' to 
indicate which survey they administer. We proposed that this 
information be collected through a Web-Based Collection Tool.
    We invited public comment on the proposed submission requirements. 
We did not receive any comments on the submission proposals and are 
finalizing the requirement that facilities provide their voluntary 
information about survey administration via the Web-based tool as 
proposed.
d. Reporting Requirements for the FY 2016 Payment Determination and 
Subsequent Years
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53655 through 
53657), we established reporting periods and submission timeframes for 
the FY 2014, FY 2015, and FY 2016 payment determinations, but we did 
not require any data validation approach. However, we encouraged the 
IPFs to use a validation method and conduct their own analysis. Our 
recommendations remained the same in the FY 2014 IPPS/LTCH PPS proposed 
rule (78 FR 27742). In future years, should we modify the program to 
require patient-level data, we will consider proposals for an 
appropriate validation method using rulemaking.
    Although in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53655 
through 53657) we adopted policies for the FY 2014 payment 
determination and subsequent years, we only listed quality reporting 
periods and submission timeframes for the FY 2014, FY 2015, and FY 2016 
payment determinations. We explained that the reporting periods for the 
FY 2014 and FY 2015 payment determinations were 6 and 9 months, 
respectively, to allow us to achieve a 12 month (calendar year) 
reporting period for the FY 2016 payment determination. We also 
indicated that the submission timeframe is between July 1 and August 15 
within the same calendar year that marks the beginning of the 
appropriate payment determination year. We have included this 
information in the table below.

 Quality Reporting Periods and Submission Timeframes for the FY 2014 Payment Determination and Subsequent Years
----------------------------------------------------------------------------------------------------------------
                                   Reporting period for
    Payment determination      services provided  (calendar               Data submission timeframe
        (fiscal year)                      year)
----------------------------------------------------------------------------------------------------------------
2014.........................  Q4 2012 (October 1, 2012-     July 1, 2013-August 15, 2013.
                                December 31, 2012).
                               Q1 2013 (January 1, 2013-
                                March 31, 2013).
2015.........................  Q2 2013 (April 1, 2013-June   July 1, 2014-August 15, 2014.
                                30, 2013).
                               Q3 2013 (July 1, 2013-
                                September 30, 2013).
                               Q4 2013 (October 1, 2013-
                                December 31, 2013).
2016.........................  Q1 2014 (January 1, 2014-     July 1, 2015-August 15, 2015.
                                March 31, 2014).
                               Q2 2014 (April 1, 2014-June
                                30, 2014).
                               Q3 2014 (July 1, 2014-
                                September 30, 2014).

[[Page 50901]]

 
                               Q4 2014 (October 1, 2014-
                                December 31, 2014).
----------------------------------------------------------------------------------------------------------------

    To avoid reader confusion, we are reiterating that the policy we 
adopted for the FY 2016 payment determination also applies to the FY 
2017 payment determination and subsequent years, unless we change it 
through future rulemaking.
e. Population, Sampling, and Minimum Case Threshold for the FY 2016 
Payment Determination and Subsequent Years
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53657 through 
53658), for the FY 2014 payment determination and subsequent years, we 
finalized our policy that participating IPFs must meet specific 
population, sample size, and minimum reporting case threshold 
requirements as specified in TJC's Specifications Manual. We also 
indicated that the Specifications Manual for the measures is updated at 
least twice a year (and may be updated more often as necessary), and 
IPFs must follow the requirements in the most recent manual, which can 
be found on the TJC Web site at: https://manual.jointcommission.org/bin/view/Manual/WebHome.
    We also finalized our policy that the target population for the 
quality measures includes all patients, not solely Medicare 
beneficiaries, to improve quality of care. We believe it is important 
to require IPFs to submit measures on all patients because quality 
improvement is of industry-wide importance and should not be focused 
exclusively on a certain subset of patients. In addition, we need this 
scope of data in order to be able to assess the quality of care being 
provided to Medicare beneficiaries.
    We also finalized our policy that IPFs that have no data to report 
for a given measure must enter zero for the population and sample 
counts. For example, an IPF that has no hours of physical restraint use 
(HBIPS-2) to report for a given quarter is still required to submit a 
zero for its quarterly aggregate population for HBIPS-2 in order to 
meet the reporting requirement. We believe it is important for IPFs to 
submit data on all measures even when the population size for a given 
measure is zero or small because it provides us with the opportunity to 
identify, assess, and evaluate the baseline for the number of cases for 
each measure in future years. This will also assist us in determining 
the minimum case threshold for future years in the rule. In cases where 
the measure rates are calculated based on low caseloads, when the 
submitted data are publicly displayed on the QualityNet Web site, we 
will clearly note that the affected measure rates were calculated based 
on low caseloads that may affect the result.
    For the HBIPS measures, which we finalized in the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53657 through 53658), we will continue to apply 
our finalized policies for population, sampling, and minimum case 
threshold outlined above. For the measures we proposed for the FY 2016 
payment determination and subsequent years, we proposed that IPFs 
follow the sampling and population requirements as specified by the 
appropriate measure steward as outlined below.
    The most recent version of the Specifications Manual, including the 
sampling and population information for the SUB measures, can be found 
on the TJC Web site at: http://www.jointcommission.org/specifications_manual_for_national_hospital_inpatient_quality_measures.aspx. We 
note that IPFs are required to report data only for inpatient 
discharges treated by the IPF, not for acute care hospital discharges 
that are not treated and billed by the IPFs.
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27743), we 
proposed that there will be no sampling required for the FUH measure--
IPFs are expected to submit all data. We proposed that IPFs follow the 
population requirements outlined at: http://www.ncqa.org/portals/0/Follow-Up%20After%20Hospitalization%20for%20Mental%20Illness.pdf.
    We invited public comment on this proposal.
    Comment: Some commenters opposed the proposed FUH measure because 
it would require IPFs to reach out to aftercare providers to obtain the 
information needed for the measure, thus imposing a burden on 
psychiatric hospitals. One commenter noted that the burden is further 
exacerbated because the measure specifications do not allow for 
sampling.
    Response: As we have noted, based on comments received, we are 
finalizing the FUH measure with a change that it be collected initially 
as a claims-based measure, which removes the need for IPFs to collect, 
calculate and submit the data. IPF's are currently required to sign an 
IPFQR participation form that allows us to publicly report all IPFQR 
measures, including the FUH measure. However, as we consider 
transitioning this measure to a chart-abstracted measure in the future, 
we will take these comments into account.
    Comment: Some commenters opposed our proposal to add SUB-1 to the 
IPFQR Program because they believed that the specifications for SUB-1 
differ from those required for the HBIPS measures. For example, 
sampling requirements are different for SUB-1 and the HBIPS measures 
and chemical dependency units are included in the global population for 
SUB-1 but excluded from HBIPS. The commenters believed that these 
differences would require hospitals to modify their processes for data 
collection thus increasing the burden on facilities.
    Response: Although there may be sampling and population differences 
between SUB-1 and HBIPS measures that may require IPFs to modify their 
data collection processes, we believe that the important role that SUB-
1 plays in quality improvement far outweighs burden concerns. As we 
have explained in this preamble, individuals with mental health 
conditions experience substance use disorders (SUDs) at a much higher 
rate than the general population. Individuals with the most serious 
mental illnesses have the highest rates of such disorders. Co-occurring 
SUDs often go undiagnosed and, without treatment, contribute to a 
longer persistence of disorders, poorer treatment outcomes, lower rates 
of medication adherence, and greater impairments to functioning. 
Accordingly, we believe that SUB-1 plays an important role in assessing 
efforts by IPFs to screen for the most common type of such disorder, 
alcohol abuse.
    After consideration of the public comments we received, with 
respect to the SUB-1 measure, we are finalizing the reporting and 
submission

[[Page 50902]]

requirements as proposed for the FY 2016 payment determination and 
subsequent years. IPFs must ensure that all the reporting and 
submission requirements are followed by their vendors (if data are 
submitted by vendors on their behalf), because IPFs remain responsible 
for all submitted data regardless if data are submitted by a vendor or 
by the entity/organization themselves. Based on the public comments we 
received, for the FY 2016 payment determination and subsequent years we 
are finalizing the FUH measure with a change that it be collected as a 
claims-based measure, subject to the measure specifications and 
reporting periods described above.
f. Data Accuracy and Completeness Acknowledgement (DACA) Requirements
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53658), we finalized 
our DACA policy for the FY 2014 payment determination and subsequent 
years. We stated that IPFs must acknowledge their data accuracy and 
completeness once annually using a form provided on the QualityNet Web 
site. To affirm that the data provided to meet the IPFQR Program data 
submission requirements are accurate and complete to the best of an 
IPF's knowledge, an IPF is required to submit the DACA form. We will 
provide a link to this form once IPFs have completed entry of all 
aggregated measure data. Data submission is not complete until the IPF 
submits the DACA form. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53658), we listed the DACA deadlines for the FY 2014, FY 2015, and FY 
2016 payment determinations only, even though our finalized policy was 
for the FY 2014 payment determination and subsequent years. Set out in 
the table below are the DACA deadlines we listed in the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53658).

 Data Accuracy and Completeness Acknowledgment (DACA) Deadlines for the
           FY 2014 Payment Determination and Subsequent Years
------------------------------------------------------------------------
       Payment          Reporting period for       Data accuracy and
    determination        services provided           completeness
    (fiscal year)         (calendar year)      acknowledgement  deadline
------------------------------------------------------------------------
2014.................  Q4 2012 (October 1,    August 15, 2013.
                        2012-December 31,
                        2012).
                       Q1 2013 (January 1,
                        2013-March 31, 2013).
2015.................  Q2 2013 (April 1,      August 15, 2014.
                        2013-June 30, 2013).
                       Q3 2013 (July 1, 2013-
                        September 30, 2013).
                       Q4 2013 (October 1,
                        2013-December 31,
                        2013).
2016.................  Q1 2014 (January 1,    August 15, 2015.
                        2014-March 31, 2014).
                       Q2 2014 (April 1,
                        2014-June 30, 2014).
                       Q3 2014 (July 1, 2014-
                        September 30, 2014).
                       Q4 2014 (October 1,
                        2014-December 31,
                        2014).
------------------------------------------------------------------------

    To avoid reader confusion, we are reiterating that the DACA 
finalized policies listed above will continue to apply for the FY 2014 
payment determination and subsequent years unless and until we change 
such policies through our rulemaking process. Thus, we will continue 
with our adopted policy that the deadline for submission of both 
measure data and the DACA form is no later than August 15 prior to the 
applicable IPFQR Program payment determination year.
    We have summarized the pertinent IPFQR Program dates in the table 
below with regard to data reporting periods, submission deadlines, DACA 
deadlines, and public display periods.

                Data Accuracy and Completeness Acknowledgment (DACA) Deadlines for the FY 2014 Payment Determination and Subsequent Years
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                  Reporting period for
   Payment  determination      services provided (calendar    Submission timeframe             DACA Deadline                     Public display
        (fiscal year)                     year)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014........................  Q4 2012 (October 1, 2012-     July 1, 2013-August 15,  August 15, 2013..................  April 2014.
                               December 31, 2012).           2013.
                              Q1 2013 (January 1, 2013-
                               March 31, 2013).
2015........................  Q2 2013 (April 1, 2013-June   July 1, 2014-August 15,  August 15, 2014..................  April 2015.
                               30, 2013).                    2014.
                              Q3 2013 (July 1, 2013-
                               September 30, 2013).
                              Q4 2013 (October 1, 2013-
                               December 31, 2013).
2016........................  Q1 2014 (January 1, 2014-     July 1, 2015-August 15,  August 15, 2015..................  April 2016.
                               March 31, 2014).              2015.
                              Q2 2014 (April 1, 2014-June
                               30, 2014).
                              Q3 2014 (July 1, 2014-
                               September 30, 2014).
                              Q4 2014 (October 1, 2014-
                               December 31, 2014).
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 50903]]

    Again, we have listed information until the FY 2016 payment 
determination, but these deadlines apply to the FY 2014 payment 
determination and subsequent years.
    We did not receive any public comments on this issue.
10. Reconsideration and Appeals Procedures for the FY 2014 Payment 
Determination and Subsequent Years
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53658 through 
53659), we adopted a reconsideration process whereby IPFs can request a 
reconsideration of their payment update reduction in the event an IPF 
believes that its annual payment update has been incorrectly reduced 
for failure to report quality data under the IPFQR Program. We codified 
the reconsideration procedures that IPFs must follow at 42 CFR 412.434. 
We instituted an annual reconsideration process similar to the Hospital 
IQR Program (74 FR 43892). We do not utilize reconsideration policies 
and procedures related to the Hospital IQR Program validation 
requirement because the IPFQR Program does not currently include an 
annual validation requirement for IPFs.
    We did not receive any public comments on this process.
11. Waivers From Quality Reporting Requirements for the FY 2014 Payment 
Determination and Subsequent Years
    In our experience with other quality reporting and/or performance 
programs, we have noted occasions when participants have been unable to 
submit required quality data due to extraordinary circumstances that 
are not within their control (for example, natural disasters). It is 
our goal to avoid penalizing IPFs in such circumstances or to unduly 
increase their burden during these times. Therefore, in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53659 through 53660), we adopted a 
policy that, for the FY 2014 payment determination and subsequent 
years, IPFs may request and we may grant waivers with respect to the 
reporting of required quality data when extraordinary circumstances 
beyond the control of the IPF may warrant. When waivers are granted, 
IPFs will not incur payment reductions for failure to comply with the 
requirements of the IPFQR Program.
    Under the process, in the event of extraordinary circumstances not 
within the control of the IPF, such as a natural disaster, the IPF may 
request a reporting extension or a complete waiver of the requirement 
to submit quality data for one or more quarters. Such IPFs would submit 
a request form to CMS available on the QualityNet Web site at: http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228772379030.
    This process does not preclude us from granting waivers or 
extensions to IPFs that have not requested them when we determine that 
an extraordinary circumstance, such as an act of nature (for example, a 
hurricane or other natural disaster that could reasonably affect an 
IPF's ability to compile or report data), affects an entire region or 
locale. If we make the determination to grant a waiver or extension to 
IPFs in a region or locale, we will communicate this decision through 
routine communication channels to IPFs and vendors, by means of 
memoranda, emails, and notices on the QualityNet Web site, among other 
means.
    We did not receive any public comments on this issue.
12. Electronic Health Records (EHRs)
    Under the current and proposed chart-abstracted quality measures, 
IPFs cannot use EHRs (also referred to as electronic medical records) 
for data collection because the current and proposed measures will be 
submitted as aggregate data. However, we encourage IPFs to take steps 
towards adoption of EHRs that will allow for reporting of clinical 
quality data from EHRs directly to a CMS repository. We encourage IPFs 
that are implementing, upgrading, or developing EHR systems to ensure 
that the technology obtained, upgraded, or developed conforms to 
standards adopted by HHS. Although the IPFQR Program is in its initial 
implementation stages, we recommend that IPFs ensure that their EHR 
systems accurately capture quality data and that, ideally, such systems 
provide point-of-care decision support that promotes optimal levels of 
clinical performance.
    In the future, we will continue to work with standard-setting 
organizations and other entities to explore processes through which 
EHRs could speed the collection of data and minimize the resources 
necessary for quality reporting.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53660), we responded 
to public comments on the adoption of EHRs for the IPFQR Program in the 
future and in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27744), we 
again invited public comment on this issue.
    We did not receive any public comments on this issue.

E. Electronic Health Record (EHR) Incentive Program and Meaningful Use 
(MU)

1. Background
    The HITECH Act (Title IV of Division B of the ARRA, together with 
Title XIII of Division A of the ARRA) authorizes incentive payments 
under Medicare and Medicaid for the adoption and meaningful use of 
certified EHR technology (CEHRT). Eligible hospitals and critical 
access hospitals (CAHs) may qualify for these incentive payments under 
Medicare (as authorized under sections 1886(n) and 1814(l) of the Act, 
respectively) if they successfully demonstrate meaningful use of CEHRT, 
which includes reporting on clinical quality measures (CQMs) using 
CEHRT.
    The set of CQMs from which eligible hospitals and CAHs will report 
under the EHR Incentive Program beginning in FY 2014 is listed in Table 
10 of the EHR Incentive Program Stage 2 final rule (77 FR 54083 through 
54087). The subset of CQMs that we proposed for voluntary electronic 
reporting in the Hospital IQR Program in section IX.A.7. of the 
preamble to the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27694 
through 27695) is included in Table 10 of the EHR Incentive Program 
Stage 2 final rule.
    We continue to believe there are important synergies with respect 
to the two programs. We believe the financial incentives under the EHR 
Incentive Program for the adoption and meaningful use of CEHRT by 
eligible hospitals and CAHs will encourage the adoption and use of 
CEHRT for the anticipated electronic reporting of CQMs under the 
Hospital IQR Program. We expect that the electronic submission of 
quality data from EHRs under the EHR Incentive Program will provide a 
foundation for establishing the capacity of hospitals to send, and for 
CMS to receive, CQMs via CEHRT for certain Hospital IQR Program 
measures.
2. Expanded Electronic Submission Period for CQMs
    Section 1886(n)(3)(B)(iii) of the Act requires that, in selecting 
CQMs for and establishing the form and manner of reporting for the EHR 
Incentive Program, the Secretary shall seek to avoid redundant or 
duplicative reporting with reporting otherwise required. To the extent 
that CQMs are included in both the Hospital IQR Program and the EHR 
Incentive Program, we expect that the Hospital IQR Program would 
transition to using CEHRT rather than manual chart abstraction. The 
beginning of this transition is described in section IX.A.7.

[[Page 50904]]

of the preamble to this final rule with the voluntary electronic 
reporting in CY 2014 of up to 16 electronic clinical quality measures 
in the Hospital IQR Program, which are also included in the set of CQMs 
from which hospitals will report for the EHR Incentive Program 
beginning in FY 2014 (77 FR 54083 through 54087). By allowing voluntary 
electronic reporting in CY 2014 of the electronic clinical quality 
measures being finalized under the Hospital IQR Program, hospitals, if 
they choose to submit all 16 electronic clinical quality measures in 
the Hospital IQR Program, would be able to submit once and fulfill the 
CQM component of MU as well as the reporting requirement for those 
measures in the Hospital IQR Program.
    In the EHR Incentive Program Stage 2 final rule (77 FR 54049 
through 54051), for CQM data that is submitted electronically beginning 
in 2014, we established the submission period as the 2 months 
immediately following the end of the fiscal year (October 1 through 
November 30 for eligible hospitals and CAHs). In response to feedback 
we have received through various forums, we proposed in the FY 2014 
IPPS/LTCH PPS proposed rule (78 FR 27745) to open the submission period 
for electronically submitted files on January 2. This will allow for 
better alignment with the Hospital IQR Program. The proposed expanded 
submission period would allow more flexibility for eligible hospitals 
and CAHs to start submitting earlier and more frequently, as patients 
who fit the denominator criteria of the CQMs that the hospitals will 
submit are discharged. As established in the EHR Incentive Program 
Stage 2 final rule, the submission period would end on November 30, and 
eligible hospitals that are demonstrating MU for the first time in the 
year immediately preceding any payment adjustment year must submit by 
July 1. This proposal would not change the reporting periods for CQMs 
established in the EHR Incentive Program Stage 2 final rule (77 FR 
54051).
    Comment: Several commenters supported the expansion of the 
submission period for hospitals beginning in 2014. Specifically, the 
commenters believed that allowing hospitals to start submitting files 
earlier and more frequently could help prevent a bottleneck of uploads 
during the two months following the federal FY.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, and for the 
reasons set forth above, we are finalizing the policy as proposed. 
Beginning in FY 2014, the submission period for CQM data submitted 
electronically for the Medicare EHR Incentive Program will begin on 
January 2 and will end on November 30. As an example, the submission 
period for the reporting periods that occur in FY 2014 will begin on 
January 2, 2014 and end on November 30, 2014. As established in the 
Stage 2 final rule, eligible hospitals that are demonstrating MU for 
the first time in the year immediately preceding any payment adjustment 
year must submit no later than July 1.
    In the Stage 2 final rule, we established the reporting periods for 
CQMs in FY 2014 for hospitals that have previously demonstrated 
meaningful use (77 FR 54050 through 54051). We stated that a hospital 
may choose to report CQM data for the full FY 2014, or alternatively, 
it may choose to report CQM data for the three-month FY quarter that is 
its EHR reporting period for the meaningful use objectives and 
measures. With this change to expand the submission period, we also 
consider it likely that some hospitals may prefer to report CQM data 
for a certain quarter and report the meaningful use objectives and 
measures for a different quarter. Furthermore, because there are 
different methods of submitting CQM data and meaningful use objectives 
and measures, it is also possible that a technical problem could arise 
for a submission of CQM data that would not affect a hospital's 
submission of meaningful use objectives and measures, or vice versa. To 
provide additional flexibility for hospitals in light of the expanded 
submission period, we will accept reporting periods of different 
quarters for CQMs and for meaningful use objectives and measures, as 
long as the quarters are within FY 2014.
    We also proposed, beginning in FY 2014, to allow eligible hospitals 
and CAHs that are demonstrating meaningful use for the first time to 
report CQMs by attestation or through the electronic reporting methods 
that we establish for the EHR Incentive Program. We noted that in the 
EHR Incentive Program Stage 2 final rule (77 FR 54049 through 54051), 
we finalized a policy that first-time meaningful EHR users would be 
required to report CQMs through attestation. This proposal would change 
that policy to allow more flexibility for eligible hospitals and CAHs 
to choose between reporting by attestation or electronically in their 
first year of MU. For further explanation of reporting CQMs by 
attestation or electronically under the EHR Incentive Program, we 
referred readers to the discussion of reporting methods in the EHR 
Incentive Program Stage 2 final rule (77 FR 54087 through 54089). 
Regardless of the reporting method selected, however, the July 1 
deadline for avoiding the Medicare payment adjustments will remain the 
same, as established in the EHR Incentive Program Stage 2 final rule 
(77 FR 54049 through 54051). We emphasized that to avoid a payment 
adjustment under Medicare, eligible hospitals demonstrating MU for the 
first time in the year immediately preceding any payment adjustment 
year must complete their submission of CQM data by July 1.
    We noted that although reporting CQM data by attestation would 
still be an option for first-time meaningful users under the EHR 
Incentive Program, it would not fulfill any Hospital IQR Program 
requirements. We welcomed public comment on this proposal.
    We did not receive any public comments on this proposed policy and 
are finalizing the policy as proposed for the reasons explained above. 
Beginning in FY 2014, eligible hospitals and CAHs that are 
demonstrating meaningful use for the first time may report CQMs by 
attestation or through the electronic reporting methods that we 
establish for the EHR Incentive Program. Regardless of the option 
selected, eligible hospitals that are demonstrating MU for the first 
time in the year immediately preceding any payment adjustment year must 
successfully meet all of the requirements to be a meaningful EHR user 
by July 1 to avoid the payment adjustment. We also clarify that if a 
hospital is demonstrating meaningful use for the first time in FY 2014 
and chooses to report CQMs electronically, it must report for a three-
month quarter in FY 2014 rather than any continuous 90-day period in FY 
2014. Hospitals that would prefer to report CQMs for any continuous 90-
day period may do so by attestation.
    As explained in section IX.A.9.d. of the preamble to this final 
rule, our general intention is to align electronic reporting of quality 
data under the Medicare EHR Incentive Program and the Hospital IQR 
Program. While the Hospital IQR Program is allowing for voluntary 
electronic reporting of quality measures in 2014, to meet the 
requirement, a hospital that is voluntarily electronically reporting 
its quality measure data must do so for a three-month quarter within 
2014 that also meets the reporting deadlines in the Medicare EHR 
Incentive program.
3. Quality Reporting Data Architecture Category III (QRDA-III) Option 
in 2014
    In the EHR Incentive Program Stage 2 final rule (77 FR 54088), we 
finalized two options for eligible hospitals and

[[Page 50905]]

CAHs to electronically submit CQMs beginning in FY 2014 under the 
Medicare EHR Incentive Program. Option 1 was to electronically submit 
aggregate-level CQM data using QRDA-III. Option 2 was to electronically 
submit using a method similar to the Hospital IQR Program electronic 
reporting pilot, which used QRDA-I (patient-level data). We also stated 
in that final rule that, consistent with section 1886(n)(3)(B)(ii) of 
the Act, in the event the Secretary does not have the capacity to 
receive CQM data electronically, eligible hospitals and CAHs that are 
beyond their first year of meaningful use may continue to report 
aggregate CQM results through attestation.
    We noted in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27745) 
that we have determined that the electronic submission of aggregate-
level data using QRDA-III will not be feasible in 2014 for eligible 
hospitals and CAHs under the Medicare EHR Incentive Program. Thus, for 
the 2014 reporting period under the Medicare EHR Incentive Program, 
eligible hospitals and CAHs would have the option to continue to report 
aggregate CQM results through attestation. We stated that we will 
reassess this policy for the 2015 and future reporting periods. We 
noted that submissions of aggregate CQM data via attestation would not 
satisfy the reporting requirements for the Hospital IQR Program. We 
also noted that this policy does not apply to the Medicaid EHR 
Incentive Program. Therefore, the States may still require the 
submission of QRDA-III files to fulfill the CQM reporting requirements 
for hospitals that participate in the Medicaid EHR Incentive Program.
    As described in section IX.A.9.d. of the preamble of this final 
rule, the Hospital IQR Program intends to continue its policy to accept 
patient-level data as it transitions to electronic reporting. In order 
to remain aligned with the Hospital IQR Program, and because over 82 
percent of hospitals that participate in the Hospital IQR Program are 
already meaningful users, we strongly recommend that hospitals that are 
eligible to participate in both programs electronically submit up to 16 
electronic clinical quality measures identified by the Hospital IQR 
Program in section IX.A.7. of the preamble of this final rule. We 
believe that keeping the two programs aligned will ultimately reduce 
reporting burden for hospitals. We believe that the extension of the 
submission period as finalized above will also help the electronic 
submission process for hospitals. We welcomed public comment on this 
proposal.
    Comment: A few commenters stated that CMS should accept QRDA-III 
files from hospitals, including one commenter who noted that many EHR 
vendors are only prepared to support QRDA-III submission. Some of those 
commenters referenced examples of CMS eligible professional (EP) 
quality reporting programs that plan on accepting QRDA-III files 
beginning in the 2014 program year. Several commenters requested that 
CMS clarify why it does not have the capacity to accept QRDA-III files 
from hospitals.
    Response: All CEHRT that is certified to the 2014 Edition 
certification criteria adopted by ONC should have the capability to 
electronically submit either QRDA-I or QRDA-III formats. EHR products 
that are certified to the certification criterion under 45 C.F.R. Sec.  
170.314(c)(3) for electronic submission must be tested for and pass 
both QRDA-I and QRDA-III formats in order to be certified for this 
criterion. Therefore, any eligible hospital or CAH that has implemented 
CEHRT should have the capability to submit both QRDA-I and QRDA-III 
files.
    The CQMs and their respective electronic specifications are 
different for hospitals and EPs. Therefore, we cannot use the same 
infrastructure to accept and process quality data submitted by 
hospitals and EPs. Since the Hospital IQR Program has historically 
accepted and will continue to accept patient-level data, we will use 
the electronic reporting pilots from 2012 and 2013, which included 
electronic reporting via QRDA-I, as the basis for aligned reporting in 
2014 for the Medicare EHR Incentive Program and the Hospital IQR 
Program. As we stated in the proposed rule, we will allow eligible 
hospitals and CAHs to submit aggregate CQM data for the EHR Incentive 
Program via attestation. However, CQM results submitted by attestation 
would not count towards submission for the Hospital IQR Program.
    Comment: One commenter requested clarification on whether hospitals 
would be required to submit both aggregate CQM results via attestation 
and patient-level data electronically via QRDA-I or if the hospital 
would be able to select one of these methods.
    Response: If the hospital would like to electronically report all 
16 CQMs identified by the Hospital IQR Program and would like for its 
submission to also count for its CQM component of MU, the hospital 
could electronically submit those 16 CQMs via QRDA-I for both programs. 
For Hospital IQR Program purposes, if the hospital would like to report 
on a different set of 16 CQMs from the list of 29 CQMs finalized for 
eligible hospitals and CAHs in Table 10 of the EHR Incentive Program 
Stage 2 final rule (77 FR 54083 through 54087) than those identified by 
the Hospital IQR Program for voluntary electronic reporting, the 
hospital could electronically report 16 CQMs via QRDA-I for the 
Medicare EHR Incentive Program, but would need to submit the remainder 
of those measures via chart-abstraction to fulfill the Hospital IQR 
Program requirements. If the hospital would like to submit aggregate 
CQM data for the Medicare EHR Incentive Program by attestation, then 
the CQMs that will be reported to the Hospital IQR Program would need 
to be submitted separately.
    After consideration of the public comments we received, and for the 
reasons set forth above, we are finalizing the policy as proposed. For 
the Medicare EHR Incentive Program, eligible hospitals and CAHs may 
report their CQMs electronically using QRDA-I (patient-level data) or 
via attestation (aggregate-level data). We note again that reporting 
via attestation would not count towards the reporting requirements for 
the Hospital IQR Program.
4. Case Number Threshold Exemption--Requirements Regarding Data 
Submission
    In the EHR Incentive Program Stage 2 final rule (77 FR 54080), we 
established a case number threshold exemption policy for eligible 
hospitals and CAHs that experience a low volume of cases addressed by 
certain CQMs, and stated that hospitals seeking an exemption under the 
policy must submit aggregate population and sample size data in the 
same manner as required in the Hospital IQR Program. Our intent was to 
reduce the burden on hospitals that participate in both programs so 
they would only need to submit this information once. However, we have 
determined that this information could be captured in QualityNet for 
both the EHR Incentive Program and the Hospital IQR Program during the 
process of electronically submitting CQMs. In the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27746), we proposed to require that the aggregate 
population data be entered into QualityNet (for EHR-based reporting) 
during the process of electronically submitting CQMs. We noted that 
sample size data are not required for electronically submitted CQMs.
    We noted that, in general, the submission deadline for the 
aggregate population data is the same as the submission deadline for 
CQMs (November 30). For eligible hospitals in

[[Page 50906]]

their first year of demonstrating MU, the aggregate population data 
would need to be submitted no later than July 1 for hospitals that seek 
to invoke the case number threshold exemption, as this data would be 
needed to determine whether the eligible hospital met the CQM reporting 
requirements for MU.
    We did not receive any public comments on this proposed policy, and 
for the reasons set forth above, we are finalizing the policy as 
proposed. Beginning in FY 2014 for the Medicare EHR Incentive Program, 
the aggregate population data will be entered into QualityNet (for EHR-
based reporting) during the process of electronically submitting CQMs.

X. Change to the Medicare Hospital Conditions of Participation (CoPs) 
Relating to the Administration of Pneumococcal Vaccines

    Among the regulations at 42 CFR Part 482 governing the Conditions 
of Participation (CoPs) for hospitals to participate in the Medicare 
program, we have established a condition for Nursing Services under 
Sec.  482.23. Included in the standards for the nursing services 
condition is a standard for the preparation and administration of 
drugs. Section 482.23(c)(3) contains the following provision: ``With 
the exception of influenza and pneumococcal polysaccharide [emphasis 
added] vaccines, which may be administered per physician-approved 
hospital policy after an assessment of contraindications, orders for 
drugs and biologicals must be documented and signed by a practitioner 
who is authorized to write orders in accordance with State law and 
hospital policy, and who is responsible for the care of the patient as 
specified under Sec.  482.12(c).'' At the time that this CoP standard 
was originally promulgated (October 2, 2002), and for several years 
thereafter, the pneumococcal polysaccharide vaccine (PPSV or Pneumovax 
23[supreg], Merck) was the only pneumococcal vaccine approved for adult 
use. In developing the original standard, it was not the Agency's 
intention to specify a particular type or brand of pneumococcal 
vaccine. Instead, the Agency wanted to allow hospitals the flexibility 
to have a policy where nurses could administer influenza and 
pneumococcal vaccines without a prior practitioner order and only after 
assessing patients for any contraindications to the vaccines being 
administered.
    However, we recently became aware of another pneumococcal vaccine 
(pneumococcal conjugate vaccine (PCV) or Prevnar 13[supreg], Pfizer), 
which received FDA approval for adult use in December 2011. We believe 
that the availability of another FDA-approved pneumococcal vaccine may 
have the potential for causing confusion in the hospital community at 
large by our use of the term ``polysaccharide'' as a distinguisher for 
the pneumococcal vaccine in the hospital CoP standard. Indeed, it has 
come to our attention that some hospitals may be using only the 
polysaccharide type of pneumococcal vaccine because they believe they 
are not permitted under the CoPs to stock and use any other type of 
pneumococcal vaccine. However, the Advisory Committee on Immunization 
Practices (ACIP) recommends that certain groups receive PPSV23, and 
others are recommended to receive both PPSV23 and PCV13. As we 
discussed in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27746), we 
believe the proposed change would allow for the inclusion of all 
pneumococcal vaccines approved for use now and in the future. With two 
types of pneumococcal vaccines currently approved for use with adults 
and recommended by the ACIP for certain populations based on age, 
medical condition, smoking, and other considerations, we also believe 
that patient access to the pneumococcal vaccine would potentially 
improve because hospitals would now possess the freedom and flexibility 
to stock and use both vaccines as recommended by the ACIP.
    Therefore, in the FY 2014 IPPS/LTCH PPS proposed rule, we proposed 
to amend the regulatory language at Sec.  482.23(c)(3) to delete the 
term ``polysaccharide''. We stated that this proposed deletion would 
allow a hospital to include any type of pneumococcal vaccine as part of 
its physician-approved policy for administration by nurses without a 
prior practitioner order, provided the vaccine has been approved by the 
FDA and recommended for use by the ACIP. In addition, we stated that 
this proposed change would give hospitals the added flexibility to 
include the administration of any pneumococcal vaccines that are 
approved in the future by the FDA for administration under this CoP 
standard.
    Comment: Commenters supported CMS' rationale for the proposed 
changes. The commenters agreed that the proposed changes would provide 
hospitals with the flexibility to include the administration of any 
pneumococcal vaccines that are currently approved and those that may be 
approved in the future by the FDA for administration. One commenter 
recommended that the proposed changes be made effective immediately 
upon publication of the final rule.
    Response: We appreciate the commenters' support. We share the 
common goal of improving patient access to pneumococcal vaccines and 
eliminating confusion in the hospital community about the type of 
pneumococcal vaccines that hospitals may stock and use. With regard to 
the recommendation for the effective date, we do not believe that an 
effective date of October 1, 2013, which is the general effective date 
for this IPPS final rule, will delay beneficiaries from receiving 
necessary vaccines. Further, we believe that the delay will allow 
hospitals time to evaluate their policies, if necessary, and obtain a 
supply of pneumococcal conjugate vaccine. We also note that either type 
of pneumococcal vaccine can be administered with a physician's order.
    Therefore, for the reasons set forth above, we are finalizing, 
without change, our proposal to remove the term ``polysaccharide'' from 
the regulatory language at Sec.  482.23(c)(3).

XI. Payment Policies Related to Patient Status

A. Background

    In the CY 2013 Outpatient Prospective Payment System (OPPS)/
Ambulatory Surgical Center (ASC) proposed rule (77 FR 45155 through 
45157) and final rule with comment period (77 FR 68426 through 68433), 
we expressed concern about recent increases in the length of time that 
Medicare beneficiaries spend as hospital outpatients receiving 
observation services. We also solicited and summarized public comments 
on potential policy changes we could make to improve clarity and 
consensus among providers, Medicare, and other stakeholders regarding 
the relationship between admissions decisions and appropriate Medicare 
payment, such as when a Medicare beneficiary is appropriately admitted 
to a hospital as an inpatient. (In this section, the term ``hospital'' 
includes critical access hospitals (CAHs) unless otherwise specified. 
Although the term ``hospital'' does not generally include CAHs, section 
1861(e) of the Act provides that the term ``hospital''' includes CAHs 
if the context otherwise requires. We believe it is appropriate to 
apply the final policies in this section of this final rule to CAHs as 
well as all other hospitals. In addition, in this section, the term 
``inpatient'' means an inpatient of a hospital unless otherwise 
specified.)
    Observation care is a well-defined set of specific, clinically 
appropriate

[[Page 50907]]

services, which include ongoing short-term treatment, assessment, and 
reassessment before a decision can be made regarding whether patients 
will require further treatment as hospital inpatients or if they are 
able to be discharged from the hospital (Section 20.6, Chapter 6 of the 
Medicare Benefit Policy Manual (MBPM) (Pub. 100-02)). In recent years, 
the number of cases of Medicare beneficiaries receiving observation 
services for more than 48 hours, while still small, has increased from 
approximately 3 percent in 2006 to approximately 8 percent in 2011. 
This trend concerns us because of the potential financial impact on 
Medicare beneficiaries, and we have published educational materials for 
beneficiaries to inform them of their respective liabilities as a 
hospital outpatient or inpatient.\194\ Beneficiaries who are treated 
for extended periods of time as hospital outpatients receiving 
observation services may incur greater financial liability than they 
would if they were admitted as hospital inpatients. They may incur 
financial liability for Medicare Part B copayments, the cost of self-
administered drugs that are not covered under Part B, and the cost of 
post-hospital SNF care because section 1861(i) of the Act requires a 
prior 3-day hospital inpatient stay for coverage of post-hospital SNF 
care under Medicare Part A. In contrast, as a hospital inpatient under 
Medicare Part A, a beneficiary pays a one-time deductible for all 
inpatient services provided during the first 60 days in the hospital of 
the benefit period for the year. Therefore, an inpatient deductible 
does not necessarily apply to all hospitalizations in the year. 
Medicare Part A coinsurance applies after the 60th day in the hospital.
---------------------------------------------------------------------------

    \194\ CMS Pamphlets: ``Are You a Hospital Inpatient or 
Outpatient? If You Have Medicare Ask'', CMS Product No. 11435, 
Revised, February 2011; ``How Medicare Covers Self-Administered 
Drugs Given in Hospital Outpatient Settings,'' CMS Product No. 
11333, Revised, February 2011.
---------------------------------------------------------------------------

    In the CY 2013 OPPS/ASC proposed rule and final rule with comment 
period (77 FR 45155 and 77 FR 68426, respectively) and in a proposed 
rule entitled, ``Medicare Program; Part B Inpatient Billing in 
Hospitals'' that went on display at the Office of the Federal Register 
on March 13, 2013 and was issued in the Federal Register on March 18, 
2013 (78 FR 16632) (referred to in this final rule as the ``Part B 
Inpatient Billing proposed rule''), we discussed how the trend towards 
the provision of extended observation services may be attributable in 
part to hospitals' concerns about their ability to receive payment from 
Medicare under Part B when a Part A hospital inpatient claim is denied 
because a Medicare review contractor determines that the inpatient 
admission was not reasonable and necessary under section 1862(a)(1)(A) 
of the Act. Under longstanding Medicare policy, in these situations, 
hospitals could only receive payment for a limited set of largely 
ancillary inpatient services under Part B. We stated that we have heard 
from various stakeholders that hospitals appear to be responding to the 
financial risk of admitting Medicare beneficiaries for inpatient stays 
that may later be denied upon contractor review by electing to treat 
beneficiaries as outpatients receiving observation services, often for 
long periods of time, rather than admitting them as inpatients. In 
response to the CY 2013 OPPS/ASC proposed rule and final rule with 
comment period, the hospital community expressed a belief that 
Medicare's standards for hospital inpatient admission are not clear, 
and that, as a result, Medicare's medical review criteria for Part A 
hospital inpatient claims are inappropriately applied.
    To address these issues, we recently proposed several 
clarifications and changes in Medicare's policies regarding payment of 
hospital inpatient services under Part B, Medicare's definition of a 
hospital ``inpatient,'' inpatient admission guidelines, and Medicare's 
medical review criteria for inpatient stays. First, in the Part B 
Inpatient Billing proposed rule (78 FR 16632), we proposed to revise 
our Part B inpatient payment policy to allow payment under Part B for 
all hospital services that were furnished and would have been 
reasonable and necessary if the beneficiary had been treated as a 
hospital outpatient, rather than admitted to the hospital as an 
inpatient. We proposed that this policy would apply when a Medicare 
Part A hospital inpatient claim is denied or when a hospital 
determines, through utilization review after a beneficiary has been 
discharged, that the inpatient admission was not reasonable and 
necessary and that the beneficiary should have received hospital 
outpatient services rather than hospital inpatient services. We 
proposed to continue applying the timely filing restriction to the 
billing of all Part B inpatient services, under which claims for Part B 
services must be filed within 1 year from the date of service. In 
addition, we addressed several issues related to administrative appeals 
and beneficiary liability.
    In addition to evaluating our policy related to Medicare Part B 
inpatient payment following denials of Part A hospital inpatient claims 
on the basis that the inpatient admission was not reasonable and 
necessary or following a hospital self-audit, we also considered 
whether we could provide more clarity regarding the relationship 
between hospital inpatient admission decisions and Medicare payment. In 
the CY 2013 OPPS/ASC final rule with comment period (77 FR 68426 
through 68433), we discussed revising hospital inpatient status 
criteria as one of several policy clarifications or changes suggested 
by stakeholders to improve our policies governing when a Medicare 
beneficiary should be admitted as an inpatient, and how hospitals 
should be paid by Medicare for the associated costs they incur. 
Specifically, stakeholders suggested that we redefine ``inpatient'' 
using parameters other than the current requirements of medical 
necessity and a physician order, such as using the beneficiary's length 
of stay at the hospital.
    Currently, a beneficiary's length of stay may be a factor in 
determining whether he or she should be admitted as an inpatient to the 
hospital, but it is not the only factor for this determination. Our 
current manual instructions state that, typically, the decision to 
admit a beneficiary as an inpatient should be made within 24 to 48 
hours of observation care, and that expectation of an overnight stay 
may be a factor in the admission decision (Section 20.6, Chapter 6 and 
Section 10, Chapter 1 of the MBPM). We state that physicians should use 
a 24-hour or overnight period as a benchmark, that is, they should 
order admission for patients who are expected to need hospital care for 
24 hours or overnight, or more, and treat other patients on an 
outpatient basis. We state that, generally, a beneficiary is considered 
an inpatient if formally admitted as an inpatient with the expectation 
that he or she will remain at least overnight, whether or not the 
beneficiary is later discharged or transferred and is not present 
overnight. We instruct that in only rare and exceptional cases do 
reasonable and necessary outpatient observation services in the 
hospital span more than 48 hours.
    Nevertheless, our longstanding policy consistently has been that we 
do not define or pay under Medicare Part A for inpatient admissions 
solely on the basis of the length of time the beneficiary actually 
spends in the hospital. Rather, we rely on the physician to use his or 
her clinical judgment and evaluation of the patient's needs to make the 
determination. We have stated in our manual guidance that the inpatient 
admission decision is a complex

[[Page 50908]]

medical judgment that should take into consideration many factors, such 
as the patient's medical history and medical needs, the types of 
facilities available to inpatients and outpatients, the hospital's 
bylaws and admission policies, the relative appropriateness of 
treatment in the inpatient and outpatient settings, patient risk of an 
adverse event, and other factors described in the MBPM provisions. The 
physician or other practitioner responsible for a patient's care at the 
hospital also is responsible for deciding whether the patient should be 
admitted as an inpatient.
    We believe that our existing inpatient admission criteria are valid 
and appropriately reflect that the decision to admit a patient as a 
hospital inpatient is a complex medical judgment that can be made only 
after the physician has considered a number of factors. However, upon 
evaluating the suggestions of stakeholders who requested that we 
provide more clarity in the definition of ``inpatient'' using 
parameters other than those that we currently use, we recognized that 
it would be helpful to address what the requirements are for Medicare 
Part A payment and when a beneficiary should be admitted as a hospital 
inpatient. Toward that end, in the FY 2014 IPPS/LTCH PPS proposed rule 
(78 FR 27644 through 27650), we clarified that a beneficiary becomes a 
hospital inpatient if formally admitted pursuant to the order of a 
physician (or other qualified practitioner as provided in the proposed 
regulations) in accordance with the hospital conditions of 
participation (CoPs), and that, as a condition of Medicare payment 
under Part A for such an admission, the order must be documented in the 
medical record. However, the order must be supported by objective 
medical information for purposes of the Part A payment determinations. 
During Medicare contractor review of an inpatient admission, 
documentation in the medical record is evaluated in conjunction with 
the physician order and the physician certification that is also 
required for payment of hospital inpatient services under section 
1814(a) of the Act and 42 CFR 424.13.
    In the FY 2014 IPPS/LTCH PPS proposed rule, we also proposed a new 
benchmark for purposes of medical review of hospital inpatient 
admissions, based on how long the beneficiary is expected to remain in 
the hospital. Under our proposal, beneficiaries who are expected to 
remain in the hospital to receive medically necessary care surpassing 
2-midnights after the initiation of care are generally appropriate for 
inpatient admission and inpatient hospital payment. As such, Medicare's 
review contractors would consider all time after the initiation of care 
at the hospital in applying the benchmark that hospital inpatient 
admissions are generally reasonable and necessary for beneficiaries who 
are expected to require more than 1 Medicare utilization day (defined 
by encounters crossing 2 ``midnights'') in the hospital receiving 
medically necessary services. Reviewers would also adopt a presumption 
that a medically necessary stay surpassing 2 midnights after being 
admitted as an inpatient was appropriately provided as an inpatient 
service. If a hospital is found to be abusing this 2-midnight 
presumption for nonmedically necessary inpatient hospital admissions 
and payment (in other words, the hospital is systematically prolonging 
the provision of care to surpass the 2-midnight timeframe), CMS review 
contractors would disregard the 2-midnight presumption when conducting 
review of that hospital. Similarly, we proposed that review contractors 
would generally determine that hospital services spanning less than 2 
midnights should have been provided on an outpatient basis, unless 
there is clear documentation in the medical record supporting the 
physician's order and expectation that the beneficiary would require 
care spanning more than 2 midnights or the beneficiary is receiving a 
service or procedure designated by CMS as inpatient-only under 42 CFR 
419.22(n).
    We received approximately 392 timely pieces of correspondence 
containing public comments on the Part B Inpatient Billing proposed 
rule, and approximately 192 timely pieces of correspondence containing 
public comments on the proposals in the FY 2014 IPPS/LTCH PPS proposed 
rule on hospital inpatient admission guidelines and medical review. We 
received public comments from hospital and physician associations, 
individual hospitals and physicians, other health care professionals, 
case management associations, rehabilitative and long-term care 
facilities, beneficiaries, consumer and beneficiary advocacy 
organizations, attorneys, Recovery Audit Contractors (RACs) and other 
interested parties. The policies addressed in these two proposed rules 
are interrelated and were designed to work together to reduce the 
frequency of extended observation care when it may be inappropriately 
furnished and provide payment to hospitals for the reasonable and 
necessary services they provide to inpatients. Accordingly, in this 
final rule we discuss the public comments we received in response to 
each of the proposed rules, and we provide our final policies for each 
rule after consideration of the public comments received. First, we 
address Part B hospital inpatient billing, followed by a discussion of 
Medicare's hospital inpatient admission guidelines and medical review 
criteria.

B. Payment of Part B Hospital Inpatient Services

1. Payable Part B Inpatient Services
    In our proposed rule on Part B inpatient billing in hospitals (CMS-
1455-P, 78 FR 16635), we discussed that in an increasing number of 
cases, hospitals that have appealed Part A inpatient claims that were 
denied because the inpatient admission was not reasonable and necessary 
have received partially favorable decisions from the Medicare Appeals 
Council or Administrative Law Judges (ALJs). While upholding the 
Medicare review contractor's determination that the inpatient admission 
was not reasonable and necessary, the Medicare Appeals Council and ALJ 
decisions have ordered payment of the services as if they were rendered 
at an outpatient or ``observation level'' of care. These decisions 
effectively require Medicare to issue payment for all Part B services 
that would have been payable had the beneficiary originally been 
treated as an outpatient (rather than an inpatient), instead of payment 
for only the limited set of Part B inpatient services that are 
designated in the MBPM, Chapter 6, Section 10. Moreover, these 
decisions have required such payment regardless of whether the 
subsequent hospital claim for payment under Part B is submitted within 
the otherwise applicable time limit for filing Part B claims. These 
Medicare Appeals Council and ALJ decisions providing for payment of all 
reasonable and necessary Part B services under the circumstances 
described previously are contrary to our longstanding policies that 
permit billing for only a limited list of Part B inpatient services and 
require that the services be billed within the usual timely filing 
restrictions (we refer readers to Section 10, Chapter 6 of the MBPM; 63 
FR 47560; 65 FR 18444; 66 FR 44698 through 44699; 66 FR 59891 through 
59893, and 59915; and 75 FR 73449, 73627). While decisions issued by 
the Medicare Appeals Council and ALJs do not establish Medicare payment 
policy, we are bound to effectuate each individual decision. The 
increasing number of these types of decisions has

[[Page 50909]]

created numerous operational difficulties.
    After reviewing the public comments we received in response to the 
CY 2013 OPPS/ASC proposed rule, considering the most efficient way to 
effectuate the Medicare Appeals Council and ALJ decisions referenced 
earlier in this section, and further assessing our Part B inpatient 
payment policy, we concurrently issued the proposed rule CMS-1455-P and 
CMS Ruling 1455-R (78 FR 16614, hereinafter referred to as the Ruling). 
The Ruling established a standard process for effectuating these 
Medicare Appeals Council and ALJ decisions and handling claims and 
appeals while CMS considers how to best address this issue going 
forward. The Ruling also addressed the scope of administrative review 
in these and other, similar cases. Until the proposed rule could be 
finalized, CMS, through the Ruling, acquiesced in the approach taken in 
the aforementioned Medicare Appeals Council and ALJ decisions on the 
issue of subsequent Part B billing following the denial of a Part A 
hospital inpatient claim on the basis that the inpatient admission was 
not reasonable and necessary. The Ruling was intended as an interim 
measure until we finalize the policies in this final rule to address 
the issues raised by these decisions going forward.
    Specifically, the Ruling provides that when a Part A claim for a 
hospital inpatient admission is denied by a Medicare review contractor 
because the inpatient admission was determined not reasonable and 
necessary, the hospital may submit a subsequent Part B inpatient claim 
for more services than just those listed in Section 10, Chapter 6 of 
the MBPM, to the extent the services furnished were reasonable and 
necessary. The hospital may submit a Part B inpatient claim for payment 
for the Part B services that would have been payable to the hospital 
had the beneficiary originally been treated as an outpatient rather 
than admitted as an inpatient, except when those services specifically 
require an outpatient status. The Ruling only applies to denials of 
claims for inpatient admissions that were not reasonable and necessary; 
it does not apply to any other circumstances in which there is no 
payment under Part A, such as when a beneficiary exhausts Part A 
benefits for hospital services or is not entitled to Part A. Under the 
Ruling, Part B inpatient and Part B outpatient claims that are filed 
later than 1-calendar year after the date of service will not be 
rejected as untimely by Medicare's claims processing system as long as 
the corresponding denied Part A inpatient claim was filed timely in 
accordance with 42 CFR 424.44, consistent with the directives of the 
Medicare Appeals Council and ALJ decisions to which we are acquiescing. 
The Ruling also provided that the Part A to Part B (A/B) Rebilling 
Demonstration would be discontinued, and we communicated to hospitals 
and contractors the details regarding termination of the A/B Rebilling 
Demonstration and implementation of Part B billing under the Ruling.
    The Ruling was effective on its date of issuance and applies to 
Part A hospital inpatient claims that were denied by a Medicare review 
contractor because the inpatient admission was determined not 
reasonable and necessary, as long as the denial was made: (1) While the 
Ruling is in effect; (2) prior to the effective date of the Ruling, but 
for which the timeframe to file an appeal has not expired; or (3) prior 
to the effective date of the Ruling, but for which an appeal is 
pending. The Ruling does not apply to Part A hospital inpatient claim 
denials for which the timeframe to appeal expired, and it does not 
apply to inpatient admissions determined by the hospital to be not 
reasonable and necessary (for example, through utilization review or 
other self-audit). The policy announced in the Ruling superseded any 
other statements of policy on the issue of Part B inpatient billing 
following the denial by a Medicare review contractor of a Part A 
inpatient hospital claim because the inpatient admission was not 
reasonable and necessary (although hospital outpatient services would 
have been reasonable and necessary). We stated that the Ruling remains 
in effect until the effective date of the regulations that finalize 
proposed rule CMS-1455-P. The proposed rule CMS-1455-P proposed 
revisions to our Part B payment policy that would apply prospectively 
from the effective date of the final regulations and would differ in 
some respects from the provisions of the Ruling, the purpose of which 
is to effectuate the Medicare Appeals Council and ALJ decisions. In 
section XI.B.7. of the preamble of this final rule, we discuss how the 
Ruling will apply in relation to the effective date of this final rule.
    In the Part B Inpatient Billing proposed rule (78 FR 16636), we 
stated that, after reviewing the statutory and regulatory basis of our 
existing Part B inpatient payment policy, we believed that, under 
section 1832 of the Act, Medicare should pay for all Part B services 
that would have been reasonable and necessary (except for services that 
specifically require an outpatient status) if the hospital had treated 
the beneficiary as a hospital outpatient rather than treating the 
beneficiary as an inpatient, when Part A payment cannot be made for a 
hospital inpatient claim because the inpatient admission is determined 
not reasonable and necessary under section 1862(a)(1)(A) of the Act. 
Therefore, we proposed to revise our existing policy to allow payment 
for additional Part B inpatient services than Medicare currently allows 
when CMS, a Medicare review contractor, or a hospital determines after 
discharge that payment cannot be made under Medicare Part A because a 
hospital inpatient admission was not reasonable and necessary, provided 
the statutorily required timeframe for submitting claims is not 
expired, as discussed in section XI.B.8. of the preamble of this final 
rule. We stated that the hospital would recode the reasonable and 
necessary services that were furnished as Medicare Part B services, and 
bill them on a Part B inpatient claim (78 FR 16636). We stated 
specifically in the proposed rule that the proposed policy would not 
apply to any other circumstances in which there is no payment under 
Part A, such as when a beneficiary exhausts Part A benefits for 
hospital services or is not entitled to Part A (78 FR 16636).
    Specifically, we proposed to revise our Part B inpatient payment 
policy to allow payment of all hospital services that were furnished 
and would have been reasonable and necessary if the beneficiary had 
been treated as a hospital outpatient, rather than admitted to the 
hospital as an inpatient, except for those services specifically 
requiring an outpatient status. We proposed to exclude from Part B 
inpatient payment all services that by statute, Medicare definition, or 
standard Healthcare Common Procedure Coding System (HCPCS) code 
definition are defined as outpatient services, including outpatient 
diabetes self-management training services (DSMT) defined in section 
1861(qq) of the Act; outpatient physical therapy services; outpatient 
speech-language pathology services; and outpatient occupational therapy 
services (PT/SLP/OT or ``therapy'' services) defined in section 
1833(a)(8) of the Act; hospital outpatient visits (including emergency 
department visits); and observation services (HCPCS codes G0378 
(Hospital observation service, per hour) and G0379 (Direct referral for 
hospital observation care)) (78 FR 16636). We reasoned that these 
services are, by definition, provided to hospital outpatients and not 
inpatients. Hospitals could only submit claims for

[[Page 50910]]

Part B inpatient services that were furnished to inpatients in 
accordance with their Medicare and HCPCS code definitions, and in 
accordance with Medicare coverage and payment rules (78 FR 16636).
    We stated in the proposed rule (78 FR 16637) that the proposals in 
the proposed rule would not change the existing 3-day payment window 
policy, which provides that if there is no Part A coverage for the 
inpatient stay, services provided to the beneficiary prior to the point 
of admission in the 3 calendar day (or 1 calendar day for a non-IPPS 
hospital) payment window prior to the hospital inpatient admission may 
be separately billed to Part B as the outpatient services that they 
were (42 CFR 412.2(c)(5), 412.405, 412.540, 412.604(f), and 
413.40(c)(2); MCPM, Chapter 3 Section 40.3, and Chapter 4 Section 
10.12). We stated that hospitals could only submit claims for Part B 
outpatient services that are reasonable and necessary and submitted in 
accordance with Medicare coverage and payment rules. In accordance with 
section 1833(e) of the Act, hospitals must furnish information as may 
be necessary in order to determine the amounts due for the services 
billed on a Part B outpatient claim for services provided in the 3-day 
(1-day for non-IPPS hospitals) payment window prior to the inpatient 
admission (78 FR 16637 through 16638). We discuss our proposed policy 
for payment of Part B outpatient services furnished in this payment 
window prior to the inpatient admission in section XI.B.2. of the 
preamble of this final rule.
    Comment: One commenter recommended that, under section 
1861(s)(2)(B) of the Act, CMS expand the scope of Part B inpatient 
payment for circumstances other than reasonable and necessary inpatient 
claim denials that are currently listed in Chapter 6, Section 10, of 
the MBPM, for which payment of only ancillary Part B services is 
available. The commenter noted that these include circumstances in 
which: (1) Some days of an otherwise covered inpatient stay are denied 
because those days were not medically necessary; (2) no Part A 
prospective payment is made at all for the hospital stay because of 
patient exhaustion of benefit days before admission; and (3) the 
patient was not otherwise eligible for or entitled to coverage under 
Part A. The commenter argued that Medicare should pay for the Part B 
inpatient services under the benefit category described by section 
1861(s)(2)(B) of the Act (hospital services incident to physicians' 
services provided to outpatients) for all hospital inpatients, 
regardless of the reason for which Part A payment is not made for all 
or part of their inpatient stay.
    The commenter believed that to not cover the expanded scope of 
payable services for beneficiaries with denied days within approved 
admissions, exhausted hospital benefits, and entitlement only to Part B 
is arbitrary and punitive to beneficiaries and the secondary payers, 
including Medicaid, that are liable for payment for these services. The 
commenter also believed it will cause stakeholders confusion that CMS 
did not propose any regulation text providing payment of only a limited 
set of Part B inpatient services in these other circumstances listed in 
the MBPM.
    Response: We appreciate the commenter's feedback. We note that we 
stated in the proposed rule that our proposed policy would only apply 
to denials of claims for inpatient admissions that are not reasonable 
and necessary, and would not apply to any other circumstances in which 
there is no payment under Part A, such as when a beneficiary exhausts 
Part A benefits for hospital services or is not entitled to Part A at 
all. The proposed rule was intended to address the policy for billing 
reasonable and necessary Part B services when Part A coverage is not 
available because the inpatient admission was not reasonable and 
necessary, which is different from scenarios in which a beneficiary has 
exhausted or is not entitled to Part A benefits.
    Comment: Many commenters objected to the proposed exclusion of 
outpatient therapy services from payment as Part B inpatient services 
when a Part A hospital inpatient claim is denied because the inpatient 
admission was not reasonable and necessary. Some commenters believed 
that these inpatient therapy services should be paid under section 
1833(a)(8)(B) of the Act. Other commenters noted that CMS proposed to 
exclude inpatient therapy services from payment because they are 
defined as strictly outpatient services. These commenters described a 
number of clinical circumstances in which therapy services are commonly 
and appropriately furnished to hospital inpatients, and argued that 
Medicare should therefore pay for them when furnished to a hospital 
inpatient as well as to an outpatient. Several commenters noted that 
therapy services are currently listed as payable Part B inpatient 
services for reasonable and necessary hospital inpatient claim denials 
as well as exhausted Part A benefits days and other circumstances in 
Chapter 6, Section 10 of the MBPM. These commenters requested a clearer 
explanation regarding why we proposed to exclude therapy services from 
Part B inpatient payment.
    In addition, several commenters recommended that if Medicare 
finalizes payment of Part B inpatient therapy services for the 
reasonable and necessary hospital inpatient claim denials, they should 
be excluded from the annual, per beneficiary limitations on incurred 
therapy expenses under Part B, commonly referred to as ``therapy 
caps,'' applied by section 1833(g) of the Act.
    Response: We appreciate the commenters' concerns and the 
information they provided about the circumstances in which therapy 
services are provided to hospital inpatients. We understand that 
physical therapy services, speech-language pathology services, and 
occupational therapy services are payable under Part B in certain 
circumstances when they are provided to hospital inpatients. Section 
1861(p) of the Act contemplates that these services could be provided 
to hospital inpatients when it defines the term ``outpatient physical 
therapy services'' as including services that are furnished to an 
outpatient or those ``furnished to an individual as an inpatient of a 
hospital or extended care facility.'' Sections 1861(g) and 1861(ll) of 
the Act adopt this definition for outpatient occupational therapy 
services and outpatient speech-language pathology services, 
respectively. In addition, as commenters noted, therapy services have 
long been on the list of payable Part B inpatient services that may be 
billed following the reasonable and necessary denial of a hospital 
inpatient admission for payment under Part A. Accordingly, we agree 
with commenters and believe Medicare should continue paying for these 
Part B inpatient therapy services furnished to hospital inpatients 
whose admissions are determined not reasonable and necessary for 
payment under Medicare Part A when these services are billed on Part B 
inpatient claims. We note that therapy services can also be paid as 
Part B outpatient services if they were provided in the 3-day (1-day 
for non-IPPS hospitals) payment window prior to the inpatient admission 
(we refer readers to section XI.B.2. of the preamble of this final 
rule) and are billed on a Part B outpatient claim.
    In addition, while we agree with commenters that we should pay for 
these therapy services, we do not believe they should be excluded from 
the annual limitations on per beneficiary incurred expenses, commonly 
referred to as the ``therapy

[[Page 50911]]

caps,'' as the commenters suggested. Rather, we believe we also must 
apply the therapy caps and all other Part B coverage and payment rules 
to hospital inpatient therapy services paid under Part B. Accordingly, 
if billed to Medicare Part B, therapy services furnished to hospital 
inpatients whose admissions are determined not reasonable and necessary 
for payment under Medicare Part A will be subject to the Part B therapy 
caps under section 1833(g) of the Act, the therapy caps exceptions 
process, the manual medical review process, and all other requirements 
for payment and coverage of therapy services under Part B (for example, 
functional status reporting requirements). The therapy caps under 
section 1833(g) of the Act apply to all therapy services described 
under section 1861(p) of the Act, which includes inpatient therapy 
services furnished to a hospital inpatient whose inpatient admission is 
determined not reasonable and necessary. As such, it is appropriate to 
apply the therapy caps to these services. This approach is also 
consistent with the requirement that Part B inpatient services must be 
furnished in accordance with Medicare's coverage and payment rules 
under Part B in order for Part B payment to be made. Applying the 
therapy caps is consistent with our current payment policy for Part B 
inpatient therapy services that are paid under Chapter 6, Section 10 of 
the MPBM, for example when a beneficiary exhausts his or her benefits 
under Part A, which are subject to the Part B therapy caps and related 
policies, including all other requirements for payment and coverage of 
therapy services under Part B (for example, Functional Reporting 
requirements).
    In the CY 2014 MPFS proposed rule (78 FR 43332 through 43334), we 
proposed to subject therapy services that are furnished by a CAH to the 
therapy caps and related policies, the exceptions process, and the 
manual medical review process beginning on January 1, 2014. If we 
finalize this proposal to apply the therapy caps to therapy services 
furnished by CAHs, we will subject therapy services furnished to a CAH 
inpatient during a stay that is denied for Part A payment as not 
reasonable and necessary and that are subsequently billed as Part B 
inpatient services to the therapy caps, as we do for all other 
hospitals. The CY 2014 MPFS final rule is expected to be released on or 
around November 1, 2013.
    Comment: Several commenters recommended that IRFs and LTCHs be 
eligible to bill Part B inpatient services following a reasonable and 
necessary Part A inpatient claim denial. They also believed that 
inpatient therapy services should be payable under Part B to IRFs and 
LTCHs when their Part A claims are denied because inpatient admission 
was not reasonable and necessary. The commenters reasoned that these 
facilities should be paid for Part B inpatient therapy because they 
furnish a large volume of therapy services (according to commenters, 
therapy and room and board represent almost the entire volume of IRF 
services).
    Response: We did not propose to exclude IRFs, LTCHs or other 
hospitals from payment of the proposed Part B inpatient services. As we 
discussed above, in our final policy we are providing for payment of 
inpatient therapy services furnished in IRFs, LTCHs and other hospitals 
under Part B when Part A payment cannot be made because the inpatient 
admission is determined not reasonable and necessary, and the 
beneficiary should have been treated as a hospital outpatient rather 
than an inpatient.
    Comment: Many commenters objected to the proposed exclusion from 
Part B inpatient payment of observation services, hospital outpatient 
visits, and other services that are defined strictly as outpatient 
services or require an outpatient status. These commenters presented 
various arguments expressing the belief that observation services 
should be paid because they are fundamentally the same as or can serve 
as a substitute for inpatient care. Several commenters stated that some 
contractors have made it clear that observation status can serve as a 
substitute for inpatient admission in many cases, despite CMS' policy 
that inpatient admission and observation are not substitutes and that, 
for some patients, inpatient admission may be necessary even for care 
of short duration. Several other commenters stated that the 
administrative appeal decisions that have ordered payment at an 
outpatient or ``observation level'' of care support payment of 
observation services in all cases. They believed that the appeal 
decisions ordered payment for all services, including observation 
services, under Part B as a substitute for inpatient care, because the 
care was provided and met the requirements of observation billing. 
These commenters stated that the law requires payment of all reasonable 
and necessary services on an outpatient basis, including observation 
services, and that CMS' proposed exclusion of observation is 
unsupported by law and contrary to agency precedent.
    Some commenters stated that the inpatient admission order should be 
considered to suffice for observation as well as for inpatient 
services. They noted that, in most cases, an order for inpatient 
services does exist, inpatient and observation patients occupy the same 
routine beds, the same types of tests are administered, and the same 
level of nursing care is provided. Several commenters were concerned 
that excluding services such as observation services will not provide 
adequate payment for the nursing care provided.
    Some commenters recommended that CMS create new codes for billing 
the services that require an outpatient status so that they can be 
billed to Part B for inpatients. Commenters stated that many services 
can be provided on either an inpatient or an outpatient basis, and 
there is no reason that observation could not be treated in the same 
manner, even if doing so requires a change in the definition of the 
service that does not restrict it to outpatient billing.
    However, other commenters recognized a difference between 
outpatient or observation services, and inpatient services. They stated 
that observation is an outpatient service and does not belong on an 
inpatient claim, that room and board should not be ``converted'' to 
observation charges, and that observation is an action requiring an 
order and for which (in these cases) there was no order. In the public 
comments to the proposed rule on inpatient admission guidelines 
(section XI.C. of the preamble of this final rule), many commenters 
stated that there was a marked difference between observation or 
outpatient services and inpatient services, even when furnished in the 
same bed in the emergency department. The commenters stated that at the 
time of inpatient admission, in many cases the patient remains in the 
emergency or other outpatient area of the hospital but an entirely new 
team comes to that area to provide inpatient services once they are 
ordered.
    Response: We do not believe that observation services and inpatient 
services are the same services. As we discussed above, the purpose of 
outpatient observation services is to determine whether or not an 
inpatient admission is needed. Once a patient has been admitted for 
inpatient services, observation services are no longer medically 
necessary. Therefore, observation services would not be furnished to a 
hospital inpatient such that they would need to be billed for the time 
the beneficiary spent as an inpatient as Part B inpatient services 
following a Part A claim denial.

[[Page 50912]]

    As we stated in the proposed rule, according to our longstanding 
policy, hospitals may only submit claims for Part B outpatient and Part 
B inpatient services that are reasonable and necessary in accordance 
with Medicare coverage and payment rules. This is not new guidance. We 
have long provided that, ``in accordance with the general Medicare 
requirements for services furnished to beneficiaries and billed to 
Medicare, even in Condition Code 44 situations, hospitals may not 
report observation services using HCPCS code G0378 (Hospital 
observation service, per hour) for observation services furnished 
during a hospital encounter prior to a physician's order for 
observation services. Medicare does not permit retroactive orders or 
the inference of physician orders'' (MCPM Chapter 1, Section 50.3.2). 
We agree with the commenters that observation services must be ordered 
by a physician, as must all hospital outpatient services. In this 
section of the MBPM, we stated in particular that the clock time begins 
at the time that observation services are initiated in accordance with 
a physician's order As we discuss in section XI.B.2. of the preamble of 
this final rule, hospitals can (and we proposed that they could 
continue to) bill Medicare for observation services that were ordered 
and furnished as outpatient services in the 3-day (1-day for non-IPPS 
hospitals) payment window prior to the inpatient admission, provided 
there was a valid order and all other payment rules were met. However, 
we have long excluded billing and payment of observation services for 
the time a beneficiary spends as a hospital inpatient, even when 
condition code 44 permits a patient change to outpatient during the 
hospital stay (much less when the patient status remains inpatient).
    Similarly, outpatient DSMT services are payable when furnished to 
an outpatient in the 3-day (1-day for non-IPPS hospitals) payment 
window and billed on a Part B outpatient (13x) claim, but would not be 
payable if furnished to inpatients and billed on a Part B inpatient 
(12x) claim. Outpatient DSMT services are defined as services 
``provided in an outpatient setting'' in section 1861(qq) of the Act, 
and therefore should not be furnished to hospital inpatients. The 
regulation at 42 CFR 414.63(e)(2) stipulates that outpatient DSMT 
services can be paid only if the beneficiary ``[i]s not receiving 
services as an inpatient in a hospital, SNF, hospice, or nursing 
home.''
    Outpatient visits such as emergency department visits also would 
not be furnished to a hospital inpatient such that they would need to 
be billed to Part B following a Part A claim denial for the time the 
beneficiary spent as an inpatient. Outpatient visits may be furnished 
in the 3-day (1-day for non-IPPS hospitals) payment window prior to the 
inpatient admission, in which case they may be billed as the outpatient 
services that they were on the Part B outpatient claim, in accordance 
with current policy.
    Therefore, we are finalizing our proposal to exclude observation 
services, outpatient DSMT, and hospital outpatient visits from payment 
as Part B inpatient services when the inpatient admission is determined 
not reasonable and necessary for Part A payment and the hospital bills 
Part B. However, we emphasize that we do not believe these services 
should be furnished to inpatients and, therefore, would not need to be 
billed on a Part B inpatient claim. To the extent these services are 
furnished to outpatients in the 3-day (1-day for non-IPPS hospitals) 
payment window preceding inpatient admission, they may be billed on a 
Part B outpatient claim following the denial of the inpatient admission 
as not reasonable and necessary, as long as all other applicable 
Medicare coverage and payment rules are met. These hospital outpatient 
services could be billed on a Part B outpatient (13x) claim, but would 
not be payable if furnished to inpatients and billed on a Part B 
inpatient (12x) claim.
    Comment: One commenter asked how to bill Part B for certain 
services with differences in coding requirements for Part A and Part B 
claims. In particular, the commenter stated that, for Part A claims, a 
hospital may not need to record the start and stop time of infusions 
and injections, but would have to submit that information when billing 
under Part B.
    Response: The start and stop times for an infusion are expected 
parts of the medical record, regardless of the patient's status. The 
hospital may only bill Part B for the duration of services that are 
supported in the medical record. If additional services requiring 
coding guidance are brought to our attention, we will provide 
instructions in the subregulatory guidance that we will be issuing for 
this final rule.
    Comment: Several commenters requested that CMS clearly define and 
list the services and/or revenue codes that will be payable as Part B 
inpatient services. Several commenters asked what additional services 
may be excluded from Part B inpatient payment because they require an 
outpatient status.
    Response: At this time, approximately 15,000 HCPCS codes and 
approximately 500 revenue codes are payable under Part B, and hospitals 
choose the appropriate revenue codes under which they bill services to 
Part B. Given that the vast majority of Part B services will be 
finalized as payable Part B inpatient services, we believe it is most 
administratively feasible to list the few services that are excluded 
from payment rather than list all procedures or revenue codes that are 
payable. In our final policy, the only services we are excluding from 
payment when furnished to hospital inpatients and billed on a Part B 
inpatient claim following a reasonable and necessary Part A inpatient 
claim denial are observation services, outpatient DSMT, and hospital 
outpatient visits, including emergency department visits. We note that, 
to the extent these services are furnished to outpatients in the 3-day 
(1-day for non-IPPS hospitals) payment window preceding inpatient 
admission, they may be billed on a Part B outpatient claim following 
the denial of the inpatient Part A claim as not reasonable and 
necessary, if all other applicable Medicare coverage and payment rules 
are met. We also note that if, in our continued experience, we find 
that other services require an outpatient status or do not meet Part B 
coverage or payment definitions, we will propose to exclude these 
services from Part B inpatient payment in future rulemaking. However, 
at this time, we are not aware of any services other than those listed 
above that should be excluded.
    After consideration of the public comments we received, we are 
finalizing our proposal to exclude observation services, outpatient 
DSMT, and hospital outpatient visits from Part B inpatient payment. 
These services should only be furnished to hospital outpatients, and 
therefore, we do not believe hospitals will need to bill these services 
on Part B inpatient claims. If these services are furnished to a 
hospital outpatient during the 3-day (1-day for non-IPPS hospitals) 
payment window preceding a hospital inpatient admission that is later 
denied for Part A payment, as long as Part B coverage and payment rules 
are met, the services may be billed on a Part B outpatient claim if the 
Part B coverage and payment rules are met. We are not finalizing our 
proposed policy to exclude therapy services from Part B inpatient 
payment following Part A hospital inpatient reasonable and necessary 
claim denials. Accordingly, hospitals may continue to bill for therapy 
services on a Part B

[[Page 50913]]

inpatient claim when these services are furnished to inpatients, and 
the hospital's Part A claim is denied because the inpatient admission 
was not reasonable and necessary and the beneficiary should have been 
treated as a hospital outpatient rather than a hospital inpatient.
    We proposed that we would implement this provision in proposed new 
42 CFR 414.5, entitled ``Hospital inpatient services paid under 
Medicare Part B when a Part A hospital inpatient claim is denied 
because the inpatient admission was not reasonable and necessary, but 
hospital outpatient services would have been reasonable and necessary 
in treating the beneficiary.'' The claims for Part B inpatient and Part 
B outpatient services would have to be submitted within the timely 
filing period (we discuss the time limits for filing claims in section 
XI.B.8. of the preamble of this final rule). To ensure the accuracy and 
appropriateness of payment under Part A, we proposed that this policy 
would apply if a Medicare Part A claim for inpatient hospital services 
is denied because the inpatient admission was not reasonable and 
necessary, or if a hospital determines under Medicare's utilization 
review requirements in section 1861(e)(6)(1) and 1861(k) of the Act and 
42 CFR 482.30 (42 CFR 485.641 for CAHs) after discharge that the 
hospital inpatient admission was not reasonable and necessary, and that 
the beneficiary should have received hospital outpatient rather than 
hospital inpatient services (hereinafter referred to as the hospital 
``self-audit'' for purposes of this final rule). In this circumstance, 
we proposed to continue requiring the hospital to submit a ``no pay/
provider liable'' Part A claim indicating that the provider is liable 
under section 1879 of the Act for the cost of Part A services (we refer 
readers to section 40.2.2(E), Chapter 3, of the MCPM). Submission of 
this Part A claim indicates that the provider is assuming financial 
liability for the denied items or services on the Part A claim 
consistent with section 1879 of the Act (and acknowledging that the 
beneficiary is not financially liable under section 1879 of the Act) 
for the cost of the Part A items and services. Submitting the provider-
liable Part A claim also cancels any claim that may have already been 
submitted by the hospital for payment under Part A. The hospital could 
then submit an inpatient claim for payment under Part B for all 
services that would have been reasonable and necessary if the 
beneficiary had been treated as a hospital outpatient rather than 
admitted as a hospital inpatient, except for those services 
specifically requiring an outpatient status. This claim would have to 
be submitted within the timely filing period. We stated that we 
believed providing for additional payment under Part B when a hospital 
determines itself that an inpatient admission was not reasonable and 
necessary but hospital outpatient services would have been reasonable 
and necessary would reduce improper payments under Part A, and would 
reduce the administrative costs of appeals for both hospitals and the 
Medicare program.
    Comment: Several of the commenters asked whether hospitals could 
bill Part B inpatient services following a hospital self-audit that 
occurs prior to discharge.
    Response: We did not propose any changes to our policies governing 
patient status changes and inpatient admission reviews prior to 
hospital discharge. Under Medicare's ``Condition Code 44'' policy, if a 
hospital's utilization review committee determines prior to discharge 
that a beneficiary should have been treated as a hospital outpatient 
rather than an inpatient and if certain conditions are met, the 
beneficiary's status may be changed to outpatient and the entire 
hospital encounter may be billed as an outpatient stay on a Part B 
outpatient claim (MCPM, Chapter 1, Section 50.3). The change in patient 
status from inpatient to outpatient must be made prior to discharge or 
release, while the beneficiary is still a patient of the hospital; the 
hospital could not have submitted a claim to Medicare for the inpatient 
admission; the practitioner responsible for the care of the patient and 
the utilization review committee must both concur with the decision; 
and the concurrence of the practitioner responsible for the care of the 
patient and the utilization review committee must be documented in the 
patient's medical record.
    Comment: Some commenters were supportive of the proposal to allow 
Part B inpatient billing pursuant to a hospital self-audit, as it would 
promote real time self-monitoring and filing of Part B claims within 
the timely filing limit. Some commenters supported the proposal because 
it would allow additional Part B payment when the inpatient admission 
error is discovered after discharge, in comparison to the current 
restriction under the Condition Code 44 rules where full Part B payment 
is only made if the medical necessity determination and change in 
patient status to outpatient is made prior to discharge or release.
    However, some commenters asked CMS to clarify whether it was 
proposing a self-audit process that would have to conform to the 
utilization review rules under the CoPs, notably physician concurrence, 
beneficiary notification, and other aspects related to continuation of 
an inpatient stay. These commenters stated that hospitals conduct 
internal reviews other than utilization review, and asked if the 
inpatient stay could be rebilled if the error is discovered as part of 
another type of review. Some of the commenters stated that 
beneficiaries do not need to be notified of the hospital's 
determination that the inpatient admission was not reasonable and 
necessary (as required under the CoPs) because if the hospital bills 
Part B and the beneficiary liability under Part A is less than under 
Part B, the beneficiary's liability can be waived. One commenter asked 
CMS to confirm that it was proposing a process that would conform to 
the CoP rules because the commenter did not believe the CoPs allowed 
self-audit to be conducted after discharge.
    Response: We thank the commenters for their support. We agree with 
the commenters that applying the Part B inpatient billing process in 
cases of self-audit will promote self-monitoring, proper payment, and 
increase Part B billing closer to the date of service, resulting in 
less confusion for the beneficiary and a greater number of Part B 
claims filed within the timely filing limits. We also agree that a 
significant benefit of the final rule to hospitals is the ability to 
receive full Part B payment if the determination is made after 
discharge that the beneficiary should have been treated as a hospital 
outpatient instead of admitted as a hospital inpatient. Currently there 
are no requirements in the CoPs or interpretive guidance indicating 
that review of admissions must be performed prior to discharge.
    We did not propose and are not finalizing a policy that would allow 
hospitals to bill Part B following an inpatient reasonable and 
necessary self-audit determination that does not conform to the 
requirements for utilization review under the CoPs. We do not agree 
with the commenters that beneficiaries need not be notified of a 
hospital's determination that the inpatient admission was not 
reasonable and necessary. Part B billing pursuant to such a 
determination may result in an increase in financial liability for some 
beneficiaries which hospitals may not be able to ``waive'' or forego 
attempting to collect (we refer readers to sections XI.B.5 and B.6. of 
the preamble of this final rule). We believe that the CoP rules for 
beneficiary notification and physician involvement in hospital

[[Page 50914]]

utilization review decisions are important for maintaining beneficiary 
rights, consistent with 42 CFR 482.13. We received many public comments 
from beneficiaries, beneficiary advocacy organizations, and law firms 
representing beneficiaries, recommending that we strengthen beneficiary 
notification and appeal rights for Part B inpatient billing (addressed 
in sections XI.B.5. and B.6. of the preamble of this final rule). In 
addition, we received several public comments from physician 
associations expressing concern that hospitals often change a patient's 
status from inpatient to outpatient without the physician's knowledge. 
We reiterate that hospitals must follow our policies requiring 
physician involvement and concurrence in hospital decisions regarding 
patient status and the medical necessity of hospital inpatient 
admissions under the Condition Code 44 rules and the CoPs. The 
Interpretive Guidelines for hospital utilization review under the CoPs 
are provided on the CMS Web site at: http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/som107ap_a_hospitals.pdf#page312.
    Comment: Some commenters asked whether the ``no pay/provider-
liable'' Part A claim and the Part B claims could be submitted 
simultaneously and whether a formal Medicare Part A denial is a 
prerequisite to Part B inpatient billing.
    Response: The ``no pay/provider liable'' claim must be present in 
the claims system in order for the subsequent Part B claim(s) to 
process. In order to pay the Part B services, CMS has to verify that a 
valid Part A denial exists in claims history. If both the ``no pay/
provider-liable'' Part A claim and the Part B claim(s) are submitted 
simultaneously, the Part A and Part B claims would overlap as 
duplicates in the processing system. A decision must be made regarding 
the Part A claim denial before a subsequent claim can be submitted. In 
accordance with our current claims processing rules for payment of Part 
B hospital services following hospital Part A inpatient reasonable and 
necessary claim denials, once the Part A claim denial is posted in the 
claims history, the Part B claim(s) can be submitted.
    Comment: One commenter stated that hospital billing to Part B based 
on self-audit should be rare, and any hospital that uses this process 
on a consistent basis should be audited. In addition, the commenter 
stated that because utilization reviews should be timely, the Part B 
claims resulting from these reviews should be within the timely filing 
period.
    Response: As we stated for the Condition Code 44 policy (MCPM, 
Chapter 1, Section 50.3.1), changes in patient status from inpatient to 
outpatient should be few because hospitals should have case management 
and other staff available at all times to assist the physician in 
making the appropriate initial admission decision. Use of Condition 
Code 44 or Part B inpatient billing pursuant to hospital self-audit is 
not intended to serve as a substitute for adequate staffing of 
utilization management personnel or for continued education of 
physicians and hospital staff about each hospital's existing policies 
and admission protocols. As education and staffing efforts continue to 
progress, inappropriate admission decisions, and the need for hospitals 
to correct inappropriate admissions or report Condition Code 44, should 
become increasingly rare. In section XI.C. of the preamble of this 
final rule, we finalize changes in our hospital inpatient admission 
guidelines and medical review criteria to help clarify on the front end 
when hospitals and physicians should admit beneficiaries as inpatients, 
with the goal of reducing inappropriate hospital admissions, hospital 
inpatient claim denials, and Part B billing following Part A hospital 
inpatient claim denials or hospital self-audit.
    We are finalizing our proposal that payment of Part B inpatient 
services may be made if a hospital determines under Sec.  482.30(d) or 
Sec.  485.641 after a beneficiary is discharged that the beneficiary's 
inpatient admission was not reasonable and necessary, and the 
beneficiary should have been treated as a hospital outpatient rather 
than admitted as an inpatient, provided the beneficiary is enrolled in 
Medicare Part B and that the hospital submits the Part B inpatient 
claim by the deadline for timely filing (discussed later in this 
section).
a. Part B Inpatient Services Paid Under the Hospital OPPS
    We proposed that we would pay for Part B inpatient services that 
are paid under the OPPS (except those requiring an outpatient status) 
under proposed new Sec.  414.5(a)(1), ``If a Medicare Part A claim for 
inpatient hospital services is denied because the inpatient admission 
was not reasonable and necessary, or if a hospital determines under 
Sec.  482.30(d) or Sec.  485.641 after a beneficiary is discharged that 
the beneficiary's inpatient admission was not reasonable and necessary, 
the hospital may be paid for the following Part B inpatient services 
that would have been reasonable and necessary if the beneficiary had 
been treated as a hospital outpatient rather than admitted as an 
inpatient, provided the beneficiary is enrolled in Medicare Part B: (1) 
Services described in Sec.  419.21(a) that do not require an outpatient 
status'' (78 FR 16636). We proposed to exclude payment of services 
under the OPPS such as observation services and hospital outpatient 
visits (including emergency department visits) that, by definition, 
require an outpatient status.
b. Services Excluded From Payment Under the OPPS
    For the proposed Part B inpatient services furnished by the 
hospital that are not paid under the OPPS, but rather under some other 
Part B payment methodology, we proposed that when the inpatient 
admission is determined not reasonable and necessary, Part B inpatient 
payment would be made under the respective Part B fee schedules or 
prospectively determined rates for which payment is made for these 
services when provided to hospital outpatients (78 FR 16637; 65 FR 
18442 and 18443). As provided in 42 CFR 419.22, the services for which 
payment is made under other payment methodologies are as follows:
     Outpatient therapy services described in section 
1833(a)(8) of the Act.
     Ambulance services, as described in section 1861(v)(1)(U) 
of the Act, or, if applicable, the fee schedule established under 
section 1834(l) of the Act;
     Except as provided in 42 CFR 419.2(b)(11), prosthetic 
devices, prosthetics, prosthetic supplies, and orthotic devices;
     Except as provided in 42 CFR 419.2(b)(10), durable medical 
equipment supplied by the hospital for the patient to take home;
     Clinical diagnostic laboratory services;
     Effective December 8, 2003, screening mammography services 
and effective January 1, 2005, diagnostic mammography services; and
     Effective January 1, 2011, annual wellness visit providing 
personalized prevention plan services as defined in 42 CFR 410.15.
    We proposed to provide payment of these OPPS-excluded services in 
42 CFR 414.5(a)(2) through (a)(7) as follows:
     Ambulance services, as described in section 1861(v)(1)(U) 
of the Act, or, if applicable, the fee schedule established under 
section 1834(l) of Act.
     Except as provided in Sec.  419.2(b)(11), prosthetic 
devices,

[[Page 50915]]

prosthetics, prosthetic supplies, and orthotic devices.
     Except as provided in Sec.  419.2(b)(10), durable medical 
equipment supplied by the hospital for the patient to take home.
     Clinical diagnostic laboratory services.
     Effective December 8, 2003, screening mammography services 
and effective January 1, 2005, diagnostic mammography services.
     Effective January 1, 2011, annual wellness visits 
providing personalized prevention plan services as defined in Sec.  
410.15 of this chapter.
    In our review of the current regulations governing payment of Part 
B inpatient services, we noted an oversight in 42 CFR 419.22 that 
outpatient DSMT services, which are described in section 1861(qq) of 
the Act and 42 CFR 414.63 and are paid under the MPFS, were never 
excluded from OPPS payment along with all other physician services. 
Because the statute defines these services as outpatient services, 
Sec.  414.63(e)(2) stipulates that outpatient DSMT services can be paid 
only if the beneficiary ``[i]s not receiving services as an inpatient 
in a hospital, SNF, hospice, or nursing home.'' Therefore, under our 
proposal, these services would not be payable Part B inpatient 
services, although they would be payable Part B outpatient services if 
furnished in the 3-day (1-day for on-IPPS hospitals) payment window 
prior to the inpatient admission. However, based on our review of the 
regulations, we proposed a technical correction to clarify that 
outpatient DSMT services are excluded from OPPS payment. We proposed 
that this correction would appear in Sec.  419.22(u). In addition, we 
noted a typographical error in paragraph (j), which should cross 
reference Sec.  419.2(b)(11) rather than Sec.  419.22(b)(11). We 
proposed a technical correction to delete the erroneous ``Sec.  
419.22(b)(11)''' and replace with ``Sec.  419.2(b)(11)'''. Also we 
noted that Sec.  419.22(h) excludes ``outpatient''' therapy services 
from the OPPS. Section 1833(t)(1)(B)(iv) of the Act specifically states 
that ``the term `covered OPD services' . . . (iv) does not include any 
therapy services described in subsection (a)(8)''' and section 
1833(a)(8) describes outpatient therapy services furnished by a 
hospital to a hospital outpatient or a hospital inpatient who is 
entitled to benefits under Part A but has either exhausted or is not so 
entitled to such benefits. In order to more clearly follow the 
statutory language defining covered OPD services, we proposed to 
replace the words ``outpatient therapy''' with ``therapy''' in Sec.  
419.22(h) so that it reads, ``Therapy services described in section 
1833(a)(8) of the Act.''
    We did not receive any public comments on the fee schedules or 
prospectively determined rates under which the proposed Part B 
inpatient services would be paid. After consideration of the public 
comments we received, we are finalizing new Sec.  414.5(a) with the 
addition of paragraph (a)(2) to provide for payment of physical 
therapy, speech-language pathology, and occupational therapy services. 
We are revising Sec.  419.22(h) by removing the phrase ``Outpatient 
therapy'' and adding in its place the phrase ``Physical therapy 
services, speech-language pathology services and occupational therapy 
services described in section 1833(a)(8) for which payment is made 
under the fee schedule described in section 1834(k) of the Act'' to be 
consistent with the exclusion language in section 1833(t)(1)(B)(iv) of 
the Act.
    In the proposed rule, based on our review of the regulations, we 
noted that outpatient DSMT was not excluded from OPPS payment as are 
other services paid under the MPFS. We proposed a correction to exclude 
them under 42 CFR 419.22, which lists hospital services excluded from 
payment under the OPPS. We did not receive any public comments on our 
proposed correction. Therefore, we are finalizing the addition of new 
paragraph (u) to Sec.  419.22 as proposed, to read: ``The following 
services are not paid for under the hospital outpatient prospective 
payment system . . . (u) Outpatient diabetes self-management 
training.''
    We are finalizing our proposed technical correction of a 
typographical error in paragraph (j) of Sec.  419.22, which should 
cross-reference Sec.  419.2(b)(11), rather than Sec.  419.22(b)(11).
    In our review of the regulations, we had further noted that the 
headings of Sec.  419.21 and Sec.  419.22 describe the ``hospital 
outpatient'' services that are subject to (in Sec.  419.21) or excluded 
from payment under (in Sec.  419.22) the OPPS. To more appropriately 
describe the services that are payable under these regulations under 
the OPPS, we proposed to amend the titles of these sections by removing 
the term ``outpatient.'' We did not receive any public comments on this 
proposal. Therefore, we are finalizing amendments to revise the title 
of Sec.  419.21 to read, ``Hospital services subject to the outpatient 
prospective payment system'' and to revise the title of Sec.  419.22 to 
read, ``Hospital services excluded from payment under the hospital 
outpatient prospective payment system.''
2. Payment of Part B Outpatient Services in the 3-Day Payment Window
    In the Part B Inpatient Billing proposed rule (78 FR 16637 through 
16638), we explained that the proposals in the proposed rule would not 
change the 3-day payment window policy, which requires payment for 
certain outpatient services provided to a beneficiary on the date of an 
inpatient admission or during the 3 calendar days (or 1 calendar day 
for a hospital that is not paid under the IPPS) prior to the date of an 
inpatient admission to be bundled (that is, included) with the payment 
for the beneficiary's inpatient admission, if those outpatient services 
are provided by the admitting hospital or an entity that is wholly 
owned or wholly operated by the admitting hospital (42 CFR 412.2(c)(5), 
412.405, 412.540, 412.604(f), and 413.40(c)(2); MCPM Section 40.3, 
Chapter 3 and Section 10.12, Chapter 4). The current policy applies to 
all diagnostic outpatient services and nondiagnostic (that is, 
therapeutic) services that are related to the inpatient stay. As stated 
in the MCPM, Section 10.12, Chapter 4, in the event that there is no 
Part A coverage for the inpatient stay, reasonable and necessary 
services provided to the beneficiary prior to the point of admission 
may be separately billed to Part B as the outpatient services that they 
were. We proposed that this policy would continue to apply where Part A 
payment is not available because the hospital inpatient admission is 
determined not reasonable and necessary. The Part B outpatient claims 
for the outpatient services provided in the 3-day (or 1-day for a non-
IPPS hospital) payment window would be subject to the usual timely 
filing restrictions and not be considered adjustment claims.
    We explained that hospitals may only submit claims for Part B 
outpatient services that are reasonable and necessary in accordance 
with Medicare coverage and payment rules. In accordance with section 
1833(e) of the Act, hospitals must furnish information as may be 
necessary in order to determine the amounts due for the services billed 
on a Part B outpatient claim for services rendered in the 3-day (or 1-
day for non-IPPS hospitals) payment window prior to the inpatient 
admission.
    Comment: Many commenters seemed to misunderstand the proposal to 
exclude certain services from payment as Part B inpatient services, and 
believed CMS was also proposing to

[[Page 50916]]

exclude these services from payment as Part B outpatient services in 
the 3-day (1-day for non-IPPS hospitals) payment window. Several 
commenters asked us to clarify why the proposed regulation text only 
addressed payment of Part B inpatient services, and did not specify 
payment of Part B outpatient services furnished in the 3-day (1-day for 
non-IPPS hospitals) payment window prior to the inpatient admission. 
Other commenters believed CMS was proposing to allow payment of all 
rebilled services as Part B outpatient services by changing the 
beneficiary's status for the entire hospital stay to outpatient.
    Response: For outpatient services provided to a beneficiary on the 
date of an inpatient admission or during the 3-calendar day (or 1-
calendar day for a non-IPPS hospital) payment window prior to the date 
of an inpatient admission, we proposed the same payment policy and 
claims process that we provide for under current policy (MCPM, Chapter 
4, Section 50.3; MCPM Chapter 4, Section 10.12 and Chapter 3, Section 
40.3), that we used in the A/B Rebilling Demonstration, and that we 
required under the Ruling (78 FR 16614 through 16617). As we stated in 
the Ruling (78 FR 16617), ``the beneficiary's patient status remains 
inpatient as of the time of inpatient admission and is not changed to 
outpatient, because the beneficiary was formally admitted as an 
inpatient and there is no provision to change a beneficiary's status 
after she/he is discharged from the hospital. The beneficiary is 
considered an outpatient for services billed on the Part B outpatient 
claim, and is considered an inpatient for services billed on the Part B 
inpatient claim.'' Under existing policy, all reasonable and necessary 
outpatient services furnished in the 3-day (or 1-day for non-IPPS 
hospitals) payment window, including those requiring an outpatient 
status, may be billed on the 13x (Part B outpatient) type of bill 
(TOB). Services furnished after the time of the inpatient admission 
must be billed on the 12x (Part B inpatient) TOB. Billing the Part B 
services according to the patient's status supports proper payment and 
clarifies the patient's status for determining skilled nursing facility 
coverage, and Medicare inpatient days for IPPS payments (we refer 
readers to section XI.B.11. of the preamble of this final rule). As 
explained above, those services that require an outpatient status and 
that cannot be billed on a 12x claim--observation services, outpatient 
hospital visits, and outpatient DSMT--are payable if they were 
furnished to an outpatient during the 3-day (1-day for non-IPPS 
hospitals) payment window preceding the inpatient admission and are 
billed on a Part B outpatient (13x) claim.
    Our proposed regulation text did not specify payment of Part B 
hospital outpatient services following a Part A hospital inpatient 
claim denial for medical necessity of the admission, because these Part 
B services are already payable under other relevant Part B regulations 
for payment of outpatient services in accordance with Chapter 4, 
Section 10.12 of the MCPM. However, given the significant confusion 
among the commenters about this issue, we are incorporating this manual 
provision into our final regulation text, providing payment of Part B 
outpatient services provided in the 3-day (1-day for non-IPPS 
hospitals) payment window prior to the inpatient admission. 
Specifically, we are adding new paragraph (b) under Sec.  414.5 stating 
that, ``If a Medicare Part A claim for inpatient hospital services is 
denied because the inpatient admission was not reasonable and 
necessary, or if a hospital determines under Sec.  482.30(d) of this 
chapter or Sec.  485.641 of this chapter after a beneficiary is 
discharged that the beneficiary's inpatient admission was not 
reasonable and necessary, the hospital may be paid for hospital 
outpatient services described in Sec.  412.2(c)(5), Sec.  412.405, 
Sec.  412.540, Sec.  412.604(f), or Sec.  413.40(c)(2) of this chapter 
furnished to the beneficiary prior to the point of inpatient admission 
(that is, the inpatient admission order).'' In addition, we are 
deleting the term ``inpatient'' from the phrase ``hospital inpatient 
services'' in the proposed title of Sec.  414.5, to indicate that this 
section of the regulations addresses payment of both hospital 
outpatient and hospital inpatient services. The final title reads, 
``Hospital services paid under Medicare Part B when a Part A hospital 
inpatient claim is denied because the inpatient admission was not 
reasonable and necessary, but hospital outpatient services would have 
been reasonable and necessary in treating the beneficiary.''
    Comment: Several commenters disagreed with the proposal to require 
hospitals to bill two claims for payment of Part B inpatient and Part B 
outpatient services. Some commenters recommended that CMS allow all 
Part B services to be billed on the 13x TOB because they believed the 
MACs will fail to apply the rules correctly for the 12x TOB because 
they will be unable to distinguish the reason there was no Part A 
coverage (exhausted Part A benefits versus denial of inpatient 
admission for lack of medical necessity) and, therefore, the amount of 
allowable Part B payment. Some commenters suggested that CMS create a 
condition code that would distinguish the various reasons for Part B 
inpatient billing.
    Other commenters expressed the opinion that requiring both the 12x 
TOB and 13x TOB would be burdensome either because the accounting 
systems available to most hospitals do not have a means of easily 
separating charges furnished within a 24-hour period (presumably when 
the beneficiary has both outpatient and inpatient charges on the day of 
admission), or because splitting charges generally between the 
outpatient services in the 3-day payment window and the inpatient 
services provided during the inpatient stay is not standard operating 
procedure and would require hospitals to reprogram their billing 
systems. Other commenters believed that CMS will need to provide 
guidance on recoding services with differences in coding requirements 
for Part A and Part B claims. Some commenters stated that CMS should 
use information supplemented to the Part A claim to issue Part B 
payment, rather than requiring the submission of any Part B claims. The 
commenters suggested that supplemental payers and beneficiaries will 
have a greater number of claims to process if Medicare requires two 
Part B claims. Some commenters recommended either including all charges 
on the 12x TOB using the claims procedures that they believe CMS 
employed in the A/B Rebilling Demonstration, or creating a new bill 
type that would identify inpatient reasonable and necessary denials and 
allow all Part B services to remain on the same claim.
    Response: In the A/B Rebilling Demonstration, CMS used the claims 
process that is required under existing policy and that was proposed in 
the proposed rule (that is, requiring a Part B inpatient claim for 
services furnished after the time of inpatient admission, and a Part B 
outpatient claim for services furnished in the 3-day (1-day for non-
IPPS hospitals) payment window prior to the inpatient admission (78 FR 
16636 through 16638). In this process, because the beneficiary is an 
outpatient prior to the time of inpatient admission, and the services 
furnished during that time period are outpatient services, they must be 
billed on a 13x Part B outpatient TOB. Because the beneficiary remains 
an inpatient from the time of inpatient admission, and the services 
billed after the time of admission are inpatient services, CMS requires 
that these services be billed on a Part B inpatient 12x TOB and does 
not

[[Page 50917]]

allow outpatient services such as observation to be billed on this 
claim.
    As we stated in the proposed rule, in accordance with section 
1833(e) of the Act, hospitals must furnish information as may be 
necessary in order to determine the amounts due for the services billed 
on a Part B outpatient or a Part B inpatient claim (78 FR 16636 and 
16638). Because the inpatient services are bundled for payment rather 
than itemized on the original Part A claim, only the hospital can 
distinguish which services among those that were furnished would have 
been reasonable necessary if the hospital had treated the beneficiary 
on an outpatient basis. Only the hospital can provide this information 
to Medicare by itemizing the reasonable and necessary services on the 
subsequent Part B claim(s). In addition, Part B outpatient claims will 
not be required in situations other than when the beneficiary received 
outpatient services prior to being admitted as an inpatient.
    The alternative to separating the services provided before and 
after the inpatient admission on two claims would involve the creation 
of a complex system of modifiers to specify timing relative to the 
order for the services on a single claim. This would be considerably 
more burdensome than creating two claims. For example, requiring a 
separate outpatient claim will enable hospitals to distinguish the 
outpatient services they furnished in the 3-day (1-day for non-IPPS 
hospitals) payment window from the inpatient services furnished, 
allowing payment of services that are defined as strictly outpatient 
services in the 3-day payment window.
    We are not sure what informational format the commenter was 
referring to in the suggestion to allow for supplementation of the Part 
A claim. It seems that a ``supplementation'' process would require all 
Part B line item detail in addition to header information to allow the 
supplemental file to link to the original Part A claim. Although this 
would be administratively confusing because a Part B inpatient claim is 
a replacement for a Part A claim, not a supplement, the more 
operationally significant consideration is that the effort of creating 
a new Part B claim is no different (and may in fact be less) than the 
effort involved in creating a supplement but with the added necessity 
of linking a supplement to the primary Part A claim data.
    We are finalizing our proposed policies on the 3-day (1-day for 
non-IPPS hospitals) payment window and the required Part B claims. 
However, we also are evaluating the Medicare claims system to ensure 
that it distinguishes among the reasons that Part A coverage was not 
available and provides the appropriate payment. We will issue 
additional guidance in the future with claims specifications for 
billing Part B inpatient services under this final rule, such as 
distinguishing the reason for the Part A claim denial.
3. Applicability: Types of Hospitals
    We proposed that all hospitals billing Part A services would be 
eligible to bill the proposed Part B inpatient services, including 
short-term acute care hospitals paid under the IPPS, hospitals paid 
under the OPPS, LTCHs, IPFs, IRFs, CAHs, children's hospitals, cancer 
hospitals, and Maryland waiver hospitals. We proposed that hospitals 
paid under the OPPS would continue billing the OPPS for Part B 
inpatient services. We proposed that hospitals that are excluded from 
payment under the OPPS in 42 CFR 419.20(b) would be eligible to bill 
Part B inpatient services under their non-OPPS payment methodologies.
    Comment: One commenter asked whether Maryland waiver hospitals 
would be eligible for the proposed Part B inpatient billing policies. 
Another commenter asked CMS to clarify whether the reference to section 
1861(e) of the Act (78 FR 16632) was intended to exclude IPFs from our 
proposed policies.
    Response: Under section 1814(b) of the Act, hospitals in the State 
of Maryland are subject to a waiver from the Medicare payment 
methodologies under which they would otherwise be paid. Under the 
demonstration that forms the basis of the statutory framework of the 
Maryland hospital Medicare payment system, only the hospitals' payment 
methodology was waived. All other Medicare requirements generally 
apply; therefore, from a billing perspective, we believe Maryland 
waiver hospitals should be treated the same as nonwaiver hospitals for 
purposes of Part B inpatient billing.
    Our reference to section 1861(e) of the Act was intended to specify 
that CAHs were included in the proposed policies, not that IPFs or 
other non-IPPS hospitals would be excluded. We see no reason to exclude 
any non-IPPS hospitals from Part B inpatient billing in the 
circumstances addressed in this final rule, and we are applying the 
final rule policies to all hospitals and CAHs.
    In the CY 2002 OPPS proposed rule (66 FR 44698 through 44699) and 
final rule (66 FR 59891 through 59893), we recognized that certain 
hospitals do not submit claims for outpatient services under Medicare 
Part B, either because they do not have outpatient departments or 
because they have outpatient departments but submit no claims to 
Medicare Part B (for example, state psychiatric hospitals). When the 
OPPS was implemented, the only claims these hospitals would ever have 
submitted for Part B payment would have been for the ancillary services 
designated as ``Part B Only'' services. These hospitals were concerned 
about the administrative burden and prohibitive costs they would incur 
if they were to change their billing systems to accommodate OPPS 
requirements solely to receive payment for Part B Only (Part B 
inpatient) services. Under our policy of limited (ancillary) Part B 
inpatient billing following a reasonable and necessary Part A claim 
denial, the cost to these hospitals of implementing claims systems to 
bill Part B inpatient services to the OPPS would have been greater than 
the payments they could have received for the services. In response to 
this concern, we revised 42 CFR 419.22 by adding paragraph (r), which 
provides that services defined in 42 CFR 419.21(b) that are furnished 
to inpatients of hospitals that do not submit claims for outpatient 
services under Medicare Part B are excluded from payment under the 
OPPS. We provided an exception under which, rather than billing Part B 
inpatient services under the OPPS, hospitals would bill these services 
under the hospital's pre-OPPS payment methodology, for example at 
reasonable cost or the per diem payment rate, unless the services were 
subject to a payment methodology that was established prior to the 
OPPS. We solicited public comments from these hospitals regarding the 
types of Part B inpatient services they anticipated billing Medicare 
under our proposal for payment of additional Part B services (78 FR 
16638). If, under our proposed policies, the Part B inpatient services 
payable to these hospitals would largely be limited to the ancillary 
services they currently bill Medicare, these hospitals would continue 
billing Part B inpatient services under the current exception. However, 
we stated that if we received public comments indicating that hospitals 
subject to the exception in 42 CFR 419.22(r) would be eligible and seek 
payment for additional Part B inpatient services under this proposed 
rule, we would consider finalizing a policy to require these hospitals 
to bill the OPPS because, unlike under existing policy, their eligible 
payments would likely outweigh the cost of implementing billing systems 
specific to the OPPS. To reflect such a policy, we

[[Page 50918]]

stated that we would delete paragraph (r) of Sec.  419.22(r) and 
redesignate paragraphs (s) and (t) as paragraphs (r) and (s), 
respectively.
    We did not receive any public comments regarding Part B inpatient 
billing by hospitals subject to the existing exception in Sec.  
419.22(r). Therefore, we are not finalizing a policy in the final rule 
to require these hospitals to bill the OPPS for Part B inpatient 
services that are typically paid under the OPPS. We intend to monitor 
the volume of Part B claims submitted for payment by these hospitals, 
and may propose in future rulemaking to require them to begin billing 
the OPPS based on the Part B inpatient services they bill.
5. Beneficiary Liability Under Section 1879 of the Act
    As discussed in the Part B Inpatient Billing proposed rule (78 FR 
16639), prior to the issuance of CMS Ruling CMS 1455-R (as described in 
section XI.B.1. of the preamble of this final rule), our policy 
previously allowed for billing of only a limited set of Part B 
inpatient services rather than all Part B services following the 
reasonable and necessary denial of a Part A inpatient claim. Under the 
policy being adopted in this final rule, we recognize that allowing 
hospitals to bill for additional Part B inpatient services could create 
a unique liability issue for Medicare beneficiaries that did not 
previously exist.
    When a Part A inpatient admission is denied as not reasonable and 
necessary under section 1862(a)(1)(A) of the Act, or a hospital submits 
a ``provider liable/no-pay'' claim (following a self-audit as described 
in section XI.B.3. of the preamble of this rule) indicating that the 
hospital has determined that an inpatient admission is not reasonable 
and necessary, a determination of financial liability for the 
noncovered inpatient admission is made in accordance with section 1879 
of the Act. The Medicare contractor determines whether the hospital and 
the beneficiary knew, or could have reasonably been expected to know, 
that the services were not covered. If neither the hospital nor the 
beneficiary knew, or could reasonably have been expected to know, that 
the services were not covered, then Medicare makes payment for the 
denied services. However, because hospitals are expected to have 
knowledge of our coverage and payment rules, hospitals are often 
determined liable under section 1879 of the Act for the cost of the 
noncovered items and services furnished. In addition, unless the 
beneficiary had knowledge of noncoverage in advance of the provision of 
services (typically through a Hospital-Issued Notice of Noncoverage 
(HINN)), the beneficiary will not be financially liable for the denied 
Part A services in accordance with section 1879 of the Act.
    Following a denial of a Part A inpatient admission as not 
reasonable and necessary and a determination that the beneficiary was 
not financially liable in accordance with section 1879 of the Act, the 
hospital is required to refund any amounts paid by the beneficiary 
(such as deductible and copayment amounts) for the services billed 
under Part A (42 CFR 411.402). The beneficiary would have no out-of-
pocket cost in this scenario. However, as we explained in the proposed 
rule, if the hospital subsequently submits a timely Part B claim after 
the Part A claim is denied, the financial protections afforded under 
section 1879 of the Act to limit liability for the denied Part A claim 
cannot also be applied to limit liability for the covered services 
filed on the Part B claim. The beneficiary (who may previously have had 
no out-of-pocket costs for the denied Part A claim) is responsible for 
applicable deductible and copayment amounts for Medicare covered 
services, and for the cost of items or services never covered (or 
always excluded from coverage) under Part B of the program. If, 
however, a hospital does not bill under Part B in a timely manner, in 
accordance with section 1866(a)(1)(A)(i) of the Act, the hospital may 
not charge the beneficiary for the costs related to the Part B items 
and services furnished, if the beneficiary would otherwise be entitled 
to have Part B payment made on his or her behalf. Finally, in instances 
where the beneficiary is not enrolled in Medicare Part B, we encouraged 
hospitals and beneficiaries to recognize the importance of billing 
supplemental insurers and pursuing an appeal of the Part A inpatient 
claim denial, as appropriate.
    As we stated in the proposed rule, we do not believe that the 
existing beneficiary liability notices used in the Medicare fee-for-
service program (the HINN and Advance Beneficiary Notice of Noncoverage 
(ABN)) are applicable or relevant for the Part B inpatient billing 
process described in the proposed rule to alert beneficiaries to the 
possible change in deductible and cost-sharing if a Part A inpatient 
claim is denied and a Part B claim is subsequently submitted. These 
notices must be given prior to the provision of an item or service that 
is expected to be denied, and cannot be issued retroactively (that is, 
after the receipt of the post-payment Part A inpatient claim denial). 
Instead, we proposed to conduct an educational campaign and issue 
materials that address various aspects of this final rule, including 
raising beneficiary awareness that certain denied Part A inpatient 
hospital services may be covered under Part B of the program.
    Comment: Many commenters recommended that beneficiaries should be 
held harmless for the Part B cost-sharing and that patients should not 
be charged for provider error in admitting the patient inappropriately. 
Other commenters suggested that beneficiaries should be responsible for 
cost-sharing on the Part A claim but not responsible for anything 
beyond that amount if a Part B claim is submitted, similar to how the 
cost-sharing was handled under the A/B rebilling demonstration project.
    Response: We agree that beneficiaries should not be charged for 
unexpected costs of a service denied as not reasonable and necessary. 
The limitation on liability provision in section 1879 of the Act 
(``Limitation on Liability of Beneficiary Where Medicare Claims Are 
Disallowed'') protects beneficiaries from financial liability for 
certain denials and requires that providers refund any amounts 
collected for denied services, including coinsurance and deductible 
amounts, where the provider is determined to be liable for the denied 
services (42 CFR 411.402). However, in the case of a provider 
furnishing covered services that are payable by Medicare, beneficiaries 
are responsible for the applicable coinsurance and deductible (sections 
1833(b) and 1833(t)(8) of the Act). We do not have authority to waive 
this statutory requirement in order to hold beneficiaries harmless from 
their cost-sharing obligations for covered Part B services. The 
commenters who suggested this approach are referring to the A/B 
rebilling demonstration project that ended March 13, 2013. Under the 
demonstration project, which was conducted prior to the issuance of the 
proposed rule and CMS Ruling 1455-R, hospitals were prohibited from 
collecting from beneficiaries coinsurance and deductible amounts 
related to covered Part B services billed to the program if these cost-
sharing amounts under Part B exceeded the amount of the Part A 
inpatient deductible. We were able to waive the statutory requirements 
regarding beneficiary responsibility for coinsurance and deductibles 
and hold beneficiaries harmless from any additional Part B cost-sharing 
under the authority granted in section 402(b) of the Social Security 
Amendments of 1967 (42 U.S.C 1395b-1) but this waiver authority applies 
only to experiments and demonstration projects conducted

[[Page 50919]]

under section 402(a) of that statute. We do not have similar authority 
to change or waive such requirements under our general rulemaking 
authority. Therefore, we cannot adopt the commenters' recommendations 
to hold beneficiaries harmless for the financial responsibility related 
to Part B coinsurance and deductible for covered claims.
    Comment: Several commenters suggested that CMS permit the hospital 
to retain amounts collected for the inpatient deductible related to the 
Part A claim and offset any amount that may need to be collected under 
Part B for the applicable coinsurance and deductible. The commenters 
stated that hospitals would then refund amounts where the amount to be 
collected related to the Part B claim(s) was less than the amount to be 
refunded for the Part A claim.
    Response: If a Part A claim for an inpatient stay is denied as not 
reasonable and necessary and the hospital, but not the beneficiary, is 
determined to be financially liable for the cost of the denied Part A 
services pursuant to section 1879 of the Act, the hospital is 
prohibited from collecting any amounts for the denied Part A services 
from the beneficiary and must refund any amounts previously collected. 
Failure to refund the amounts incorrectly collected may subject the 
hospital to an indemnification action pursuant to section 1879(b) of 
the Act and 42 CFR 411.402. We will issue subregulatory guidance about 
how this refund should occur when there is both a Part A refund owed to 
and a Part B liability owed from the beneficiary.
    Comment: Several commenters opined that the proposal to conduct an 
education campaign to alert beneficiaries to the potential changes in 
cost-sharing if a claim for a Part A inpatient admission is denied and 
subsequently rebilled under Part B was inadequate. These commenters 
recommended that CMS consider requiring hospitals to issue an 
additional standardized notice or a Frequently Asked Questions (FAQ) 
sheet regarding Part B inpatient billing to all inpatients prior to 
admission or after discharge, or adding information on Part B inpatient 
billing to the existing Important Message from Medicare (IM).
    Response: In the proposed rule, we explained that we intend to 
conduct an educational campaign to ensure that beneficiaries are aware 
of the on-going review of inpatient claims and the potential financial 
liability resulting from a Part A claim denial with subsequent Part B 
billing. We support the commenters' intent to inform beneficiaries. 
However, we believe that providing all beneficiaries with an additional 
notice or FAQ sheet on admission would likely create undue confusion 
and concern for beneficiaries. Beneficiaries already receive many 
notices and papers on hospital admission, and it is unlikely that a 
beneficiary's admission will be subject to the Part B billing 
procedures described in this rule. We believe that the commenters' 
recommended approach to provide all inpatients with a standard notice 
regarding post-discharge claims processing issues is excessive and 
unwarranted. In addition, delivery of this information on admission 
would violate our general approach to notice delivery, which is to 
provide information at a time when it is applicable to the situation 
and needed by the beneficiary. The commenters' recommended timing of 
notice delivery, in most cases, would be well in advance of when a 
beneficiary might need the information and would negatively impact its 
utility.
    In addition, we believe that adding information to the IM on Part B 
inpatient billing or rebilling is not a feasible option. The IM, an 
information collection approved by the Office of Management and Budget 
(OMB), is used to inform and advise beneficiaries regarding discharge 
appeal rights and the steps to take if they believe that their 
discharge is premature, in accordance with section 1866(a)(1)(M) of the 
Act. It would be inappropriate to include information about claims 
processing policies on this notice and would likely be confusing to 
beneficiaries because the decision to submit a Part B inpatient claim 
is not a discharge. While there is existing statutory and regulatory 
authority to enforce hospital compliance with the existing IM notice 
requirements, we are unaware of existing authority that would enforce 
compliance or penalize noncompliance with either revisions to the IM or 
any separate notice requirement for hospitals to notify the beneficiary 
before submitting a Part B inpatient claim.
    Our longstanding educational strategies promote informed 
beneficiaries, and we believe that educating beneficiaries before 
entering the hospital and providing relevant information when it is 
needed is the best approach. By providing knowledge of hospital billing 
considerations in advance of their stay, beneficiaries with concerns 
about the appropriateness of a Part A inpatient hospitalization can 
discuss these issues with their physicians before or on admission. 
Information on Part B inpatient billing will be added to the annual 
Medicare & You publication and the existing publication, Are You a 
Hospital Inpatient or Outpatient? If You Have Medicare--Ask! (CMS 
Product No. 11435). We also will review other existing CMS publications 
and include information where appropriate. In addition, for those 
beneficiaries specifically affected by a Part A hospital inpatient 
claim denial that may be subject to Part B billing or a Part B claim 
submission for hospital inpatient services subsequent to a Part A claim 
denial, contractors will include new messages on the Medicare Summary 
Notice (MSN) to inform them of the action. These newly created MSN 
messages explain that the hospital may submit the claim under Part B 
and that different cost-sharing may apply. In this manner, we will 
incorporate the commenters' suggestion on the timing of post-discharge 
delivery of information regarding billing under Part B for inpatient 
hospital services, consistent with our approach to delivering notices 
at a time when the information is most relevant.
    For these reasons, we are not adopting the commenters' 
recommendations to require delivery of an additional standardized 
notice or a Frequently Asked Questions (FAQ) sheet to inpatients prior 
to admission or after discharge, or to amend the existing Important 
Message from Medicare. However, we will continue to monitor the 
effectiveness of our efforts to inform and educate beneficiaries and 
may consider other options such as targeted beneficiary notice in 
future rulemaking.
    Comment: One commenter stated that the proposed rule subverts 
longstanding demand billing policy established subsequent to the 
settlement agreement in Sarrassat v. Sullivan (1989 WL 208444 
(N.D.Cal.)). The commenter objected to CMS' proposal requiring 
hospitals to submit a ``no-pay'' Part A claim with a Part B claim for 
inpatient and/or outpatient services when hospitals self-audit and 
determine that the claim(s) should be submitted under Part B. The 
commenter explained that beneficiaries subject to the Sarrassat 
settlement agreement have the right to request a demand bill for a Part 
A coverage determination.
    Response: We appreciate the comments submitted on this issue. 
However, the terms of the settlement agreement in Sarrassat applied to 
patients in SNFs, not hospitals. Nevertheless, we believe our proposed 
policy in cases of hospital self-audits requiring submission of a ``no-
pay'' Part A claim with the hospital's Part B claim(s) does not 
undermine demand billing policies. With demand billing, beneficiaries 
have the right to request

[[Page 50920]]

claim submission and receive an official Medicare claim decision even 
when a provider believes that items and services furnished will not be 
covered. This right is not affected by the provisions of the proposed 
rule. In the case of a self-audit by the hospital, if the hospital 
determines the admission is covered under Part B rather than Part A, it 
will submit a Part B claim along with a ``no-pay'' Part A claim, and 
the contractor will make initial determinations on those claims. The 
beneficiary retains the right to an official Medicare decision on 
payment for the claim submitted by the hospital. Should the beneficiary 
dispute the initial determination by the contractor that the services 
are properly payable under Part B, the beneficiary may file an appeal 
of the Part B claim under the existing procedures in 42 CFR Part 405, 
Subpart I (76 FR 16640) and assert such concerns.
    For these reasons, we are not adopting the commenters' 
recommendations and are finalizing the provisions of the proposed rule 
requiring the submission of a ``no-pay'' Part A claim with a Part B 
claim for inpatient and/or outpatient services when hospitals self-
audit and determine that the claim(s) should be submitted as under Part 
B without modification.
6. Applicable Beneficiary Liability: Hospital Services
    In the Part B Inpatient Billing proposed rule (78 FR 16639), we 
stated that increasing the number of billable Part B inpatient services 
could affect beneficiary liability. In accordance with statute, 
beneficiary cost-sharing under Part A is different (and, in some cases, 
may be less) than under Part B. The CY 2013 Medicare Part A inpatient 
deductible and coinsurance amounts, which are set in accordance with 
statute, were recently announced in a notice published in the Federal 
Register on November 21, 2012 (77 FR 69848 through 69850). Under Part 
A, a beneficiary pays a one-time deductible for all hospital inpatient 
services provided during the first 60 days in the hospital of the 
benefit period for a year; therefore, an inpatient deductible does not 
necessarily apply to all hospitalizations. The Medicare Part A 
coinsurance only applies after the 60th day in the hospital. When the 
Part A claim is denied because the inpatient admission is determined to 
be not reasonable and necessary, the beneficiary is entitled to refunds 
of any amounts he or she paid to the hospital for the Part A claim if 
the hospital, but not the beneficiary, is held financially responsible 
for denied services under section 1879 of the Act (42 CFR 411.402.) 
However, under our proposed policy, beneficiaries would continue to be 
liable for their usual Part B financial liability.
    We stated in the proposed rule that beneficiaries would be liable 
for Part B copayments for each hospital Part B outpatient or Part B 
inpatient service and for the full cost of drugs that are usually self-
administered, which section 1861(s)(2)(B) of the Act does not include. 
We noted that self-administered drugs are typically covered under 
Medicare Part D, and beneficiaries who have Part D coverage may submit 
a claim to their Part D plan for reimbursement of these costs. If a 
beneficiary must receive the self-administered drug from a hospital, 
rather than a community pharmacy, he or she would likely be subject to 
higher out-of-pocket costs due to the hospital pharmacy's status as a 
non-network pharmacy. Hospital billing systems, Part D reimbursement 
rates, and drug utilization review requirements make it difficult for 
hospitals to participate as a Part D network provider for these drugs. 
Therefore, if coverage is available, consistent with 42 CFR 423.124(b), 
beneficiaries would be responsible for the difference between the Part 
D plan's allowance and the hospitals' charges, and the difference may 
be significant.
    Therefore, under our proposed Part B payment policy, some 
beneficiaries who are entitled to coverage under both Part A and Part B 
may have a greater financial liability for hospital services compared 
to current policy, as they would be liable for additional Part B 
services billed when the inpatient admission is determined not 
reasonable and necessary. Accordingly, we solicited public comments on 
whether we should consider additional policies to mitigate or prevent 
this potential additional liability for beneficiaries.
    Comment: Most commenters asserted that changing beneficiary 
liability for hospital services after discharge, especially up to 
several years later, is inappropriate and unfair. Many commenters 
stated that while the proposed rule helps hospitals financially, it 
would financially harm low-income and other beneficiaries, and 
beneficiary advocates recommended that the proposal not be finalized 
for this reason. Hospitals believed it would be administratively 
burdensome and harmful to patient relations to bill beneficiaries for 
changes in liability after their discharge and without advance notice. 
Beneficiary advocates focused on beneficiaries' right to informed 
consent, involvement in their plan of care, and advance knowledge of 
liabilities, similar to the public comments we received in response to 
the CY 2013 OPPS/ASC final rule with comment period (77 FR 68432). To 
address these issues, the commenters recommended the following:
     Changes in cost-sharing should be waived as in the A-B 
rebilling demonstration, or Medicare should pay 100 percent of approved 
charges. In return, the hospital would agree not to charge the 
beneficiary for the cost of self-administered drugs.
     Alternatively, beneficiaries could be held harmless for 
any additional cost-sharing above their cost-sharing for the Part A 
denied services.
     Hospitals should have discretion in beneficiary billing 
policies, so long as the policies are applied consistently across all 
payers and patients.
    One commenter requested that CMS clarify that hospitals must bill 
beneficiaries for Part B cost-sharing. Several commenters expressed 
concerns about being able to bill beneficiaries for Part B cost-sharing 
many years after the services were provided. The commenters stated 
that, in some cases, beneficiaries may have moved or may have died, and 
collecting the coinsurance/deductible from the beneficiary would prove 
difficult or impossible.
    Response: We understand and appreciate the commenters' concerns. 
However, CMS does not have authority to limit beneficiary liability for 
Part B covered services. As we discussed in section XI.B.5. of the 
preamble of this final rule, beneficiary liability is governed under 
section 1879 of the Act. Under this section, the beneficiary is 
typically not liable for costs associated with a Part A inpatient 
service denied as not reasonable and necessary, and CMS has authority 
to indemnify, if necessary, the beneficiary for any cost, including the 
deductible and coinsurance, paid to the hospital (and to then treat 
this indemnification as an overpayment to the hospital). However, CMS 
does not have authority under section 1879 or any other section of the 
Act to adjust costs to the beneficiary associated with a properly filed 
Part B inpatient claim. Similarly, CMS does not have authority under 
the statute to ``waive'' cost sharing liability or liability for the 
cost of drugs that are usually self-administered as we had under the A/
B Rebilling Demonstration, nor does CMS have authority to ``make up'' 
for the beneficiary's liability by paying 100 percent of the Part B 
charges or allowed amounts to hospitals.
    For beneficiaries enrolled in Part B, we understand that the issue 
of whether hospitals are required to bill the

[[Page 50921]]

beneficiaries for their Part B liabilities is governed by the 
beneficiary inducement and anti-kickback laws and, therefore, falls 
under the jurisdiction of the Office of the Inspector General (OIG). We 
refer the commenters to the OIG regarding whether hospitals are 
required to bill these beneficiaries for their Part B liabilities.
    For beneficiaries not enrolled in Part B, hospitals should bill 
Part B to ensure the claim enters the coordination of benefits cross-
over process in the event the beneficiary has coverage under a 
supplemental or secondary insurance plan (we refer readers to section 
XI.B.10. of the preamble of this final rule).
    Comment: A few commenters noted that beneficiary liability amounts 
under Part B that hospitals are unable to recover will become bad debt 
under Medicare's payment rules.
    Response: We agree that if a hospital is unable to recover 
beneficiary liability payments for covered Part B services, those 
amounts may become hospital Medicare bad debt. The hospital may claim 
uncollected copayments for covered Part B inpatient services as bad 
debt in accordance with the provisions of 42 CFR 413.89.
7. Applicable Beneficiary Liability: Skilled Nursing Facility Services
    As discussed in section XI.A. of the preamble of this final rule, 
the increased use of hospital observation services has a number of 
implications in terms of a beneficiary's financial liability, one of 
which involves the ability to qualify for Part A coverage of 
posthospital SNF care. SNF coverage is affected because a hospital's 
observation services are considered outpatient rather than inpatient 
services, and section 1861(i) of the Act requires a qualifying 3-day 
inpatient hospital stay for Part A SNF coverage. The importance of a 
beneficiary's status as a hospital ``inpatient'' in terms of qualifying 
for posthospital SNF coverage has also generated concerns about the 
need to clarify any potential implications that the inpatient rebilling 
policy may have in this area. The following discussion presents a 
summary of the comments that we received on this topic, and our 
responses.
    Comment: Several commenters expressed concern about the financial 
liability to patients or SNFs in cases where a patient had a 3-day 
qualifying inpatient stay and transferred to the SNF for Part A 
services, but the qualifying inpatient stay was subsequently denied and 
determined to be not medically necessary. Commenters suggested that 
there has been little direction from CMS regarding the financial 
liability to the beneficiary or the SNF if the qualifying Part A 
inpatient stay was determined to be not medically necessary.
    Response: The Part B inpatient billing policy finalized in this 
rule would not change CMS' longstanding policy regarding the financial 
liability of the beneficiary or the SNF in situations where the 
inpatient hospital stay is subsequently denied after SNF admission.
    Under this policy, the 3-day inpatient hospital stay which 
qualifies a beneficiary for ``posthospital'' SNF benefits need not 
actually be Medicare-covered, as long as it is medically necessary. In 
this particular context, section 20.1 of the Medicare Benefit Policy 
Manual, Chapter 8 (available online at http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/bp102c08.pdf), includes the 
following in its discussion of the SNF benefit's qualifying inpatient 
hospital stay requirement:
    ``. . . the qualifying hospital stay must have been medically 
necessary. Medical necessity will generally be presumed to exist. When 
the facts that come to the intermediary's attention during the course 
of its normal claims review process indicate that the hospitalization 
may not have been medically necessary, it will fully develop the case, 
checking with the attending physician and the hospital, as appropriate. 
The intermediary will rule the stay unnecessary only when 
hospitalization for 3 days represents a substantial departure from 
normal medical practice'' (emphasis added).
    The ``substantial departure from normal medical practice'' language 
was developed specifically to target those rare situations where the 3-
day stay is clearly unnecessary by any reasonable standard. For 
example, the MAC could determine that a hospital stay was medically 
unnecessary for purposes of qualifying for post-hospital SNF coverage 
in situations where the care is so clearly unnecessary that it appears 
that the patient was admitted to the hospital solely for the purpose of 
attempting to qualify the beneficiary inappropriately for 
``posthospital'' SNF benefits. Thus, a beneficiary's SNF coverage is 
not necessarily invalidated by a retroactive denial of the qualifying 
hospital stay, as long as the care provided during that hospital stay 
can still meet the relatively broad definition of medical necessity 
described above. Accordingly, the denial of the hospital stay itself 
would affect coverage of the related SNF stay only in those instances 
where it is further determined that ``hospitalization for 3 days 
represents a substantial departure from normal medical practice.'' As 
discussed above, for purposes of qualifying for SNF coverage, an 
inpatient hospital stay that is retroactively denied after SNF 
admission could still meet the relatively broad definition of medical 
necessity set forth in the manual provision cited above.
    In addition, the status of the beneficiaries themselves does not 
change from inpatient to outpatient under the Part B inpatient billing 
policy. Therefore, even if the admission itself is determined to be not 
medically necessary under this policy, the beneficiary would still be 
considered a hospital inpatient for the duration of the stay--which, if 
it occurs for the appropriate duration, would comprise a ``qualifying'' 
hospital stay for SNF benefit purposes so long as the care provided 
during the stay meets the broad definition of medical necessity 
described above. This is consistent with the applicable statutory 
language in section 1861(i) of the Act which, in defining ``post-
hospital'' SNF services, requires the beneficiary to be a hospital 
``inpatient for not less than 3 consecutive days'', and the 
implementing regulations at 42 CFR 409.30(a)(1), which require 
``medically necessary inpatient hospital . . . care''.
    Comment: Commenters expressed concern that the proposed rule was 
not sufficient to reduce the trend toward more and longer observation 
stays and that increasing observation stays would continue to harm 
beneficiaries and prevent access to Medicare covered post-acute 
services. Commenters suggested that the best way to provide 
beneficiaries access to needed post-hospital skilled nursing facility 
care is for CMS to count all days in observation toward the 3-day 
inpatient hospital stay requirement for Medicare covered post-hospital 
SNF care. Commenters suggested either modifying or eliminating the 3-
day requirement itself, or adjusting the definition of ``inpatient'' to 
include beneficiaries receiving observation services. Regarding the 
latter, one commenter cited the previous solicitation of public comment 
in the SNF PPS proposed rule for FY 2006 on the feasibility of making 
such an adjustment in the inpatient definition (70 FR 29099) as 
evidence that we have the authority to make this kind of modification 
administratively. While acknowledging that we ultimately declined to 
adopt this approach in the FY 2006 SNF PPS final rule (70 FR 45050), 
the commenter noted CMS' expressed intention to continue to review this 
issue, and urged CMS to

[[Page 50922]]

consider once again the feasibility of taking such an action now.
    Response: While we appreciate commenters' concerns regarding the 
trend toward more and longer observation stays and the impact of this 
on coverage of post-hospital SNF care, we believe that the policies 
finalized in this final rule regarding Part B inpatient billing and 
medical review of inpatient hospital admissions adequately address this 
issue. As reflected in the proposed rule, we share the concerns of 
commenters regarding the increases in the length of time that Medicare 
beneficiaries spend receiving observation services, and the proposed 
rule was intended to address those concerns. In the Part B Inpatient 
Billing proposed rule, and again in the IPPS proposed rule, we 
acknowledged concerns that hospitals appear to be responding to the 
financial risk of admitting Medicare beneficiaries for inpatient stays 
that might later be denied upon contractor review by electing to treat 
beneficiaries as outpatients receiving observation services, rather 
than admitting them as inpatients. As one step to address these 
concerns, we proposed revisions to Part B inpatient billing policy in 
the Part B Inpatient Billing proposed rule. To further address these 
concerns, in the FY 2014 IPPS/LTCH PPS proposed rule, we aimed to 
provide greater clarity regarding inpatient admission decisions and 
Medicare payment by, among other things, addressing medical review 
criteria for Medicare payment of inpatient admissions under Medicare 
Part A. We believe that the policies reflected in the proposed rules 
and adopted in this final rule appropriately address the concerns 
expressed by stakeholders by lowering the risk associated with 
inpatient stays and denials of inpatient stays.
    The commenters suggested other approaches to addressing the effect 
of extended observation stays on SNF coverage (that is, eliminating the 
SNF benefit's qualifying 3-day hospital stay requirement, counting days 
spent in observation specifically toward meeting that requirement, or 
adjusting the definition of inpatient itself to include beneficiaries 
receiving observation services). We have previously discussed similar 
suggestions in the FY 2006 SNF PPS proposed rule (70 FR 29098-29100) 
and final rule (70 FR 45050-45051), and we continue to have the same 
concerns with those approaches as we expressed in the FY 2006 proposed 
and final rules. Moreover, as discussed above, we believe that the 
policies finalized in this FY 2014 IPPS final rule regarding Part B 
inpatient billing and medical review of inpatient hospital admissions 
appropriately address the issue of extended observation stays.
8. Time Limits for Filing Claims
    Sections 1814(a)(1), 1835(a), and 1842(b)(3)(B) of the Act 
establish time limits for filing Medicare Part A and B claims. The 
regulations at 42 CFR 424.44 implement those sections of the Act and 
require that all claims for services furnished on or after January 1, 
2010, be filed within 1-calendar year after the date of service unless 
an exception applies. In the November 29, 2010 final rule with comment 
period titled, ``Medicare Program; Payment Policies under the Physician 
Fee Schedule and Other Revisions to Part B for CY 2011'' (75 FR 73627) 
in which Sec.  424.44 was modified, commenters requested that we create 
an exception to the time limits for filing claims so that hospitals are 
permitted to file inpatient Part B only claims for any inpatient cases 
that are retrospectively reviewed by a Medicare Recovery Audit 
Contractor (RAC) or other review entity and determined not to be 
medically necessary in an inpatient setting. Commenters requested that 
an exception be created at Sec.  424.44(b) to allow for the billing of 
Part B inpatient and Part B outpatient claims when there is no coverage 
under Part A for a hospital stay. We stated in the Part B Inpatient 
Billing proposed rule (78 FR 16639 through 16640) that for the reasons 
discussed in the November 29, 2010 final rule, we declined to create 
such an exception and we continued to believe that was the correct 
decision.
    Under CMS Ruling 1455-R (78 FR 16614), we adopted (although we did 
not endorse) the views of the Medicare Appeals Council and many ALJs 
that subsequent Part B rebilling is allowed after the timely filing 
period has expired. The Ruling states that subsequent Part B inpatient 
and Part B outpatient claims that are filed later than 1-calendar year 
after the date of service are not to be rejected as untimely by 
Medicare's claims processing system as long as the original 
corresponding Part A inpatient claim was filed timely in accordance 
with 42 CFR 424.44. We stated that the Ruling would remain in effect 
until the effective date of final regulations that result from the 
proposed rule. At that time, we stated that this final rule would 
supersede the Ruling's treatment of claims that providers file later 
than 1-calendar year after the date of service.
    Accordingly, in the Part B Inpatient Billing proposed rule (78 FR 
16639), we proposed a new Sec.  414.5(b) that would require that claims 
for billed Part B inpatient services be rejected as untimely when those 
Part B claims are filed later than 1-calendar year after the date of 
service. Our proposal would treat these Part B claims as new claims 
subject to the timely filing requirements, instead of as adjustment 
claims. We stated that this is consistent with longstanding Medicare 
policy because an adjustment claim supplements information on a claim 
that was previously submitted without changing the fundamental nature 
of that original claim. In these Part B claim situations, however, the 
fundamental nature of the originally filed claim is changed completely 
(from a Part A claim to a Part B claim).
    Therefore, in order to remove any ambiguity, we stated that if the 
rule was finalized as proposed, billed Part B inpatient claims would be 
rejected as untimely when those Part B claims are filed later than 1-
calendar year after the date of service. Moreover, because it is the 
responsibility of providers to correctly submit claims to Medicare by 
coding services appropriately, we stated that it is important to note 
that the exception located at Sec.  424.44(b)(1), which extends the 
time for filing a claim if failure to meet the deadline was caused by 
error or misrepresentation of an employee, contractor, or agent of HHS 
(commonly referred to as the ``administrative error'' exception) would 
not apply in situations where a provider bills the originally submitted 
Part A claim incorrectly. Finally, we reminded providers that, in 
accordance with 42 CFR 405.926(n), determinations that a provider 
failed to submit a claim timely are not appealable.
    Over 300 commenters on the Part B Inpatient Billing proposed rule 
objected to the proposal that claims for billed Part B inpatient 
services would be rejected as untimely when those Part B claims are 
filed later than 1-calendar year after the date of service. One 
commenter supported the proposal.
    Comment: A majority of the commenters proposed that CMS waive, 
remove, eliminate, or not apply the 1-calendar year time limit to file 
claims to billed Part B services. Commenters stated that it was both 
unlawful and fundamentally unfair to apply the 1-calendar year time 
limit to file claims to billed Part B services in situations when a 
Medicare contractor denies a Part A claim on the ground that although 
the medical care was reasonable and necessary, the inpatient admission 
was not. Commenters stated that applying the 1-calendar year time limit 
to file claims to billed Part B services was particularly troubling 
because RACs may audit claims for services with dates

[[Page 50923]]

of service within the prior 3 years, and claims typically reviewed by 
the RAC are more than 1 year old. In addition, commenters stated that 
there is no time limit by which a RAC must complete its review of 
claims requested for review. Commenters contended that the 1-calendar 
year time limit to file Part B services could easily expire before the 
RAC review of the Part A inpatient claim is completed or before it has 
even begun. Commenters believed the proposed rule's time limit to file 
claims leaves few, if any, of a hospital's denied Part A claims 
eligible for billing. Therefore, commenters proposed that CMS waive, 
remove, eliminate, or not apply the 1-calendar year time limit to 
claims for medically necessary Part B inpatient services that were 
furnished by hospitals.
    Response: Although we agree that RACs may audit claims with dates 
of service within the prior 3 years, we disagree with the commenters 
that there is no time limit by which a RAC must complete its review of 
claims requested for review. Medicare requires RACs to complete their 
complex reviews of claims within 60 days from receipt of the medical 
record documentation.
    We also disagree that it is unlawful and fundamentally unfair to 
apply the 1-calendar year time limit to file claims to billed Part B 
services in situations when a Medicare contractor denies a Part A claim 
on the ground that although the medical care was reasonable and 
necessary, the inpatient admission was not. Sections 1835(a) and 
1842(b)(3)(B) of the Act require that all Part B claims for services be 
filed within 1-calendar year after the date of service.
    Although we have the ability to create exceptions to the 1-calendar 
year time limit to file claims, the existing exceptions at Sec.  
424.44(b)(1)-(4) were created because providers, suppliers, and 
beneficiaries, through no fault of their own, would be disadvantaged by 
strict application of the 1-calendar year timely filing requirements. 
Hospitals in this type of billing situation (unlike in the situations 
addressed by the existing exceptions) have the ability to avoid being 
disadvantaged by the 1-calendar year time limit to file claims and by 
any subsequent RAC audit if they bill correctly by following Medicare's 
guidelines for hospital inpatient admissions.
    Furthermore, we disagree that it is unlawful and fundamentally 
unfair to apply the 1-calendar year time limit to file claims for Part 
B services, because hospitals are responsible for determining whether 
the submission of a Part A or Part B claim is appropriate within the 
applicable timeframe. In order to assist hospitals in making those 
claim determinations and to make the billing process as fair as 
possible for hospitals, we revised the hospital inpatient admissions 
guidelines and external medical review criteria for those admissions. 
In section XI.C. of the preamble of this final rule, we clarify those 
guidelines and believe this guidance provides additional clarity. The 
guidance and review criteria should reduce the volume of this type of 
Part A claim denial and the need for hospitals to rebill under Part B. 
Therefore, because hospitals are responsible for correctly submitting 
claims to Medicare by coding services in accordance with the hospital 
inpatient admission guidelines and because sections 1835(a) and 
1842(b)(3)(B) of the Act require that all Part B claims for services be 
filed within 1-calendar year after the date of service, we were not 
persuaded to modify the rule based on these comments.
    Comment: A number of commenters proposed that the time limit to 
file claims requirements should be equal to, comparable to, or aligned 
with, the RAC review timeframes. Commenters stated that it was 
unreasonable that RACs have an audit review period of 3 years from the 
date of service, and hospitals only have 1 calendar year from the date 
of service to bill medically necessary Part B services that were 
furnished. Commenters stated that it is impossible for a hospital to 
file a Part B claim within 1 calendar year of the date of service when 
the Part A claim denial occurs after the timely filing period expired.
    Response: We disagree with the commenters that it is unreasonable 
that Medicare does not align the RAC audit review time periods with the 
1-calendar year time limit to file claims. Sections 1835(a) and 
1842(b)(3)(B) of the Act require that all Part B claims for services be 
filed within 1-calendar year after the date of service. In addition, 
section 1893(h)(4)(B) of the Act indicates that recovery and audit 
activities (with respect to Medicare payments) may be conducted 
retrospectively for a period of not more than 4 fiscal years prior to 
the current fiscal year. Medicare has instructed RACs not to attempt to 
identify any overpayment or underpayment more than 3 years past the 
date of the initial determination made on the claim. Although we have 
the ability to create exceptions to the 1-calendar year time limit to 
file claims, the existing exceptions at Sec.  424.44(b)(1) through 
(b)(4) were created because providers, suppliers, and beneficiaries 
through no fault of their own would be disadvantaged by strict 
application of the 1-calendar year timely filing requirements. 
Hospitals in this type of billing situation (unlike in the situations 
addressed by the existing exceptions) have the ability to avoid being 
disadvantaged by the 1-calendar year time limit to file claims and by 
any subsequent RAC audit if they bill correctly by following Medicare's 
guidelines for hospital inpatient admissions.
    In order to assist hospitals in making those claim determinations 
and to make the billing process as fair as possible for hospitals, we 
revised the hospital inpatient admissions guidelines and external 
medical review criteria for those admissions. In section XI.C. of the 
preamble of this final rule, we clarify those guidelines and believe 
this guidance provides additional clarity. The guidance and review 
criteria should reduce the volume of this type of Part A claim denial 
and the need for hospitals to rebill under Part B. Therefore, we are 
not reducing the 4-fiscal year timeframe further or creating a new 
exception to the 1-calendar year time limit to file claims for this 
type of billing situation, and are not modifying the rule based on 
these comments.
    Comment: Several commenters stated that finalizing the proposed 
rule with a 1-calendar year time limit to file claims will not lessen 
the steady stream of hospital appeals. The commenters stated that 
hospitals will continue to fully appeal to all levels any Part A claim 
denials because of hospitals' inability to meet the 1-calendar year 
time limit to file Part B claims.
    Response: We believe the revised guidelines for hospital inpatient 
admissions and external medical review criteria for those admissions 
published in section XI.C. of the preamble of this final rule are clear 
and should reduce the volume of Part A claim denials and appeals. We 
expect these guidelines to reduce the volume of Part A claim denials 
and subsequent appeals because these guidelines provide additional 
clarification regarding the circumstances under which a beneficiary 
should be admitted as an inpatient and of the criteria that will be 
used during the medical review process. Although we believe our 
previous guidelines were clear, we believe the revised guidelines will 
promote greater shared or mutual understanding between hospitals, 
physicians, and Medicare's medical review contractors. That is, the 
likelihood that hospitals or physicians will have a different 
understanding than Medicare's medical review contractors of what 
constitutes an appropriate inpatient stay will be significantly reduced 
as a result of the

[[Page 50924]]

guidelines published in section XI.C. of the preamble of in this final 
rule. As a result, we anticipate a significant reduction in the volume 
of Part A claim denials and appeals. Therefore, we are not modifying 
our proposal based on these comments.
    Comment: A number of commenters proposed that CMS permanently adopt 
the interim time limit to file claims policy in the CMS 1455-R Ruling. 
The commenters believed that hospitals should have 180 days from the 
date of receipt of the final or binding unfavorable appeal decision (or 
subsequent dismissal notice) of the denied Part A claim to submit a 
Part B claim.
    Response: In the CMS 1455-R Ruling, we stated that until final 
regulations could be issued, we were temporarily adopting, but not 
endorsing, the views of the Medicare Appeals Council and many ALJs that 
subsequent Part B billing is supported by concepts of adjustment 
billing. However, as we indicated in the proposed rule, consistent with 
longstanding Medicare policy, an adjustment claim supplements 
information on a previously submitted claim without changing the 
fundamental nature of the original claim. The concept of adjustment 
billing employed by the Medicare Appeals Council and many ALJs, and 
supported by the commenters, is inconsistent with longstanding Medicare 
policy because, in these situations, the nature of the original claim 
is fundamentally changed from a Part A claim to a Part B claim. When 
this type of Part A claim denial occurs and a hospital subsequently 
submits a Part B claim for the denied services, the hospital is 
submitting a new Part B claim (it is not adjusting the original Part A 
claim). Because hospitals are responsible for determining whether 
submission of a Part A or Part B claim is appropriate within the 
applicable timeframe, permanently adopting the concept of adjustment 
billing used in the CMS 1455-R Ruling would allow hospitals to avoid 
the responsibility of correctly submitting claims to Medicare. 
Therefore, we were not persuaded to modify the rule based on these 
comments.
    However, because the Medicare Appeals Council and many ALJs did not 
consider our longstanding policy (that Part A claims cannot be adjusted 
into Part B claims) to be clear and because many commenters considered 
our timely filing proposal in the proposed rule to be unfair, we will 
permit hospitals to follow the Part B billing timeframes established in 
the Ruling after the effective date of this rule, provided (1) the Part 
A claim denial was one to which the Ruling originally applied; or (2) 
the Part A inpatient claims has a date of admission before October 1, 
2013, and is denied after September 30, 2013 on the grounds that 
although the medical care was reasonable and necessary, the inpatient 
admission was not. We believe our decision is fair to all relevant 
stakeholders.
    Comment: A number of commenters proposed that hospitals should be 
able to obtain full Part B payment for billed medically necessary Part 
B services through an adjustment claim process. The commenters stated 
that, under existing Medicare procedures, hospitals can make changes to 
a filed claim using an adjustment bill process, and those adjustment 
bills are not subject to the time limit to file claims restrictions. In 
addition, the commenters stated that ALJs and the Departmental Appeals 
Board (DAB) agreed that the principles of administrative finality 
supersede timely filing rules in this context and these principles 
permit an adjustment to be made to the Part A claim. The commenters 
stated that the services for which hospitals are seeking reimbursement 
are the same services which were originally submitted for payment. The 
commenters stated that hospitals are willing to provide the information 
necessary to obtain full Part B payment through an adjustment process, 
and this process can be designed by Medicare to fit the needs of this 
particular situation. Therefore, the commenters proposed that hospitals 
should be permitted to obtain full Part B payment for billed medically 
necessary Part B services through an adjustment claim process.
    Response: As we stated in the proposed rule, consistent with 
longstanding Medicare policy, an adjustment claim supplements 
information on a previously submitted claim without changing the 
fundamental nature of the original claim. However, under the concept of 
adjustment billing advocated by the commenters, the nature of the 
original claim is fundamentally changed when the claim is changed from 
a Part A claim to a Part B claim because Part A and Part B have 
different legal structures, regulations, payment methodologies, claims 
processing systems, and coding structures. In addition, because 
hospitals are responsible for determining whether submission of a Part 
A or Part B claim is appropriate within the applicable timeframe, 
permanently adopting the concept of adjustment billing so that 
hospitals can change claims from Part A claims to Part B claims would 
allow hospitals to avoid their responsibility to correctly submit 
claims to Medicare. Therefore, because Part A claims cannot be adjusted 
into Part B claims and hospitals are responsible for determining 
whether submission of a Part A or Part B claim is appropriate within 
the applicable timeframe, we were not persuaded to modify the rule 
based on these comments.
    Comment: A few commenters proposed that CMS use the existing 
authority under the Affordable Care Act to create an exception to the 
time limits for filing claims so that hospitals and physicians are 
permitted to file Part B claims when Part A claims are retrospectively 
reviewed by RACs and determined not to be reasonable and necessary in 
an inpatient setting. The commenters proposed, for example, that 
hospitals be permitted to file claims for Part B services no later than 
30 days after the date of the final appeal decision, or be permitted to 
file Part B claims 180 days after the date the contractor communicates 
its decision that the Part A inpatient admission was denied, or that 
Medicare should reset the timely filing period to allow the submission 
of Part B claims following an appeal of a denied claim that was 
reviewed by a RAC or ALJ determination.
    Response: Although we have the ability to create exceptions to the 
1-calendar year time limit to file claims, the existing exceptions at 
Sec.  424.44(b)(1) through (b)(4) were created because providers, 
suppliers, and beneficiaries, through no fault of their own, would be 
disadvantaged by strict application of the 1-calendar year timely 
filing requirements. Hospitals in this type of billing situation 
(unlike in the situations addressed by the existing exceptions) have 
the ability to avoid being disadvantaged by the 1-calendar year time 
limit to file claims and by RAC audits if they bill correctly by 
following Medicare's guidelines for hospital inpatient admissions. 
Furthermore, hospitals are responsible for determining whether 
submission of a Part A or Part B claim is appropriate within the 
applicable timeframe. Therefore, we are not modifying the rule based on 
these comments.
    Comment: Many commenters proposed that CMS change the time limit to 
file a Part B claim from 1-calendar year after the date of service to 1 
year or 120 days from the date of denial of the Part A claim, or if the 
hospital appeals, 120 or 180 days after the unfavorable decision. The 
commenters stated that this proposal matches the current 
redetermination

[[Page 50925]]

and reconsideration filing timeframes and allows hospitals to bill and 
be paid for medically necessary care that was incorrectly billed under 
Part A.
    Response: Sections 1835(a) and 1842(b)(3)(B) of the Act require 
that all Part B claims for services be filed within 1 calendar year 
after the date of service. Because the law requires Part B claims be 
filed within 1-calendar year after the date of service, we do not have 
the legal authority to change that timeframe to the date of denial of 
the Part A claim or from the date of a final or binding appeal decision 
as proposed by the commenters.
    Although we have the ability to create exceptions to the 1-calendar 
year time limit to file claims, the existing exceptions at Sec.  
424.44(b)(1) through (b)(4) were created because providers, suppliers, 
and beneficiaries, through no fault of their own, would be 
disadvantaged by strict application of the 1-calendar year timely 
filing requirements. Hospitals in this type of billing situation 
(unlike in the situations addressed by the existing exceptions) have 
the ability to avoid being disadvantaged by the 1-calendar year time 
limit to file claims and by RAC audits if they bill correctly by 
following Medicare's guidelines for hospital inpatient admissions. 
Therefore, we are not modifying the rule based on these comments.
    Comment: Several commenters proposed that the time limit to file 
claims be based on the date of any decision point in the review or 
appeal process of the Part A claim. The commenters proposed, for 
example, that a 120 or 180 day time limit to file a Part B claim could 
start on the date the Part A claim is denied, or a 1 year time limit to 
file a Part B claim could start on the date the final appeal was 
adjudicated. Commenters stated that because Recovery Auditors (formerly 
known as RACs) and other contractors have a longer recovery and audit 
review period, contractors have an incentive to review older claims so 
there is no possibility to bill the Part B claims within the timely 
filing period.
    Response: We agree that the law permits Recovery Auditors to 
identify any overpayment or underpayment more than 1-calendar year past 
the date of the initial determination made on the claim. Pursuant to 
section 1893(h)(4)(B) of the Act, Recovery Auditors have the authority 
to conduct recovery and audit activities (with respect to Medicare 
payments) retrospectively for a period of not more than 4 fiscal years 
prior to the current fiscal year. Medicare, though, has instructed 
Recovery Auditors not to attempt to identify any overpayment or 
underpayment more than 3 years past the date of the initial 
determination made on the claim, and Recovery Auditors currently select 
claims with the highest probability of error within the 3-year span.
    We acknowledge provider concern and are also releasing revised 
admission guidance and medical review criteria. This provides 
physicians with a clear benchmark for determining the appropriateness 
of an inpatient admission. We note that a significant number of the 
claims submitted improperly, and subsequently reviewed and recouped, 
are for elective or minor surgical procedures. We expect the majority 
of such improper payments to be resolved with the implementation of the 
2-midnight instruction. In addition, review contractors are instructed 
in the final rule that inpatient hospital claims with lengths of stay 
greater than 2 midnights after the formal admission following the order 
will be presumed generally appropriate for Part A payment and will not 
be the focus of medical review efforts absent evidence of systematic 
gaming, abuse, or delays in the provision of care in an attempt to 
qualify for the 2-midnight presumption.
    Moreover, sections 1835(a) and 1842(b)(3)(B) of the Act require 
that all Part B claims for services be filed within 1-calendar year 
after the date of service. Because the law requires Part B claims be 
filed within 1-calendar year after the date of service, we do not have 
the legal authority to change that timeframe to the date of any 
decision point in the review or appeal process of the Part A claim.
    Although we have the ability to create exceptions to the 1-calendar 
year time limit to file claims, the existing exceptions at Sec.  
424.44(b)(1)-(4) were created because providers, suppliers, and 
beneficiaries, through no fault of their own, would be disadvantaged by 
strict application of the 1-calendar year timely filing requirements. 
Hospitals in this type of billing situation (unlike in the situations 
addressed by the existing exceptions) have the ability to avoid being 
disadvantaged by the 1-calendar year time limit to file claims and by 
Recovery Auditor audits if they bill correctly by following Medicare's 
guidelines for hospital inpatient admissions. Therefore, we are not 
modifying the rule based on these comments.
    Comment: A few commenters stated that hospitals have the option to 
proceed through a 5-stage appeal process and that if the full period of 
time is taken for each level of appeal, the appeals process for the 
denied Part A claim can take more than 2 years. Therefore, the 
commenters proposed that the time limit to file claims not apply to the 
billed Part B claim if the Part A claim was filed timely and the Part A 
claim appeal process was initiated timely.
    Response: Hospitals are responsible for determining whether 
submission of a Part A or Part B claim is appropriate within the 
applicable timeframe. In order to assist hospitals in making those 
claim determinations and to make the billing process as fair as 
possible for hospitals, we revised the hospital inpatient admissions 
guidelines and external medical review criteria for those admissions. 
We clarify in section XI.C. of the preamble of this final rule those 
guidelines and believe this guidance provides additional clarity.
    Although we have the ability to create exceptions to the 1-calendar 
year time limit to file claims, the existing exceptions at Sec.  
424.44(b)(1) through (b)(4) were created because providers, suppliers, 
and beneficiaries, through no fault of their own, would be 
disadvantaged by strict application of the 1-calendar year timely 
filing requirements. Hospitals in this type of billing situation 
(unlike in the situations addressed by the existing exceptions) have 
the ability to avoid being disadvantaged by the 1-calendar year time 
limit to file claims and by RAC audits if they bill correctly by 
following Medicare's guidelines for hospital inpatient admissions.
    Comment: Commenters stated that because Medicare allowed rebilling 
under the RAC demonstration program and the Part A to B demonstration 
program and because ALJ rulings indicate that Medicare's contractors 
have the authority to address the overall claim at the time of 
reopening, Medicare has acknowledged that rebilling post denial or post 
appeal is feasible. Several commenters proposed that CMS consider the 
denied Part A claim as a reopened claim and that the only time 
constraint should be based on the appeal timeline or be 1 year from the 
date of reopening.
    Response: We temporarily permitted billing of claims to Medicare 
Part B beyond 1-calendar year after the date of service in the RAC 
demonstration program and the Part A to B demonstration program because 
those programs were limited in scope and experimental in nature. Those 
programs were used to gather information regarding the feasibility and 
potential usefulness of such billing practices. They are not precedent 
setting Medicare billing programs. Longstanding Medicare policy 
prohibits such billing because hospitals are responsible for

[[Page 50926]]

determining whether submission of a Part A or Part B claim is 
appropriate within the applicable timeframe.
    In addition, Part A claims cannot be reopened and ``adjusted'' into 
Part B claims because the Medicare claims processing systems changes 
that would be required in order to implement those types of adjustments 
(from Part A to Part B) are impossible for Medicare's systems 
maintainers to implement and sustain. If a Part A claim was reopened 
and subsequently rebilled or ``adjusted'' so that the Part B services 
are billed on that reopened claim, the nature of the original claim 
fundamentally changes from a Part A claim to a Part B claim. Besides 
being contrary to longstanding Medicare policy, it is impossible for 
Medicare to establish and sustain a claim processing system that 
changes Part A claims into Part B claims because Parts A and B have 
different legal structures, regulations, payment methodologies, and 
coding structures. Therefore, we were not persuaded to modify the rule 
based on these comments.
    Comment: Several commenters proposed that the time limit to file 
claims not apply to rebilled Part B claims based on the concept of 
equitable tolling. The commenters stated that courts have determined 
that the concept of equitable tolling applies when a party has been 
induced or even tricked into allowing a filing deadline to pass. The 
commenters stated hospitals file tens of thousands of claims each year, 
and it would be impossible for a hospital to determine which of these 
claims, even though originally paid by a Medicare contractor, will be 
singled out later by a RAC (up to 3 years after the date of service) 
and denied. The commenters believed hospitals are essentially being 
induced into missing the timely filing deadline for the Part B claims 
and, therefore, the commenters believed equitable tolling should apply 
to allow hospitals to bill the Part B claims.
    Response: The existing exceptions at Sec.  424.44(b)(1) through 
(b)(4) were created because providers, suppliers, and beneficiaries, 
through no fault of their own, would be disadvantaged by strict 
application of the 1-calendar year time limit to file claims. Hospitals 
in this type of billing situation (unlike in the situations addressed 
by the existing exceptions) have the ability to avoid being 
disadvantaged by the 1-calendar year time limit to file claims and by 
RAC audits if they bill correctly by following Medicare's guidelines 
for hospital inpatient admissions.
    We disagree that hospitals are being induced or tricked into 
missing the 1-calendar year time limit to file Part B claims because 
hospitals are responsible for determining whether the submission of a 
Part A or Part B claim is appropriate within the applicable timeframe. 
Hospitals make Part A or Part B claim determinations by themselves; we 
do not make those determinations for hospitals nor do we induce or 
trick hospitals into filing Part A claims. We assist hospitals in 
making claim determinations and make the billing process as fair as 
possible by providing hospitals with clear hospital inpatient admission 
guidelines and external medical review criteria for those admissions.
    Although we believe our previous guidelines were clear, we believe 
the revised guidelines presented in section XI.C. of the preamble of 
this final rule will promote greater shared or mutual understanding 
between hospitals, physicians, and Medicare's medical review 
contractors. That is, the likelihood that hospitals or physicians will 
have a different understanding than Medicare's medical review 
contractors of what constitutes an appropriate inpatient stay will be 
significantly reduced as a result of these revised guidelines. As a 
result, we anticipate a significant reduction in the volume of Part A 
claim denials and appeals. Therefore, we are not modifying the rule 
based on these comments.
    Comment: Several commenters stated that many Medicare contractors 
are not able to properly acknowledge receipt of a hospital's Part A 
claim appeal withdrawal and are not ready to accept Part B claims 
pursuant to the interim policy in Ruling CMS-1455-R. The commenters 
proposed that the time limits to file claims not be applied to any Part 
A claim appeal a hospital withdraws prior to implementation of this 
final rule. The commenters believed that all claims with a date of 
service prior to the effective date of the final rule should be 
governed by the policies in Ruling CMS-1455-R, regardless of whether 
any administrative proceedings concerning such claims take place after 
the effective date of the final rule. Another commenter asked whether a 
hospital that withdraws a Part A claim appeal while the interim policy 
in the Ruling is in effect, but the Medicare contractor does not 
respond until after the effective date of the final rule, will be able 
to bill under Part B for that claim. Another commenter asked whether a 
hospital that withdraws a Part A claim appeal and the Medicare 
contractor responds while the interim policy in the Ruling is still in 
effect, have to bill the Part B claim prior to the effective date of 
the final rule. Another commenter asked whether a Part A claim that is 
denied while the interim policy in the Ruling is in effect and the 
hospital decides to bill under Part B for that claim has to be filed 
before the effective date of the final rule. Another commenter asked 
whether a hospital can withdraw an appeal of the Part A claim after the 
effective date of the final rule if the Part A claim was denied while 
the interim policy in the Ruling was in effect. Another commenter asked 
whether a Part B claim that was submitted while the interim policy in 
the Ruling was in effect, but was not adjudicated by the Medicare 
contractor before the effective date of this final rule, will be 
processed in accordance with the interim policy of the Ruling.
    Response: Because the Medicare Appeals Council and many ALJs did 
not consider our longstanding policy (that Part A claims cannot be 
adjusted into Part B claims) to be clear and because many commenters 
considered our timely filing proposal in the proposed rule to be 
unfair, we will permit hospitals to follow the Part B billing 
timeframes established in the Ruling after the effective date of this 
rule, provided (1) the Part A claim denial was one to which the Ruling 
originally applied; or (2) the Part A inpatient claims has a date of 
admission before October 1, 2013, and is denied after September 30, 
2013 on the grounds that although the medical care was reasonable and 
necessary, the inpatient admission was not. We believe that this 
decision addresses the commenters' concerns and that our decision is 
fair to all relevant stakeholders.
    Comment: Two commenters proposed that the 1-calendar year time 
limit to file claims should apply in situations where the provider's 
self-audit results in submitting a Part B claim after a Part A claim 
was initially submitted.
    Response: As stated above, hospitals are responsible for 
determining whether submission of a Part A or Part B claim is 
appropriate within the applicable timeframe, and hospitals may self-
audit and correct this type of Part A billing error. If a hospital 
self-audits and discovers that it mistakenly filed (and received 
payment for) a Part A claim, the hospital must return that Part A 
payment (including refunding any Part A cost sharing amounts collected 
from the beneficiary or from a third party on behalf of the 
beneficiary) and may file (and receive payment for) the Part B claim as 
long as that Part B claim is filed within 1-calendar year after the 
date of service. It is unnecessary to modify the rule based on these 
comments because the comments are consistent with the proposed rule.

[[Page 50927]]

    Comment: One commenter stated that CMS should coordinate the time 
limit to file claims with Medigap plans timely filing requirements.
    Response: Section 1882(c)(3)(A) of the Act obligates a Medigap plan 
to make a payment determination on the basis of the information 
contained in Medicare's electronic notice to the Medigap plan. We 
believe this requirement overrides any timely filing requirement that a 
Medigap plan may have and obligates the Medigap plan to make payment 
when a beneficiary incurs a new cost-sharing obligation (for example, 
when a hospital submits a new Part B claim that is processed and paid 
by Medicare). Therefore, we are not modifying the final rule based on 
this comment.
    Comment: One commenter proposed that claims for Part B inpatient 
services be rejected as untimely when those Part B claims are filed 
later than 1 calendar year after the date of service, the date of Part 
A claim denial, or the date of the binding unfavorable decision on 
appeal of a Part A denied claim, whichever is longer.
    Response: Sections 1835(a) and 1842(b)(3)(B) of the Act require 
that all Part B claims for services be filed within 1-calendar year 
after the date of service. Because the Act requires Part B claims be 
filed within 1-calendar year after the date of service, we do not have 
the legal authority to change that timeframe to the various timeframes 
suggested by the commenter.
    Although we have the ability to create exceptions to the 1-calendar 
year time limit to file claims, the existing exceptions at Sec.  
424.44(b)(1) through (b)(4) were created because providers, suppliers, 
and beneficiaries, through no fault of their own, would be 
disadvantaged by strict application of the 1-calendar year timely 
filing requirements. Hospitals in this type of billing situation 
(unlike in the situations addressed by the existing exceptions) have 
the ability to avoid being disadvantaged by the 1-calendar year time 
limit to file claims and by RAC audits if they bill correctly by 
following Medicare's guidelines for hospital inpatient admissions. 
Therefore, we are not modifying the rule based on this comment.
    Comment: One commenter supported the proposed rule.
    Response: We appreciate the commenter's support.
    In summary, although we have the ability to create exceptions to 
the 1-calendar year time limit to file claims, the existing exceptions 
at Sec.  424.44(b)(1)-(4) were created because providers, suppliers, 
and beneficiaries, through no fault of their own, would be 
disadvantaged by strict application of the 1-calendar year timely 
filing requirements. Hospitals in this type of billing situation 
(unlike in the situations addressed by the existing exceptions) have 
the ability to avoid being disadvantaged by the 1-calendar year time 
limit to file claims and by RAC audits if they bill correctly by 
following Medicare's guidelines for hospital inpatient admissions.
    In order to assist hospitals in making those claim determinations 
and to make the billing process as fair as possible for hospitals, we 
revised the hospital inpatient admissions guidelines and external 
medical review criteria for those admissions. In section XI.C. of the 
preamble of this final rule, we clarify those guidelines and believe 
this guidance provides additional clarity. The guidance and review 
criteria should reduce the volume of this type of Part A claim denial 
and the need for hospitals to rebill under Part B. Therefore, we are 
not reducing the 4-fiscal year recovery and audit timeframe further or 
creating a new exception to the 1-calendar year time limit to file 
claims for this type of billing situation, and are not modifying the 
rule.
    We are finalizing the regulatory text of new Sec.  414.5(c) as 
proposed. (This text was proposed as Sec.  414.5(b) but has been 
redesignated as Sec.  414.5(c) in this final rule.) However, we are 
modifying what we stated in the preamble of the proposed rule regarding 
the applicability of the CMS-1455-R Ruling and this final rule to 
certain situations. Specifically, hospitals are permitted to follow the 
Part B billing timeframes established in the CMS-1455-R Ruling 
regarding appeals and the submission of Part B claims after the 
effective date of the final rule, provided (1) the Part A inpatient 
claim denial was one to which the Ruling originally applied; or (2) the 
Part A inpatient claim has a date of admission before October 1, 2013 
(the effective date of this final rule), and is denied after September 
30, 2013, on the grounds that the medical care was reasonable and 
necessary, but the inpatient admission was not. Therefore, we are 
finalizing new Sec.  414.5(c), but we will continue to apply the Ruling 
to the situations described above.
9. Appeals Procedures
    As explained in the Part B Inpatient Billing proposed rule (78 FR 
16640), and in CMS Ruling 1455-R, issued concurrently with the proposed 
rule (78 FR 16614), if a hospital is dissatisfied with an initial or 
revised determination by a Medicare contractor to deny a Part A claim 
for an inpatient admission as not reasonable and necessary, the 
hospital may either submit Part B inpatient or outpatient claims 
(consistent with this proposed rule) or file a request for appeal of 
the denied Part A claim in accordance with the procedures in 42 CFR 
Part 405, Subpart I. In order to prevent duplicate billing and payment, 
a hospital may not have simultaneous requests for payment for the same 
services provided to a single beneficiary on the same dates of service 
(IOM Pub. 100-4, Chapter 1, section 120). This includes requests for 
payment under both Medicare Part A and Part B. Thus, we explained that 
if a hospital chooses to submit a Part B claim for payment following 
the denial of an inpatient admission on a Part A claim, the hospital 
cannot also maintain its request for payment for the same services on 
the Part A claim (including an appeal of the Part A claim). In this 
situation, before the hospital submits a Part B claim, it must ensure 
that there is no pending appeal request on the Part A claim. (A pending 
appeal means an appeal for which there is no final or binding decision 
or dismissal.) We proposed that if the hospital has filed a Part A 
appeal, the appeal must be withdrawn, or the decision must be final or 
binding, before the Part B claim can be processed. If a hospital 
submits a Part B claim for payment without withdrawing its appeal 
request, the Part B claim would be denied as a duplicate. In addition, 
once a Part B claim is filed, there would be no further appeal rights 
available with respect to the Part A claim. However, the hospital and 
beneficiary would have appeal rights with respect to an initial 
determination made on the Part B claim under existing policies set 
forth at 42 CFR Part 405, Subpart I.
    We also proposed that if a beneficiary files an appeal of a Part A 
inpatient admission denial, a hospital cannot utilize the Part B 
billing process proposed in this rule to extinguish a beneficiary's 
appeal rights. Therefore, the hospital's submission of a Part B claim 
would not affect a beneficiary's pending appeal or right to appeal the 
Part A claim. If a beneficiary has a pending Part A appeal for an 
inpatient admission denial, any claims rebilled under Part B by the 
hospital would be denied as duplicates by the Medicare contractor. As 
we explained in the Part B Inpatient Billing proposed rule (78 FR 
16640), in order for the Part B claim(s) to be processed, the Part A 
appeal must be final or binding, or dismissed following a request for 
withdrawal. For example, if a beneficiary receives an unfavorable 
reconsideration on a Part A inpatient claim and does not file a

[[Page 50928]]

timely request for hearing before an administrative law judge (ALJ), 
the reconsideration decision becomes binding. At that point, the 
hospital could submit a Part B claim, provided it either is a claim 
controlled by the provisions of CMS Ruling 1455-R, or it is a claim 
that has been filed within 12 months from the date of service (proposed 
42 CFR 414.5(b) and 42 CFR 424.44).
    We also explained in the proposed rule that beneficiaries who are 
not enrolled in Medicare Part B may be liable for the cost of items and 
services associated with a hospital stay when billed under the Part B 
billing process proposed in the proposed rule. We believe that some 
beneficiaries who are not enrolled in Medicare Part B may have other 
health insurance that might pay for some or all of the Part B items and 
services. If a beneficiary is not enrolled in Medicare Part B, we 
encouraged hospitals to submit a Part B claim to Medicare before 
billing the beneficiary so that, when appropriate, the beneficiary's 
supplemental insurer receives the claim.
    In the proposed rule and in CMS Ruling 1455-R, we explained the 
scope of review of an appeals adjudicator in the context of our 
proposed Part B billing policy. As noted in CMS Ruling 1455-R, a large 
number of recent appeal decisions for Part A inpatient admission claim 
denials by Medicare review contractors affirmed the Part A inpatient 
admission denial, but ordered that payment be issued as if services 
were provided at the outpatient or ``observation'' level of care under 
Medicare Part B. These decisions ordered payment under Part B (or 
consideration of payment for services furnished that the contractor 
determined to be covered and payable under Part B) even though a Part B 
claim had not been submitted for payment. We also explained that 
hospitals are solely responsible for submitting claims for items and 
services provided to beneficiaries and determining whether submission 
of a Part A or Part B claim is appropriate. Once a hospital submits a 
claim, the Medicare contractor makes an initial determination and 
determines any payable amount (42 CFR 405.904(a)(2)). Under existing 
Medicare policy, if such a determination is appealed, an appeals 
adjudicator's scope of review is limited to the claim(s) that are 
before them on appeal, and such adjudicators may not order payment for 
items or services that have not yet been billed or have not yet 
received an initial determination. (We refer readers to sections 
1869(a)(3)(B)(i), 1869(b)(1)(A), and 1869(c)(3)(B)(i) of the Act and 42 
CFR 405.920, 405.940, 405.948, 405.954, 405.960, 405.968, 405.974, 
405.1000, 405.1032, 405.1100, 405.1112, and 405.1128 of the 
regulations.) For example, if a hospital submits an appeal of a 
determination that a Part A inpatient admission was not reasonable and 
necessary, the only issue before the adjudicator is the propriety of 
the Part A claim, not an issue involving any potential Part B claim the 
hospital has not yet filed. In making a decision on that Part A claim, 
an appeals adjudicator may not develop information, or make a finding, 
with respect to a Part B claim that does not exist.
    Thus, under the billing processes described in the proposed rule, 
if a hospital appeals a Part A inpatient admission denial and receives 
a decision indicating that payment may not be made under Part A, 
appeals adjudicators may not order payment for items and services not 
yet billed under Part B. Rather, payment for items and services that 
may be covered under Part B may only be made in response to a Part B 
claim submitted by the hospital that is timely filed, as proposed under 
proposed 42 CFR 414.5(b) and 42 CFR 424.44.
    Comment: Many commenters expressed concerns about CMS' 
clarification of the scope of review of an appeals adjudicator during 
appeals of Part A inpatient admission claim denials in the context of 
Part B billing, and requested that CMS remove the restriction. Many 
commenters characterized the clarification of the scope of review as a 
change or restriction on an adjudicator's existing scope of review and 
commented that CMS does not have the authority to limit the scope of 
review. One commenter suggested that CMS conduct a comprehensive 
assessment of the impact of reducing adjudicator authority, 
specifically the ALJ, and publish such an assessment for comment before 
making any changes. Other commenters expressed concerns about the scope 
of review, asserting that it is only at the ALJ level where a fair and 
comprehensive review of the RAC's denial takes place, that ALJs and 
other adjudicators should be able to order equitable remedies, and that 
favorable decisions issued by ALJs are accorded little or no 
precedential value by RACs because RACs deny substantially similar 
claims without regard to previous ALJ decisions.
    Response: As explained in the proposed rule and in CMS Ruling 1455-
R, a large number of recent appeal decisions for Part A inpatient 
admission claim denials by Medicare review contractors have affirmed 
the Part A inpatient admission denial, but ordered that payment be 
issued as if services were provided at the outpatient or 
``observation'' level of care under Medicare Part B. In these cases, 
appeals adjudicators made decisions with respect to payment, and in 
some cases, coverage, regarding services that are paid under Medicare 
Part B, even though a Part B claim had not been submitted by the 
provider. As we explained, hospitals are solely responsible for 
submitting claims for items and services provided to beneficiaries and 
determining whether submission of a Part A or Part B claim is 
appropriate. Following the submission of a claim by a hospital, the 
Medicare contractor makes an initial determination regarding coverage 
and determines any payable amount (42 CFR 405.904(a)(2)), and if that 
determination is appealed, appeals adjudicators make findings with 
respect to the contractor's initial determination on the specific claim 
submitted by the hospital.
    We disagree with the commenters who characterized our explanation 
of the scope of review during appeals of Part A inpatient admission 
claim denials in the context of Part B billing as a restriction of an 
adjudicator's existing scope of review. As explained in the proposed 
rule and in CMS Ruling 1455-R, existing Medicare policy provides that 
an appeals adjudicator's scope of review is limited to the initial 
determination(s) made on the claim(s) that are before them on appeal 
(sections 1869(a)(3)(B)(i), 1869(b)(1)(A), and 1869(c)(3)(B)(i) of the 
Act; 42 CFR 405.920, 405.940, 405.948, 405.954, 405.960, 405.968, 
405.974, 405.1000, 405.1032, 405.1100, 405.1112, and 405.1128 of the 
regulations). This policy has been in place since 2005 with the 
publication of the interim final rule with comment period, ``Medicare 
Program: Changes to the Medicare Claims Appeals Procedures'' (70 FR 
11420).\195\ Adjudicators may not order payment for items or services 
that have not yet been billed or have not yet received an initial 
determination. As evidenced by the numerous decisions which reached 
issues of coverage and/or payment for services under Part B

[[Page 50929]]

when no Part B claim was filed, we believe it is necessary to clarify 
that such findings are premature and, consistent with longstanding 
policy, can only be made following submission of a Part B claim by a 
hospital.
---------------------------------------------------------------------------

    \195\ In addition, we note that prior to the 2005 amendments to 
the fee-for-service claims appeals process, an appeals adjudicator's 
scope of review was similarly limited to the initial 
determination(s) made on the claim(s) before them on appeal. We 
refer readers to 42 CFR 405.715 (for Part A reconsiderations); 42 
CFR 405.807(a) and 405.810 (for Part B review determinations); 42 
CFR 405.821 (for Part B hearing officer hearings); 42 CFR 405.720 
and 405.855 and 20 CFR 404.906(a) (for ALJ hearings); 20 CFR 404.967 
(for Appeals Council review).
---------------------------------------------------------------------------

    As we explained in the proposed rule, it is the responsibility of 
the hospital to determine whether a Part A or Part B claim should be 
submitted for the items and services furnished to the patient (78 FR 
16640). Based on the claim submitted to the Medicare contractor, the 
contractor issues an initial determination with respect to coverage and 
payment for the items and/or services on the claim. That initial 
determination may then be appealed with adjudicators making findings 
with respect to the contractor's initial determination on the claim. As 
noted previously, this is an explanation of a longstanding policy 
merely applied to the context of our Part B inpatient billing policy, 
and is not a new restriction on the scope of review. Therefore, we do 
not believe it is necessary to undertake an impact assessment on this 
aspect of the proposed rule.
    We believe each level of the appeals process provides appellants 
with a fair, independent, and comprehensive review of the issues raised 
in the appeal. Contractor personnel who were involved in the initial 
determination are precluded from making decisions related to the 
redetermination (42 CFR 405.948). At the reconsideration level, CMS 
contracts with organizations that are independent of claims processing 
contractors. At both levels of appeal (the redetermination and 
reconsideration), appellants are able to submit evidence and arguments 
to support their position that the initial determination was incorrect 
and contractors consider that information in issuing their respective 
decisions. In addition, when the medical necessity of items or services 
is at issue during the reconsideration, the Qualified Independent 
Contractor (QIC) utilizes a panel of physicians or health care 
professionals to review the facts and circumstances in the case. We 
believe these processes demonstrate that all levels in the appeals 
process, including those that precede the ALJ level, offer appellants a 
fair, independent, and comprehensive review of the issues related to 
the claim(s) submitted.
    We also disagree with commenters that suggested ALJs and other 
appeals adjudicators should be able to order equitable remedies in 
their decisions. Appeals adjudicators in the administrative process 
have decisional independence in their decision-making. However, appeals 
adjudicators do not issue decisions that include equitable remedies in 
the context of Medicare claims appeals. Adjudicators review the 
contractor's initial determination(s) on the claim for items and 
services furnished to a beneficiary, and issue a decision with respect 
to that initial determination. For example, a QIC reviews initial 
determinations, and its decision must either reverse or affirm (in 
whole or in part) the initial determination including the 
redetermination that is before them (section 1869(c)(3)(B)(i) of the 
Act; 42 CFR 405.974(a)). ALJs issue decisions that include findings of 
fact, conclusions of law and reasons for the decision based on the 
evidence offered at the hearing or otherwise admitted into the hearing 
record (42 CFR 405.1046(a)). Furthermore, QICs and ALJs and the 
Medicare Appeals Council are bound by Medicare laws, regulations, CMS 
Rulings, and national coverage determinations and give substantial 
deference to CMS program guidance and local coverage determinations to 
the extent such policies are applicable in the appeal (42 CFR 
405.968(b), 405.1060(b)(1) and (c), 405.1062, and 405.1063). Neither 
the Medicare statute nor the Secretary's implementing regulations grant 
ALJs or other adjudicators the authority to order equitable remedies. 
The Secretary exercises her authority to administer this administrative 
review scheme--which includes ALJs and other adjudicators--by 
proceeding through notice-and-comment rulemaking. The scope of review 
in the appeals process, the limitations on decisions, and the 
authorities that bind adjudicators are set forth in regulation, and 
beyond that there is no residual authority of ALJs or other 
adjudicators to grant relief (equitable or otherwise) in excess of that 
which is authorized by the Medicare statute and regulations. Given the 
scope of review in the appeals process, the limitations on decisions 
set forth in the regulations, and the authorities that bind 
adjudicators, we do not believe adjudicators are authorized to order 
equitable remedies as suggested by the commenters.
    Finally, in the final rule, ``Medicare Program: Changes to the 
Medicare Claims Appeals Procedures'' (74 FR 65296, 65327), we declined 
to afford precedential weight to ALJ or Medicare Appeals Council 
decisions. We explained that coverage and liability determinations on 
Medicare claims are largely unique to the specific set of facts in a 
given case, and requiring precedential authority or deference to 
certain decisions would prove extremely difficult. Similarly, as noted 
in the public comments received on the Part B Inpatient Billing 
proposed rule, the decision to admit a patient as an inpatient involves 
unique, complex issues that require clinical judgment of the treating 
physician. For these reasons, we continue to believe it would be 
inappropriate to afford precedential weight or require deference to 
appeals decisions on inpatient admissions even in situations where the 
admissions involve a similar set of facts or issues.
    Accordingly, we are not adopting the commenters' recommendations 
with respect to expanding an appeals adjudicator's scope of review.
    Comment: One commenter objected to CMS' clarification regarding the 
scope of review, suggesting that it is based on an unnecessary 
distinction made between Part A and Part B claims review, processing, 
and appeals. The commenter suggested that changes in the structure of 
Medicare contracts and the appeals process support the notion that 
adjudicators should be able to determine whether services are payable 
under Title XVIII as a whole rather than as Part A and Part B services.
    Response: Although contracting reform consolidated contractors so 
that a single contractor processes both Part A and Part B claims, and 
appeals process revisions created a uniform appeals process for Part A 
and Part B claims, the distinction between Part A and Part B coverage 
and payment schemes is still relevant and necessary. This is 
illustrated by the separate entitlement, eligibility, enrollment, 
benefits, and programs that continue to exist under Title XVIII, as 
well as the separate claims requirements and systems necessary to 
process such claims, and distinct trust funds that provide funding for 
the different parts of the program. In addition, our contracting scheme 
for QICs allocates second level appeals workload along benefit lines, 
acknowledging the differences in the benefits and the clinical 
expertise required for processing appeals under the different parts of 
the Medicare program. More importantly, however, appeal rights as 
established in section 1869 of the Act flow from the initial 
determination made by a contractor in response to the submission of a 
valid claim. (We refer readers to sections 1869(a)(3)(B)(i), 
1869(b)(1)(A), and 1869(c)(3)(B)(i) of the Act.) Consistent with the 
statutory requirements and our longstanding policy, contractors will 
continue to make initial determinations for items and services under 
Part A in response to submission of a Part A claim, and initial 
determinations for

[[Page 50930]]

items and services under Part B in response to submission of a Part B 
claim.
    For these reasons, we are not adopting the commenters' 
recommendations to expand an appeals adjudicator's scope of review.
    Comment: Several commenters requested that hospitals be permitted 
to seek and receive Part B payments by filing claims while also 
pursuing an appeal of the Part A claim.
    Response: We appreciate the suggestions made by the commenters, 
requesting the opportunity to submit Part B claims while pursuing 
appeals of the Part A denials. We proposed that hospitals must choose 
between seeking payment under Part B by submitting a Part B claim for 
the items and services furnished to the beneficiary, or by pursuing an 
appeal of the Part A claim that was denied. We explained that the two 
actions cannot be pursued simultaneously, as this would result in the 
hospital inappropriately seeking duplicate payment for items or 
services furnished to the beneficiary. Allowing hospitals to appeal the 
denied claim and submit Part B claims simultaneously would also result 
in additional administrative burden and cost to the program, and would 
impose an additional administrative burden on hospitals and 
beneficiaries. For example, if the hospital submits a Part B claim 
under the process described in this rule, and receives payment for that 
claim while simultaneously pursuing its appeal of the Part A denial, in 
situations where the hospital is successful in challenging the denial 
of the Part A claim, several additional administrative actions would be 
required of Medicare, the hospital, and the beneficiary. In order to 
prevent duplicate payment, the Medicare contractor would be required to 
initiate an overpayment action to recover any payments made on the Part 
B claim before effectuating the Part A appeal decision. In addition, 
hospitals would be required to refund any cost-sharing amounts 
collected from beneficiaries for the Part B claim, and would need to 
collect the Part A cost-sharing that was previously refunded following 
the initial Part A denial. We believe the administrative burden and the 
prohibition of making duplicate payment necessitate that we prohibit 
hospitals from submitting Part B claims while an appeal of the Part A 
claim denial is in progress. We acknowledge the financial impact that 
may result from collection of overpayments for denied claims. However, 
providers may request relief from recovery while a reconsideration or 
redetermination is pending under the limitation of recoupment 
provisions in 42 CFR 405.379. In addition, if recovery is in process, 
providers experiencing financial difficulties may work with contractors 
to establish an extended repayment schedule.
    For these reasons, we are not adopting the commenters' 
recommendations to allow providers to simultaneously submit Part B 
claims and pursue appeals of the Part A denials, and are finalizing the 
provisions of the proposed rule without modification.
    Comment: One commenter questioned whether a hospital would receive 
payment on a Part A claim if the claim was denied and the beneficiary 
successfully appealed that Part A claim denial.
    Response: If a beneficiary appealed a Part A claim denial and the 
denial was reversed on appeal, the decision would be effectuated and 
the provider would receive payment on the Part A claim.
10. Coordination of Benefits With Supplemental Insurers
    Currently, CMS automatically transfers or ``crosses over'' Medicare 
adjudicated professional and institutional claims to a variety of 
entities for coordination of benefits (COB) purposes. We collectively 
term these entities ``supplemental insurers'' for ease of reference. 
These entities include private insurers that offer ``Medicare 
supplemental'' (or Medigap) policies, as defined in section 1882(g)(1) 
of the Act. Other entities, such as employer-sponsored retiree plans, 
multiemployer welfare trusts, TRICARE For Life, the Federal Employees 
Health Benefits Plan (FEHBP), and State Medicaid agencies, also provide 
secondary or, in some cases, tertiary coverage for beneficiaries after 
their Medicare coverage.
    As mentioned in the Part B Inpatient Billing proposed rule (78 FR 
16639), most supplemental insurers sign national agreements with 
Medicare to facilitate our claims crossover process, more formally 
known as the ``Coordination of Benefits Agreement'' (or COBA) process. 
Through these national agreements, supplemental insurers indicate which 
types of Medicare claims they wish to receive via the COBA process and 
which types they wish to exclude. Within the context of this rule, 
hospitals will want to be aware that, in addition to inpatient hospital 
claims, the majority of supplemental insurers currently also accept 
hospital inpatient Part B claims (12x type of bill claims) and 
outpatient hospital claims (including 13x type of bill claims) through 
the COBA process. Most supplemental insurers elect not to receive fully 
denied Medicare claims via that process. However, several employer-
sponsored retiree plans currently do accept fully denied claims via the 
COBA process, provided Medicare beneficiaries have some payment 
liability remaining on those claims.
    Comment: Several commenters who addressed supplemental insurers and 
the Medicare claims crossover process were concerned about the 
importance of ensuring that CMS provides early and continuous 
communications with supplemental payers to ensure that benefits are 
coordinated correctly.
    Response: As mentioned in the Part B Inpatient Billing proposed 
rule, we will communicate with all supplemental insurers to ensure they 
know what additional services beyond those termed ``ancillary'' will 
now be included under the TOB 12x designation. We also will ensure that 
supplemental insurers become aware of how they can identify any new 
cost-sharing elements within these claims when crossed over to them. 
Our principle communications method is an email broadcast ListServ, 
known as ``COBVA,'' to which all supplemental insurers subscribe. We 
also will update the COBA Implementation User Guide, which is available 
on the COBA Web site at: http://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/COBA-Trading-Partners/Coordination-of-Benefits-Agreements/Coordination-of-Benefits-Agreement-page.html, to include 
this information. In addition, where possible, we will provide 
supplemental insurers with a few mock claim examples to illustrate how 
the changes arising from this rule will be reflected in their crossover 
claims.
    Comment: One commenter indicated that the current Medicare 
crossover process was insufficient to ensure that providers do not face 
substantial administrative burden and increased bad debt by having to 
bill their patients' supplemental insurance plans or programs for 
balances owed following Medicare's payment determination.
    Response: We understand that the COBA crossover process does not 
always relieve providers from having to file claims with their 
patients' supplemental insurers. The Medicare crossover process is 
voluntary and, therefore, not every insurer nationwide participates. 
However, as noted above, we know that the majority of supplemental 
insurers accept institutional claims (including Part A inpatient and 
Part B outpatient facility claims) via the COBA crossover process. In 
addition, some supplemental insurers agree to accept fully denied 
claims if the beneficiary may be held liable for any

[[Page 50931]]

portion of the denied claims by the provider.
    Comment: Within the context of Medicare denying a Part A inpatient 
hospital claim as not being reasonable and medically necessary, several 
commenters questioned whether hospitals would be required to submit a 
hospital Part B claim to Medicare prior to billing a Medigap, employer-
sponsored, or other supplemental insurers or whether filing those 
claims with those entities would be the responsibility of Medicare 
beneficiaries.
    Response: Medigap insurers will not make payment unless there has 
been a formal Medicare determination on a claim. Our understanding is 
that other coverage is likely to require this as well. To avoid denial 
decisions from supplemental insurers, hospitals should first bill their 
Part B claim to their designated A/B MAC. To the greatest extent 
possible, hospitals should avoid imposing a filing burden on their 
patients, Medicare beneficiaries.
    Comment: One commenter questioned whether Medicare will cross over 
to Part B for beneficiaries who do not have Part B coverage.
    Response: The commenter appears to be referring to a situation 
where a Medicare beneficiary is not enrolled in Medicare Part B but has 
an employer-sponsored retiree policy that provides him or her with 
medical coverage. If the employer plan agrees to accept the fully 
denied hospital outpatient claim as a claim for benefits through the 
COBA crossover process, Medicare has the capability to send the claim.
    Comment: One commenter questioned whether supplemental insurers 
will be able to distinguish between Part A inpatient crossover claims 
denied due to a post-payment review indicating that the inpatient stay 
was not medically necessary and other Part A inpatient crossover claims 
that are denied due to benefits exhaustion.
    Response: We believe that supplemental insurers will be able to 
differentiate between these denial situations as evidenced on the 
crossover claims they receive on the basis of the Claim Adjustment 
Reason Codes (CARCs) and Claim Adjustment Segment (CAS) Group Codes 
used on the affected claims.
    Comment: Several commenters questioned whether hospitals would be 
required to provide refunds to supplemental insurers for any amounts 
the insurers paid for Part A inpatient hospital admissions that were 
later determined not to be reasonable and necessary, while other 
commenters indicated that hospitals would need better guidance from CMS 
to know if they would need to refund payments to supplemental insurers 
in this situation.
    Response: Following a denial of a claim for a Part A inpatient 
admission as not reasonable and necessary, and a determination that the 
hospital, and not the beneficiary, is financially liable for the denied 
claim, in accordance with section 1879 of the Act, the hospital is 
required to refund any amounts paid by or on behalf of the beneficiary 
(such as deductible and copayment amounts) for the services billed 
under Part A (42 CFR 411.402). If this refund is not made, the Medicare 
program indemnifies the beneficiary or authorized representative for 
any amounts paid, including deductible and coinsurance, by, or on 
behalf of, the beneficiary. Any indemnification payments made by 
Medicare are considered an overpayment to the hospital. Accordingly, in 
order to avoid incurring an overpayment, hospitals should refund any 
cost-sharing amount to a supplemental insurer.
    The following comments and responses specifically address 
standardized Medicare Supplemental Health Insurance Policies (Medigap 
Policies) as defined in section 1882(g)(1) of the Act.
    Comment: A few commenters expressed concern that Medicare 
supplement insurance carriers may be subject to an increased liability 
to cover additional Part B costs in the form of increased copayments 
and cost-sharing for insulin and oral and topical drugs and that the 
additional cost incurred by the carriers could lead to greater 
financial liability for beneficiaries in the form of increased premiums 
for beneficiaries.
    Response: Oversight of premium rates and increases for standardized 
Medicare Supplemental Insurance Policies is not within CMS' purview. 
That authority rests with the Commissioner of each State's department 
of insurance. However, we note that, as discussed above, the carriers 
will be entitled to a refund of payments made with respect to Part A.
    Comment: A few commenters recommended that CMS mandate that all 
supplemental plans be liable for the Part B copayment and deductible on 
these rebilled claims for their members, regardless of their internal 
policies on timely filing.
    Response: It is unnecessary to mandate copayment and deductible 
liability for standardized Medicare Supplement Policies because section 
1882(c)(3)(A) of the Act already requires Medicare Supplemental Health 
Insurance Carriers to ``accept a notice under section 1842(h)(3)(B) of 
the Act as a claim form for benefits under such policy in lieu of any 
claim form otherwise required and agree to make a payment determination 
on the basis of the information contained in such notice.'' In 
addition, section 6(A) of the NAIC Model Regulation for Medicare 
Supplement Insurance states that ``no policy or certificate may be 
advertised, solicited, or issued for delivery in this state as a 
Medicare supplement policy if the policy or certificate contains 
limitations or exclusions on coverage that are more restrictive than 
those of Medicare'' (74 FR 18813).
11. Public Comments on Other Issues
    We received public comments on several other issues related to, but 
not directly addressed, by the proposed policies and related 
discussions contained in the Part B Inpatient Billing proposed rule.
a. Application to Disproportionate Share Hospital (DSH) Payments, 
Indirect Medical Education (IME), Graduate Medical Education (GME) 
Payments, and Other IPPS Adjustments
    Comment: Three commenters stated that it was unclear whether the 
patient days for the Part B inpatient stays remain in the Medicare DSH 
calculations and in the denominator of the Medicare GME calculations. 
Specifically, the commenters noted that both the Medicare DSH 
calculation and the direct GME calculation use the hospital's count of 
Part A inpatient days and total inpatient days, and that because these 
Part B inpatient days would be reflected in the denominator but 
excluded from the numerator, it would be harmful to hospitals. Another 
commenter pointed out that Medicare payment for DSH is calculated in 
part using Medicare inpatient and total inpatient days reported by 
hospitals on the Medicare cost report. This commenter was not clear if 
the Medicare days related to the ``no pay/provider'' liable Part A 
claims would be included or excluded from the DSH calculations. The 
commenter requested that CMS clarify its policy in this regard and 
permit hospitals to either include or exclude Medicare inpatient days 
from both the numerator and denominator of these calculations. A third 
commenter was concerned about unintended consequences for the Medicare 
DSH adjustment.
    Response: We appreciate the commenters' request for clarification. 
The Medicare DSH payment adjustment is calculated as the sum of two 
fractions, the SSI ratio and the Medicaid fraction. As defined at 
section 1886(d)(5)(F)(vi)(I) of the Act and at 42 CFR 412.106(b)(2),

[[Page 50932]]

the SSI ratio is the number of patient days furnished to patients who 
were entitled to both Medicare Part A (including Medicare Advantage 
(Part C)) and SSI divided by the total number of days associated with 
discharges of patients who were entitled to Medicare Part A (including 
Medicare Advantage (Part C)). As defined at section 
1886(d)(5)(F)(vi)(II) of the Act and at 42 CFR 412.106(b)(4), the 
Medicaid fraction is the number of patient days for which patients were 
eligible for Medicaid but not entitled to Medicare Part A, divided by 
the total number of patient days.
    We note that in the CMS Ruling 1455-R, we stated, ``For the Part B 
claims billed under this Ruling the beneficiary's patient status 
remains inpatient as of the time of inpatient admission and is not 
changed to outpatient . . .'' (78 FR 16617). We note that even though 
the inpatient claim was rebilled under Part B after being denied 
payment under Part A due to lack of medical necessity, the beneficiary 
for whom that claim was made was entitled to benefits under Part A 
during the inpatient stay. Therefore, as long as the patient status for 
a stay remains inpatient, under current policy and practice, the days 
associated with the inpatient stay rebilled under Part B are included 
in the numerator (when the beneficiary was also entitled to SSI) and 
the denominator for the SSI ratio and are reflected in the denominator 
of the Medicaid fraction of the DSH calculation.
    As we noted in the FY 2011 IPPS/LTCH PPS final rule, there are 
three databases used to generate the SSI ratios: the SSI eligibility 
data file, the Medicare Enrollment Database, and the Medicare Provider 
Analysis and Review file (MedPAR). In that rule, we described the 
process by which we determine if patient days are for Medicare 
beneficiaries entitled to SSI, and we noted that hospitals submit 
claims to Medicare for inpatient services provided to Medicare 
beneficiaries and these claims are eventually accumulated in the MedPAR 
database. This database allows us to calculate the number of Medicare 
inpatient hospital days (that is, the denominator of the SSI ratio), a 
subset of which are Medicare SSI days (that is, the numerator of the 
SSI ratio) (75 FR 50277 through 50285). Currently, the MedPAR file 
includes all inpatient hospital claims, including those that were 
denied on the basis of medical necessity. In 2004, following notice-
and-comment rulemaking, we amended our regulations to provide that all 
patient days for individual Medicare Part A beneficiaries, whether or 
not Medicare actually paid for those days, are included in the 
Medicare-SSI fraction (69 FR 49098 through 49099 and 42 CFR 
412.106(b)(2)). Thus, MedPAR utilizes length of stay to generate the 
SSI day count, rather than using ``covered days'' (that is, days for 
which Medicare Part A makes a payment). Each record contained in the 
MedPAR file represents a beneficiary stay in an inpatient hospital 
(where discharged), and it may include one claim, or it may include 
multiple claims. Because such claims remain in the MedPAR, and MedPAR 
is used to calculate the numerator and denominator of the SSI ratio, 
inpatient claims that are rebilled under Part B will remain included in 
the determination of the SSI ratio. This practice is consistent with 42 
CFR 412.106(b)(2)(i), which states that, for the purpose of the DSH SSI 
calculation, ``CMS determines the number of patient days that . . . are 
furnished to patients who during that month were entitled to . . . 
Medicare Part A.'' We note that these patients remain entitled to 
benefits under Part A for the months at issue, even though no payment 
may be made for a claim because the inpatient status was not reasonable 
and necessary for these particular claims. This is also consistent with 
42 CFR 412.106(a)(1)(ii) which states that ``the number of patient days 
in a hospital includes only those days attributable to units or wards 
of the hospital providing acute care services generally payable under 
the [inpatient] prospective payment system,'' and IPPS-level acute care 
services are generally being provided in the units or wards those 
patients were staying, despite the fact that no IPPS payment may 
ultimately be made for those particular claims.
    In addition, we note that currently on Worksheet S-3, Part I, 
column 8 of the Medicare cost report (CMS Form 2552-10), hospitals are 
required to report the number of inpatient days for all classes of 
patients and this is used to determine the total days for the Medicaid 
fraction. The total inpatient days from Worksheet S-3, Part I, column 
8, are derived from the hospital's census and, therefore, include 
inpatient days denied under Part A and rebilled under Part B.
    Therefore, we are clarifying, as requested by the commenters, that 
patient days for inpatient claims rebilled under Part B will continue 
to be included in the numerator (where the beneficiary was also 
entitled to SSI) and denominator of the SSI ratio and denominator of 
the Medicaid fraction for purposes of Medicare DSH calculations. Even 
though the inpatient claim was rebilled under Part B after being denied 
payment under Part A due to lack of medical necessity, the beneficiary 
for whom that claim was made was entitled to benefits under Part A 
during the inpatient stay.
    Direct GME payments are calculated using three variables: the 
hospital's per resident amount (PRA); the number of FTE residents a 
hospital is training subject to its FTE cap and the 3-year rolling 
average; and the hospital's Medicare patient load. ``Medicare patient 
load''' is defined at 42 CFR 413.75(b) as ``with respect to a 
hospital's cost reporting period, the total number of hospital 
inpatient days during the cost reporting period that are attributable 
to patients for whom payment is made under Medicare Part A divided by 
total hospital inpatient days. In calculating inpatient days, inpatient 
days in any distinct part of the hospital furnishing a hospital level 
of care are included and nursery days are excluded.''
    With regard to the calculation of Medicare patient load used to 
calculate direct GME payments, we agree that, under current policy, 
Part B inpatient days are reflected in the denominator but are excluded 
from the numerator. Currently, the numerator is derived from Worksheet 
S-3, Part I, column 6, in which Medicare paid Part A days are reported, 
based on the Medicare paid Part A days accumulated in the hospital's 
Provider Statistical & Reimbursement Report (PS&R). That is, once a 
claim in denied, for whatever reason (such as lack of medical necessity 
or if a beneficiary exhausts Part A benefits), the days associated with 
that claim are not reflected in the numerator (Worksheet S-3, Part I, 
column 6) of the Medicare patient load. This is consistent with the 
definition of ``Medicare patient load'' at 42 CFR 413.75(b), which 
states that the ratio is based on ``. . . the total number of hospital 
inpatient days during the cost reporting period that are attributable 
to patients for whom payment is made under Medicare Part A divided by 
total hospital inpatient days'' (emphasis added). However, similar to 
the denominator used in the Medicaid fraction for DSH, the denominator 
of the Medicare patient load ratio is currently calculated from 
Worksheet S-3, Part I, column 8 of the Medicare cost report. The total 
inpatient days from Worksheet S-3, Part I, column 8, are derived from 
the hospital's census and, therefore, include inpatient days denied 
under Part A and rebilled under Part B. Therefore, we are clarifying 
that inpatient days for inpatient claims denied under Part A and 
rebilled under Part B are excluded from the numerator of direct GME 
Medicare patient load but

[[Page 50933]]

are included in the denominator. Accordingly, by continuing with 
current practices, we recognize that depending on the volume of claims 
that are denied for medical necessity that a hospital chooses to re-
bill under Part B, teaching hospitals could experience a decline in 
their direct GME Medicare patient load calculation and experience 
reduced direct GME payments.
    Comment: One commenter stated that the proposal to allow patients 
to maintain inpatient status while rebilling under Part B ``has effects 
on hospitals beyond payment for the services rendered.''
    Response: We agree with the commenter and have endeavored to 
provide clarification as requested specifically by other commenters on 
these effects. We note that other inpatient hospital policies rely on 
either the number of inpatient days or a ratio of Medicare inpatient 
days to total inpatient days to determine eligibility or payment. One 
example of another policy possibly affected by rebilling under Part B 
is in section V.E.2. of the preamble of this final rule, in connection 
with our policy to include labor and delivery inpatient days of 
maternity patients admitted as inpatients for direct GME Medicare 
utilization and other Medicare purposes. The example we provided is 
with regard to a hospital's eligibility for SCH status. A hospital can 
be classified as an SCH if it is located more than 35 miles from other 
like hospitals or is located in a rural area (as defined at 42 CFR 
412.64) and meets one of the conditions listed in the regulations at 42 
CFR 412.92(a). In determining whether a nearby hospital is a like 
hospital, CMS compares the total inpatient days of the SCH applicant 
hospital with the total inpatient days of the nearby hospital. If the 
total inpatient days of the nearby hospital are greater than 8 percent 
of the total inpatient days reported by the SCH applicant hospital, the 
nearby hospital is considered a like hospital for purposes of 
evaluating the applicant hospital's eligibility for SCH status. 
Therefore, including these days as inpatient days may impact the count 
of inpatient days for both the SCH applicant hospital and the nearby 
hospital and may affect the applicant hospital's eligibility for SCH 
status.
    Comment: One commenter noted that the relative weights should be 
revised on a timely basis to reflect the elimination of short-stay 
cases. The commenter believed that nonshort-stay inpatient cases are 
underpaid insofar as the short-stay cases have been included in the 
calculation of the relative weights. Another commenter requested that 
CMS consider establishing a different payment methodology, such as a 
different outlier payment, to address these cases.
    Response: We agree that the relative weights should reflect any 
movement of cases between the inpatient setting and the outpatient 
setting on a timely basis in accordance with the methodologies set 
forth in the Addendum to this final rule and note that, for each 
Federal fiscal year, we use the most recent complete year of claims 
data for charges and cost report data for CCRs to develop relative 
weights. We disagree as a general premise that the nonshort-stay 
inpatient cases are underpaid insofar as the short-stay cases are 
included because the MS-DRG system is a system of averages. The 
relative weights are intended to reflect relative resource use, and 
while some short-stay cases may have relatively lower resource use in a 
given MS-DRG, others may have higher resource use in that MS-DRG. 
Furthermore, relative weights reflect all of the cases that are 
included in a particular MS-DRG and MS-DRG classifications are 
established and updated in accordance with the process set forth in 
section II. of the preamble of this final rule. This process takes into 
consideration clinical coherence and resource use. We refer readers to 
the FY 2013 IPPS/LTCH PPS final rule for further information on the 
criteria for determining whether a subgroup of cases warrants creation 
of a CC or an MCC subgroup within a base MS-DRG (77 FR 53305) and point 
out that they do not include length of stay.
    However, we understand the viewpoint that the types and numbers of 
patients that hospitals admit as inpatient cases could change in the 
future in unforeseen ways as a result of this rulemaking. If we see a 
pattern of increasing volume of short-stay cases, we may further 
consider whether payment policy changes are necessary to reflect their 
potentially lower resource usage.
    Comment: One commenter believed that hospitals should not be 
subject to ``documentation and coding rate reductions'' in the future 
as denied short-stay cases migrate from an inpatient setting to an 
outpatient setting. The commenter stated that ``arithmetic alone will 
force the average inpatient case mix index to increase and hospitals 
should not be penalized.''
    Response: We separately discuss the finalization of our proposal to 
make an adjustment to the standardized amount, hospital-specific 
payment amounts, and Puerto Rico-specific standardized amount in order 
to offset the additional estimated IPPS expenditures associated with 
the inpatient admission guidelines and medical review criteria 
finalized and discussed in greater detail in section XI.C. of the 
preamble of this final rule. We believe the commenter may be 
erroneously associating the relationship between the recalibration of 
the relative weights and its effect on aggregate IPPS payments with the 
adjustment to offset the additional estimated IPPS expenditures 
associated with this policy. As discussed in section II.H. of the 
preamble of this final rule, we normalized the recalibrated MS-DRG 
relative weights by an adjustment factor so that the average case 
relative weight after recalibration is equal to the average case 
relative weight prior to recalibration. However, as we discuss in 
section II.A.4.a. of the Addendum to this final rule, equating the 
average case relative 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 
relative weight. Accordingly, to the extent that in any given year 
short-stay cases shift to outpatient or outpatient cases shift to 
inpatient, the relative weights are recalibrated and budget neutrality 
is applied so that aggregate expenditures do not increase or decrease 
as a result of these shifts in cases. Therefore, the relative weights 
will ensure that the relativity of the cases that result from the 
change in utilization due to the final policy is appropriate in a 
budget neutral fashion. However, it will not offset the change in 
utilization, which the final adjustment to offset these additional 
estimated expenditures is intended to do.
b. Application to Beneficiary Utilization Days Under Medicare Part A
    Comment: Commenters asked CMS to clarify whether the inpatient days 
billed by the hospital would count towards beneficiaries' limit on 
utilization of inpatient days for the Part A benefit period, described 
in section 1812(a) of the Act.
    Response: Under section 1812 of the Act, Medicare Part A will pay 
for up to 150 days per inpatient hospital stay. If a Part A claim is 
denied because the hospital inpatient admission was not reasonable and 
necessary, Medicare Part A will not pay for the claim. In these 
circumstances--where Medicare Part A is not making payment for 
particular inpatient claims--we do not believe it would be appropriate 
to charge the beneficiary's utilization under Part A. Therefore, we are 
not deducting the days associated with the inpatient

[[Page 50934]]

hospital stays billed under Part B from a beneficiary's 150 utilization 
days for inpatient hospital services paid under Part A when no Part A 
payment is made for that inpatient hospital stay. We note that when the 
inpatient hospital stay is paid under Part B, the hospital stay remains 
inpatient from the time of admission and may continue to count towards 
qualification for skilled nursing facility coverage, and the 
beneficiary is liable for the Part B inpatient charges.
c. Applicability to the Medicare Advantage (MA) Program
    Comment: Several commenters asked whether the proposed Part B 
billing policies would apply to Medicare Advantage (MA) hospitals or 
plans. They noted that the proposed rule only contemplates Medicare 
Part A claims denials as eligible for the proposed Part B inpatient 
billing. However, one commenter stated that the Affordable Care Act 
required that RAC reviews be expanded to Part C and Part D, to 
encompass the MA program. The commenter believed that the ability to 
submit ``adjusted'' claims after a contractor denial or self-audit 
denial should apply to MA just as it does for Medicare Part A, because 
the RACs will be denying Part C inpatient stays as not reasonable and 
necessary.
    Response: The proposed and final rules do not apply in the MA 
context, with one exception. In the MA program, hospitals are paid by 
MA organizations, which typically would prior authorize coverage of any 
non-emergency hospitalization. Also, to the extent the MA organization 
makes payment for a stay that does not meet Medicare coverage 
standards, it does not necessarily follow that the stay would not 
otherwise be covered under the MA plan, and even if it is not covered, 
and an attempt were made to recover payments, the payments would go to 
the MA organization, not the Medicare Trust Funds. Therefore, RACs and 
MACs do not perform review for such potential errors. If an MA 
organization does have a payment dispute with a hospital, however, it 
would be free to apply the same principles applied in the final rule 
regarding payment of Part B services to a hospital where a stay is not 
covered under Part A. However, as in the Medicare fee-for-service 
program, appeals adjudicators in the MA program are limited in their 
scope of review and may only review the submitted claim. In the context 
of a Part C out-of-network provider that billed inpatient services, 
review is limited to whether the MA plan was obligated to pay for the 
billed inpatient services. Similar to the Part A context, the provider 
has not billed for outpatient services, and therefore, there is no 
appealable organization determination on those services.
    MA organizations and their stakeholders may also refer questions to 
their Part C account managers and other Part C staff at CMS. It would 
be helpful to CMS to understand more about any particular circumstances 
in which Part C hospitals and MA organizations believe the provisions 
of the final rule on Part B hospital inpatient billing following Part A 
reasonable and necessary inpatient denials might apply.
    Comment: One commenter asked whether hospitals must bill 
beneficiaries enrolled in MA plans for the Part B liabilities 
associated with rebilling, just as non-MA plans must bill 
beneficiaries. The commenter believed beneficiaries should be held 
harmless if an MA nonparticipating hospital bills Part B, particularly 
a non-participating MA hospital.
    Response: As we stated in section XI.B.6. of the preamble of this 
final rule, we believe that the issue of whether or not the hospital 
has an obligation to bill the beneficiary is governed by the 
beneficiary inducement and anti-kickback laws that fall under the 
purview of the OIG. Therefore, we refer the commenters (and other 
stakeholders) to the OIG for guidance on this matter.
12. Regulatory Impact Analysis: Final Part B Inpatient Payment Policy
a. Statement of Need
    Our final policy on payment of Part B inpatient services is needed 
to address Medicare payment policy when a Part A hospital inpatient 
claim is denied because the inpatient admission was not reasonable and 
necessary, but hospital outpatient services would have been reasonable 
and necessary to treat the beneficiary.
b. Overall Impact
    We have examined the impacts of our final policy as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993), Executive Order 13563 on Improving Regulation and Regulatory 
Review (January 18, 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 
(UMRA) (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999), and the Contract with America Advancement 
Act of 1996 (Pub. L. 104-121) (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. Our final rule policy on Part B inpatient payment has been 
designated as an ``economically'' significant rule under section 
3(f)(1) of Executive Order 12866 and a major rule under the Contract 
with America Advancement Act of 1996 (Pub. L. 104-121). Accordingly, 
the final rule policy has been reviewed by the Office of Management and 
Budget. We have prepared a regulatory impact analysis that, to the best 
of our ability, presents the costs and benefits of our final policy.
    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, we estimate that 
most hospitals are small entities as that term is used in the RFA. For 
purposes of the RFA, most hospitals are considered small businesses 
according to the Small Business Administration's size standards with 
total revenues of $34.5 million or less in any single year. We estimate 
that this final rule policy may have a significant impact on 
approximately 2,004 hospitals with voluntary ownership. For details, 
see the Small Business Administration's ``Table of Small Business Size 
Standards'' at http://www.sba.gov/content/table-small-business-size-standards.
    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 and has 100 or fewer beds. We estimate that this final 
rule may have a significant impact on approximately 694 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 2013, that 
threshold level is currently

[[Page 50935]]

approximately $141 million. Our final policy on Part B inpatient 
payment does mandate requirements for the private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a final rule that imposes 
substantial direct costs on state and local governments, preempts state 
law, or otherwise has federalism implications. We have examined the 
provisions of our final rule policy in accordance with Executive Order 
13132, federalism, and have determined that it will not have a 
substantial direct effect on State, local or tribal governments, 
preempt State law, or otherwise have a federalism implication, with the 
exception of Medicaid expenditures discussed below. As reflected in 
Table 1 of this final rule, we estimate that Medicare expenditures will 
increase for services furnished in governmental hospitals (including 
State and local governmental hospitals). The analyses we have provided 
in this section of the final rule demonstrate that this final rule is 
consistent with the regulatory philosophy and principles identified in 
Executive Order 12866, the RFA, and section 1102(b) of the Act.
c. Estimated Impacts of the Final Part B Inpatient Payment Policy
(1) Estimated Impact on Medicare Program Expenditures
    In this section, we provide the estimated impact of our final 
policy to provide payment for additional Part B inpatient services on 
Medicare benefit expenditures over the next 5 years. Column (3) of 
Table 1 shows the estimated impacts of this final policy, relative to 
an estimated increase in baseline expenditures that will result from 
the effectuation of recent decisions by the Medicare Appeals Council 
and ALJs on Medicare Part A to Part B ``rebilling'' (in this section 
referred to as the ``appeal decisions'').
    In Part B Inpatient Billing proposed rule (78 FR 16635), we 
discussed that in an increasing number of cases, hospitals that have 
appealed Part A inpatient reasonable and necessary claim denials to 
ALJs and the Medicare Appeals Council have received decisions upholding 
the Medicare review contractor's determination that the inpatient 
admission was not reasonable and necessary, but ordering payment of the 
services as if they were provided at an outpatient or ``observation 
level'' of care. These decisions effectively require Medicare to issue 
payment for all Part B services that would have been payable had the 
beneficiary originally been treated as a hospital outpatient, instead 
of limiting payment to only the set of Part B inpatient services 
heretofore designated in the Medicare Benefit Policy Manual. Further, 
the appeal decisions have required payment regardless of whether the 
subsequent hospital Part B claim is submitted within the otherwise 
applicable time limit for filing claims. These appeal decisions were 
contrary to CMS' longstanding policies permitting payment for only a 
limited list of Part B inpatient services, and requiring that the 
services be billed within the usual timely filing restrictions. While 
these appeal decisions do not establish Medicare payment policy, CMS' 
contractors are bound to effectuate each individual decision. In the 
Part B Inpatient Billing proposed rule, we estimated the impacts of 
CMS' instructions to contractors for effectuating the appeal decisions 
that have been issued.
    To resolve the discrepancy between Medicare's historical policy and 
the decisions made by the Medicare Appeals Council and ALJs, we issued 
CMS Ruling 1455-R (78 FR 16614) concurrent with the Part B Inpatient 
Billing proposed rule. In the Ruling, we provided an interim Part B 
payment policy until we could establish a final policy through notice 
and comment rulemaking. The Ruling established a standard process for 
effectuation of the appeal decisions through payment of additional Part 
B inpatient (rather than Part B outpatient or ``observation level'') 
services than Medicare previously allowed in order to address the 
approach taken by the appeal decisions. Under the Ruling, in 
acquiescence to the appeal decisions, we did not apply the timely 
filing limitations in 42 CFR 424.44 to the subsequent claims for Part B 
services, but rather afforded the hospital 180 days from the date of 
receipt of a final or binding appeal decision, or 180 days from the 
date of receipt of the Part A initial determination or revised 
determination if there is no pending appeal, to file its Part B 
claim(s). Under the Ruling, hospitals are not required to appeal the 
Part A claim denial prior to billing Part B. Therefore, in the Part B 
Inpatient Billing proposed rule, we estimated the added cost for the 
Ruling in addition to the cost of effectuating the appeal decisions.
    The key differences between the Part B inpatient payment policy of 
the Ruling and our final policy in this final rule are: (1) the final 
policy applies the timely filing restriction that applied prior to the 
Ruling to Part B inpatient claims rebilled after the Part A reasonable 
and necessary claim denial (that is, the Part B inpatient claims will 
only be paid if they are billed within 12 months of the date of 
service, which, as described previously, is not the case for the 
subsequent Part B inpatient claims billed under the Ruling); and (2) 
the final policy applies when hospitals determine through self-audit 
that an inpatient admission is not reasonable and necessary, discussed 
in section XI.B. of the preamble of this final rule (also subject to 
timely filing). As we stated in the proposed rule, our proposal to 
apply the timely filing restriction in accordance with our policy prior 
to the Ruling resulted in estimated savings to the Medicare program.
    Comment: Several stakeholders asked whether hospitals that had Part 
A claim denials subject to the Ruling are allowed to submit Part B 
claims for those services consistent with the requirements of the 
Ruling after the effective date of the final rule. In other words, the 
commenters asked whether hospitals that had Part A claim denials 
subject to the Ruling were allowed (after the effective date of the 
final rule) to submit Part B claims for those services 180 days from 
withdrawal or adjudication of an appeal upholding the Part A reasonable 
and necessary denial.
    Response: The Ruling permits Part B inpatient payment as described 
previously for Part A hospital inpatient claims that were denied by a 
Medicare review contractor because the inpatient admission was 
determined not reasonable and necessary, as long as the denial was 
made: (1) While the Ruling is in effect; (2) prior to the effective 
date of the Ruling, but for which the timeframe to file an appeal has 
not expired; or (3) prior to the effective date of the Ruling, but for 
which an appeal is pending. Because hospitals are responsible for 
correctly submitting claims to Medicare by coding services in 
accordance with the hospital inpatient admission instructions, we are 
finalizing our timely filing policy as proposed. However, we are 
modifying what we stated in the proposed rule (78 FR 16640) regarding 
the applicability of the Ruling and this final rule. We state in this 
final rule that the timely filing requirement in Sec.  414.5(c) will 
not supersede the Ruling's treatment of Part A claim denials to which 
the Ruling originally applied. Hospitals are permitted to follow the 
provisions in the Ruling regarding appeals and submission of Part B 
claims after the effective date of this final rule, provided (i) the 
Part A inpatient claim denial was one to which the Ruling originally 
applied, or (ii) the Part A inpatient

[[Page 50936]]

claim has a date of admission before October 1, 2013 (the effective 
date of this final rule), and is denied after September 30, 2013, on 
the grounds that though inpatient services were not reasonable and 
necessary, hospital outpatient services would have been reasonable and 
necessary.
    Table 1 below shows the estimated impact of our final Part B 
inpatient payment policies. The amounts are shown in millions for CYs 
2013 through 2017. We estimate the cost of the appeal decisions in 
Column (1), the Ruling CMS-1455-R (applied as described above) in 
Column (2), our final Part B inpatient payment policy in Column (3), 
and the estimated total impact in Column (4). The estimates for each 
column assume that the policy in the preceding column is already in 
place. Specifically, the estimated cost for the Ruling is relative to a 
baseline that includes the effect of the appeal decisions. Similarly, 
the estimated costs of our final Part B inpatient payment policy are in 
relation to a baseline that includes both the appeal decisions and the 
Ruling in place.
    We assumed short-stay inpatient utilization will increase by 1 
percent as a result of the appeal decisions because hospitals are able 
to rebill after an appeal. (There are currently no controls in place to 
monitor hospitals for changes in their inpatient growth trend and/or 
error rate.) In addition, we assumed short-stay inpatient utilization 
will increase by an additional 3 percent under the Ruling because 
hospitals can rebill under Part B without the expense of an appeal. Due 
to the timely filing restrictions and lower Part B payment rate for 
rebilling, we estimate that there will be no increase in any inpatient 
utilization resulting from the final policy to restrict inpatient Part 
B billing to the timely filing requirement of 12 months from the date 
of service, relative to circumstances prior to the appeal decisions. 
The 12-month timely filing restriction imposed by this final rule will 
greatly limit the circumstances in which a hospital can rebill and 
thereby substantially reduce the number of Part B inpatient claims 
rebilled by hospitals, largely offsetting the higher costs arising from 
the appeal decisions and the Ruling.

                Table 1--Estimated Impact on Medicare Program Expenditures for Hospital Services
                                      [Current year dollars (in millions)]
----------------------------------------------------------------------------------------------------------------
                                                                        Part B inpatient
                                                                       billing  with 12-
    Calendar year         Appeal decisions      CMS ruling 1455-R     month  timely filing      Total impact
                                                                          restriction
                                      (1)                    (2)                    (3)                    (4)
----------------------------------------------------------------------------------------------------------------
              2013                   $290                   $560                     $0                   $850
              2014                    410                    770                 -1,060                    120
              2015                    410                    780                 -1,080                    120
              2016                    430                    830                 -1,160                    100
              2017                    460                    870                 -1,260                     70
----------------------------------------------------------------------------------------------------------------

    We note that the actual costs or savings will depend substantially 
on possible changes in behavior by hospitals, and such behavioral 
changes cannot be anticipated with certainty. The estimates are 
especially sensitive to the assumed utilization changes in inpatient 
and outpatient utilization. While we believe that these assumptions are 
reasonable, relatively small changes will have a disproportionate 
effect on the estimated net costs.
(2) Estimated Impact on Beneficiaries
    In our regulatory impact analysis for the Part B Inpatient Billing 
proposed rule (78 FR 16643), we estimated an aggregate increase in 
beneficiary out-of-pocket expenses for Parts A and B services.
    Comment: As we discussed in section XI.B.6. of the preamble of this 
final rule, many public comments expressed concern regarding the 
estimated impact on beneficiary financial liability of our proposed 
Part B inpatient payment policies. Many commenters stated that the 
proposed policies would financially harm low-income and other 
beneficiaries. One commenter recommended that CMS analyze the impact of 
the proposed policies on Medicaid to the extent that there may be 
additional Medicaid expenditures on behalf of dually eligible 
beneficiaries for Part B copayments. Similarly, given that many 
beneficiaries have secondary or supplemental insurance, the commenter 
recommended that the impact analysis address the extent to which these 
insurers will incur additional costs for Part B copayments and for 
drugs that are usually self-administered. The commenter also 
recommended that CMS include in its impact analysis an estimate of the 
cost of noncovered drugs that are usually self-administered, using the 
noncovered drug charges reported on Part B hospital claims in revenue 
codes 250 to 257 and 630 to 633.
    Response: We addressed the public comments regarding beneficiary 
liability for Part B inpatient services in detail in section XI.B.6. of 
the preamble of this final rule. In Table 2 below, we provide an 
estimate of the impact on beneficiary out-of-pocket costs for Part A 
and Part B services, resulting from the appeal decisions, the Ruling, 
and our final Part B inpatient payment policy. These changes are mainly 
the result of the changes in beneficiary cost-sharing when inpatient 
services are paid under Part B rather than under Part A. The amounts 
are shown in millions for CYs 2013 through 2017.
    We considered using the noncovered pharmacy revenue center charges 
to estimate the cost of drugs that are usually self-administered and, 
therefore, not covered under Part B. We did not use the noncovered 
pharmacy revenue center charges because these charges include drugs 
that are not covered for other reasons (for example, investigational 
drugs, and drugs that are non-covered by local coverage decisions). In 
addition, there is no requirement that hospitals must report outpatient 
services that are not covered by Medicare and billed directly to the 
patient. We do not believe that we can draw reasonable cost estimates 
for self-administered drugs from the available Part B claims data.
    We provide an estimate below of the impact on Medicaid 
expenditures. Because of the variability in employer-sponsored or other 
supplemental insurance policies, we did not estimate impacts on these 
insurers.

[[Page 50937]]



        Table 2--Estimated Impact on Beneficiaries' Out-of-Pocket Expenses for Part A and Part B Services
                                      [Current year dollars (in millions)]
----------------------------------------------------------------------------------------------------------------
       Calendar year                    Part A                      Part B                       Total
----------------------------------------------------------------------------------------------------------------
                                                Appeal Decisions
----------------------------------------------------------------------------------------------------------------
                 2013                          $20                          $20                         $40
                 2014                           30                           30                          60
                 2015                           30                           30                          60
                 2016                           30                           30                          60
                 2017                           30                           30                          60
----------------------------------------------------------------------------------------------------------------
                                                CMS Ruling 1455-R
----------------------------------------------------------------------------------------------------------------
                 2013                           50                          -40                          10
                 2014                           80                          -60                          20
                 2015                           80                          -60                          20
                 2016                           80                          -60                          20
                 2017                           90                          -70                          20
----------------------------------------------------------------------------------------------------------------
                  Final Part B Inpatient Billing With 12-Month Timely Filing Restriction Policy
----------------------------------------------------------------------------------------------------------------
                 2013                            0                            0                           0
                 2014                         -100                           40                         -60
                 2015                         -100                           40                         -60
                 2016                         -110                           50                         -60
                 2017                         -110                           50                         -60
----------------------------------------------------------------------------------------------------------------
                                                      Total
----------------------------------------------------------------------------------------------------------------
                 2013                           70                          -20                          50
                 2014                            0                           20                          20
                 2015                            0                           20                          20
                 2016                            0                           20                          20
                 2017                            0                           20                          20
----------------------------------------------------------------------------------------------------------------
Note: Totals do not necessarily equal the sums of rounded components.

(3) Effects on the Medicaid Program
    The impact to Medicaid expenditures is due to the change in 
beneficiary cost-sharing when cases shift between inpatient and 
outpatient (shown in Table 2 above), and approximately 15 to 20 percent 
of Medicare beneficiaries are dually eligible for Medicaid. As such, 
our best estimate of the impact on Medicaid, given limited information, 
is that approximately 15 to 20 percent of the change in beneficiary 
cost-sharing represents the impact on Medicaid. For the final rule 
policy on Part B inpatient payment, the estimated impact is roughly up 
to $10 million in 2013 and up to $4 million in subsequent years.
(4) Effects on Other Providers
    Our final policy will not affect providers other than hospitals.
d. Alternatives Considered
    Under our final policy, all hospitals and CAHs are eligible to bill 
Part B inpatient services when a Part A claim is denied because the 
inpatient admission was not reasonable and necessary but hospital 
outpatient services would have been reasonable and necessary. We 
solicited public comments regarding a potential policy to require that 
hospitals currently not billing the OPPS for Part B inpatient services 
under 42 CFR 419.22(r) (those with no outpatient departments, or that 
have outpatient departments but submit no claims to Medicare Part B) to 
now bill the OPPS for Part B services that are payable under the OPPS. 
We did not finalize this policy because we did not receive any public 
comments on this issue indicating that these hospitals' likely payments 
under the final Part B inpatient policy will continue to outweigh their 
costs of implementing billing systems specific to the OPPS. We intend 
to monitor the volume of Part B claims submitted for payment by these 
hospitals, and may propose in future rulemaking to require them to 
begin billing the OPPS based on the Part B inpatient services they 
bill.
e. Accounting Statement and Table
    Whenever a rule is considered a significant rule under Executive 
Order 12866, we are required to develop an Accounting Statement. This 
statement must state that we have prepared an accounting statement 
showing the classification of the expenditures associated with our 
final rule provisions. The accounting statement table for the final 
Part B inpatient payment policy is presented in section IV.C. of the 
Appendix to this final rule.
f. Conclusion
    The analysis provided in this section of this final rule provides a 
Regulatory Impact Analysis for our Part B inpatient payment final 
policies. In accordance with the provisions of Executive Order 12866, 
this rule was reviewed by the Office of Management and Budget.
13. Collection of Information Requirements
    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.

[[Page 50938]]

     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.
    We solicited public comment on each of these issues for applicable 
sections of the Part B Inpatient Billing proposed rule that contained 
information collection requirements (ICRs) as follows:
    With regard to the proposed payment of Medicare Part B inpatient 
services discussed in section II.B. of the Part B Inpatient Billing 
proposed rule (and in section XI.B. of the preamble of this final 
rule), the medical recordkeeping requirement associated with the 
services billed on Part B inpatient claims during the inpatient stay is 
exempt from the PRA in accordance with 5 CFR 1320.3(b)(2). The same 
holds for recordkeeping associated with the services billed on a Part B 
outpatient claim for services provided in the 3-day payment window 
prior to the inpatient admission. We believe that the time, effort, and 
financial resources necessary to comply with the aforementioned 
recordkeeping requirements would be incurred by persons in the normal 
course of their activities and, therefore, considered to be usual and 
customary business practices.
    With regard to the appeals of proposed payment of Medicare Part B 
inpatient services, the appeals information collection activity 
discussed in section II.H. of the Part B Inpatient Billing proposed 
rule (and in section XI.B.9. of the preamble of this final rule) is 
exempt from the requirements of the Paperwork Reduction Act because it 
is associated with an administrative action (5 CFR 1320.4(a)(2) and 
(c)).
    We did not receive any public comments on these medical 
recordkeeping requirements or appeals information collection activity.
    The finalized aforementioned provisions do not impose any new or 
revised reporting or recordkeeping requirements and would not impose 
any new or revised burden estimates.

C. Admission and Medical Review Criteria for Hospital Inpatient 
Services Under Medicare Part A

1. Background
    As we discussed in section XI.A. of the preamble of this final 
rule, in response to concerns about the provision of observation 
services for increasingly long periods of time albeit in a small 
percentage of cases, and in response to stakeholders' concerns about 
the clarity and appropriateness of Medicare's hospital inpatient 
admission and medical review guidelines, we proposed several 
clarifications and changes in policy in the FY 2014 IPPS/LTCH PPS 
proposed rule (78 FR 27644 through 27650). In this section of this 
final rule, we discuss the public comments we received in response to 
our proposals and provide our final policies after consideration of the 
public comments we received.
2. Requirements for Physician Orders
a. Statutory Basis, Relationship to Physician Certification, and Timing
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27646 through 
27647), we clarified that a beneficiary becomes a hospital inpatient if 
formally admitted as such pursuant to a physician order for hospital 
inpatient admission. While the requirement for a physician order for 
hospital inpatient admission has long been clear in the hospital CoPs, 
we proposed to state explicitly in our payment regulations that 
admission pursuant to this order is the means whereby a beneficiary 
becomes a hospital inpatient and, therefore, is required for payment of 
hospital inpatient services under Medicare Part A. We stated that a 
beneficiary becomes a hospital inpatient when admitted as such after a 
physician (or other qualified practitioner as provided in the 
regulations) orders inpatient admission in accordance with the CoPs, 
and that Medicare pays under Part A for such an admission if the order 
is documented in the medical record. We stated that the order must be 
supported by objective medical information for purposes of the Part A 
payment determinations.
    Accordingly, we proposed new 42 CFR 412.3(a), which states, ``For 
purposes of payment under Medicare Part A, an individual is considered 
an inpatient of a hospital, including a critical access hospital, if 
formally admitted as an inpatient pursuant to an order for inpatient 
admission by a physician or other qualified practitioner in accordance 
with this section and Sec. Sec.  482.24(c), 482.12(c), and 
485.638(a)(4)(iii) of this chapter for a critical access hospital.'' We 
stated that this physician order must be present in the medical record 
and be supported by the physician admission and progress notes, in 
order for the hospital to be paid for hospital inpatient services under 
Medicare Part A (78 FR 27647).
    In addition, in the proposed rule, we discussed the statutory 
requirement for certification of hospital inpatient services for 
payment under Medicare Part A. The certification requirement for 
inpatient services other than psychiatric inpatient services is found 
in section 1814(a)(3) of the Act, which provides that Medicare Part A 
payment will only be made for such services ``which are furnished over 
a period of time, [if] a physician certifies that such services are 
required to be given on an inpatient basis.'' The regulation 
implementing this requirement is found at 42 CFR 424.13(a).
    The requirement for certification and recertification of inpatient 
psychiatric services as a condition of payment are found in section 
1814(a)(2) of the Act and 42 CFR 424.14. We did not propose to exclude 
any hospitals from our proposed clarification of the requirement for 
the physician order and physician certification for Part A payment of 
hospital inpatient services.
    Comment: One commenter asked CMS to clarify what is meant by 
physician ``certification.'' Some commenters believed that CMS did not 
articulate a statutory authority for requiring the physician order as a 
condition of Part A payment. The commenters stated that the proposed 
rule implied that the physician order requirement flows from section 
1814(a)(3) of the Act, which sets forth conditions and limitation on 
payment, one of which is a requirement for a physician certification 
that inpatient hospital services furnished over a period of time are 
required on an inpatient basis for such individual's medical treatment. 
Other commenters assumed that, in the proposed rule, CMS was equating 
the physician order with the physician certification that is required 
for payment under section 1814(a)(3) of the Act, stating that in the 
Social Security Amendments of 1967 to this section of the Act, Congress 
found that admission ``orders'' are not required for Medicare payment 
because hospital admissions are almost always medically necessary.
    These commenters objected to the proposal to clarify that inclusion 
of the inpatient admission order in the medical record is a condition 
of payment. The commenters acknowledged that the hospital CoPs already 
require as a health and safety measure that the inpatient admission 
decision be made upon the ``recommendation'' of a physician. However, 
they believed it would be duplicative to also require an order as a 
condition of payment, and were concerned that the requirement would 
become the basis for hospital liability under the False Claims Act. One 
commenter stated that CMS' proposal crossed the line in dictating the 
practice

[[Page 50939]]

of medicine. Some commenters believed that CMS proposed a new 
requirement that is not supported in the statute and is contrary to 
longstanding practice under the Medicare program. These commenters 
argued that the statutory reference to services furnished ``over a 
period of time'' as well as the regulation's lack of any specific 
deadline for physician certifications in nonoutlier cases indicate that 
no certification is required for short-stay cases.
    In support of their argument, the commenters cited the legislative 
history of section 1814(a)(3) of the Act, which they interpret to apply 
only to certain long-term stays. They noted that, in the Social 
Security Amendments of 1967, Congress amended the statutory language 
from requiring physician certification of hospital inpatient services 
to requiring physician certification only for ``inpatient hospital 
services . . . which are furnished over a period of time.'' Moreover, 
the commenters cited congressional reports \196\ explaining this 
statutory change by stating that it ``eliminate[d] the requirement for 
hospital insurance payments that there be a physician's certification 
of medical necessity with respect to admissions to hospitals which are 
neither psychiatric nor tuberculosis institutions'' and that such a 
certification is required ``only in cases of hospital stays of extended 
duration.'' The commenters suggested that the House report also 
explains the reason for the change, stating that ``admissions to 
general hospitals are almost always medically necessary and the 
requirement for a physician's certification of this fact results in 
largely unnecessary paperwork'' (H.R. Rep. No. 90-544, at 38 (1967)). 
Based upon all of the above factors, the commenters argued that, since 
1967, the agency has not had authority to require a physician order as 
a condition of payment for hospital inpatient stays other than extended 
stays.
---------------------------------------------------------------------------

    \196\ S. Rep. No. 90-744, at 239 (1967), H.R. Rep. No. 90-544, 
at 149 (1967).
---------------------------------------------------------------------------

    Response: We do not agree that these arguments mandate the 
conclusion that the physician certification requirement only applies to 
long-stay cases. The statute does not define ``over a period of time,'' 
and further provides that ``such certification shall be furnished only 
in such cases, and with such frequency, and accompanied by such 
supporting material . . . as may be provided by regulations.'' By this 
language, Congress explicitly delegated authority to the agency to 
elucidate this provision of the statute by regulation. Accordingly, CMS 
is authorized to interpret the statutory phrase ``over a period of 
time'' so long as its interpretation is not arbitrary, capricious, or 
manifestly contrary to statute (Chevron U.S.A. Inc. v. Natural 
Resources Defense Council, 467 U.S. 837 (1984)).
    Section 424.13 of the regulations does not contain any length-of-
time restrictions on the applicability of the certification 
requirement. Instead, Sec.  424.13(a) provides that Medicare Part A 
payment will only be made for inpatient hospital services (other than 
inpatient psychiatric services) if a physician certifies or recertifies 
``the need for continued hospitalization of the patient for medical 
treatment or medically required inpatient diagnostic study.'' 
Therefore, in its implementing regulations, CMS interpreted the 
statute's requirement of a physician certification for inpatient 
hospitals services furnished ``over a period of time'' to apply to all 
inpatient admissions. While this is not the only possible 
interpretation of the statute, we believe that it is a permissible 
interpretation.
    We recently reiterated our requirement of a physician order for all 
inpatient admissions in the preamble to the CY 2012 Medicare Physician 
Fee Schedule final rule. In a discussion regarding whether services 
furnished to a patient who is at the hospital overnight, but for less 
than 24 hours, should be billed as outpatient or inpatient services, 
CMS stated that ``[u]nless a treating physician has written an order to 
admit the patient as an inpatient, the patient is considered for 
Medicare purposes to be a hospital outpatient, not an inpatient'' (76 
FR 73106). In addition, the CoPs illustrate that CMS' policy requires a 
physician order in order to justify inpatient hospitalization 
(including inpatient psychiatric hospitalizations). Under 42 CFR 
482.12(c)(2), a hospital's governing body must ensure that ``[p]atients 
are admitted to the hospital only on the recommendation of a licensed 
practitioner permitted by the State to admit patients to a hospital.'' 
In addition, Sec.  482.24(c) requires that a patient's medical record 
``contain information to justify admission and continued 
hospitalization.''
    We also have indicated our current policy and its applicability to 
all types of hospitals in our subregulatory guidance. In the MBPM, 
Chapter 1, Section 10, we define an inpatient as ``a person who has 
been admitted to a hospital for bed occupancy for purposes of receiving 
inpatient services.'' This section further explains that ``[g]enerally, 
a patient is considered an inpatient if formally admitted as inpatient 
with an expectation that he or she will remain at least overnight and 
occupy a bed even though it later develops that the patient can be 
discharged or transferred to another hospital and not actually use a 
hospital bed overnight.'' In addition, Section 10 provides that ``[t]he 
physician or other practitioner responsible for a patient's care at the 
hospital is also responsible for deciding whether the patient should be 
admitted as an inpatient.''
    CMS' policy is also reflected in the Medicare Claims Processing 
Manual (MCPM) (Pub. 100-04), Chapter 3, Section 40.2.2(K), which 
discusses the circumstance where a patient is admitted to an inpatient 
hospital, but dies or is discharged before being assigned to a room. 
Certainly, this circumstance would not qualify as a long stay, but CMS 
still requires a physician order to justify the admission, stating that 
``[a] patient of an acute care hospital is considered an inpatient upon 
issuance of written doctor's orders to that effect.'' Finally, Chapter 
4 of the Medicare General Information, Eligibility, and Entitlement 
Manual also addresses the certification requirement. Section 10 of 
Chapter 4 provides that ``[p]ayments may be made for covered hospital 
services only if a physician certifies and recertifies to the medical 
necessity for the services at designated intervals of the hospital 
inpatient stay.'' As members of the hospital community have noted in 
the past, this section also states that ``[f]or patients admitted to a 
general hospital . . . a physician certification is not required at the 
time of admission.'' However, this merely means that the certification 
need not be contemporaneous with the admission, rather than indicating 
that no certification is required.
    Therefore, our longstanding policy, as reflected in our regulations 
and other guidance, has been that a physician order is required for all 
inpatient hospital admissions, regardless of the length of stay. We 
believe that this policy is a legally supportable interpretation of 
section 1814(a) of the Act. In order to clarify this policy going 
forward, we are finalizing Sec.  412.3(a) to include the proposed 
language as well as the provision we described in the proposed rule (78 
FR 27647) that the order must be present in the medical record and 
supported by the physician admission and progress notes. We are adding 
this preamble language from the proposed rule to the regulation text to 
improve clarity and provide consistency with our policy on medical 
review of inpatient admissions (section XI.C.3. of the preamble of this 
proposed rule) that,

[[Page 50940]]

while the physician order and the physician certification are required 
for all inpatient hospital admissions in order for payment to be made 
under Part A, the physician order and the physician certification are 
not considered by CMS to be conclusive evidence that an inpatient 
hospital admission or service was medically necessary. Rather, the 
physician order and physician certification are considered along with 
other documentation in the medical record.
    As finalized, Sec.  412.3(a) reads: ``For purposes of payment under 
Medicare Part A, an individual is considered an inpatient of a 
hospital, including a critical access hospital, if formally admitted as 
an inpatient pursuant to an order for inpatient admission by a 
physician or other qualified practitioner in accordance with this 
section and Sec. Sec.  482.24(c), 482.12(c), and 485.638(a)(4)(iii) of 
this chapter for a critical access hospital. This physician order must 
be present in the medical record and be supported by the physician 
admission and progress notes, in order for the hospital to be paid for 
hospital inpatient services under Medicare Part A. In addition to these 
physician orders, inpatient rehabilitation facilities also must adhere 
to the admission requirements specified in Sec.  412.622 of this 
chapter.'' (We discuss the application of these final policies to IRFs 
in section XI.C.2.c. of the preamble of this final rule.)
    To provide further clarity and to more closely mirror the 
authorizing statutory language, we are deleting the word ``continued'' 
and adding the word ``inpatient'' before the phrase ``medical 
treatment'' in Sec.  424.13(a)(2), to reflect that the content of the 
certification of inpatient services (other than inpatient psychiatric 
services) includes the reason for inpatient hospital services. The 
amended paragraph reads, ``(a) Content of certification and 
recertification. Certification begins with the order for inpatient 
admission. Medicare Part A pays for inpatient hospital services (other 
than inpatient psychiatric facility services) only if a physician 
certifies and recertifies the following:
    (1) That the services were provided in accordance with Sec.  412.3 
of this chapter
    (2) The reasons for either--
    (i) Hospitalization of the patient for inpatient medical treatment 
or medically required inpatient diagnostic study; or
    (ii) Special or unusual services for cost outlier cases (under the 
prospective payment system set forth in subpart F of Part 412 of this 
chapter).''
    We believe this language better reflects the statutory content of 
the certification required by section 1814(a)(3) of the Act ``[t]hat 
such services are required to be given on an inpatient basis for such 
individual's medical treatment, or that inpatient diagnostic study is 
medically required and such services are necessary for such purpose.''
    We note that the particular elements of the certification, for 
example, the order for inpatient services and documentation of the 
reason for continued hospitalization (diagnosis) should be documented 
within the medical record. Therefore, we are not finalizing any new 
documentation requirements. The existing provisions in Sec.  424.11 
continue to apply, for example paragraphs (b) and (c) which provide 
that no specific procedures or forms are required for certification and 
recertification statements. The provider may adopt any method that 
permits verification. The certification and recertification statements 
may be entered on forms, notes, or records that the appropriate 
individual signs, or on a special separate form. Except as provided for 
delayed certifications, there must be a separate signed statement for 
each certification or recertification. The succeeding sections of Part 
424, subpart B set forth specific information required for different 
types of services. If that information is contained in other provider 
records, such as physicians' progress notes, it need not be repeated. 
It will suffice for the statement to indicate where the information is 
to be found.
    To clarify the relationship between the physician order and the 
physician certification, we are adding new 42 CFR 412.3(c) which states 
that ``The physician order also constitutes a required component of the 
physician certification of the medical necessity of hospital inpatient 
services under Part 424 of this chapter.'' Similarly, we are revising 
paragraph (a) of Sec.  424.13 to include in the content of the 
certification for inpatient hospital services (other than inpatient 
psychiatric services): ``(1) [t]hat the services were provided in 
accordance with Sec.  412.3 of this chapter [the order].'' We are 
adding parallel provisions in 42 CFR 424.14(b) and 424.15(a) to include 
in the content of the physician certification for payment of inpatient 
psychiatric services and inpatient CAH services, respectively, that the 
services were provided in accordance with Sec.  412.3. We discuss 
additional rules for certification that apply to inpatient services 
furnished in IRFs in section XI.C.2.c. of the preamble of this final 
rule.
    To further clarify the relationship between the physician order and 
the physician certification, and our requirement that, like the order, 
the certification applies to all hospital inpatient admissions (not 
just extended stays), we are adding new provisions to the regulations 
regarding timing of the certification. In Sec.  424.13, we are 
providing that the certification must be signed and documented in the 
medical record prior to the hospital discharge (except for 
recertifications of extended stays, which are required earlier). We are 
redesignating existing paragraphs (b) through (g) of Sec.  424.13 as 
paragraphs (c) through (h), respectively, in order to add a new 
paragraph (b). We are requiring under new Sec.  424.13(b) that, for 
inpatient services other than inpatient psychiatric services: ``For all 
hospital inpatient admissions, the certification must be completed, 
signed, and documented in the medical record prior to discharge. For 
outlier cases under subpart F of Part 412 of this chapter that are not 
subject to the PPS, the certification must be signed and documented in 
the medical record and as specified in paragraphs (e) through (h) of 
this section.''
    For inpatient psychiatric services, we are adding the phrase ``and 
must be completed and documented in the medical record prior to 
discharge'' at the end of Sec.  424.14(d)(1) so that the paragraph 
reads, ``Certification is required at the time of admission or as soon 
thereafter as is reasonable and practicable, and must be completed and 
documented in the medical record prior to discharge.'' We will continue 
to provide under paragraph (d)(2) of Sec.  424.14 that the first 
recertification is required as of the 12th day of hospitalization. 
Subsequent recertifications are required at intervals established by 
the utilization review committee (on a case-by-case basis if it so 
chooses), but no less frequently than every 30 days.
    Like other components or elements of the physician certification, 
the physician order reflects affirmation by the ordering practitioner 
that hospital inpatient services are medically necessary. However, the 
order serves the unique purpose of initiating the inpatient admission 
and documenting the physician's (or other qualified practitioner as 
provided in the regulations) intent to admit the patient, which impacts 
its required timing. Therefore we are specifying in new paragraph (d) 
of Sec.  412.3 that ``The physician order must be furnished at or 
before the time of the inpatient admission'' (unlike the rest of the 
certification which may be completed prior to discharge, except for the 
outlier

[[Page 50941]]

extended stays described in Sec.  424.13(e) through (g)). Similarly, we 
are providing in the regulations on the certification that the 
certification begins with the order for inpatient admission. We are 
adding this as the new first sentence in Sec. Sec.  424.13(a), 
424.14(a), and 424.15(b) for CAHs. Also, we are including a conforming 
amendment in new paragraph (d)(5) of Sec.  424.11 that, for hospital or 
CAH hospital inpatient services, a delayed certification may not extend 
past discharge. The existing delayed certification provisions in 
existing Sec.  424.11(d)(3) and (d)(4) will continue to apply, but only 
for certification of the outlier extended stay cases described in Sec.  
424.13(e) through (g).
    To clarify that the rules for timing of certification and 
recertification for ``cases not subject to the PPS'' in redesignated 
paragraphs (e) through (h) of Sec.  424.13 apply only to IPPS outlier 
cases, we are adding the word ``outlier'' prior to the phrase ``subject 
to the PPS'' in paragraphs (e), (f), (g), and (h).
    We are finalizing two conforming amendments in the regulation text 
governing physician certification. In Sec.  424.11(e)(2), we are 
removing the reference ``Sec.  424.13(c)'' and adding in its place 
``Sec.  424.13(d)'' as redesignated. Similarly, we are amending Sec.  
424.16(a) by removing the reference ``Sec.  424.13(e)'' and adding it 
its place ``subpart B of this Part''.
    Comment: Several commenters asked what Medicare's payment rules 
would be regarding verbal inpatient admission orders. For example, the 
commenters asked whether the hospital could submit a Part A claim based 
upon a verbal order that is not documented in the medical record at the 
time the claim is submitted. In addition, the commenters asked how CMS 
defines ``prompt'' authentication of orders, or address verbal order 
``read-back'' processes.
    Response: Because the physician order is required as a condition of 
payment, if the order is not documented in the medical record, the 
hospital should not submit a claim for Part A payment. A verbal order 
is a temporary administrative convenience for the physician and 
hospital staff but it is not a substitute for a properly documented and 
authenticated order for inpatient admission. A verbal order must be 
properly countersigned by the practitioner who gave the verbal order. 
We intend to further discuss and develop our requirements regarding 
verbal orders for inpatient admission in our subregulatory guidance. 
The CoPs regarding verbal orders were carefully developed over a period 
time, and we believe we should take additional time to consider and 
potentially coordinate the CoP and payment rules.
    Comment: Some commenters believed that, while the order should be 
documented in the medical record as a best practice, documentation of 
the order should not be required if it is unintentionally omitted. They 
believed that the order is a technicality that should not serve as a 
condition of payment. The commenters stated that if the order to admit 
is missing, yet the physician intent and physician recommendation to 
admit to inpatient can clearly be derived from the medical record, for 
example if a medically necessary inpatient-only service was furnished, 
the contractor should consider these rather than requiring the 
physician order as a technical requirement for medical necessity and 
payment.
    Response: The admission order is evidence of the decision by the 
physician (or other practitioner who can order inpatient services) to 
admit the beneficiary to inpatient status. In very rare circumstances, 
the order to admit may be missing or defective (that is, illegible or 
incomplete), yet the intent, decision, and recommendation of the 
physician (or other practitioner who can order inpatient services) to 
admit the beneficiary as an inpatient can clearly be derived from the 
medical record. In these rare situations, we have provided contractors 
with discretion to determine that this information constructively 
satisfies the requirement that the hospital inpatient admission order 
be present in the medical record. However, in order for the 
documentation to provide acceptable evidence to support the hospital 
inpatient admission, thus satisfying the requirement for the physician 
order, there can be no uncertainty regarding the intent, decision, and 
recommendation by the physician (or other practitioner who can order 
inpatient services) to admit the beneficiary as an inpatient, and no 
reasonable possibility that the care could have been adequately 
provided in an outpatient setting. This narrow and limited alternative 
method of satisfying the requirement for documentation of the inpatient 
admission order in the medical record should be extremely rare, and may 
only be applied at the discretion of the medical review contractor. 
Even in those circumstances, all requirements for the other components 
of the physician certification must be met.
    Comment: Several commenters asked CMS to clarify whether, when a 
beneficiary would become an inpatient under the proposed policies, 
inpatient status would be conferred retroactive to the beginning of the 
hospital stay. One commenter recommended that the patient become 
inpatient after the physician writes the order and the patient starts 
receiving care based on those orders, whether or not it is in a bed on 
an inpatient nursing unit, a holding bed in the emergency department or 
another location, or whether the patient is sent to imaging or the 
operating room first. One commenter questioned what CMS meant by the 
term ``outpatient status.'' Another commenter questioned CMS' current 
definition of ``inpatient,'' stating it is not defined in the Act. The 
commenter stated that, at the time of the law's passage, the meaning of 
``inpatient'' was obvious and universal. The commenter stated that a 
patient that stays in a hospital is an inpatient, whereas a patient 
that goes home after treatment, or after a limited recovery period such 
as a few hours, is an outpatient.
    Response: As explained in the proposed rule, in response to 
concerns and suggestions of stakeholders, we aimed to provide more 
clarity regarding hospital inpatient admissions and Medicare payment. 
Toward those ends, in the FY 2014 IPPS/LTCH PPS proposed rule, we 
addressed medical review criteria and proposed to codify in regulation 
our longstanding policy (as reflected in manual provisions) that a 
patient becomes an inpatient when formally admitted as such pursuant to 
a physician order. CMS' definition of ``inpatient'' has been upheld in 
litigation. Landers v. Leavitt, 545 F.3d 98 (2\d\ Cir. 2008). We did 
not propose policy changes regarding the definition of ``inpatient'' or 
inpatient status. In contrast to a hospital inpatient, we have defined 
a hospital outpatient in the MBPM, Chapter 6, Section 20, as ``a person 
who has not been admitted by the hospital as an inpatient but is 
registered on the hospital records as an outpatient and receives 
services (rather than supplies alone) from the hospital or CAH.''
    This final rule provides that a beneficiary is considered a 
hospital inpatient following formal admission ``pursuant to'' the 
hospital inpatient admission order. We included the phrase ``pursuant 
to'' in recognition that, in most cases, the beneficiary is formally 
admitted and becomes a hospital inpatient concurrent with the physician 
order to admit to inpatient. However, in cases such as elective 
surgeries where the inpatient admission order is written as far as 
several weeks in advance, the beneficiary is not considered an 
inpatient until the time of formal admission at the hospital for the

[[Page 50942]]

inpatient services. In this example, the beneficiary is admitted and 
becomes an inpatient pursuant to the physician's order and could not be 
admitted without it, although there may be a time lag between when the 
order to admit is written and the time of formal admission. The 
physician order cannot be effective retroactively. In this final rule, 
we are not changing our definition of a ``hospital inpatient.'' 
Inpatient status only applies prospectively, starting from the time the 
patient is formally admitted pursuant to a physician order for 
inpatient admission, in accordance with our current policy.
    Comment: Several commenters expressed the opinion that physicians 
should not have to divide their attention between providing patient 
care and understanding Medicare's admission rules, which the commenters 
viewed as mere billing distinctions. Some commenters believed that CMS 
should allow physicians to delegate the determination of patient status 
to the hospital or its utilization review committee, while the 
physician focuses on ordering and providing the necessary clinical 
care. Further, some commenters stated that this is their current 
practice. Some commenters commented that their current processes 
provide for admission ``to case management'' or ``to utilization 
review'' rather than specifying inpatient admission.
    Response: As we discussed above, many public comments from 
physicians indicated that they believed the physician should be 
involved in the determination of patient status, and we agree. To 
reinforce this policy and reduce confusion among hospitals, 
beneficiaries, and physicians on the differences between outpatient 
observation and inpatient services, we are providing in this final rule 
that the order for inpatient admission must specify admission ``to or 
as an inpatient.'' In previous discussions, stakeholders have indicated 
that often physician orders only specify admission to a certain 
location in the hospital (for example, ``Admit to Tower 7'') or do not 
clarify whether the physician's intent is to ``admit'' the beneficiary 
for outpatient observation services or for hospital inpatient services. 
Therefore, we are providing that, for payment of hospital inpatient 
services under Medicare Part A, the order must specify the admitting 
practitioner's recommendation to admit ``to inpatient,'' ``as an 
inpatient,'' ``for inpatient services,'' or similar language specifying 
his or her recommendation for inpatient care. In addition, as discussed 
in the proposed rule (78 FR 27646), we remind hospitals that patients 
are admitted to the hospital only on the recommendation of a physician 
or licensed practitioner permitted by the State to admit patients to a 
hospital, provided that the practitioner, either a physician or other 
licensed practitioner, has been granted such privileges by the hospital 
to do so. Hospitals and physicians routinely must work together to 
comply with billing, coding, and admission rules not just for Medicare, 
but also for Medicaid and private payers.
b. Authorization to Sign the Physician Order
    We proposed new regulation provisions in 42 CFR 412.3(b) which 
state that, as a condition of payment, the order must be furnished by a 
qualified and licensed practitioner who has admitting privileges at the 
hospital as permitted by State law, and who is responsible for the 
inpatient care of the patient at the hospital. The practitioner could 
not delegate the decision (order) to another individual who is not 
responsible for the care of that patient, is not authorized by the 
State to admit patients, or has not been granted admitting privileges 
applicable to that patient by the hospital's medical staff.
    Comment: Commenters in the physician and Medicare contractor 
medical review communities generally supported the proposal to require 
the inpatient admission order, and to provide that it could not be 
delegated to another individual who does not possess the authority to 
order inpatient admission in his or her own right. In addition, some 
commenters representing hospitals did not object to this requirement 
because it is already standard practice. However, the commenters 
described a number of situations in which the ordering practitioner 
would appropriately not be the individual who takes responsibility for 
the inpatient care of the beneficiary, or for the entirety of the 
inpatient care. According to the commenters, these included emergency 
department physicians, hospitalists and other types of physicians in 
group practices who care for patients in the hospital, and residents 
working under the supervision of attending physicians. The commenters 
requested that if CMS finalizes a requirement for the inpatient order 
as a condition of Part A payment, CMS should allow it to be issued by 
any physician in the hospital who is knowledgeable about the 
beneficiary's condition and has admitting privileges at the hospital.
    Response: We agree with the commenters that it would be appropriate 
to allow practitioners who may not be responsible for the inpatient 
hospital care of the beneficiary but are otherwise qualified to admit 
patients at that hospital and are knowledgeable about the case to order 
the inpatient admission. Therefore, we are deleting the proposed 
language in paragraph (b) of Sec.  412.3 that would have required the 
order to be issued by a practitioner who is responsible for the 
inpatient care of the patient at the hospital. We are replacing this 
language with new language to specify that, although the ordering 
practitioner need not be responsible for the patient's inpatient care, 
he or she must be knowledgeable about the patient's hospital course, 
medical plan of care, and current condition.
    We are finalizing all of the other proposed qualifications in 
paragraph (b) of Sec.  412.3 for the ordering practitioner. The final 
language reads, ``(b) The order must be furnished by a qualified and 
licensed practitioner who has admitting privileges at the hospital as 
permitted by State law, and who is knowledgeable about the patient's 
hospital course, medical plan of care, and current condition. The 
practitioner may not delegate the decision (order) to another 
individual who is not authorized by the State to admit patients, or has 
not been granted admitting privileges applicable to that patient by the 
hospital's medical staff.'' We discuss the application of these final 
policies to IRFs in section XI.C.2.c . of the preamble of this final 
rule.
c. Applicability to Inpatient Rehabilitation Facilities (IRFs)
    We note that IRFs that are excluded from the IPPS and paid under 
the IRF prospective payment system (IRF PPS) specified in 42 CFR 
412.1(a)(3) have certain requirements in 42 CFR 412.622(a)(3), (a)(4), 
and (a)(5) that govern an inpatient admission to an IRF. These 
requirements specify the admission criteria that must be documented in 
the medical record for an IRF admission of a Medicare Part A fee-for-
service beneficiary to be considered reasonable and necessary under 
section 1862(a)(1) of the Act. For example, the documentation 
requirements contained in these regulations specify that a 
comprehensive preadmission screening must be conducted and must serve 
as the basis for the initial determination of whether or not the 
patient meets the requirements for admission to an IRF. A 
rehabilitation physician, defined as a licensed physician with 
specialized training and experience in rehabilitation, must document 
that he or she has reviewed and concurs with the preadmission screening 
prior to the

[[Page 50943]]

admission. However, we note that Chapter 1, Section 110.1.4 of the MBPM 
also specifies that, at the time each Medicare Part A fee-for-service 
patient is admitted to an IRF, a physician must generate admission 
orders for the patient's care.
    Therefore, although the required physician orders discussed in 
section XI.C.2.a. of the preamble of this final rule apply to all 
inpatient hospital admissions, including inpatient admissions to an 
IRF, they do not determine the timing of an IRF admission, nor are they 
used to determine whether the IRF admission was reasonable and 
necessary. These determinations are governed by the requirements in 
Sec. Sec.  412.622(a)(3), (4), and (5) of the regulations. To clarify 
this, we have included a provision under new Sec.  412.3 in this final 
rule that the IRF requirements at Sec.  412.622 also must be met in 
order for the IRF to be paid for hospital inpatient services under 
Medicare Part A. However, due to the aforementioned inherent 
differences in the operation of and beneficiary admission to IRFs, such 
providers are excluded from the 2-midnight admission guidelines and 
medical review instruction, as provided under XI.C.3. of the preamble 
of this final rule.
3. Inpatient Admission Guidelines
    CMS is authorized under section 1893 of the Act to implement the 
Medicare Integrity Program to conduct medical review of claims and 
ensure appropriateness of Medicare payment. Medicare review 
contractors, such as Medicare Administrative Contractors (MACs), 
Recovery Auditors (formerly known as the Recovery Audit Contractors, or 
RACs), the Comprehensive Error Rate Testing (CERT) Contractor, and 
other review contractors are hired by CMS to review claims on a pre-
payment or post- payment basis to determine whether a claim should be 
paid or denied or whether a payment was properly made under Medicare 
payment rules. Following documentation reviews, many claim denials are 
made or improper payments identified because either--
     The claim was incorrectly coded (for example, the provider 
did not appropriately assign the individual or grouper inpatient and/or 
outpatient coding for the care documented); or
     The services were not medically necessary (that is, the 
review indicates that the services billed were not reasonable and 
necessary based upon Medicare payment policies or that the 
documentation was insufficient to support the medical necessity of the 
services billed).
    CMS developed the CERT program to calculate the annual Medicare FFS 
program improper payment rate. The CERT program considers any claim 
that was paid when it should have been denied or paid at another amount 
(including both overpayments and underpayments) to be an improper 
payment. Hospital claim errors are identified more frequently for 
shorter lengths of stay. In 2012, the CERT contractor found that 
Medicare Part A inpatient hospital admissions for 1-day stays or less 
had an improper payment rate of 36.1 percent. The improper payment rate 
decreased significantly for 2-day or 3-day stays, which had improper 
payment rates of 13.2 percent and 13.1 percent, respectively. The 
improper payment rate further decreased to 8 percent for those 
beneficiaries who were treated as hospital inpatients for 4 days.
    Hospital claim errors are identified more frequently for shorter 
lengths of stay. The majority of improper payments under Medicare Part 
A for short-stay inpatient hospital claims have been due to 
inappropriate patient status (that is, the services furnished were 
reasonable and necessary, but should have been furnished on a hospital 
outpatient, rather than hospital inpatient, basis). Inpatient hospital 
short-stay claim errors are frequently related to minor surgical 
procedures or diagnostic tests. In such situations, the beneficiary is 
typically admitted as a hospital inpatient after the procedure is 
completed, monitored overnight as an inpatient, and discharged from the 
hospital in the morning. Medicare review contractors typically find 
that while the underlying services provided were reasonable and 
necessary, the inpatient hospitalization following the procedure was 
not (that is, the services following the procedure should have been 
provided on an outpatient basis).
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27644 through 
27650), we sought to clarify our longstanding policy on how Medicare 
review contractors review inpatient hospital admissions for payment 
under Medicare Part A. We also issued proposed guidance to physicians 
and hospitals regarding when a hospital inpatient admission should be 
ordered for Medicare beneficiaries. In this final rule we discuss the 
public comments we received in response to our proposals relating to 
admission guidance and medical review and provide our final policies 
after considerations of those public comments.
a. Correct Coding Reviews
    We did not propose any changes to coding review strategies for 
hospital claims. Reviewers will continue to ensure that the correct 
codes were applied and are supported by the medical record 
documentation.
b. Complete and Accurate Documentation
    When conducting complex medical review, we proposed that Medicare 
review contractors would continue to employ clinicians to review 
practitioner documented procedures and ensure that they are supported 
by the submitted medical record documentation. Such has been the case 
for complex medical review as historically performed, and will continue 
to be the case per this final rule instruction.
c. Medical Necessity Reviews
(1) Physician Order and Certification
    In the proposed rule (78 FR 27647), we proposed to codify in 42 CFR 
412.46(b) the longstanding requirement that medical documentation must 
support the physician's order and certification, as prescribed by CMS 
Ruling 93-1. Under the proposed new paragraph (b) titled ``Physician's 
order and certification regarding medical necessity,'' CMS reiterated 
that ``No presumptive weight shall be assigned to the physician's order 
under Sec.  412.3 or the physician's certification under Subpart B of 
Part 424 of this chapter in determining the medical necessity of 
inpatient hospital services under section 1862(a)(1) of the Act. A 
physician's order and certification will be evaluated in the context of 
the evidence in the medical record.'' We also stated that current 
requirements for practitioner documentation of services ordered and 
furnished would remain unchanged. That is, while the physician order 
and the physician certification are required for all inpatient hospital 
admissions in order for payment to be made under Part A, the physician 
order and the physician certification are not considered by CMS to be 
conclusive evidence that an inpatient hospital admission or service was 
medically necessary. Rather, the physician order and physician 
certification are considered along with other documentation in the 
medical record.
    Comment: Some commenters disagreed with the proposal for reviewing 
the physician order and certification in accord with the documentation 
in the medical record. Rather, the commenters suggested that an 
assumption of medical necessity for the inpatient stay would more

[[Page 50944]]

appropriately stem from the physician order to admit to inpatient, 
particularly due its requirement for admission purposes.
    Response: Satisfying the requirements regarding the physician order 
and certification alone does not guarantee Medicare payment. Rather, in 
order for payment to be provided under Medicare Part A, the care must 
also be ``reasonable and necessary,'' as specified under section 
1862(a)(1) of the Act. In addition, section 1869(a) of the Act provides 
that determinations regarding entitlement to benefits are under the 
authority of the Secretary. As stated in our proposed rule, the 
instruction for reviewers to account for all documentation in the 
medical record, in addition to the actual order for inpatient 
admission, is consistent with statutory instruction and our prior 
policy as outlined in Medicare Ruling 93-1, and is being codified for 
transparency and consistency.
    Comment: Commenters requested that CMS define what constitutes 
``objective medical information,'' which is required to support the 
order for a hospital inpatient admission.
    Response: We appreciate the commenters' suggestions that additional 
documentation guidelines would be helpful. We will consider them as we 
develop implementation instructions and manual revisions.
(2) Inpatient Hospital Admission Guidelines
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27648), we 
indicated that longstanding Medicare policy has recognized that there 
are certain situations in which a hospital inpatient admission is 
rarely appropriate. We have stated in the MBPM that when a beneficiary 
receives a minor surgical procedure or other treatment in the hospital 
that is expected to keep him or her in the hospital for only a few 
hours (less than 24), the services should be provided as outpatient 
hospital services, regardless of the hour the beneficiary comes to the 
hospital, whether he or she uses a bed, and whether he or she remains 
in the hospital past midnight (Section 10, Chapter 1 of the MBPM). In 
applying this benchmark, we have been clear that this instruction does 
not override the clinical judgment of the physician to keep the 
beneficiary at the hospital, to order specific services, or to 
determine appropriate levels of nursing care or physical locations 
within the hospital. Rather, this instruction provided a benchmark to 
ensure that all beneficiaries received consistent application of their 
Part A benefit to whatever clinical services were medically necessary.
    Due to persistently large improper payment rates in short-stay 
hospital inpatient claims, and in response to requests to provide 
additional guidance regarding the proper billing of those services, we 
proposed to modify and clarify our general rule and provide at Sec.  
412.3(c)(1) that, in addition to services designated by CMS as 
inpatient only (which are appropriate for inpatient admission without 
regard to duration of care), surgical procedures, diagnostic tests, and 
other treatments would be generally appropriate for inpatient admission 
and inpatient hospital payment under Medicare Part A when the physician 
expects the beneficiary to require a stay that crosses at least 2 
midnights and admits the beneficiary to the hospital based upon that 
expectation. Conversely, when a beneficiary enters a hospital for a 
surgical procedure not specified by Medicare as inpatient only under 
Sec.  419.22(n), a diagnostic test, or any other treatment, and the 
physician expects to keep the beneficiary in the hospital for only a 
limited period of time that does not cross 2 midnights, the services 
would be generally inappropriate for payment under Medicare Part A. 
This would be the case regardless of the hour that the beneficiary came 
to the hospital or whether the beneficiary used a bed.
    In the proposed rule, we provided inpatient hospital admission 
guidance specifying that a physician or other qualified practitioner 
(herein we will refer to the physician, with the understanding that 
this can also pertain to another qualified practitioner) should order 
admission if he or she expects that the beneficiary's length of stay 
will exceed a 2-midnight benchmark or if the beneficiary requires a 
procedure specified as inpatient-only under Sec.  419.22. We proposed 
that the starting point for this 2-midnight instruction would be when 
the beneficiary is moved from any outpatient area to a bed in the 
hospital in which additional hospital services would be provided. We 
also sought public comment regarding alternative methods of calculating 
the start time for the 2-midnight instruction.
    In the proposed rule, we stated that the judgment of the physician 
and the physician's order for inpatient admission should be based on 
the expectation of care surpassing 2 midnights, with both the 
expectation of time and the determination of the underlying need for 
medical care at the hospital supported by complex medical factors such 
as history and comorbidities, the severity of signs and symptoms, 
current medical needs, and the risk of an adverse event. We also 
indicated that, in accordance with current policy, factors that may 
result in an inconvenience to a beneficiary or family would not justify 
an inpatient hospital admission. The factors that lead a physician to 
admit a particular beneficiary based on the physician's clinical 
expectation are significant clinical considerations and must be clearly 
and completely documented in the medical record. Because of the 
relationship that develops between a physician and his or her patient, 
the physician is in a unique position to incorporate complete medical 
evidence in a beneficiary's medical records, and has ample opportunity 
to explain in detail why the expectation of the need for care spanning 
at least 2 midnights was appropriate in the context of that 
beneficiary's acute condition. We stated in the proposed rule that a 
reasonable expectation of a stay crossing 2 midnights, which is based 
on complex medical factors and is documented in the medical record, 
will provide the justification needed to support medical necessity of 
the inpatient admission, regardless of the actual duration of the 
hospital stay and whether it ultimately crosses 2 midnights. As such, 
we acknowledged in the proposed rule that there may be an unforeseen 
circumstance that results in a shorter beneficiary stay than the 
physician's expectation of surpassing 2 midnights. We stated that we 
would expect that the majority of such inpatient hospital admissions 
would occur when an inpatient hospital admission is appropriately 
ordered, but a beneficiary's transfer or death interrupts the 
beneficiary's hospital stay that would have otherwise spanned at least 
2 midnights. Therefore, we provided in proposed Sec.  412.3(c)(2), that 
``If an unforeseen circumstance, such as beneficiary death or transfer, 
results in a shorter beneficiary stay than the physician's expectation 
of at least 2 midnights, the patient may be considered to be 
appropriately treated on an inpatient basis, and the hospital inpatient 
payment may be made under Medicare Part A.'' We indicated that 
documentation in the medical record of such a circumstance would be 
required for purposes of supporting whether the inpatient hospital 
admission was reasonable and necessary for Medicare Part A payment. In 
addition, we explained that the physician must certify that inpatient 
hospital services were medically necessary in accordance with section 
1814(a) of the Act and 42 CFR Part 424, Subpart B.

[[Page 50945]]

    Comment: Commenters pointed to CMS' guidance that time should not 
be the leading factor in the decision to admit a beneficiary and that 
the decision should rely on the physician's clinical judgment and 
evaluation of the beneficiary's needs based on the severity of illness, 
the intensity or complexity of care, and the predictability of high-
risk adverse outcomes. The commenters stated that there are many 
beneficiaries who stay in a hospital for less than 2 midnights but 
still require an inpatient level of care.
    Response: In our existing guidance, we stated that the decision to 
admit a patient as an inpatient is a complex medical decision based on 
many factors, including the risk of an adverse event during the period 
considered for hospitalization, and an assessment of the services that 
the beneficiary will need during the hospital stay. The crux of the 
medical decision is the choice to keep the beneficiary at the hospital 
in order to receive services or reduce risk, or discharge the 
beneficiary home because they may be safely treated through 
intermittent outpatient visits or some other care. Our previous 
guidance also provided for a 24-hour benchmark, instructing physicians 
that, in general, beneficiaries who need to stay at the hospital less 
than 24 hours should be treated as outpatients, while those requiring 
care greater than 24 hours may usually be treated as inpatients. Our 
proposed 2-midnight benchmark, which we now finalize, simply modifies 
our previous guidance to specify that the relevant 24 hours are those 
encompassed by 2 midnights. While the complex medical decision is based 
upon an assessment of the need for continuing treatment at the 
hospital, the 2-midnight benchmark clarifies when beneficiaries 
determined to need such continuing treatment are generally appropriate 
for inpatient admission or outpatient care in the hospital.
    Contrary to the commenters' suggestion, we do not refer to ``level 
of care'' in guidance regarding hospital inpatient admission decisions. 
Rather, we have consistently provided physicians with the 
aforementioned time-based admission framework to effectuate appropriate 
inpatient hospital admission decisions. This is supported by recent 
findings by the Office of Inspector General (OIG) (OIG, Hospitals' Use 
of Observation Stays and Short Inpatient Stays for Medicare 
Beneficiaries, OEI-02-12-00040, July 2013). The OIG found that the 
reasons for short inpatient stays and for outpatient observation stays 
were often the same. They further noted that the relative use of short 
inpatient stays versus outpatient observation stays varied widely 
between hospitals, consistent with medical review findings that 
identical beneficiaries may receive identical services as either 
inpatients or outpatients in different hospitals. We believe that this 
supports our proposed continuation of our existing policy that there 
are no prohibitions against a patient receiving any individual service 
as either an inpatient or an outpatient, except for those services 
designated by the Outpatient Prospective Payment System (OPPS) 
Inpatient-Only list as inpatient-only services. We further believe that 
this supports our proposed policy that the physician is expected to 
continue to use his or her complex clinical judgment in determining 
whether a beneficiary needs to stay at the hospital, what services and 
level of nursing care (for example, low-level, monitored, or one-on-
one) the beneficiary will need, and what location (unit) is most 
appropriate. This does not require that the physician memorize complex 
billing or utilization guidelines; rather, the physician should 
generally order an inpatient admission when he or she has determined 
either that the beneficiary requires care at the hospital that is 
expected to transcend at least 2 midnights or that it will involve a 
procedure designated by the OPPS Inpatient-Only list as an inpatient-
only procedure.
    Comment: Commenters asserted that making a time-based prediction is 
difficult for the physician. They stated that making such a 
determination is contradictory to medical professionals' training, 
which is centered on the assessment of patients and the development of 
treatment plans, as opposed to focusing on the utilization review 
process. The commenters also stated that predicting length of stay is 
difficult because individual patients respond differently to care 
provided. Commenters suggested that a physician often does not have 
enough information about a patient at the onset of treatment to make an 
informed decision regarding anticipated length of stay. For example, a 
hospitalist admitting a beneficiary through the emergency department 
likely will not be familiar with the patient and may not have access to 
extensive medical history documentation on which to make a decision. 
Commenters suggested that beneficiaries with unknown or uncertain 
diagnoses should be kept under observation status until their diagnosis 
and course of treatment become clear. At that point, the commenters 
added, the hospital would be in the best position to determine the 
length of treatment, make the decision to admit to inpatient status, or 
discharge the patient home.
    Response: It has been longstanding Medicare policy to require 
physicians to admit a beneficiary as a hospital inpatient based on 
their expected length of stay. However, we recognized when we published 
our definition of observation services that long-term predictions are 
inherently more difficult than short-term predictions. Therefore, we 
revised our guidance to indicate that, when it was difficult to make a 
reasonable prediction, the physician should not admit the beneficiary 
but should place the beneficiary in observation as an outpatient. As 
new information becomes available, the physician must then reassess the 
beneficiary to determine if discharge is possible or if it is evident 
that an inpatient stay is required. We believe that this principle 
still applies and have reiterated this in the final rule. For those 
hospital stays in which the physician cannot reliably predict the 
beneficiary to require a hospital stay greater than 2 midnights, the 
physician should continue to treat the beneficiary as an outpatient and 
then admit as an inpatient if and when additional information suggests 
a longer stay or the passing of the second midnight is anticipated.
    Comment: Commenters pointed out that although the proposal is 
framed as a presumption, the proposed rule, would, in effect, 
inappropriately establish a per se rule that inpatient admissions that 
are not expected to last at least 2 midnights are not medically 
reasonable and necessary (unless the beneficiary is receiving an 
inpatient-only service or procedure). The commenters stated that the 
proposed rule offers no legal or medical support for the idea that a 1-
day stay that is expected to be a 1-day stay is not medically 
reasonable and necessary as an inpatient admission. Other commenters 
requested that CMS clarify that no per se rule would be created that 
inpatient payment is always inappropriate following procedures not on 
the inpatient-only list.
    Response: The proposed rule did not create a per se standard; 
rather, consistent with historical instruction, the proposed rule 
continues the use of a benchmark to ensure a uniform understanding of 
the circumstances under which an inpatient admission should be ordered 
or when the care should be provided on an outpatient basis. This common 
standard is not a per se rule but a necessary reference to ensure 
similar beneficiary cost-sharing and hospital reimbursement for similar

[[Page 50946]]

care. The 2-midnight benchmark, rather, provides that hospital stays 
expected to last less than 2 midnights are generally inappropriate for 
inpatient hospital admission and Part A payment absent rare and unusual 
circumstance to be further detailed in sub-regulatory instruction. In 
applying this benchmark, we have been clear that this instruction does 
not override the clinical judgment of the physician to keep the 
beneficiary at the hospital, to order specific services, or to 
determine appropriate levels of nursing care or physical locations 
within the hospital. Rather, this instruction provides a benchmark to 
ensure that all beneficiaries received consistent application of their 
Part A benefit to whatever clinical services were medically necessary.
    Comment: Commenters urged CMS to consider situations that result in 
a shorter beneficiary stay than the physician's expectation of care 
transcending 2 midnights. The commenters stated that in the proposed 
rule, CMS indicated that it would expect that the majority of such 
cases to be due to beneficiary death or transfer. Commenters expressed 
concern that these exceptions are too restrictive and urged CMS to 
recognize other exceptions, such as when a beneficiary leaves against 
medical advice (AMA) before reaching the 2-midnight benchmark, when the 
beneficiary improves more rapidly than expected, or when the 
beneficiary requires care in the intensive care unit (ICU). One 
commenter inquired whether a beneficiary who receives intensive 
services and expires prior to crossing 2 midnights would automatically 
be classified as appropriately outpatient.
    Response: We appreciate industry feedback, and believe the rule, as 
finalized, provides for sufficient flexibility because of its basis in 
the physician's expectation of a 2-midnight stay. Such would include 
situations in which the beneficiary improves more rapidly than the 
physician's reasonable, documented expectation. Such unexpected 
improvement may be provided and billed as inpatient care, as the 
regulation is framed upon a reasonable and supportable expectation, not 
the actual length of care, in defining when hospital care is 
appropriate for inpatient payment. We do not believe beneficiaries 
treated in an intensive care unit should be an exception to this 
standard, as our 2-midnight benchmark policy is not contingent on the 
level of care required or the placement of the beneficiary within the 
hospital. In addition, while we did not specify the situation in which 
a beneficiary leaves AMA as an exception under the proposed rule, we 
acknowledge that an AMA departure is usually an unexpected event and 
that an inpatient admission could still be appropriate provided that 
the medical record demonstrates a reasonable expectation of a 2-
midnight stay when the admission order is written. As we develop our 
manual guidance to implement this proposed rule, we will identify those 
unusual situations in which we expect that the 2 midnight benchmark 
does not apply.
    Comment: Commenters voiced concerns that the use of observation 
would increase under the proposed policy, regardless of CMS' intent to 
reduce the incidence of long observation stays. Some commenters 
believed that if the physician would have to predict a greater than 2 
midnight stay, only the sickest individuals and those receiving 
procedures on the inpatient-only list would be admitted as inpatients, 
while many more beneficiaries would be placed in observation so as to 
avoid an inaccurate length of stay determination and subsequent short-
stay audits. Other commenters believed that because an increase in 
observation stays will happen, many hospital stays that would generally 
be appropriate for an inpatient admission under CMS' current 24-hour 
guidance would now be generally inappropriate for Part A payment unless 
the 2-midnight benchmark is met. Commenters voiced concern that the 
increase in observation will lead to a strain in outpatient beds and 
resources, leading the hospitals to use inpatient beds for 
beneficiaries in outpatient status who need more intense monitoring 
than is currently available in outpatient areas without a proportionate 
increase in outpatient reimbursement from Medicare. Commenters also 
urged CMS to recalibrate its outpatient payment so that hospitals will 
be adequately compensated for handling the increase in observation 
cases, particularly for those stays requiring complex monitoring and 
intervention. The commenters believed that as beneficiaries have the 
potential for greater cost-sharing for an observation stay than an 
inpatient stay, this may lead to greater financial liability for 
beneficiaries.
    Response: While previous guidance provided a 24-hour benchmark to 
be used in making inpatient admission decisions, we now specify that 
the 24 hours relevant to inpatient admission decisions are those 
encapsulated by 2 midnights. As we provide in this final rule, we 
expect that the decision to admit the beneficiary should be based on 
the cumulative time spent at the hospital beginning with the initial 
outpatient service. In other words, if the physician makes the decision 
to admit after the beneficiary arrived at the hospital and began 
receiving services, he or she should consider the time already spent 
receiving those services in estimating the beneficiary's total expected 
length of stay. For example, if the beneficiary has already passed 1 
midnight as an outpatient observation patient or in routine recovery 
following outpatient surgery, the physician should consider the 2 
midnight benchmark met if he or she expects the beneficiary to require 
an additional midnight in the hospital. This means that the decision to 
admit becomes easier as the time approaches the second midnight, and 
beneficiaries in medically necessary hospitalizations should not pass a 
second midnight prior to the admission order being written. The 
potential increase in very short (less than 2 midnights) observation 
stays should be balanced by a significant decrease in long (2 midnights 
or more) observation stays. Because we expect that this revision should 
virtually eliminate the use of extended observation, we also anticipate 
it will concurrently limit beneficiary cost-sharing for outpatient 
services. We are not expecting any change in the utilization of 
specific beds or facilities, as the expectation of the duration of 
needed care is independent of the beneficiary's location at the 
hospital.
    Comment: One commenter inquired about the appropriate use of 
Condition Code 44 in a situation when the physician expected a stay 
that met the 2-midnight standard but the beneficiary experienced an 
unanticipated recovery.
    Response: We refer commenters to the instruction provided at 
section XI.B. of the preamble of this rule, in which we expanded on 
Condition Code 44 requirements and application. Under this section, we 
state that providers may continue to change patient status to 
outpatient during the hospital stay upon meeting the Condition Code 44 
requirements. However, we note that Condition Code 44 is not to be used 
for unexpected events because, as described above, those situations can 
remain appropriately inpatient. Thus, a beneficiary who experiences an 
unexpected recovery during a medically necessary stay should not be 
converted to an outpatient but should remain an inpatient if the 2-
midnight expectation was reasonable at the time the inpatient order was 
written, but unexpectedly the stay did not fully transpire. In 
contrast, Condition Code 44 is specifically for the situation when the 
utilization review or management committee determines that the 
physician has not appropriately

[[Page 50947]]

admitted a patient and the physician concurs that the status should be 
converted to outpatient prior to beneficiary discharge.
    Comment: Commenters indicated that inpatient-only procedures that 
require a 1-day length of stay would be affected by this proposed 
policy and may not be adequately reimbursed under Medicare Part B. The 
commenters requested that CMS specify that all services on the 
inpatient-only list should automatically be deemed to meet inpatient 
service criteria, even if the beneficiary is in the hospital for less 
than 2 midnights. Conversely, another commenter suggested that 
excluding inpatient-only procedures, which may or may not require 2-
midnight stays, contradicts a time-based policy.
    Response: In the proposed rule, we stated that procedures on the 
OPPS inpatient-only list are always appropriately inpatient, regardless 
of the actual time expected at the hospital, so long as the procedure 
is medically necessary and performed pursuant to a physician order and 
formal admission. Procedures designated as inpatient-only are deemed 
statutorily appropriate for inpatient payment at Sec.  419.22(n). As 
such, we believe that inpatient-only procedures are appropriate for 
exclusion from the 2-midnight benchmark. Under this final rule, 
inpatient-only procedures currently performed as inpatient 1-day 
procedures will continue to be provided as inpatient 1-day procedures, 
and therefore this rule will not result in any change in status or 
reimbursement.
    Comment: Commenters recommended that CMS remove the 2-midnight 
guidance for certain procedures, allowing physicians to continue 
admitting as inpatient high risk, complex beneficiaries who are to 
undergo a surgery with added complexity, regardless of the expected 
length of stay. The commenters stated that many Medicare beneficiaries 
have multiple comorbidities, and the execution of seemingly simple 
procedures may require more pre-, intra-, and post-operative services 
than would be necessary for younger or healthier patients, even when 
there is no expectation that the beneficiary will require a stay of at 
least 2 midnights. Commenters added that the provision of such services 
may exceed the level of care typically associated with observation 
care. Other commenters suggested that CMS explicitly preclude from 
further review any services that are not typically available in an 
outpatient setting, such as telemetry.
    Response: We agree with commenters that factors such as the 
procedures being performed and the health status of the beneficiary are 
important considerations in the decision to keep the beneficiary in the 
hospital. However, as we note above, the beneficiary's required ``level 
of care'' is not part of the guidance regarding hospital inpatient 
admission decisions. Rather, we provide physicians with a 2-midnight 
admission framework to effectuate appropriate inpatient hospital 
admission decisions. More specifically, we have stipulated that factors 
such as the procedures being performed and the beneficiary's condition 
and comorbidities apply when the physician formulates his or her 
expectation regarding the need for hospital care, while the decision of 
whether to admit a beneficiary as an inpatient or keep as an outpatient 
is based upon the physician's expectation of the beneficiary's required 
length of stay. In this rule, we have not identified any circumstances 
where the 2-midnight benchmark restricts the physician to a specific 
pattern of care, as we have specified that the 2-midnight benchmark, 
like the previous 24-hour benchmark, does not prevent the physician 
from providing any service at any hospital regardless of the expected 
duration of the service. Rather, this policy provides guidance on when 
the hospitalized beneficiary is appropriate for coverage under Part A 
benefits as an inpatient, and when the hospitalized beneficiary should 
receive that treatment as a registered outpatient subject to Part B 
benefits. On the other hand, we also specify that certain procedures 
may have intrinsic risks, recovery impacts or complexities that would 
cause them to be appropriate for inpatient coverage under Part A 
regardless of the expected length of hospital time a specific physician 
expects a particular patient to require. We believe that the OPPS 
Inpatient-Only List identifies those procedures and we have proposed 
that this is a specific exception to the generally applicable 2 
midnight benchmark. We may also specify other potential exceptions to 
the generally applicable benchmark as we revise our manuals to 
implement this proposed rule.
    Comment: Commenters recommended that the risk of an adverse event 
as being a determinant in the inpatient admission decision should be 
removed, qualified as ``high'' or ``unreasonable,'' or narrowly defined 
to only include risks during the beneficiary's course of treatment that 
can be addressed or managed by the hospital. The commenters pointed to 
past trends of inconsistency in the use of risk as a factor in the 
inpatient admission decision by hospitals and appeal entities. 
Commenters suggested that, at most, the beneficiary's risk of morbidity 
or mortality should be a factor considered when making the decision of 
whether the keep the beneficiary in the hospital or send the 
beneficiary home, not when determining the appropriate patient status 
as inpatient or outpatient.
    Response: We believe that, due to the nature of the Medicare 
population, coexisting or concurrent medical conditions are a frequent 
occurrence. As a result, admission decisions centered around risk must 
relate to current disease processes or presenting symptoms, and not 
merely be part of the beneficiary's benign or latent past medical 
history. We note that ``risk'' in common usage describes an 
unacceptable probability of an adverse outcome, as in ``risky 
behavior.'' We reiterate our stance that the decision to hospitalize a 
beneficiary is a complex medical decision made by the physician in 
consideration of various risk factors, including the beneficiary's age, 
disease processes, comorbidities, and the potential impact of sending 
the beneficiary home. It is up to the physician to make the complex 
medical decision of whether the beneficiary's risk of morbidity or 
mortality dictates the need to remain at the hospital because the risk 
of an adverse event would otherwise be unacceptable under reasonable 
standards of care, or when the beneficiary may be discharged home. If 
the resultant length of stay for medically necessary hospitalization is 
expected to surpass 2 midnights, the physician should admit the patient 
as an inpatient.
    Comment: Commenters pointed out that the complexity of caring for 
the elderly beneficiary and the limited access to resources in the 
community continues to be challenging. While a beneficiary may not meet 
the screening criteria for an inpatient admission, the beneficiary's 
complex needs and lack of access to medical therapies outside the 
hospital require the admitting physician to make a judgment as to 
whether such patients are in greater danger of serious illness or death 
if they are discharged than if they are admitted, and may result in the 
hospital being unable to release a beneficiary into the community. 
Conversely, a commenter wanted to remind CMS that convenience factors 
or nonmedically necessary care violate the Social Security Act, which 
excludes custodial care from Medicare coverage.
    Response: While we will not dictate the hospital or physician 
admission decision, we also note that Medicare is statutorily 
prohibited under section

[[Page 50948]]

1862(a)(1)(A) of the Act from paying for services that are not 
reasonable and necessary. Therefore, we have identified so-called 
``social admissions'' and admissions to avoid inconvenience as 
inappropriate from Medicare payment per the aforementioned statutory 
exclusion. This is consistent with current manual instructions. We will 
look for opportunities to offer additional guidance addressing these 
types of medical necessity decisions as we update our policy manuals.
    Comment: Commenters requested that CMS provide clarification for 
how hospitals receiving beneficiaries from another hospital should make 
the admission decision under the proposed policy.
    Response: We recognize that, in addition to the occurrence of 
unexpected transfers out of a hospital, there are a number of possible 
scenarios involving transfers into a hospital that that may impact the 
length of stay determination under this policy. We noted in the 
proposed rule that an unexpected transfer out of the sending hospital 
is one reason why an inpatient stay that lasts less than 2 midnights 
may still be appropriately inpatient. Due to the complexity of the 
possible transfer scenarios, we believe that explicit guidance should 
be reserved for manual instruction. Drafting these instructions will be 
one of the highest priorities as we develop our implementation 
instructions.
    Comment: Commenters pointed out that, under this proposal, the 
distinction between inpatient and outpatient may come down to small 
time discrepancies. For example, a beneficiary whose hospital stay 
begins shortly before midnight and lasts just over 48 hours will be 
considered an inpatient because the stay will cross 2 midnights, while 
a beneficiary whose hospital stay begins shortly after midnight and 
lasts just under 48 hours will be considered an outpatient because the 
stay will only cross 1 midnight.
    Response: The application of 2 midnights was proposed for the 
purpose of providing both consistency and clarity. We have expected and 
continue to expect that physicians will make the decision to keep a 
beneficiary in the hospital when clinically warranted and will order 
all appropriate treatments and care in the appropriate location based 
on the beneficiary's individual medical needs. We also expect that 
physicians will apply the revised benchmark as they have previously 
applied the existing benchmark, providing any medically necessary 
services in an inpatient status whenever the benchmark is met and in 
all other instances providing identical services to patients staying at 
the hospital in a day or overnight outpatient status. While we have 
historically referenced a 24-hour benchmark, we now specify that the 24 
hours relevant to inpatient admission decisions are those encapsulated 
by 2 midnights. This distinction is consistent with our application of 
Medicare utilization days, which are based on the number of midnights 
crossed. Medicare charges beneficiaries for utilization days and pays 
hospitals for utilization days when it applies per diem adjustments, 
such as the transfer adjustment. A beneficiary who is admitted just 
before midnight and discharged 36 hours later is currently charged 2 
utilization days, while a beneficiary admitted just after midnight is 
charged 1 day. In addition, the use of 2 midnights is an easy concept 
for beneficiaries to understand in assessing the appropriateness of 
their assigned status, associated coverage, and impacts.
    Comment: Commenters provided alternate proposals for guiding 
inpatient admissions and medical review. Some commenters suggested that 
physicians are not apprised of admission criteria, but rather the 
medical treatment necessary for the beneficiary, and suggested that 
case management be permitted to make inpatient admission 
determinations, which could be concurred or nonconcurred to by the 
treating physician. Conversely, other commenters believed the physician 
was most apprised of the patient condition and, therefore, the need for 
inpatient admission or care spanning 2 midnights. As such, some 
commenters believed the physician order should trigger a presumption of 
appropriate payment for medical review purposes. One commenter 
suggested good faith protections for facilities in strict adherence to 
their hospital comprised utilization review plan. Another commenter 
disagreed with the need for any change to the current medical review 
policy.
    Response: In the proposed rule, we focused on clarifying and 
modifying the distinction between hospitalization as an outpatient and 
hospitalization as an inpatient. While the proposed approach arose out 
of significant consideration for provider impact, ease in 
implementation and operationalization, we will assess commenter 
feedback falling within the scope of CMS' policy in implementing 
changes to our manual provisions.
    Comment: Commenters requested further guidance to clarify what 
criteria support a reasonable and necessary inpatient admission. The 
commenters' suggested sources of such guidance included evidence-based 
guidelines offered through the Agency for Healthcare Research and 
Quality (AHRQ) National Guidelines Clearinghouse and the various 
medical specialty societies and commercial hospital screening 
guidelines. Some commenters also suggested that inpatient admissions be 
deemed reasonable and necessary based on the use of such sources. 
Another commenter indicated that a time-based policy contradicts CMS 
instructions contained in the Program Integrity Manual pertaining to 
the use of screening tools as part of the review of inpatient hospital 
claims. Regardless of the criteria chosen, commenters iterated that CMS 
and its contractors must update existing inpatient admission guidance 
and policies to ensure consistency in application by all Medicare 
review contractors. Commenters also inquired whether providers would 
have the opportunity to comment on any additional guidance that will be 
created to implement this rule.
    Response: Medicare review contractors must abide by CMS policies in 
conducting payment determinations, but are permitted to take into 
account evidence-based guidelines or commercial utilization tools that 
may aid such a decision. We also acknowledge that this type of 
information may be appropriately considered by the physician as part of 
the complex medical judgment that guides his or her decision to keep a 
beneficiary in the hospital and formulation of the expected length of 
stay. As we update our manuals and take additional steps to implement 
this rule, we anticipate using our usual processes to develop and 
release subregulatory guidance such as manual instructions and 
educational materials, which may include open door forums, regional 
meetings, correspondence and other ongoing interactions with 
stakeholders; and that our contractors will continue to involve local 
entities as they implement these rules.
    Comment: Several commenters indicated that CMS should delay 
enforcement of the revised admissions criteria until a time after 
October 1, 2013, due to the significant system changes and educational 
efforts that will be required. Some commenters indicated that CMS 
should use this delay in order to conduct further research and 
collaborate with providers, while others suggested that CMS conduct a 
thorough analysis of current payment policy and planned payment reforms 
that could affect inpatient admission decisions, including those

[[Page 50949]]

with implications for patient safety, quality, and beneficiary cost-
sharing, before finalizing its guidance. Other commenters suggested 
that claim reviews for inpatient stays of greater than 2 midnights 
should continue without evidence of gaming for a period of time 
following implementation of the new policy to ensure that hospitals are 
properly billing under the revised criteria. The commenters stated that 
after that time has passed, reviews of inpatient stays longer than 2 
midnights would be based on evidence of overutilization.
    Response: We proposed only a change in the inpatient admissions 
benchmark from an hourly expectation (24 hours) to a daily (2-
midnights) expectation. We do not believe that delays in implementation 
are necessary or desirable, and we expect, through collaboration with 
stakeholders, to develop additional guidance and instruction as part of 
that implementation.
    Comment: Commenters questioned the applicability of the proposed 
rule to differing types of hospital facilities. Commenters specifically 
requested clarity regarding application of the rule to IRFs and IPFs. 
Commenters further asserted that this distinction may conflict with 
State laws requiring inpatient admissions post 24 hours, and such 
States should be granted exception.
    Response: In the proposed rule, our reference to section 1861(e) of 
the Act was intended to specify that CAHs were included in the proposed 
policies, not that we were proposing that IPFs or other non-IPPS 
hospitals should be excluded. Having considered the public comments to 
the proposed rule, we believe that all hospitals, LTCHs, and CAHs, with 
the exception of IRFs, would appropriately be included in our final 
policies regarding the 2-midnight admission guidance and medical review 
criteria for determining the general appropriateness of inpatient 
admission and Part A payment. Due to the inherent differences in the 
operation of and beneficiary admissions to IRFs, such providers must be 
excluded from the aforementioned admission guidelines and medical 
review instruction. We disagree with the commenters' assertion that the 
2-midnight admission and medical review policies conflict with existing 
state laws regarding observation. The 2-midnight benchmark does not 
prohibit physicians from ordering inpatient admission in accordance 
with state law; rather, this policy indicates when Medicare payment 
will be deemed appropriate. To the extent that State law requires 
admission in situations where Medicare payment would not be 
appropriate, providers should work with their States to resolve those 
discrepancies.
    Comment: Commenters indicated that the proposed policy, which 
clarifies when a beneficiary becomes an inpatient, promotes the 
integrity and accuracy of the 340B program. They stated that the 340B 
program creates an incentive for hospitals to keep beneficiaries in 
observation status for the purpose of obtaining the deeply discounted 
340B acquisition price that would otherwise by unavailable. Thus, they 
added, the 340B spread creates a financial incentive for 340B hospitals 
to keep beneficiaries in outpatient/observation status for the sole 
purpose of administering drugs.
    Response: We appreciate the observation of the commenters and 
concur that this policy promotes consistent application of an inpatient 
status to all stakeholders.
(3) Medical Review of Inpatient Hospital Admissions Under Part A
    Under this revised policy, services designated by the OPPS 
Inpatient-Only list as inpatient-only, would continue to be appropriate 
for inpatient hospital admission and payment under Medicare Part A. In 
addition, surgical procedures, diagnostic tests, and other treatments 
would be generally deemed appropriate for inpatient hospital admission 
and payment under Medicare Part A when the physician expects the 
patient to require a stay that crosses at least 2 midnights and admits 
the patient to the hospital based upon that expectation. We proposed, 
and are now finalizing, two distinct, though related, medical review 
policies, a 2-midnight presumption and a 2-midnight benchmark. Under 
the 2-midnight presumption, inpatient hospital claims with lengths of 
stay greater than 2 midnights after the formal admission following the 
order will be presumed generally appropriate for Part A payment and 
will not be the focus of medical review efforts absent evidence of 
systematic gaming, abuse or delays in the provision of care in an 
attempt to qualify for the 2-midnight presumption (that is, inpatient 
hospital admissions where medically necessary treatment was not 
provided on a continuous basis throughout the hospital stay and the 
services could have been furnished in a shorter timeframe). 
Beneficiaries should not be held in the hospital absent medically 
necessary care for the purpose of meeting the 2-midnight benchmark. 
Review contractors will also continue to assess claims in which the 
beneficiary span of care after admission crosses 2 midnights:
     To ensure the services provided were medically necessary;
     To ensure that the stay at the hospital was medically 
necessary;
     To validate provider coding and documentation as 
reflective of the medical evidence;
     When the CERT Contractor is directed to do so under the 
Improper Payments Elimination and Recovery Improvement Act of 2012 
(Pub. L. 112-248); or
     If directed by CMS or other authoritative governmental 
entity (including but not limited to the HHS Office of Inspector 
General and Government Accountability Office).
    Conversely, under this revised policy, CMS' medical review efforts 
will focus on inpatient hospital admissions with lengths of stay 
crossing only 1 midnight or less after admission (that is, only 1 
Medicare utilization day, as defined in 42 CFR 409.61 and implemented 
in the MBPM, Chapter 3, Section 20.1). As previously described, such 
claims have traditionally demonstrated the largest proportion of 
inpatient hospital improper payments under Medicare Part A. If the 
physician admits the beneficiary as an inpatient but the beneficiary is 
in the hospital for less than 2 midnights after the order is written, 
CMS and its medical review contractors will not presume that the 
inpatient hospital status was reasonable and necessary for payment 
purposes, but may instead evaluate the claim pursuant to the 2-midnight 
benchmark. Medicare review contractors will (a) evaluate the physician 
order for inpatient admission to the hospital, along with the other 
required elements of the physician certification, (b) the medical 
documentation supporting the expectation that care would span at least 
2 midnights, and (c) the medical documentation supporting a decision 
that it was reasonable and necessary to keep the patient at the 
hospital to receive such care, in order to determine whether payment 
under Part A is appropriate.
    In their review of the medical record, Medicare review contractors 
will consider complex medical factors that support a reasonable 
expectation of the needed duration of the stay relative to the 2-
midnight benchmark. Both the decision to keep the beneficiary at the 
hospital and the expectation of needed duration of the stay are based 
on such complex medical factors as beneficiary medical history and 
comorbidities, the severity of signs and symptoms, current medical 
needs, and the risk (probability) of an adverse event occurring during 
the

[[Page 50950]]

time period for which hospitalization is considered. In other words, if 
it was reasonable for the physician to expect the beneficiary to 
require a stay lasting 2 midnights, and that expectation is documented 
in the medical record, inpatient admission is generally appropriate, 
and payment may be made under Medicare Part A; this is regardless of 
whether the anticipated length of stay did not transpire due to 
unforeseen circumstances such as beneficiary death or transfer (so long 
as the physician's order and certification requirements also are met). 
As discussed above, an inpatient admission is appropriate and Part A 
payment may also be made in the case of services on Medicare's 
inpatient-only list, regardless of the expected length of stay.
    Comment: Some commenters shared concerns regarding the proposed 
method of calculating the length of stay for purposes of the 2-midnight 
benchmark, beginning when the beneficiary is moved from any outpatient 
area to a bed in the hospital in which the additional hospital services 
will be provided. Commenters noted that hospital capacity issues can 
lead to situations in which a beneficiary is boarded in the emergency 
department until a bed becomes available, which can be hours after the 
admission order is written. In other instances, the commenters added, 
an inpatient admission may be planned after a surgical procedure and 
the beneficiary becomes an inpatient when he or she reports to the 
operating room for preoperative assessment and preparation. Commenters 
pointed out that if the clock does not start until beneficiary movement 
to another area of the hospital occurs, the beneficiary may not meet 
the 2-midnight benchmark although he or she was receiving treatment in 
the hospital for greater than 2 midnights. Commenters provided various 
alternate suggestions for when the clock should start. Many commenters 
suggested that CMS start the clock the earliest of: (1) When the 
physician writes an order for admission or observation; (2) when the 
beneficiary is treated in the emergency department; or (3) when the 
beneficiary is placed in a bed for observation. Other commenters 
suggested that the clock should begin when the beneficiary meets 
inpatient admission criteria or when the nursing intake notes specify 
the time the beneficiary is admitted to the floor and is put in a bed. 
Regardless of the decision CMS made on this point, commenters requested 
that clarification be provided on when the inpatient order should be 
written and how the time should be counted for medical review purposes.
    Response: We agree with the concerns noted by commenters, and are 
revising the proposed rule accordingly. In this final rule, we specify 
that the ordering physician may consider time the beneficiary spent 
receiving outpatient services (including observation services, 
treatments in the emergency department, and procedures provided in the 
operating room or other treatment area) for purposes of determining 
whether the 2-midnight benchmark is expected to be met and therefore 
inpatient admission is generally appropriate. For beneficiaries who do 
not arrive through the emergency department or are directly receiving 
inpatient services (for example, inpatient admission order written 
prior to admission for an elective admission or transfer from another 
hospital), the starting point for medical review purposes will be from 
the time the patient starts receiving any services after arrival at the 
hospital. We emphasize that the time the beneficiary spent as an 
outpatient before the inpatient admission order is written will not be 
considered inpatient time, but may be considered by physicians in 
determining whether a patient should be admitted as an inpatient, and 
during the medical review process for the limited purpose of 
determining whether the 2-midnight benchmark was met and therefore 
payment is generally appropriate under Part A. Claims in which a 
medically necessary inpatient stay spans at least 2 midnights after the 
beneficiary is formally admitted as an inpatient will be presumed 
appropriate for inpatient admission and inpatient hospital payment and 
will generally not be subject to medical review of the inpatient 
admission, absent evidence of systematic gaming, abuse, or delays in 
the provision of care in an attempt to qualify for the 2-midnight 
presumption.
    Comment: Commenters requested clarification regarding the 
distinction between inpatient time and outpatient time for purposes of 
meeting the 2-midnight benchmark, specifically for those beneficiaries 
who are first treated in observation status and then later as hospital 
inpatients pursuant to a physician's order. Commenters recommended that 
CMS consider observation care to count toward the 2-midnight rule when 
complications arise that lead to previously unanticipated extended care 
in accord with requirements for skilled nursing facility eligibility.
    Response: As noted above, we will allow the physician to consider 
time spent in the hospital as an outpatient in making their inpatient 
admission decision. This is consistent with CMS existing instructions 
and medical review guidance, which allow physicians and Medicare review 
contractors to account for the beneficiary's medical history and 
physical condition prior to the inpatient admission decision. 
Therefore, if upon beneficiary presentation, the physician is unable to 
make an evaluation and corresponding expected length of stay 
determination, the physician may first monitor the beneficiary in 
observation or continue to perform diagnostics in the outpatient arena. 
If the beneficiary's medical needs and condition after 1 midnight in 
outpatient status dictate the need for an additional midnight within 
the hospital receiving medically necessary care, the physician may 
consider the care in the outpatient setting when making his or her 
admission decision. Medicare review contractors would similarly apply 
the 2-midnight benchmark to all time spent within the hospital 
receiving medically necessary services in their claim evaluation.
    We reiterate that the physician order, the remaining elements of 
the physician certification, and formal inpatient admission remain the 
mandated means of inpatient admission. While outpatient time may be 
accounted for in application of the 2-midnight benchmark, it may not be 
retroactively included as inpatient care for skilled nursing care 
eligibility or other benefit purposes. Inpatient status begins with the 
admission based on a physician order.
    Comment: Commenters expressed concern about the additional scrutiny 
that 1-day inpatient hospital stays would undergo under this policy. 
Commenters also were particularly interested in how the review 
contractors would review inpatient stays that lasted less than 2 
midnights, including whether current review criteria would continue to 
be utilized for such reviews. The commenters requested that CMS define 
situations in which a hospital stay lasting less than 2 midnights would 
properly qualify as inpatient.
    Response: If the physician admits the beneficiary as an inpatient 
but the beneficiary is in the hospital for less than 2 midnights after 
the admission begins, CMS and the Medicare review contractors will not 
presume that the inpatient hospital admission was reasonable and 
necessary for payment purposes, but will apply the 2-midnight benchmark 
in conducting medical review. In making their determination of whether 
the inpatient admission is appropriate, Medicare review

[[Page 50951]]

contractors will evaluate: (a) The physician order for inpatient 
admission to the hospital, along with the other required elements of 
the physician certification; (b) the medical documentation supporting 
that the order was based on an expectation of need for care spanning at 
least 2 midnights; and (c) the medical documentation supporting a 
decision that it was reasonable and necessary to keep the patient at 
the hospital to receive such care. In their review of the medical 
record, Medicare review contractors will consider complex medical 
factors that support a reasonable expectation of the needed duration of 
the stay relative to the 2-midnight benchmark. These include such 
factors as beneficiary medical history and comorbidities, the severity 
of signs and symptoms, current medical needs, and the risk of an 
adverse event.
    Comment: Commenters asserted that the proposed rule penalizes 
efficiency, as those hospitals that are able to treat beneficiaries in 
less than 2 midnights will be able to admit fewer beneficiaries than 
those less efficient hospitals who do not have the same resources. 
Other commenters expressed concern that the new proposed policy would 
encourage hospitals to hold beneficiaries in the hospital solely for 
the purpose of meeting the 2-midnight presumption and avoid audits of 
their claims. The commenters stated that consequences of such practices 
on the beneficiaries could include prolonged exposure to additional 
medical risks and would also lead to increased costs to the Medicare 
program, due to medically unnecessary time in the hospital. Conversely, 
some commenters indicated that they did not believe that hospitals 
would not hold patients for longer than necessary to meet inpatient 
requirements.
    Response: We have noted that the decision to admit is based on an 
expectation of medically necessary care transcending 2 midnights 
resulting from the practitioner's consideration of the beneficiary's 
condition and medical needs. We will monitor all hospitals for 
intentional or unwarranted delays in the provision of care, which may 
result in increased inpatient admissions secondary to the 2 midnight 
instruction. We are also cognizant of concerns related to unnecessarily 
elongated hospital admissions, and will be monitoring for such patterns 
of systemic delays indicative of fraud or abuse. If a hospital is 
unnecessarily holding beneficiaries to qualify for the 2-midnight 
presumption, CMS and/or its contractors may conduct review on any of 
its inpatient claims, including those which surpassed 2 midnights after 
admission.
    Comment: One commenter stated that while it is reasonable that a 
medically necessary hospital stay crossing 2 midnights may be 
appropriately billed as inpatient, there should be no presumption that 
such a 2-midnight stay was itself medically necessary simply because a 
patient was in the hospital 2 consecutive nights. The commenter stated 
that the proposed rule includes a requirement that review will only be 
permitted when the error rate is sufficient to warrant auditing 
activity; however, the audit that would establish this error would 
itself be precluded under CMS' presumption. The commenter stated that, 
alternatively, data analysis of the claims should remain the foundation 
for selection of claims for medical record review to determine whether 
the documentation supports the claim as billed. The commenter believed 
that a presumption of medical necessity based on the time a beneficiary 
stays in the hospital places the Medicare trust fund and taxpayers at 
risk.
    Response: We note that it was not our intent to suggest that a 2-
midnight stay was presumptive evidence that the stay at the hospital 
was necessary; rather, only that if the stay was necessary, it was 
appropriately provided as an inpatient stay. We have discussed in 
response to other comments that, in accordance with our statutory 
obligations, some medical review is always necessary to ensure that 
services provided are reasonable and necessary, and that we will 
continue to review these longer stays for the purposes of monitoring, 
determining correct coding, and evaluating the medical necessity for 
the beneficiary to remain at the hospital, irrespective of the 
inpatient or outpatient ``status'' to which the beneficiary was 
assigned. In addition, claims that evidence that a hospital is 
effectuating systematic abuse of the 2-midnight presumption, such as 
unexplained delays in the provision of care or aberrancies in billing, 
may be subject to medical review despite surpassing 2 midnights after 
admission.
    Comment: Commenters requested that CMS provide guidance on what 
would constitute ``abuse'' or ``gaming'' for this review purpose. Some 
commenters were concerned that enabling Medicare review contractors to 
make these determinations would unravel the presumption if the 
contractors had incentives to identify erroneous claims. Other 
commenters believed that Medicare contractors, who have expertise in 
utilization review and Medicare data, should be tasked with identifying 
providers that are gaming or abusing the system for purposes of meeting 
the 2-midnight presumption. Comments also suggested that CMS examine 
hospitals' utilization review process rather than rely on claim 
outputs. Commenters also urged CMS to be clear that audits will occur 
only if a pattern is detected.
    Response: In the proposed rule, we stated that patient status 
reviews for inpatient admissions with lengths of stay greater than 2 
midnights after admission would typically be conducted if we suspect 
that a provider is using the 2-midnight presumption to effectuate 
systematic abuse or gaming. We have elaborated on our review plans 
above and summarize by stating that while we have a statutory 
obligation to ensure that all services are medically necessary and 
correctly paid, we believe that these changes in our benchmarks and the 
additional guidance accompanying them will allow us to reduce the 
administrative burden of reviews. We will do this by reviewing stays 
spanning at least 2 midnights after admission for the purpose of 
monitoring and responding to patterns of incorrect DRG assignments, 
inappropriate or systemic delays, and lack of medical necessity for the 
stay at the hospital, but not for the purpose of routinely denying 
payment for such inpatient admissions on the basis that the services 
should have been provided on an outpatient basis. We expect to shift 
our attention to the smaller anticipated volume of 0 and 1 day short 
stays and then, to the extent that facilities correctly apply the 
proposed benchmark, away from short stays to other areas with 
persistently high improper payment rates.
    Comment: Commenters voiced concerns that while CMS proposed that 
those inpatient hospital admissions meeting the 2-midnight benchmark 
would be generally appropriate for Part A payment, there is no 
guarantee that the Medicare contractors would follow this guidance. 
Some commenters expressed apprehension that the time-based policy would 
not result in fewer reviews, as the policy stated that contractors 
could review whether the physician's expectation was reasonable, while 
others thought the doors would be opened to more hospital claim audits 
focusing on the need for the beneficiary to stay in the hospital for 
greater than 2 midnights. Commenters also sought assurance from CMS 
that reviews would be conducted based on the information the physician 
had available at the time he or she developed the expectation of a 2-
midnight stay and wrote the order pursuant to that expectation.

[[Page 50952]]

    Response: We acknowledge that it is very important that clear and 
consistent instructions are provided to facilities, physicians, and 
Medicare review contractors. We intend to quickly develop 
implementation instructions, manual guidance, and additional education 
to ensure that all entities receive initial and ongoing guidance in 
order to promote consistent application of these changes and repeatable 
and reproducible decisions on individual cases. We intend to ensure 
that our instructions to providers and reviewers alike emphasize that 
the decision to admit should be based on and evaluated in respect to 
the information available to the admitting practitioner at the time of 
the admission.
    After consideration of the public comments we received, we are 
including in this final rule several revisions and clarifications to 
the proposed policy. First, we are finalizing at Sec.  412.3(e)(1) the 
2-midnight benchmark as proposed at Sec.  412.3(c)(1), that services 
designated by the OPPS Inpatient-Only list as inpatient-only would 
continue to be appropriate for inpatient hospital admission and payment 
under Medicare Part A. In addition, surgical procedures, diagnostic 
tests, and other treatments would be generally deemed appropriate for 
inpatient hospital admission and payment under Medicare Part A when the 
physician expects the patient to require a stay that crosses at least 2 
midnights and admits the patient to the hospital based upon that 
expectation. We proposed at Sec.  412.3(c)(2), and are finalizing at 
Sec.  412.3(e)(2), that if an unforeseen circumstance, such as 
beneficiary death or transfer, results in a shorter beneficiary stay 
than the physician's expectation of at least 2 midnights, the patient 
may still be considered to be appropriately treated on an inpatient 
basis, and the hospital inpatient payment may be made under Medicare 
Part A. We proposed, and are now finalizing, two distinct, although 
related, medical review policies, a 2-midnight benchmark and a 2-
midnight presumption. The 2-midnight benchmark represents guidance to 
admitting practitioners and reviewers to identify when an inpatient 
admission is generally appropriate for Medicare coverage and payment, 
while the 2-midnight presumption directs medical reviewers to select 
claims for review under a presumption that the occurrence of 2 
midnights after admission appropriately signifies an inpatient status 
for a medically necessary claim. The starting point for the 2-midnight 
benchmark will be when the beneficiary begins receiving hospital care 
on either an inpatient basis or outpatient basis. That is, for purposes 
of determining whether the 2-midnight benchmark will be met and, 
therefore, whether inpatient admission is generally appropriate, the 
physician ordering the admission should account for time the 
beneficiary spent receiving outpatient services such as observation 
services, treatments in the emergency department, and procedures 
provided in the operating room or other treatment area. From the 
medical review perspective, while the time the beneficiary spent as an 
outpatient before the admission order is written will not be considered 
inpatient time, it may be considered during the medical review process 
for purposes of determining whether the 2-midnight benchmark was met 
and, therefore, whether payment is generally appropriate under Part A. 
For beneficiaries who do not arrive through the emergency department or 
are directly receiving inpatient services (for example, inpatient 
admission order written prior to admission for an elective admission or 
transfer from another hospital), the starting point for medical review 
purposes will be when the beneficiary starts receiving services 
following arrival at the hospital. We proposed that both the decision 
to keep the patient at the hospital and the expectation of needed 
duration of the stay would be based on such factors as beneficiary 
medical history and comorbidities, the severity of signs and symptoms, 
current medical needs, and the risk of an adverse event. In this final 
rule, we now are clarifying that risk (or probability) of an adverse 
event relates to occurrences during the time period for which 
hospitalization is considered.
    We are finalizing that inpatient hospital claims with lengths of 
stay greater than 2 midnights after the formal admission following the 
order will be presumed generally appropriate for Part A payment and 
will not be the focus of medical review efforts absent evidence of 
systematic gaming, abuse, or delays in the provision of care in an 
attempt to qualify for the 2-midnight presumption. We also are 
clarifying in this final rule how we will instruct contractors to 
review inpatient stays spanning less than 2 midnights after admission. 
Such claims would not be subject to the presumption that services were 
appropriately provided during an inpatient stay rather than an 
outpatient stay because the total inpatient time did not exceed 2 
midnights. However, upon medical review, the time spent as an 
outpatient will be counted toward meeting the 2-midnight benchmark that 
the physician is expected to apply to determine the appropriateness of 
the decision to admit. In other words, even though the inpatient 
admission was for only 1 Medicare utilization day, medical reviewers 
will consider the fact that the beneficiary was in the hospital for 
greater than 2 midnights following the onset of care when making the 
determination of whether the inpatient stay was reasonable and 
necessary. For those admissions in which the basis for the physician 
expectation of care surpassing 2 midnights is reasonable and well-
documented, reviewers may apply the 2-midnight benchmark to incorporate 
all time receiving care in the hospital. We will continue to use our 
existing monitoring and audit authority, such as the CERT program, to 
ensure that our review efforts focus on those subsets of claims with 
the highest error rates and reduce the administrative burden for those 
subsets that have demonstrated compliance with our clarified and 
modified guidance.
4. Impacts of Changes in Admission and Medical Review Criteria
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27649 through 
27650), we discussed our actuaries' estimate that our proposed 2-
midnight policy (referred to in this final rule as the 2-midnight 
benchmark and the 2-midnight presumption) would increase IPPS 
expenditures by approximately $220 million. These additional 
expenditures result from an expected net increase in hospital inpatient 
encounters due to some encounters spanning more than 2 midnights moving 
to the IPPS from the OPPS, and some encounters of less than 2 midnights 
moving from the IPPS to the OPPS. Specifically, our actuaries examined 
FY 2009 through FY 2011 Medicare claims data for extended hospital 
outpatient encounters and shorter stay hospital inpatient encounters 
and estimated that approximately 400,000 encounters would shift from 
outpatient to inpatient and approximately 360,000 encounters would 
shift from inpatient to outpatient, causing a net shift of 40,000 
encounters. These estimated shifts of 400,000 encounters from 
outpatient to inpatient and 360,000 encounters from inpatient to 
outpatient represent a significant portion of the approximately 11 
million encounters paid under the IPPS. The net shift of 40,000 
encounters represents an increase of approximately 1.2 percent in the 
number of shorter stay hospital inpatient encounters paid under the 
IPPS. Because shorter stay hospital inpatient encounters currently 
represent approximately 17 percent of the IPPS expenditures, our 
actuaries estimated

[[Page 50953]]

that 17 percent of IPPS expenditures would increase by 1.2 percent 
under our proposed policy. These additional expenditures are partially 
offset by reduced expenditures from the shift of shorter stay hospital 
inpatient encounters to hospital outpatient encounters. Our actuaries 
estimated that, on average, the per encounter payments for these 
hospital outpatient encounters would be approximately 30 percent of the 
per encounter payments for the hospital inpatient encounters. In light 
of the widespread impact of the proposed 2-midnight policy on the IPPS 
and the systemic nature of the issue of inpatient status and improper 
payments under Medicare Part A for short-stay inpatient hospital 
claims, we stated our belief that it is appropriate to use our 
exceptions and adjustments authority under section 1886(d)(5)(I)(i) of 
the Act to propose to offset the estimated $220 million in additional 
IPPS expenditures associated with the proposed policy. This special 
exceptions and adjustment authority authorizes us to provide ``for such 
other exceptions and adjustments to [IPPS] payment amounts . . . as the 
Secretary deems appropriate.' '' We proposed to reduce the standardized 
amount, the hospital-specific rates, and the Puerto Rico-specific 
standardized amount by 0.2 percent.
    Comment: Commenters generally did not support the proposed -0.2 
percent payment adjustment. Comments included the following assertions: 
CMS actuaries' estimated increase in IPPS expenditures of $220 million 
was unsupported and insufficiently explained to allow for meaningful 
comment; CMS did not provide sufficient rationale for the use of our 
exceptions and adjustments authority under section 1886(d)(5)(I)(i) of 
the Act; CMS should not be adjusting the IPPS payment rates for 
expected shifts in utilization between inpatient and outpatient; CMS 
did not take into account the impact of the Part B Inpatient Billing 
proposed rule in developing its estimates; CMS should provide parallel 
treatment regarding the financial impact of both the medical review 
policy in the FY 2014 IPPS/LTCH PPS proposed rule and the policies in 
the Part B Inpatient Billing proposed rule and offset and restore the 
$4.8 billion dollar reduction to hospital payments over 5 years 
contained in the Part B Inpatient Billing proposed rule; and CMS' 
proposed policy was a coverage decision and CMS should not adjust IPPS 
rates for coverage decisions.
    Response: We disagree with commenters who indicated that our 
actuaries' estimated increase in IPPS expenditures of $220 million was 
unsupported and insufficiently explained to allow for meaningful 
comment. In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27649), we 
specifically discussed the methodology used and the components of the 
estimate. Our actuaries examined FY 2009 to FY 2011 claims data. Based 
on this examination, we stated the number of encounters our actuaries 
estimated would shift from inpatient to outpatient (360,000) and the 
number of encounters they estimated would shift from outpatient to 
inpatient (400,000). We described the methodology we used to translate 
this net shift of 40,000 encounters into our $220 million estimate, 
including an estimate of the increase these 40,000 encounters represent 
in shorter stay hospital inpatient encounters (1.2 percent), the share 
that expenditures for shorter stay hospital inpatient encounters 
represent of IPPS expenditures (17 percent), and our estimate of the 
payment difference between OPPS and IPPS for these encounters (OPPS 
payment for these encounters was estimated to be 30 percent of the IPPS 
payment for these encounters). In addition to the opportunity to 
comment on the estimate, any component of the estimate, or the 
methodology, commenters had an opportunity to provide alternative 
estimates for us to consider.
    In determining the estimate of the number of encounters that would 
shift from outpatient to inpatient, our actuaries examined outpatient 
claims for observation or a major procedure. Claims not containing 
observation or a major procedure were excluded. The number of claims 
spanning 2 or more midnights based on the dates of service that were 
expected to become inpatient was approximately 400,000. This estimate 
did not include any assumption about outpatient encounters shorter than 
2 midnights potentially becoming inpatient encounters.
    In determining the estimate of the number of encounters that would 
shift from inpatient to outpatient, our actuaries examined inpatient 
claims containing a surgical MS-DRG. Claims containing medical MS-DRGs 
were excluded. The number of claims spanning less than 2 midnights 
based on the length of stay that were expected to become outpatient, 
after excluding encounters that resulted in death or transfers, was 
approximately 360,000.
    The estimates of the shifts in encounters as described above were 
primarily based on FY 2011 Medicare inpatient and outpatient claims 
data. However, our actuaries also examined FY 2009 and FY 2010 Medicare 
inpatient and outpatient claims data and found the results for the 
earlier years were consistent with the FY 2011 results.
    While there is a certain degree of uncertainty surrounding any cost 
estimate, our actuaries have determined that the methodology, data, and 
assumptions used are reasonable for the purpose of estimating the 
overall impact of our proposed policy. We note that the assumptions 
used for purposes of reasonably estimating the overall impact in FY 
2014 should not be construed as absolute statements about every 
individual encounter. For example, we fully expect that not every 
single surgical MS-DRG encounter spanning less than 2 midnights will 
shift to outpatient and that not every single outpatient observation 
stay or major surgical encounter spanning more than 2 midnights will 
shift to inpatient.
    We also disagree with commenters who indicated that we did not 
provide sufficient rationale for the use of our exceptions and 
adjustments authority under section 1886(d)(5)(I)(i) of the Act. We 
discussed that the issue of patient status has a substantial impact on 
improper payments under Medicare Part A for short-stay inpatient 
hospital claims, citing the fact that the majority of improper payments 
under Medicare Part A for short-stay inpatient hospital claims have 
been due to inappropriate patient status. In 2012, for example, the 
CERT contractor found that inpatient hospital admissions for 1-day 
stays or less had a Part A improper payment rate of 36.1 percent. The 
improper payment rate decreased significantly for 2-day or 3-day stays, 
which had improper payment rates of 13.2 percent and 13.1 percent, 
respectively. We stated that we believed the magnitude of these 
national figures demonstrates that issues surrounding the appropriate 
determination of a beneficiary's patient status are not isolated to a 
few hospitals. We also noted that the RAs had recovered more than $1.6 
billion in improper payments because of inappropriate beneficiary 
patient status. While we agree with commenters that our exceptions and 
adjustments authority should not be routinely used in the IPPS system, 
we believe that the systemic and widespread nature of this issue 
justifies an overall adjustment to the IPPS rates and such an 
adjustment is authorized under section 1886(d)(5)(I)(i) of the Act.
    For similar reasons, while we generally agree with commenters that 
it is not necessary to routinely estimate utilization shifts to ensure 
appropriate IPPS payments, this is a unique situation. Policy 
clarifications such as

[[Page 50954]]

this do not usually result in utilization shifts of sufficient 
magnitude and breadth to significantly impact the IPPS. In this 
situation, we believe it would be inappropriate to ignore such a 
utilization shift in the development of the IPPS payment rates.
    With respect to the comments that we did not take into account the 
impact of the Part B Inpatient Billing proposed rule in developing our 
estimates, we note that our actuaries did take those impacts into 
account in developing our proposed adjustment. Our estimate of the net 
shift in FY 2014 encounters between inpatient and outpatient would have 
been substantially higher in the absence of the policies discussed in 
the Part B Inpatient Billing proposed rule, in particular the 
discussion of timely filing. Specifically, in the absence of the timely 
filing requirement, there would be fewer inpatient encounters estimated 
to become outpatient encounters, which would have resulted in a larger 
cost than our estimated $220 million.
    With respect to the comment that CMS should provide parallel 
treatment regarding the financial impact of the medical review policy 
in the FY 2014 IPPS/LTCH PPS proposed rule and the interrelated Part B 
Inpatient Billing proposed rule by offsetting and restoring the 
estimated $4.8 billion dollar reduction to hospital payments contained 
in that rule, we note that, although we estimated a decrease in 
expenditures as a result of our proposed Part B inpatient billing 
policy, this decrease in expenditures is offset by the costs of the 
significant number of related administrative appeal decisions as well 
as CMS Ruling 1455-R, which allows hospitals to seek payment of Part B 
inpatient services on claims filed outside the timely filing period. As 
discussed in greater detail in the Regulatory Impact Analysis in the 
Part B Inpatient Billing proposed rule (78 FR 16643), the combined 
impact of the appeals decisions, CMS Ruling 1455-R, and Part B 
inpatient billing policy, to which the 12-month timely filing 
requirement applies, is an estimated cost to the Medicare program of 
$1.03 billion over the CY 2013 to CY 2017 time period. We estimate in 
the Regulatory Impact Analysis of the final Part B inpatient payment 
policy in this final rule that the combined impact of the appeals 
decisions, CMS Ruling 1455-R, and the Part B inpatient billing policy 
will cost the Medicare program $1.260 billion over the CY 2013 to CY 
2017 time period.
    Finally, we disagree with those comments asserting that the 
modification and clarification of our current instructions regarding 
the circumstances under which Medicare will generally pay for a 
hospital inpatient admission in order to improve hospitals' ability to 
make appropriate admission decisions are actually coverage decisions in 
the context of this adjustment. As we clearly stated in the FY 2014 
IPPS/LTCH PPS proposed rule (78 FR 27648), we will continue to review 
individual claims to ensure the hospital services furnished to 
beneficiaries are ``reasonable and necessary for the diagnosis or 
treatment of illness or injury or to improve the functioning of a 
malformed body member,'' as required by section 1862(a)(1) of the Act. 
Any hospital service determined to be not reasonable or necessary may 
not be paid under Medicare Part A or Part B. In the context of this 
adjustment, these are not new hospital services.
    Our actuaries continue to estimate there will be approximately $220 
million in additional expenditures resulting from our 2-midnight 
benchmark and 2-midnight presumption medical review policies. This net 
increase in hospital inpatient encounters is due to some encounters 
spanning more than 2 midnights moving to the IPPS from the OPPS, and 
some encounters of less than 2 midnights moving from the IPPS to the 
OPPS. Therefore, after consideration of the comments we received, and 
for the reasons described above, we are finalizing a reduction to the 
standardized amount, the hospital-specific rates, and the Puerto Rico-
specific standardized amount of -0.2 percent to offset the additional 
$220 million in expenditures.

XII. 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 2013 ``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 2014 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.

XIII. 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/Medicare/Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html. We listed the data files and the cost for 
each file, if applicable, in the FY 2014 IPPS/LTCH PPS proposed rule 
(78 FR 27746 through 27748).
    Commenters interested in discussing any data used in constructing 
the proposed rule or this final rule should contact 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 2014 IPPS/LTCH PPS proposed rule (78 FR 27748 through 
27755), 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 the relevant sections.
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

[[Page 50955]]

services and technologies. Specifically, this section states that 
applicants for add-on payments for new medical services or technologies 
for FY 2015 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 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, 2012, 2013, and FY 
2014, we received 1, 4, 5, 3, 3, 5, and 5 applications, respectively.
    We did not receive any public comments regarding this information 
collection.
3. ICRs for the Occupational Mix Adjustment to the FY 2014 Index 
(Hospital Wage Index Occupational Mix Survey)
    Section III.F. of the preamble of the proposed rule (78 FR 27554 
through 27555) and this final rule discusses the occupational mix 
adjustment to the proposed and final FY 2014 wage index, respectively. 
While the preamble of these rules does not contain any new ICRs, we 
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; it is currently approved under OCN 0938-
0907.
4. Hospital Applications for Geographic Reclassifications by the MGCRB
    Section III.H.2. of the preamble of the proposed rule (78 FR 27557 
through 27558) and this final rule discusses proposed and final 
revisions, respectively, 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 was previously approved 
under OCN 0938-0573. However, the information collection expired on 
December 31, 2011. We are currently seeking to reinstate the 
information collection and, as required by the PRA, will announce 
public notice and comment periods in the Federal Register separate from 
this rulemaking.
5. ICRs for Application for GME Resident Slots
    The information collection requirements associated with the 
preservation of resident cap positions from closed hospitals, addressed 
under section V.J.3. of this preamble, are not subject to the Paperwork 
Reduction Act, as stated in section 5506 of the Affordable Care Act.
6. ICRs for the Hospital Inpatient Quality Reporting (IQR) Program
    The Hospital 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. All of the 
information collection requirements previously approved under OMB 
control number 0938-0918 have been combined with the information 
collection request previously approved under OMB control number 0938-
1022. We will no longer be using the OMB control number 0938-0918.
    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. 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.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53666), we stated 
that, for the FY 2016 payment determinations and subsequent years 
updates, we are seeking OMB approval for a revised information 
collection request using the same OMB control number (0938-1022). In 
the revised request we will add the 5 claims-based measures that are 
finalized in this final rule: (1) 30-day risk standardized COPD 
Readmission; (2) 30-day risk standardized COPD Mortality; (3) 30-day 
risk standardized Stroke Readmission; (4) 30-day risk standardized 
Stroke Mortality; and (5) AMI payment per Episode of Care. We are also 
finalizing the removal of six chart-abstracted measures: (1) PN 3b: 
Blood Culture Performed in the Emergency Department Prior to First 
Antibiotic Received in the Hospital; (2) HF 1: Discharge Instructions; 
and (3) AMI-2: Aspirin Prescribed at Discharge; (4) AMI-10: Statin 
Prescribed at Discharge; (5) HF-3: ACEI or ARB for LVSD; and (6) SCIP-
Inf-10: Surgery Patients with Perioperative Temperature Management as 
well as one structural measure, Systematic Clinical Database Registry 
for Stroke Care. We are suspending collection of IMM 1: Immunization 
for Pneumonia.
    Because claims-based measures can be calculated based on data that 
are already reported to the Medicare program for payment purposes, we 
believe no additional information collection will be required from the 
hospitals. However, we do believe there will be a reduction in the 
burden associated with the removal of six chart-abstracted measures, 
suspension of one chart-abstracted measures, and removal of one 
structural measure. We estimate a reduction in burden associated with 
data collection for chart-abstracted measures and associated forms. For 
the

[[Page 50956]]

FY 2015 payment determination, we estimated that the burden for chart 
abstracted measures and associated forms for each hospital is 1,900 
hours annually. For the FY 2016 payment determination, we estimate the 
burden to be 1,775 hours annually per hospital. We estimate the total 
burden for chart abstraction and structural measures for the 
approximately 3,300 Hospital IQR Program-participating hospitals to be 
5.86 million hours.
    To support the validation of two additional HAI measures, we also 
are finalizing our proposal to add two new HAI Validation Templates for 
a total of four Validation Templates to be completed by hospitals 
selected for annual validation. To add these new Templates without 
increasing burden for the FY 2016 payment determination and subsequent 
years, we are finalizing our proposal to randomly assign one-half of 
the hospitals to submit templates for CLABSI and CAUTI validation and 
one-half of the hospitals to submit templates for MRSA and CDI 
validation. We believe this approach will limit hospital burden 
because, of the 600 potential, total hospitals selected for annual 
validation, only up to 300 hospitals would be required to submit for 
MRSA and CDI validation and up to 300 hospitals would be required to 
submit for CLABSI and CAUTI validation. We estimate completion of the 
CLABSI and CAUTI validation templates will take approximately 20 hours 
each quarter. We estimate completion of the MRSA and CDI validation 
templates will take approximately 16 hours each quarter. As finalized 
for the FY 2016 payment determination, HAI validation will include 3 
quarters of data. Therefore, we estimate the total burden for HAI 
validation to be 60 hours for hospitals validated for CLABSI and CAUTI 
and 48 hours for hospitals validated for MRSA and CDI. We estimate the 
total burden for validation templates for the 600 Hospital IQR 
participating hospitals selected for validation to be 32,000 hours.
    Utilizing the estimates above, we estimate an overall reduction in 
burden from the FY 2015 estimate of 6.3 million hours annually to 5.9 
million hours annually for the FY 2016 payment determination year. This 
burden estimate includes both newly added measures and measure sets and 
those for which we are requesting renewal. It excludes the burden 
associated with the NHSN and HCAHPS measures, both of which are 
submitted under separate OMB numbers.
    Previously, we required hospitals to provide 12 patient charts per 
quarter per hospital for HAI validation and 15 patient charts per 
quarter per hospital for validation of clinical process of care 
measures, for a total of 27 charts per quarter per hospital and 108 
charts per year per hospital. For the FY 2016 payment determination and 
subsequent years, we are finalizing our proposal to reduce this 
requirement by 12 charts per hospital per year.
    In addition, we are finalizing our proposal that the requirement to 
submit patient charts for validation of Hospital IQR Program data may 
be met by employing either of the following options each quarter: (1) A 
hospital may submit paper medical records, which is the form in which 
we have historically requested them; or (2) a hospital may securely 
transmit electronic versions of medical information for the FY 2016 
payment determination and subsequent years. The intent of this 
electronic option is to offer an additional mode through which 
hospitals may meet the requirement to submit patient charts. To support 
this electronic option, which has the potential to reduce burden, cost, 
and environmental impact, we also are finalizing our proposal for the 
FY 2016 payment determination and subsequent years to reimburse 
hospitals for submission of electronic versions of medical information.
    We are finalizing a reimbursement rate of $3.00 per chart for 
validation for the FY 2016 payment determination. In formulating this 
number we took into account the following considerations:
     Cost estimates are for retrieval of records and not for 
the maintenance of electronic health records systems, which are 
supported by CMS by other means.
     The activities associated with submitting an electronic 
version of a patient medical record include downloading, verifying, and 
copying records, which must be done for every record separately, and 
packaging and encrypting CDs or DVDs which must be done only once per 
DVD or CD sent.
     We assume that an average patient record will be 412 pages 
in length, that the average capacity of a DVD of 45,000 pages, and that 
all 27 records submitted in a quarter will fit on one DVD most of the 
time.
     Based on time and motion studies conducted by our 
contractor, we estimate that for records of average lengths, the 
minimum labor time is between 1 and 2 minutes per record.
     To acknowledge that some records may be so large that they 
require their own DVD, and that some systems may be slower than others, 
we also estimated a maximum labor of about 12 minutes per record.
     Averaging these two estimates, we achieve an average of 
less than 7 minutes of labor per record.
     The labor performed can be accomplished by a combination 
of staff equivalent to a GS-5 administrative secretary and a GS-5 
information technologist, earning within the middle range for this 
grade, which in 2013 was $38,616 per year. Assuming, 2,080 hours in a 
work year, we achieve an hourly rate of $18.57 per hour.
     Applying OMB Circular A-76, we assumed overhead of 36.25 
percent, for a fully burdened labor rate of $25.30 per hour.
     The labor cost associated with each record is $2.95.
     Supply costs are limited to DVDs and packaging. DVDs cost 
$20 per 100, or 20 cents per DVD. A protective shipping container also 
costs 20 cents each.
     If a hospital submits all records on the same DVD, supply 
costs will equal approximately 1.4 cents per DVD. If a hospital submits 
one DVD per record, supply costs will equal approximately 40 cents per 
record. Averaging these costs results in 21 cents per record.
     Adding supplies to labor yields a total cost of $3.16 per 
record.
     Rounding to the nearest whole dollar yields $3.00 per 
record.
    For the FY 2016 payment determination, we also are encouraging 
hospitals to voluntarily submit up to 16 measures electronically for 
the Hospital IQR Program in a manner that would permit eligible 
hospitals to align Hospital IQR Program requirements with some 
requirements under the Medicare EHR Incentive Program. We estimate that 
the total burden associated with the electronic quality measure 
reporting option will be similar to the burden outlined for hospitals 
in the EHR Incentive Program Stage 2 final rule (77 FR 53968 through 
54162). As established in that final rule, beginning in FY 2014, 
hospitals that are beyond their first year of meaningful use must 
electronically report a total of 16 clinical quality measures covering 
at least three domains using CEHRT that has been certified to the 2014 
Edition certification criteria.
    By allowing hospitals to submit data that could be used to satisfy 
the requirements for both programs, each hospital that participates in 
the proposed voluntary electronic quality measure reporting option and 
electronically reports on the maximum of 16 electronic clinical quality 
measures could realize a reduction in burden for the Hospital IQR 
Program of approximately 800 hours. This estimate assumes an annual 
collection burden for

[[Page 50957]]

chart-abstracted Stroke, VTE and PC-01 to be a combined 816 hours 
annually per hospital over 4 quarters and an estimated 2.66 hours to 
submit those measures electronically for one quarter. Since the ED 
measures are a subset of the global measure set that also includes the 
Immunization measures, which will continue to be collected via chart 
abstraction, we do not believe there will be a significant reduction in 
burden for electronic submission of the ED-1 and ED-2 measures.
    In accordance with the estimates in the Medicare EHR Incentive 
Program Stage 2 final rule, we believe it will take a hospital 
approximately 2 hours and 40 minutes to select, prepare, and 
electronically submit a maximum of 16 electronic clinical quality 
measures using CEHRT. In addition, in accordance with the Medicare EHR 
Incentive Program Stage 2 final rule, we believe an individual with 
commensurate skills will submit electronic clinical quality measures on 
behalf of the hospital at a rate of approximately $59.00 per hour. 
Therefore, we believe it will cost a hospital approximately $156.94 
($59.00 x 2.66 hours) to report 16 electronic clinical quality measures 
in CY 2014 (77 FR 54133). Additional information about the chart 
abstraction burden is detailed in section XIII.B.6. of the preamble to 
the proposed rule and this final rule.
7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) 
Program
    As discussed in section IX.B. of the preamble of the proposed rule 
and this final rule, section 1866(k) of the Act requires, for purposes 
of FY 2014 and each subsequent fiscal year, that a hospital described 
in section 1886(d)(1)(B)(v) of the Act (a PPS-exempt cancer hospital, 
or a PCH) submit data in accordance with section 1866(k)(2) of the Act 
with respect to such fiscal year. In the FY 2013 IPPS/LTCH PPS final 
rule, we implemented the PCHQR Program to comply with the statutory 
mandate and in an effort to improve the quality of care for inpatient 
cancer patients. It is our aim and goal to encourage PCHs to furnish 
high quality care in a manner that is effective and meaningful, while 
remaining mindful of the reporting burden created by the implementation 
of this new program. Therefore, we intend to reduce and avoid 
duplicative reporting efforts, whenever possible, by leveraging 
existing infrastructure.
    In the FY 2013 IPPS/LTCH PPS final rule, for the FY 2014 program 
year, we adopted five NQF-endorsed quality measures, two of which were 
developed by the CDC and three of which were developed by the American 
College of Surgeons' Commission on Cancer (ACoS/CoC) and discussed the 
information collection requirements for these measures.

----------------------------------------------------------------------------------------------------------------
                    Topic                                              Quality measures
----------------------------------------------------------------------------------------------------------------
Cancer-Specific Treatments..................  Adjuvant Chemotherapy is considered or administered within 4
                                               months (120 days) of surgery to patients under the age of 80 with
                                               AJCC Stage III (lymph node positive) colon cancer (NQF 0223).
                                              Combination Chemotherapy is considered or administered within 4
                                               months (120 days) of diagnosis for women under 70 with AJCC T1c,
                                               or Stage II or III hormone receptor negative Breast Cancer (NQF
                                               0559).
                                              Adjuvant Hormonal Therapy (NQF 0220).
Healthcare Acquired Infections (HAIs).......  National Healthcare Safety Network (NHSN) Central Line-Associated
                                               Bloodstream Infection (CLABSI) Outcome Measure (NQF 0139).
                                              National Healthcare Safety Network (NHSN) Catheter-Associated
                                               Urinary Tract Infection (CAUTI) Outcome Measure (NQF 0138).
----------------------------------------------------------------------------------------------------------------

    In this final rule, we are finalizing our program policy that PCHs 
submit data on 1 additional measure beginning with FY 2015 and 12 
additional measures beginning with FY 2016 (as listed below), for a 
total of 18 measures (5 previously adopted plus 13 new measures). As 
indicated in the preamble to this rule, we have decided not to finalize 
our proposal to adopt the Multiple Myeloma-Treatment with 
Bisphosphonates (NQF 0380) measure. The tables below sets 
forth the new measures finalized in this final rule for the FY 2015 and 
FY 2016 programs and subsequent years.

----------------------------------------------------------------------------------------------------------------
                                            NQF
           Measure domain               Endorsement                          Measure name
                                          number
----------------------------------------------------------------------------------------------------------------
                            New Measure for the FY 2015 Program and Subsequent Years
----------------------------------------------------------------------------------------------------------------
Patient Safety......................            0753  Harmonized Procedure Specific Surgical Site Infection
                                                       (SSI) Outcome Measure.
----------------------------------------------------------------------------------------------------------------
                            New Measures for the FY 2016 Program and Subsequent Years
----------------------------------------------------------------------------------------------------------------
Surgical Care Improvement Project               0218  Surgery Patients Who Received Appropriate VTE Prophylaxis
 (SCIP).                                               within 24 Hrs Prior to Surgery to 24 Hrs After Surgery
                                                       End Time.
                                                0284  Surgery Patients on Beta Blocker Therapy Prior to
                                                       Admission Who Received a Beta Blocker during the
                                                       Perioperative Period.
                                                0453  Urinary Catheter Removed on Post-Operative Day 1 or Post-
                                                       Operative Day 2 with Day Surgery Being Day Zero.
                                                0527  Prophylactic Antibiotic Received Within 1 Hr Prior to
                                                       Surgical Incision.
                                                0528  Prophylactic Antibiotic Selection for Surgical Patients.
                                                0529  Prophylactic Antibiotic Discontinued Within 24 Hrs After
                                                       Surgery End Time.
Clinical Process/OncologyCare.......            0382  Oncology-Radiation Dose Limits to Normal Tissues.
                                                0383  Oncology: Plan of Care for Pain.
                                                0384  Oncology: Pain Intensity.
                                                0390  Prostate Cancer-Adjuvant Hormonal Therapy for High-Risk
                                                       Patients.
                                                0389  Prostate Cancer-Avoidance of Overuse Measure-Bone Scan for
                                                       Staging Low-Risk Patients.

[[Page 50958]]

 
Patient Engagement/Patient                      0166  HCAHPS Patient Experience of Care Survey.
 Experience of Care.
----------------------------------------------------------------------------------------------------------------

    We believe that requiring PCHs to submit data on these additional 
measures will not prove burdensome. PCHs have familiarity with and 
experience reporting quality data to CMS during the initial year of the 
PCHQR program. Therefore, we believe that because a majority of PCHs 
have demonstrated the ability to report these measures, the reporting 
requirements we are finalizing will not significantly impact PCHs.
    The anticipated burden on these PCHs consists of the following: 
training of appropriate staff members on how to use the NHSN for the 
reporting of the SSI measure, CMS (QualityNet) for the reporting of the 
SCIP measures, and the CMS Web Measures Tool for the reporting of the 
clinical process/oncology care measures; the time required for 
collection and aggregation of data; and the time required for reporting 
of the data by the PCH's representative; and the time required to 
participate in administering the HCAHPS Survey and collecting HCAHPS 
data. We have taken into account all these elements in our burden 
calculation.
    We estimate that 11 PCHs will submit data on approximately 63,468 
cancer cases annually. It will require, on average, 9 hours for a PCH 
to abstract the information from medical records and submit such 
information for each case. The time required to administer the HCAHPS 
Survey is likely to be lower than the time for chart abstraction. 
However, the same method was used to ensure a high-end estimate so that 
facilities will not experience a higher burden than estimated. In 
addition, sampling was not considered for this reason. Therefore, this 
burden represents the ``worst-case scenario'' of what would be required 
of each facility. Based on these assumptions, we estimate that the 
annual hourly burden on each PCH for the collection, submission, and 
training of personnel for submitting all quality measure data would be 
approximately 51,930 hours.
    We received the following comments on our burden analysis.
    Comment: Some commenters expressed concern with the inequality of 
program implementation requirements imposed on PCHs under the PCHQR 
Program as compared with the requirements imposed on subsection (d) 
hospitals under the Hospital IQR Program. For example, one commenter 
suggested that it would take less than one FTE to implement the 
Hospital IQR Program measures for FY 2014, but PCHs would need to hire 
26 to 28 FTEs to implement the PCHQR Program requirements for FY 2015 
and FY 2016.
    Response: We note that the burden calculations for the Hospital IQR 
Program that we performed for purposes of the FY 2014 IPPS/LTCH 
proposed and final rule include only the new measures adopted for a 
given payment year (for example, the burden for FY 2016 and FY 2017 is 
calculated by using only those measures finalized for each respective 
year), whereas the burden calculations for the PCHQR Program that we 
performed for purposes of the FY 2014 IPPS/LTCH proposed and final rule 
include all measures we have adopted since the program's inception 
beginning with FY 2014 program year. Therefore, we believe that the 
difference in our calculation methodology, as opposed to the actual 
burden, accounts for the commenters' observations. In addition, since 
we lack PCH-specific data, we have calculated the burden to PCHs on a 
worst case scenario basis and made our calculations by assuming PCHs 
would report on all measures for all cases. We are reasonably certain 
that the burden imposed on PCHs will not actually be as great as what 
we have calculated for the following reasons: (1) About 27 percent of 
the PCHs are currently voluntarily administering the HCAHPS Survey, 
which means that for some PCHs there will be no additional burden to 
report on this measure for all cases; (2) our experience with the 
Hospital IQR Program indicates that only a very small fraction of cases 
are SCIP cases, which means that PCHs will not have to report on these 
measures for all cases; (3) the sampling methodology for the SCIP 
measures requires that PCHs use only 10 percent of the patient 
population size,\197\ which means that PCHs' reporting burden for the 
SCIP measures will be reduced by approximately 90 percent because of 
sampling method applied; (4) our experience with the Hospital IQR 
Program indicates that only a very small fraction of cases are HAI 
cases, which means that PCHs will not have to report on these measures 
for all cases; and (5) with the exception of the pain-related measures 
(Oncology: Plan of Care for Pain and Oncology: Pain Intensity 
Quantified) the other three oncology measures are specific to subsets 
of cancer patient populations,\198\ which means that PCHs will not have 
to report on these measures for all cases.
---------------------------------------------------------------------------

    \197\ See the specifications manual at: http://www.qualitynet.org/dcs/ContentServer?pagename=QnetPublic%2FPage%2FQnetTier2&cid=1138115987129.
    \198\ The Oncology-Radiation Dose Limits to Normal Tissues 
measure applies only to lung and pancreatic cancer patients, the 
Prostate Cancer-Adjuvant Hormonal Therapy for High-Risk Patients 
applies to prostate cancer patients, at high risk of recurrence, 
receiving external beam radiotherapy who were prescribed adjuvant 
hormonal therapy, and the Prostate Cancer-Avoidance of Overuse 
Measure-Bone Scan for Staging Low-Risk Patients applies to prostate 
cancer patients at low risk of recurrence receiving certain kinds of 
therapy.
---------------------------------------------------------------------------

    Despite these factors, however, perhaps over-conservatively, we 
calculated the burden by assuming that PCHs would submit measure data 
on all cases. For the reasons cited above, we believe that the 
estimated burden we provided is an extreme, worst-case scenario 
calculation. We chose to calculate the burden using this methodology 
because we thought it more prudent to over-rather than under-estimate. 
The Hospital IQR Program is a well-established program with several 
years' worth of data on which we can draw to provide burden estimations 
and infer, as we did above, how the number of cases may play out. 
Although we can draw similarities between the Hospital IQR Program's 
SCIP and HAI cases as a percentage of the overall patient population, 
we chose not to use concrete numbers from the Hospital IQR Program 
given the differences between the patient populations in the PCHQR and 
Hospital IQR Programs. As the PCHQR Program matures and we gather more 
PCH-specific data, we will provide more precise burden calculations 
that are closer to the real burden that PCHs will face.
    Comment: Some commenters opposed the burden estimates because we 
did not propose to allow sampling with respect to the collection of 
data on the clinical process/oncology care and SCIP measures.
    Response: We thank commenters for their comments. We note that in 
this final rule, we are finalizing a policy that

[[Page 50959]]

allows PCHs to use sampling methodologies to report the SCIP and the 
clinical process/oncology care measures. We believe that these sampling 
methodologies will decrease the PCHs' reporting burden because PCHs 
will not have to perform chart-abstraction on all cases. For the SCIP 
measures, we will allow PCHs to use the same sampling methodology that 
we currently allow subsection (d) hospitals to use to report the SCIP 
measures under the Hospital IQR Program (outlined in the specification 
manual https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=1138115987129). For the clinical process/oncology care measures, we will allow 
PCHs to use the sampling methodologies we allow for the reporting of 
these measures under the PQRS Program, and this sampling methodology 
can be found in the PQRS manual at http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/PQRS/MeasuresCodes.html.
    Comment: One commenter recommended that CMS consider the relative 
value and associated burden of reporting measures. In particular, the 
commenter recommended that CMS consider the appropriateness of cancer-
specific measures, particularly outcome measures.
    Response: We thank the commenter for these comments and will 
consider other measures (that is, outcome measures) relevant to the PCH 
settings in future years. As we indicated earlier in the preamble, we 
believe that the measures we have selected will help improve the 
quality of care for PCH patients. Our measures address critical 
components of PCH quality care, including oncology, prostate cancer 
care, surgical processes of care that should be followed in PCHs, and 
patient experience of PCH care. We believe that the value added by 
requiring PCHs to submit data on these measures far outweighs the 
burden.
    Comment: One commenter recommended we consider implementing a 
sampling protocol, similar to the Hospital IQR Program, to minimize 
burden.
    Response: As we explain above, we are allowing PCHs to use sampling 
methodologies for the SCIP and the clinical process/oncology care 
measures.
8. ICRs for the Hospital Value-Based Purchasing (VBP) Program
    In section V.H. of the preamble of the proposed rule and this final 
rule, we discuss requirements for the Hospital VBP Program. 
Specifically, in this final rule, we are adopting three new measures 
for the FY 2016 Hospital VBP Program, including IMM-2: Influenza 
Immunization, CAUTI, and the Surgical Site Infection (SSI) measure. We 
also are adopting CLABSI, a measure that we finalized for FY 2015 but 
did not readopt at that time for the FY 2016 Hospital VBP Program.
    In addition, we are adopting the three 30-day mortality measures 
for the FYs 2017 through 2019 programs and the AHRQ PSI composite 
measure for the Hospital VBP Program for FYs 2017 and 2018.
    All of these additional measures are required for the Hospital IQR 
Program; therefore, their 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.
9. ICRs for the Long-Term Care Hospital Quality Reporting (LTCHQR) 
Program
    In section IX.C. of the preamble of this final rule, we discuss the 
requirements for the LTCHQR Program, established by section 1886(m)(5) 
of the Act, which was added to the Act by section 3004 of the 
Affordable Care Act.
    In the FY 2013 IPPS/LTCH PPS final rule, we finalized the adoption 
of five quality measures for use in the LTCHQR Program for the FY 2016 
payment determination and subsequent years. These measures are: (1) 
NHSN Catheter-Associated Urinary Tract Infection (CAUTI) Outcome 
Measure (NQF 0138); (2) NHSN Central Line-Associated Blood 
Stream Infection (CLABSI) Outcome Measure (NQF 0139); (3) 
Application of Percent of Residents with Pressure Ulcers that are New 
or Worsened (Short Stay) (NQF 0678); (4) Percent of Residents 
or Patients Who Were Assessed and Appropriately Given the Seasonal 
Influenza Vaccine (Short-Stay) (NQF 0680); and (5) Influenza 
Vaccination Coverage Among Healthcare Personnel (NQF 0431).
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53630 through 
53631), we finalized that for Influenza Vaccination Coverage Among 
Healthcare Personnel (NQF 0431), LTCHs should begin to submit 
data from January 1, 2014 through December 31, 2014 (CY 2014) for the 
FY 2016 payment determination. However, there is unique seasonality in 
the timing of influenza activity each year. To account for this, we are 
finalizing our proposal that, for the LTCHQR Program, this measure (NQF 
0431) will have a reporting period that aligns with the 
influenza vaccination season. The influenza vaccination season is 
defined by the CDC as October 1 (or when the vaccine becomes available) 
through March 31 of the following year. This change would allow LTCHs 
to collect data on Healthcare Personnel influenza vaccination for the 
entirety of the 2014-2015 influenza season for the FY 2016 payment 
determination based on the period of October 1 (or when the vaccine 
becomes available) through March 31. This change would allow LTCHs to 
collect data on this measure using the same period for future influenza 
seasons for each of the subsequent years.
    While LTCHs can enter information in NHSN at any point during the 
influenza season for NQF 0431, data submission is only 
required once per year, unlike the other measures finalized for the 
LTCHQR Program that utilize CDC's NHSN (CAUTI measure NQF 0138 
and CLABSI measure NQF 0139). LTCHs can choose to submit 
Healthcare Personnel influenza vaccination data on an incremental basis 
(for example, on a monthly basis), or just once a year. The final 
deadlines associated with submitting data, approximately 45 days after 
the end of the data collection timeframe for the FY 2016 payment 
determination, remain consistent across measures. Thus, the deadline 
for submission of data for NQF  0431 would be approximately 45 
days after March 31, or May 15.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53624 through 
53627), we finalized that for NQF 0680, Percentage of 
Residents or Patients Who Were Assessed and Appropriately Give the 
Seasonal Influenza Vaccine (Short-Stay), LTCHs should begin to collect 
and submit data on January 1, 2014 through December 31, 2014 (CY 2014) 
for the FY 2016 payment determination. This measure, stewarded by CMS, 
will be collected using items included in the LTCH Continuity 
Assessment Record and Evaluation (CARE) Data Set (Version 2.01) 
approved by the Office of Management and Budget (OMB) on June 10, 2013 
under the Paperwork Reduction Act.\199\ The OMB control number is 0938-
1163. Later in 2013, we will release the final technical data 
submission specifications and updated LTCHQR Program Manual with 
guidance on the completion of the LTCH CARE Data Set (Version 2.01) 
containing items related to NQF 0680.
---------------------------------------------------------------------------

    \199\ The LTCH CARE Data Set Version 2.01 was approved on June 
10, 2013 by OMB in accordance with the PRA. The OMB Control Number 
is 0938-1163. Expiration Date June 30, 2016.
---------------------------------------------------------------------------

    In order to better align this measure (NQF 0680) with the 
influenza season

[[Page 50960]]

(as described earlier for NQF 0431), in light of public 
comments and to allow time and opportunity for LTCHs and vendors to 
participate in CMS-sponsored training activities pertaining to the 
implementation of the LTCH CARE Data Set (Version 2.01), as well as 
time to plan for and incorporate changes into their data collection and 
entry systems, we are finalizing the data collection period for this 
measure to October 1, 2014 through April 30, 2015. This change accounts 
for the unique seasonality of the influenza season, as defined by the 
CDC as October 1 (or when the vaccine becomes available) through March 
31 of the following year. At this point, our data reporting and 
submission infrastructure for the LTCH CARE Data Set requires LTCHs to 
submit data on patient admissions and discharges (or death) separately. 
As a result, allowing reporting through April will allow us to capture 
the influenza vaccination status of LTCH patients admitted in March and 
discharged in April.
    We are changing the timeline for data submission for NQF 
0680 to admissions and discharges in an LTCH from October 1, 
2014 through April 30, 2015, for the FY 2016 payment determination. We 
are revising and finalizing our timeline for data collection and 
submission for the FY 2017 payment determination to October 1, 2015 
through April 30, 2016. Thereafter, data for October 1 through April 30 
will be used for subsequent years.
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51748 through 
51750), we adopted an application of NQF 0678 Percent of 
Residents with Pressure Ulcers That are New or Worsened (Short-Stay) 
for the FY 2014 payment determination, and retained this application of 
the measure in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53615 
through 53619) for the FY 2015 payment determination and subsequent 
years. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51748 through 51750) for a discussion of the rationale, data collection 
methods, and submission methods finalized for this measure for the FY 
2014 payment determination and subsequent years, and for references to 
the description and specifications of this measure.
    At the time we completed our work on the FY 2013 IPPS/LTCH PPS 
final rule, we were only able to adopt an application of the endorsed 
measure in our final version of the FY 2013 rule. NQF 0678 was 
subsequently ratified by the NQF Board of Directors for expansion to 
the LTCH setting on August 1, 2012.\200\ \201\ Because NQF 
0678 has received endorsement for the LTCH setting, we are now 
finalizing our proposal to adopt the updated measure NQF 0678 
Percent of Residents or Patients with Pressure Ulcers that are New or 
Worsened (Short-Stay) for the FY 2015 payment determination and 
subsequent years. This measure will continue to be collected using 
items included in the LTCH CARE Data Set (Version 1.01) for CY 2013 and 
for the first quarter of CY 2014. Further, starting April 1, 2014, this 
measure is proposed to be collected using items included in the LTCH 
CARE Data Set (LCDS) (Version 2.01). While LTCHs will be using a new 
version \202\ of the LCDS to continue reporting this measure, the data 
items used to collect data for this measure will remain the same.
---------------------------------------------------------------------------

    \200\ National Quality Forum, Consensus Standards Approval 
Committee Wednesday, July 11, 2012. Transcript. Available on the Web 
site at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=71612.
    \201\ Press Release: NQF Removes Time-Limited Endorsement Status 
for 13 Measures, Measures Now Have Endorsed Status. August 1, 2012. 
Available on the Web site at: http://www.qualityforum.org/News_And_Resources/Press_Releases/2012/NQF_Removes_Time-Limited_Endorsement_for_13_Measures;--Measures--Now--Have--Endorsed--
Status.aspx
    \202\ The LTCH CARE Data Set Version 1.01 was approved on April 
24, 2012 by OMB in accordance with the PRA. The OMB Control Number 
is 0938-1163. Expiration Date April 30, 2013. FRN 78 21955 through 
21956, published April 12, 2013, solicits public comment on 
additions and updates to the LTCH CARE Data Set. http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
---------------------------------------------------------------------------

    The changes we described to the reporting periods for two measures 
(NQF 0431 and NQF 0680) and the updated NQF-endorsed 
pressure ulcer measure (NQF 0678) are not for new measures. We 
do not believe that these changes will result in any additional 
reporting burden on LTCHs.
    In section IX.C.8.b. of the preamble of this final rule, we are 
finalizing our proposal to add three additional measures for use in the 
LTCHQR Program for the FY 2017 payment determination and subsequent 
years. These measures are: (1) National Healthcare Safety Network 
(NHSN) Facility-Wide Inpatient Hospital-Onset Methicillin-Resistant 
Staphylococcus Aureus (MRSA) Bacteremia Outcome Measure (NQF 
1716); (2) National Healthcare Safety Network (NHSN) Facility-
Wide Inpatient Hospital-onset Clostridium Difficile Infection (CDI) 
Outcome Measure (NQF 1717); and (3) All-Cause Unplanned 
Readmission Measure for 30-Days Post Discharge from Long-Term Care 
Hospitals.
    For the FY 2017 payment determination, in addition to the CAUTI, 
CLABSI, and Influenza Vaccination Coverage Among Healthcare Personnel 
measures, we are finalizing our proposal that LTCHs would report 
quality data related to the MRSA and CDI measures to the CDC's NHSN 
data submission system (http://www.cdc.gov/nhsn/). The NHSN is a 
secure, Internet-based healthcare associated infection tracking system 
that is maintained and managed by CDC.
    There are currently approximately 440 LTCHs in the United States 
paid under the CMS LTCH PPS and, according to the CDC, as of May 15, 
2013, over 413 of these LTCHs already submit CAUTI and CLABSI data to 
the CDC's NHSN. We believe that any burden increase related to 
complying with the LTCHQR Program requirements for submission of the 
MRSA and CDI measures will be minimal for those LTCHs that are already 
familiar with the NHSN submission process, for several reasons. First, 
these LTCHs have already completed initial setup and have become 
familiar with reporting data in the NHSN system due to the requirement 
to report CAUTI and CLABSI measures beginning on October 1, 2012 for 
the FY 2014 payment determination, and are continuing to report for CY 
2013 for the FY 2015 payment determination. Second, due to their 
participation in a wide range of mandatory reporting and quality 
improvement programs, as of January 2013, there are approximately 42 
LTCHs reporting MRSA measure data and approximately 46 LTCHs reporting 
CDI measure data into the NHSN. Third, there has been no change in the 
registration and training requirements for LTCHs that are already 
acquainted with the NHSN. Therefore, we believe that most LTCHs should 
be very comfortable using the NHSN for continuing with the reporting of 
data for CAUTI and CLABSI measures for CY 2014 for the FY 2016 payment 
determination and for submission of the finalized MRSA and CDI measures 
for CY 2015 for the FY 2017 payment determination. Further, we believe 
that by the time data collection and reporting for NQF 0431 
begin for the FY 2016 payment determination (October 1, 2014 or when 
vaccine becomes available for the 2014-2015 influenza vaccination 
season), a vast majority of LTCHs should be very comfortable using the 
NHSN.
    The most significant burden associated with these quality measures 
is the time and effort associated with collecting and submitting the 
data on

[[Page 50961]]

the CAUTI, CLABSI, Influenza Vaccination Coverage among Healthcare 
Personnel, MRSA, and CDI measures for LTCHs that are not currently 
reporting any measures data into the CDC's NHSN system.
    There are currently approximately 440 LTCHs in the United States 
paid under the CMS LTCH PPS. We estimate that each LTCH will execute 
approximately 12 NHSN submissions (6 CAUTI events and 6 CLABSI events) 
per month (144 events per LTCH annually). This equates to a total of 
approximately 63,360 submissions of HAI data to NHSN from all LTCHs per 
year. We estimate that each NHSN assessment will take approximately 25 
minutes to complete. This time estimate consists of 10 minutes of 
clinical time (for example, nursing time) needed to collect the 
clinical data and 15 minutes of clerical time necessary to enter the 
data into the NHSN database. 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 on all LTCHs 
for reporting CAUTI and CLABSI events to NHSN is 26,400 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 $15.59 (U.S. Bureau of Labor 
Statistics data) (please note that we have corrected the hourly rate of 
a medical billing clerk/data entry person from $20.57, which was in our 
proposed rule, to a correct hourly rate of $15.59). Therefore, we 
estimate that the annual cost per each LTCH will be $1,559 and the 
total yearly cost to all LTCHs for the submission of CAUTI and CLABSI 
data to NHSN will be $686,136.\203\ While these requirements are 
subject to the Paperwork Reduction Act, we believe the associated 
burden hours are accounted for in the information collection request 
currently approved under OMB control number 0920-0666.
---------------------------------------------------------------------------

    \203\ Nursing Time--24 hours @ $41.59 per hour = $998.16; 
$998.16 x 440 LTCHs = approximately $439,190; Administrative Time--
36 hours @ $15.59 per hour = $561.24; $561.24 x 440 LTCHs = 
approximately $246,946; TOTAL = $439,190 + $246,946 = $686,136.
---------------------------------------------------------------------------

    We estimate that each LTCH will execute only one NHSN submission 
per year (total number of vaccinations) as required by the CDC for the 
NHSN-reported Influenza Vaccination Coverage among Healthcare Personnel 
measure (NQF 0431). This equates to a total of approximately 
440 submissions of vaccination data to NHSN from all LTCHs per year. We 
estimate that each NHSN submission will take approximately 15 minutes 
to complete. This time estimate consists of 15 minutes of clerical time 
necessary to enter the data into the NHSN database. Based on this 
estimate, we expect each LTCH will expend 15 minutes per year reporting 
to NHSN. Therefore, the total estimated annual burden on all LTCHs in 
the United States for reporting this measure to NHSN is 110 hours. The 
estimated cost per submission is estimated at $3.90. The cost is 
estimated using an hourly wage for a medical billing clerk/data entry 
person of $15.59 (U.S. Bureau of Labor and Statistics data). We 
estimate the annual cost per each LTCH will be $3.90 and the total 
yearly cost to all LTCHs for the submission of the Influenza Coverage 
among Healthcare Personnel measure (NQF 0431) will be $1,716.
    Similar to the submission of CAUTI and CLABSI data, we estimate 
that each LTCH will execute approximately 12 NHSN submissions (6 MRSA 
events and 6 C. Difficile events) per month (144 events per LTCH 
annually). This equates to a total of approximately 63,648 submissions 
of HAI data to NHSN from all LTCHs per year. We estimate that each NHSN 
assessment will take approximately 25 minutes to complete. This time 
estimate consists of 10 minutes of clinical time (for example, nursing 
time) needed to collect the clinical data and 15 minutes of clerical 
time necessary to enter the data into the NHSN. Based on this estimate, 
we expect each LTCH will expend 300 minutes (5 hours) per month and 60 
hours per year reporting to NHSN.
    The total estimated annual hourly burden on all LTCHs in the United 
States for reporting MRSA and CDI data to NHSN is 26,400 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 $15.59 (U.S. Bureau of Labor 
Statistics data). Therefore, we estimate that the annual cost per each 
LTCH will be $1,739 and the total yearly cost to all LTCHs for the 
submission of MRSA and CDI data to NHSN will be $686,136.\204\
---------------------------------------------------------------------------

    \204\ Nursing Time--24 hours @ $41.59 per hour = $998.16; 
$998.16 x 440 LTCHs = approximately $439,190; Administrative Time--
36 hours @ $15.59 per hour = $561.24; $561.24 x 440 LTCHs = 
approximately $246,946; TOTAL = $439,190 + $246,946 = $686,136.
---------------------------------------------------------------------------

    We estimate that the total annual cost to all LTCHs for submission 
of NHSN data will be $1,373,988 or $3,123 per LTCH annually.
    We are finalizing our proposal to adopt the updated measure NQF 
0678 Percent of Residents or Patients with Pressure Ulcers 
that are New or Worsened (Short-Stay) for the FY 2015 payment 
determination and subsequent years. This change would not alter the 
data collection, data submission, or burden finalized in the FY 2013 
IPPS/LTCH PPS final rule and PRA package for LTCH CARE Data Set 
(Version 1.01) \205\ since there have been no changes to the data 
elements, data submission system (QIES ASAP) and technical submission 
specifications for the LTCH CARE Data Set used for this measure for CY 
2013 and for the first quarter of CY 2014. The only difference between 
the previously finalized measure and the measure finalized in this 
final rule is the change in name and NQF-endorsed expansion of this 
measure to the LTCH (and IRF) patient populations in addition to 
Skilled Nursing Facility/Nursing Home Short-Stay residents. Therefore, 
the burden on LTCHs for reporting of data for NQF 0678 remains 
unchanged.\206\
---------------------------------------------------------------------------

    \205\ The LTCH CARE Data Set Version 1.01 was approved on April 
24, 2012 by OMB in accordance with the PRA. The OMB Control Number 
is 0938-1163. Expiration Date April 30, 2013. FRN 78 21955 through 
21956, published April 12, 2013, solicits public comment on 
additions and updates to the LTCH CARE Data Set. http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
    \206\ The LTCH CARE Data Set Version 1.01 was approved on April 
24, 2012 by OMB in accordance with the PRA. The OMB Control Number 
is 0938-1163. Expiration Date April 30, 2013. FRN 78 21955 through 
21956, published April 12, 2013, solicits public comment on 
additions and updates to the LTCH CARE Data Set. http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
---------------------------------------------------------------------------

    In order to allow time and opportunity for LTCHs and vendors to 
participate in CMS-sponsored training activities pertaining to the 
implementation of the LTCH CARE Data Set (Version 2.01), as well as 
time to plan for and incorporate changes into their data collection and 
entry systems, we are finalizing our proposal to revise the previously 
finalized start date for Percent of Residents or Patients Who Were 
Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-
Stay) (NQF 0680) of January 1, 2014 to April 1, 2014. For CY 
2014, data collection will continue through December 31, 2014. We are 
finalizing our proposal that data for admissions and discharges for an 
LTCH during April 1, 2014 through December 31, 2014 will be used for 
the FY 2016 payment determination. Three items are included on the LTCH 
CARE Data Set Version 2.01 for this measure. For purposes unrelated to 
the measures we are finalizing in this rule, we have also

[[Page 50962]]

removed several items from the administrative, functional status, and 
skin conditions sections of the LTCH CARE Data Set Version 1.01 to 
create the LTCH CARE Data Set Version 2.01,\207\ so we anticipate that 
increase in burden due to the addition of items for NQF 0680 
will be minimal. Later in 2013, we will release the final data 
submission specifications and updated LTCHQR Program Manual for the 
LTCH CARE Data Set (Version 2.01) containing items related to NQF 
0680.
---------------------------------------------------------------------------

    \207\ The LTCH CARE Data Set Version 2.01 was approved on June 
10, 2013 by OMB in accordance with the PRA. The OMB Control Number 
is 0938-1163. Expiration Date June 30, 2016. http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
---------------------------------------------------------------------------

    As previously mentioned, there are currently approximately 440 
LTCHs paid under the CMS LTCH PPS. We estimate that the total number of 
LTCH discharges per year is 202,050 \208\ (134,700 Medicare 
beneficiaries and 67,350 non-Medicare beneficiaries). Therefore, the 
total number of discharges estimated for each LTCH is 457 annually and 
38 monthly. We estimate that the total number of assessment records 
submitted using the LTCH CARE Data Sets (LCDS) by all LTCHs per year is 
404,100 which equates to a total of 914 total LCDS submissions for each 
LTCH on an annual basis. The average number of LCDS submitted by each 
LTCH on a monthly basis is 76.
---------------------------------------------------------------------------

    \208\ MedPAC Report to Congress, March 2012, page 261. Available 
at: http://www.medpac.gov/documents/Mar12_EntireReport.pdf.
---------------------------------------------------------------------------

    We estimate that the total time required to complete an LCDS per 
patient to be approximately 32 minutes,\209\ which includes 11 minutes 
for the admission assessment, 11 minutes for the discharge assessment 
and 10 minutes for data entry. Therefore, each LTCH will spend 
approximately 1,216 minutes per month, or approximately 20.27 hours per 
month submitting the LCDS. We expect each LTCH to spend approximately 
243 hours per year engaged in data collection and submission of the 
LCDS. Therefore, the total estimated burden to all LTCHs for reporting 
the LCDS is 106,920 hours per year.\210\
---------------------------------------------------------------------------

    \209\ This time estimate includes the time required to complete 
both the required and voluntary questions on the LTCH CARE Data Set.
    \210\ 32 minutes/form x 38 forms per LTCH per month = 1,216 
minutes per LTCH per month; 1,216 minutes/60 minutes per hour = 
20.27 hours per LTCH per month; 20.27 hours per LTCH per month x 12 
months/year = 243 hours per each LTCH/year; 243 hours/each LTCH per 
year x 440 LTCHs in U.S. = 106,920 hrs/all LTCHs/year.
---------------------------------------------------------------------------

    We estimate that the total annual cost to each LTCH will be 
approximately $6,751 to submit the LCDS. That estimate is based on the 
hourly wage for a registered nurse to complete the LCDS at $41.59 per 
hour and for an administrative assistant to transmit the LCDS at 
$15.59.\211\ As previously stated, we estimate a total of 457 annual 
discharges (914 LCDS submissions) for each LTCH on an annual basis and 
that it will take 22 minutes total (11 minutes each) to complete the 
admissions and discharge assessments per patient. That is, 10,054 
minutes of time, or 167.57 hours, that a registered nurse in each LTCH 
will spend completing the LCDS annually. For a registered nurse to 
spend 167.57 hours per year completing the LCSDs at a rate of $41.59 
per hour, the associated cost for each LTCH will be approximately 
$6,969 and, for approximately 440 LTCHs, a total of $3,066,360 nursing 
wages per year.
---------------------------------------------------------------------------

    \211\ The mean hourly wage of $15.59 per hour for a Medical 
Secretary was obtained from the U.S. Bureau of Labor Statistics. We 
refer readers to: http://www.bls.gov/oes/current/oes436013.htm.
---------------------------------------------------------------------------

    Similarly, we previously estimated that it will take approximately 
10 minutes per patient for data entry by an administrative assistant, 
resulting in approximately 4,570 minutes that each LTCH will spend 
transmitting the LCDS per year, or 76 administrative hours per year. At 
an hourly rate of $15.59, that equates to approximately $1,154 for each 
LTCH and $507,954 for all LTCHs per year. Therefore, we estimate that 
the total annualized cost to each LTCH will be approximately $6,751 and 
$2,971,250 to all LTCHs.
    We believe the associated burden hours are accounted for in the 
information collection request approved on June 10, 2013 under OMB 
control number 0938-1163.
    We also are finalizing our proposal to add the All-Cause Unplanned 
Readmission Measure for 30 days Post Discharge from Long-Term Care 
Hospitals measure which we do not believe would increase LTCH burden 
because it is a Medicare FFS claims-based measure and does not require 
reporting of data other than submission of Medicare FFS claims data 
(LTCHs submit these data to CMS for payment purposes).
    In section IX.C.8.c. of the preamble of this final rule, we are 
finalizing our proposal to add one additional quality measure 
(application of the Percent of Residents Experiencing One or More Falls 
with Major Injury (Long Stay) (NQF 0674)) for use in the 
LTCHQR Program for the FY 2018 payment determination and subsequent 
years. We are finalizing our proposal that LTCHs report data for an 
application of the Percent of Residents Experiencing One or More Falls 
with Major Injury (Long Stay) (NQF 0674) measure beginning 
January 1, 2016. It is our intent to foster alignment between measures 
by expanding preexisting data collection and submission methods to 
reduce the administrative burden related to data collection and 
submission. This measure will be collected using the LTCH CARE Data 
Set. The items used for this measure will be based on the two items 
from the Minimum Data Set (MDS) 3.0, version 1.13.0 (1/17/13): items 
J1800 (Any Falls Since Admission/Entry or Reentry or Prior Assessment) 
and J1900A., B. and C. (Number of Falls (A. with no injury, B. with 
injury (except major), C. with Major injury)) since Admission/Entry or 
Reentry or Prior Assessment), available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/NursingHomeQualityInits/NHQIMDS30TechnicalInformation.html. The 
calculation of the application of the measure will be based on item 
J1900C, Number of Falls with major injury, since admission/entry or 
reentry or prior assessment. The specifications and data elements for 
NQF 0674 are available in the MDS 3.0 Quality Measures User's 
Manual Version 6.0 available on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/NursingHomeQualityInits/MDS30RAIManual.html.
    We believe that the initial registration for use of the LTCH CARE 
Data Set, along with any necessary training, occurred for most LTCHs 
prior to the reporting of the Pressure Ulcer measure, which began on 
October 1, 2012. Therefore, we believe the burden will be minimal 
related to the addition of this quality measure into the LTCH CARE Data 
Set.
    Therefore, we do not expect the addition of the Application of NQF 
0674 Percent of Residents Experiencing One or More Falls with 
Major Injury (Long Stay) measure to increase the burden substantially. 
Further, LTCHs will have been reporting data for the LTCHQR Program 
using the LTCH CARE Data Set for more than 2 years by the time the data 
collection begins for this measure.
    At this time, we have not completed the revision of the information 
collection instrument (LTCH CARE Data Set) that LTCHs would be required 
to submit to report the finalized measure (NQF 0674) for the 
FY 2018 payment determination and subsequent years. Because the forms 
are still under

[[Page 50963]]

development, we cannot make a complete burden estimate at this time for 
the inclusion of the Application of Percent of Residents Experiencing 
One or More Falls with Major Injury (Long Stay) measure in the LTCH 
CARE Data Set. Once the forms are available, we will prepare and submit 
the required information collection request, which will fully set forth 
the anticipated burden to LTCHs as a result of the new data items that 
must be added to the LTCH CARE Data Set.
    Comment: One commenter noted that the CARE Tool 2.0 must be 
significantly enhanced to accommodate collection of data on the 
proposed quality measures.
    Response: In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51753 
through 51756), we finalized use of the LTCH CARE Data Set for 
collection of data on an application of NQF 0678, Percent of 
Residents or Patients With Pressure Ulcers That Are New or Worsened 
(Short-Stay). In the FY2013 IPPS/LTCH PPS final rule (77 FR 53624 
through 53627), we finalized use of the LTCH CARE Data Set to collect 
data for NQF 0680, Percentage of Residents or Patients Who 
Were Assessed and Appropriately Given the Seasonal Influenza Vaccine 
(Short-Stay). To accommodate the collection of data on NQF 
0680, we revised the LTCH CARE Data Set (Version 1.01) to 
include additional items. The revised LTCH CARE Data Set (Version 2.01) 
was approved by the Office of Management and Budget on June 10, 2013 
(OMB Control Number 0938-1163).
    To accommodate the collection of data on NQF 0674, the 
LTCH CARE Data Set (Version 2.01) will be revised to include items from 
other, standardized and clinically established data sets, including but 
not limited to the MDS 3.0 and CARE tool. With each revision, we will 
solicit public comment on the proposed LTCH CARE Data Set through the 
PRA approval process, which provides for the publication of two PRA 
notices in the Federal Register. The first notice is followed by a 60-
day comment period. The second notice is followed by a 30-day comment 
period.
    Comment: As noted in section IX.C.2. of the preamble of this final 
rule, several commenters expressed concern regarding the pace with 
which items are being added to the LTCH CARE Data Set, and one noted 
that this may require LTCHs to shift resources from prevention 
activities to reporting activities. One commenter, in expressing 
concern with the amount of time provided for adopting the proposed MRSA 
and CDI measures, suggested that CMS look carefully at the growing 
burden that the LTCHQR Program is generating, suggesting that CMS 
significantly underestimates the burden of these measures, particularly 
for smaller LTCHs with lower average daily census.
    Response: By building upon preexisting resources for data 
collection and submission, we intend to foster alignment of LTCHQR 
Program measures and measures in other quality reporting programs. This 
should help to reduce the administrative burden related to data 
collection and submission. We anticipate that the initial setup and 
acclimation to the data collection by the LTCH CARE Data Set will have 
already occurred with the adoption of the Pressure Ulcer measure for 
the LTCHQR Program for the FY 2014 payment determination as well as the 
Patient Influenza Vaccination measure for the LTCHQR Program for the 
FY2015 payment determination. Therefore, we believe the transition to 
reporting one additional measure via the LTCH CARE Data Set may be less 
burdensome.
    With respect to the burden placed on LTCHs by quality measure 
reporting, a burden estimate is required by NQF and carefully 
considered during their endorsement process. We recognize that the 
LTCHQR Program carries a certain level of burden, but also feel that 
this level of burden is justified in light of the benefits to patients 
in terms of patient safety, as well as by the health care system in 
terms of efficiency and cost. We also took into account the impact of 
data collection and submission on LTCH staff by adopting a policy of 
phased quality measure implementation and reporting. We have gradually 
introduced new measures and designed collection and submission 
requirements that are meant to provide sufficient time for all 
Medicare-certified LTCHs to adjust to and comply with LTCHQR Program 
requirements.
    Comment: Several commenters expressed concern over the burden 
estimate included in the PRA package for the LTCH CARE Data Set 
(Version 2.01), which represents (approximately) a 300 percent increase 
over the burden estimate for the LTCH CARE Data Set (Version 1.01).
    Response: On May 15, 2013, the LTCHQR Program completed the 
submission timeframe for the first quarter of measure reporting. As a 
result, we have become more familiar with the burden of this program 
and have now received feedback from LTCHs about the time burden 
associated with the completion of the LTCH CARE Data Set. We also have 
considered feedback from LTCHs in the form of public comments to the FY 
2014 IPPS/LTCH PPS proposed rule, questions during Open Door forums, 
and LTCH helpdesk inquiries. LTCHs have stated that we had 
underestimated the amount of time that is required of the LTCH staff to 
complete the LTCH CARE Data Set on each LTCH patient.
    In response to the feedback received, we have significantly revised 
our burden estimates. For example, in our previous PRA package burden 
estimate we estimated burden based solely on LTCH yearly discharges of 
Medicare beneficiaries. The revised burden estimate includes yearly 
LTCH discharges of both Medicare and non-Medicare patients, because we 
require data submission on all payers, and not solely on Medicare 
patients. In addition, the original burden calculation only took into 
account one assessment per patient (admission), while the revised 
estimate includes two assessment records per patient (admission and 
discharge).
    While the burden calculation for this PRA submission has increased 
significantly compared to our original calculation, we believe that the 
calculation now more accurately reflects the burden associated with 
implementing collection of the quality measures. We provided the public 
with an opportunity to comment on the burden estimate and the LTCH CARE 
Data Set Version 2.01 as part of the PRA package. The PRA package for 
the LTCH CARE Data Set (Version 2.01) has been approved by the Office 
of Management and Budget. For a complete discussion on the current LTCH 
CARE Data Set Version 2.01 burden estimate, we refer readers to the PRA 
package approved by OMB on June 10, 2013.\212\
---------------------------------------------------------------------------

    \212\ The LTCH CARE Data Set Version 2.01 was approved on June 
10, 2013 by OMB in accordance with the PRA. The OMB Control Number 
is 0938-1163. Expiration Date June 30, 2016.
---------------------------------------------------------------------------

    Comment: Several commenters believed that the amount of information 
that LTCHs are being required to collect exceeds the minimum amount of 
reporting necessary to accomplish the quality improvement purpose. The 
commenters believed that several measures require the disclosure of 
identifiable information that is not reasonably related to the LTCHQR 
Program.
    Response: LTCHs will only be required to complete a subset of the 
data elements that comprise the LTCH CARE Data Set. For the purposes of 
this discussion, we have separated the items which make up the LTCH 
CARE Data Set into three categories and have deemed them to be either 
required or

[[Page 50964]]

voluntary. These elements are: (1) A limited set of administrative 
items that are necessary in order to identify each LTCH and properly 
attribute patients to it for purposes of calculating the measure rate; 
(2) the data elements necessary to populate the measures being 
collected, consistent with the NQF-endorsed specifications for that 
measure; (3) the data elements necessary to enable us to validate that 
the measure's data elements were accurately reported. All other data 
elements on the LTCH CARE Data Set can be completed on a voluntary 
basis, but will have no impact on the measure rate calculations or on 
our determination of whether the LTCH has met the reporting 
requirements under the LTCHQR Program. We will post on the CMS Web site 
a detailed matrix that identifies which data elements will be required 
and which will be voluntary. This matrix will also be incorporated into 
the final LTCHQR Program Manual, which will be posted on CMS LTCHQR 
Program Web site and available for download at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/index.html.
    Comment: Several commenters questioned the requirement for LTCHs to 
collect data on all patients, not just Medicare patients, and argue 
that the improvement in the quality of care provided to Medicare 
patients does not require collection of data on non-Medicare patients. 
The commenters propose that if CMS chooses to continue collection of 
data on non-Medicare patients, this data should be de-identified.
    Response: With respect to the inclusion of non-Medicare 
beneficiaries in the LTCHQR Program, we believe delivery of high-
quality care to all patients in the LTCH setting is imperative. 
Collecting such quality data on all patients in the LTCH setting 
supports our goal to ensure high quality care for Medicare 
beneficiaries. It provides us with the data to inform the public with 
the most robust and accurate reflection of quality of care and patient 
outcomes in the LTCH setting. Therefore, for non-claims-based measures, 
in order to facilitate and ensure that high-quality care is delivered 
to Medicare beneficiaries in the LTCH setting, we require that quality 
data be collected on all LTCH patients, regardless of payer. Since its 
implementation date (October 1, 2012), our policy for the LTCHQR 
Program requires data collection and submission requirements on all 
patients, regardless of payer and we did not propose any changes to 
this policy in the FY 2014 proposed rule. We appreciate the suggestion 
that data on non-Medicare patients be de-identified, and we will 
consider this view for future rulemaking and program development.
    Comment: One commenter encouraged CMS to invest in enhanced 
information systems for LTCHs, to enable less burdensome data 
collection.
    Response: We are continually working to address policy and funding 
issues related to safer care, better outcomes, and the efficient use of 
resources.
10. ICRs for the Inpatient Psychiatric Facilities Quality Reporting 
(IPFQR) Program
    In section VIII.F. of the preamble of the FY 2013 IPPS/LTCH PPS 
final rule, we discussed the implementation of the Inpatient 
Psychiatric Facilities Quality Reporting (IPFQR) Program pursuant to 
the Secretary's authority under section 1886(s)(4) of the Act. We 
previously adopted six measures for the FY 2014 IPFQR Program payment 
determination and subsequent years. In section IX.D. of the preamble of 
this final rule, we are finalizing our policies that, for the FY 2016 
payment determination and subsequent years, IPFs must submit aggregate 
data on one additional measure (SUB-1: Alcohol Use Screening), for a 
total of seven measures. We note that, at this time, we have decided 
not to finalize SUB-4. Also, although we proposed to use chart-
abstraction, we are finalizing claims-based data collection for the 
Follow-Up After Hospitalization for Mental Illness (FUH) measure, which 
reduces the burden on IPFs. In addition, we are finalizing a request 
for voluntary information.
    To reduce the burden on IPFs, we are not making changes to the 
administrative, reporting or submission requirements for the existing 
six measures previously finalized in last year's final rule (77 FR 
53654 through 53657). However, there will be new reporting and 
submission requirements associated with the new SUB-1 measure and the 
request for voluntary information for the FY 2016 payment determination 
and subsequent years.
    We believe that the new measures will help improve the quality of 
care provided by IPFs as we work to make quality data more transparent 
to the public. As required by the Act, we will share the information 
collected under the IPFQR Program with the public. These data will be 
displayed on the CMS Web site.
    We have estimated the burden associated with IPFs complying with 
the requirements of the IPFQR Program. Because claims-based measures 
can be calculated based on data that are already reported to the 
Medicare program for payment purposes, we believe no additional 
information collection will be required from the IPFs for the new FUH 
measure. In our burden estimate calculation, we have included the time 
that would be spent for: (1) The submission of voluntary information; 
(2) chart abstraction; and (3) training personnel on the collection of 
chart-abstracted data, aggregation of the data, and for protocols to 
submit the aggregate-level data through QualityNet. We estimate that 
the annual hourly burden on each IPF for the collection, submission, 
and training of personnel for submitting all quality measures, 
including 30 minutes needed for the voluntary submission, is 
approximately 761 hours in a year for each IPF. Therefore, the average 
hourly burden on each IPF is approximately 63 hours per month. At this 
time, we have no way to estimate how many IPFs will participate in the 
program. Therefore, we cannot estimate the aggregate impact.

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 414

    Administrative practice and procedure, Health facilities, Health 
professions, Kidney diseases, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 419

    Hospitals, Medicare, Reporting and recordkeeping requirements.

42 CFR Part 424

    Emergency medical services, Health facilities, Health professions, 
Medicare.

42 CFR Part 482

    Grant program--health, Hospitals, Medicaid, Medicare, Reporting and 
recordkeeping requirements.

42 CFR Part 485

    Grant programs--health, Health facilities, Medicaid, Medicare, 
Reporting and recordkeeping requirements.

42 CFR Part 489

    Health facilities, Medicare, Reporting and recordkeeping 
requirements.


[[Page 50965]]


    For the reasons stated in the preamble of this final rule, the 
Centers for Medicare & Medicaid Services 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. A new Sec.  412.3 is added to read as follows:


Sec.  412.3  Admissions.

    (a) For purposes of payment under Medicare Part A, an individual is 
considered an inpatient of a hospital, including a critical access 
hospital, if formally admitted as an inpatient pursuant to an order for 
inpatient admission by a physician or other qualified practitioner in 
accordance with this section and Sec. Sec.  482.24(c), 482.12(c), and 
485.638(a)(4)(iii) of this chapter for a critical access hospital. This 
physician order must be present in the medical record and be supported 
by the physician admission and progress notes, in order for the 
hospital to be paid for hospital inpatient services under Medicare Part 
A. In addition to these physician orders, inpatient rehabilitation 
facilities also must adhere to the admission requirements specified in 
Sec.  412.622 of this chapter.
    (b) The order must be furnished by a qualified and licensed 
practitioner who has admitting privileges at the hospital as permitted 
by State law, and who is knowledgeable about the patient's hospital 
course, medical plan of care, and current condition. The practitioner 
may not delegate the decision (order) to another individual who is not 
authorized by the State to admit patients, or has not been granted 
admitting privileges applicable to that patient by the hospital's 
medical staff.
    (c) The physician order also constitutes a required component of 
physician certification of the medical necessity of hospital inpatient 
services under subpart B of Part 424 of this chapter.
    (d) The physician order must be furnished at or before the time of 
the inpatient admission.
    (e)(1) Except as specified in paragraph (e)(2) of this section, 
when a patient enters a hospital for a surgical procedure not specified 
by Medicare as inpatient only under Sec.  419.22(n) of this chapter, a 
diagnostic test, or any other treatment, and the physician expects to 
keep the patient in the hospital for only a limited period of time that 
does not cross 2 midnights, the services are generally inappropriate 
for inpatient admission and inpatient payment under Medicare Part A, 
regardless of the hour that the patient came to the hospital or whether 
the patient used a bed. Surgical procedures, diagnostic tests, and 
other treatment are generally appropriate for inpatient admission and 
inpatient hospital payment under Medicare Part A when the physician 
expects the patient to require a stay that crosses at least 2 
midnights. The expectation of the physician should be based on such 
complex medical factors as patient history and comorbidities, the 
severity of signs and symptoms, current medical needs, and the risk of 
an adverse event. The factors that lead to a particular clinical 
expectation must be documented in the medical record in order to be 
granted consideration.
    (2) If an unforeseen circumstance, such as a beneficiary's death or 
transfer, results in a shorter beneficiary stay than the physician's 
expectation of at least 2 midnights, the patient may be considered to 
be appropriately treated on an inpatient basis, and hospital inpatient 
payment may be made under Medicare Part A.

0
3. Section 412.46 is revised to read as follows:


Sec.  412.46  Medical review requirements.

    (a) Physician acknowledgement. (1) Basis. Because payment under the 
prospective payment system is based in part on each patient's principal 
and secondary diagnoses and major procedures performed, as evidenced by 
the physician's entries in the patient's medical record, physicians 
must complete an acknowledgement statement to this effect.
    (2) Content of physician acknowledgement statement. When a claim is 
submitted, the hospital must have on file a signed and dated 
acknowledgement from the attending physician that the physician has 
received the following notice:
    Notice to Physicians: Medicare payment to hospitals is based in 
part on each patient's principal and secondary diagnoses and the major 
procedures performed on the patient, as attested to by the patient's 
attending physician by virtue of his or her signature in the medical 
record. Anyone who misrepresents, falsifies, or conceals essential 
information required for payment of Federal funds, may be subject to 
fine, imprisonment, or civil penalty under applicable Federal laws.
    (3) Completion of acknowledgement. The acknowledgement must be 
completed by the physician at the time that the physician is granted 
admitting privileges at the hospital, or before or at the time the 
physician admits his or her first patient. Existing acknowledgements 
signed by physicians already on staff remain in effect as long as the 
physician has admitting privileges at the hospital.
    (b) Physician's order and certification regarding medical 
necessity. No presumptive weight shall be assigned to the physician's 
order under Sec.  412.3 or the physician's certification under Subpart 
B of Part 424 of the chapter in determining the medical necessity of 
inpatient hospital services under section 1862(a)(1) of the Act. A 
physician's order or certification will be evaluated in the context of 
the evidence in the medical record.

0
4. Section 412.64 is amended--
0
a. Adding a new paragraph (d)(1)(v).
0
b. In the introductory text of paragraph (h)(4), removing the date 
``October 1, 2013'' and adding in its place the date ``October 1, 
2014''.
0
c. In paragraph (h)(4)(vi), removing the date ``October 1, 2013'' and 
adding in its place the date ``October 1, 2014''.
    The addition reads as follows:


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

* * * * *
    (d) * * *
    (1) * * *
    (v) For fiscal year 2014, the percentage increase in the market 
basket index less a multifactor productivity adjustment (as determined 
by CMS) and less 0.3 percentage point for prospective payment hospitals 
(as defined in Sec.  413.40(a) of this chapter) for hospitals in all 
areas.
* * * * *


Sec.  412.101  [Amended]

0
5. Section 412.101 is amended by--
0
a. In paragraph (b)(2)(i), removing the term ``FY 2013'' and adding in 
its place the term ``FY 2014.''
0
b. In paragraph (b)(2)(ii), removing the phrase ``For FY 2011 and FY 
2012,'' and adding in its place the phrase ``For FY 2011, FY 2012, and 
FY 2013,''.
0
c. In paragraph (c)(1), removing the term ``FY 2013'' and adding in its 
place the term ``FY 2014.''
0
d. In paragraph (c)(2) introductory text, removing the phrase ``For FY 
2011 and FY 2012,'' and adding in its place the phrase ``For FY 2011, 
FY 2012, and FY 2013,''.
0
e. In paragraph (d), removing the term ``FY 2013'' and adding in its 
place the term ``FY 2014.''

[[Page 50966]]


0
6. Section 412.106 is amended by adding new paragraphs (f), (g), and 
(h) to read as follows:


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

* * * * *
    (f) Empirically justified Medicare DSH payments. Effective for 
discharges on or after October 1, 2013, the amounts otherwise payable 
to a hospital under paragraph (d) of this section are reduced by 75 
percent.
    (g) Additional payment for uncompensated care. (1) Payment rules. 
Hospitals that qualify for payments under this section for fiscal year 
2014 and each subsequent year, will receive an additional amount equal 
to the product of the following three factors:
    (i) Factor 1. For FY 2014 and each subsequent fiscal year, a factor 
equal to the difference between:
    (A) The most recently available estimates, as calculated by CMS' 
Office of the Actuary, of the aggregate amount of payments that would 
be made to such hospitals under paragraphs (a) through (e) of this 
section if paragraph (f) of this section did not apply for the fiscal 
year; and
    (B) The most recently available estimates, as calculated by CMS' 
Office of the Actuary, of the aggregate amount of payments that are 
made to such hospitals pursuant to paragraph (f) of this section for 
the fiscal year.
    (ii) Factor 2. For each of fiscal years 2014, 2015, 2016, and 2017, 
a factor equal to 1 minus the percent change in the percent of 
individuals under the age of 65 who are uninsured (and subtracting from 
the factor 0.1 percentage point for fiscal year 2014 and 0.2 percentage 
point for each of fiscal years 2015, 2016, and 2017), as determined by 
comparing:
    (A) 18 percent, the percent of such individuals who are uninsured 
in 2013, based on the March 20, 2010 estimate of the ``Insured Share of 
the Nonelderly Population Including All Residents'' by the 
Congressional Budget Office; and
    (B) The percent of such individuals who are uninsured in the 
applicable fiscal year, based on the most recent estimate of the 
``Insured Share of the Nonelderly Population Including All Residents'' 
by the Congressional Budget Office available at the time of development 
of the annual final rule for the hospital inpatient prospective payment 
system.
    (iii) Factor 3. A factor equal to the percent, for each inpatient 
prospective payment system hospital, that represents the quotient of:
    (A) The amount of uncompensated care for such hospital as estimated 
by CMS.
    (B) The aggregate amount of uncompensated care as estimated by CMS 
for all hospitals that are estimated to receive a payment under this 
section.
    (C) For fiscal year 2014, CMS will base its estimates of the amount 
of hospital uncompensated care on the most recent available data on 
utilization for Medicaid and Medicare SSI patients, as determined by 
CMS in accordance with paragraphs (b)(2)(i) and (b)(4) of this section.
    (iv) The final values for each of the three factors are determined 
for each fiscal year at the time of development of the annual final 
rule for the hospital inpatient prospective payment system, and these 
values are used for both interim and final payment determinations.
    (2) Preclusion of administrative and judicial review. There is no 
administrative or judicial review under sections 1869 or 1878 of the 
Act, or otherwise, of the following:
    (i) Any estimate of the Secretary for the purpose of determining 
the factors in paragraph (g)(1) of this section; and
    (ii) Any period selected by the Secretary for such purposes.
    (h) Manner and timing of payments. (1) Interim payments are made 
during the payment year to each hospital that is estimated to be 
eligible for payments under this section at the time of the annual 
final rule for the hospital inpatient prospective payment system, 
subject to the final determination of eligibility at the time of cost 
report settlement for each hospital.
    (2) Final payment determinations are made at the time of cost 
report settlement, based on the final determination of each hospital's 
eligibility for payment under this section.


Sec.  412.108  [Amended]

0
7. Section 412.108 is amended by--
0
a. In paragraph (a)(1) introductory text, removing the phrase ``before 
October 1, 2012'' and adding in its place the phrase ``before October 
1, 2013''.
0
b. In paragraph (c)(2)(iii) introductory text, removing the phrase 
``before October 1, 2012'' and adding in its place the phrase ``before 
October 1, 2013''.

0
8. Section 412.140 is amended by--
0
a. Revising the section heading.
0
b. Revising paragraph (a)(3) introductory text.
0
c. Revising paragraph (b).
0
d. Adding a new paragraph (f).
    The revisions and addition read as follows:


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

    (a) * * *
    (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 (CCN).
* * * * *
    (b) Withdrawal from the Hospital IQR Program. CMS will accept 
Hospital IQR Program withdrawal forms from hospitals on or before--
    (1) Prior to the FY 2016 payment determination, August 15 of the 
fiscal year preceding the fiscal year for which a Hospital IQR 
determination will be made.
    (2) Beginning with the FY 2016 payment determination, May 15 of the 
fiscal year preceding the fiscal year for which a Hospital IQR payment 
determination will be made.
* * * * *
    (f) Patient experience of care data (HCAHPS survey). HCAHPS is the 
Hospital Consumer Assessment of Healthcare Providers and Systems survey 
that measures patient experience of care after a recent hospital stay.
    (1) Approved HCAHPS survey vendors and self-administering hospitals 
must fully comply with all HCAHPS oversight activities, including 
allowing CMS and its HCAHPS Project Team to perform site visits at the 
hospitals' and survey vendors' company locations.
    (2) CMS approves an application for an entity to administer the 
HCAHPS survey as an approved HCAHPS survey vendor on behalf of one or 
more hospitals when an applicant has met the Minimum Survey 
Requirements and Rules of Participation that can be found on the 
official HCAHPS On-Line Web site, and agree to comply with the current 
survey administration protocols that can be found on the official 
HCAHPS On-Line Web site. An entity must be an approved HCAHPS survey 
vendor in order to administer and submit HCAHPS data to CMS on behalf 
of one or more hospitals.

0
9. Section 412.150 is amended by adding a new paragraph (c) to read as 
follows:


Sec.  412.150  Basis and scope of subpart.

* * * * *
    (c) Section 1886(p) of the Act requires the Secretary to establish 
an adjustment to hospital payments for hospital-acquired conditions, or 
a Hospital-

[[Page 50967]]

Acquired Condition Reduction Program, under which payments to 
applicable hospitals are adjusted to provide an incentive to reduce 
hospital-acquired conditions, effective for discharges beginning on 
October 1, 2014. The rules for determining the payment adjustment under 
the Hospital-Acquired Condition Reduction Program are specified in 
Sec. Sec.  412.170 and 412.172.

0
10. Section 412.152 is amended by revising the definition of ``Base 
operating DRG payment amount'' to read as follows:


Sec.  412.152  Definitions for the Hospital Readmissions Reduction 
Program.

* * * * *
    Base operating DRG payment amount is the wage-adjusted DRG 
operating payment plus any applicable new technology add-on payments 
under subpart F of this part. This amount is determined without regard 
to any payment adjustments under the Hospital Value-Based Purchasing 
Program, as specified under Sec.  412.162. This amount does not include 
any additional payments for indirect medical education under Sec.  
412.105, the treatment of a disproportionate share of low-income 
patients under Sec.  412.106, outliers under subpart F of this part, 
and a low volume of discharges under Sec.  412.101. With respect to a 
sole community hospital that receives payments under Sec.  412.92(d) or 
a Medicare-dependent, small rural hospital that receives payments under 
Sec.  412.108(c) for FY 2013, this amount also does not include the 
difference between the hospital-specific payment rate and the Federal 
payment rate determined under subpart D of this part. With respect to a 
hospital that is paid under section 1814(b)(3) of the Act, this amount 
is an amount equal to the wage adjusted DRG payment amount plus new 
technology payments that would be paid to such hospitals, absent the 
provisions of section 1814(b)(3) of the Act.
* * * * *

0
11. Section 412.154 is amended by revising paragraph (d)(2) to read as 
follows:


Sec.  412.154  Payment adjustments under the Hospital Readmissions 
Reduction Program.

* * * * *
    (d) * * *
    (2)(i) Maryland's annual report to the Secretary and request for 
exemption from the Hospital Readmissions Reduction Program must be 
resubmitted and reconsidered annually.
    (ii) Beginning with the FY 2015 program year--
    (A) The State must submit a preliminary report to CMS no later than 
January 15 of each year for the Secretary to consider, through the 
annual proposed rule, its exemption from the Hospital Readmissions 
Reduction Program for the upcoming Federal fiscal year.
    (B) The State must submit a final report to CMS no later than June 
1 of each year for the Secretary to consider, through the annual final 
rule, its exemption from the Hospital Readmissions Reduction Program in 
the upcoming Federal fiscal year.
    (C) The reports required under paragraphs (d)(2)(ii)(A) and 
(d)(2)(ii)(B) of this section must include information as specified by 
CMS.
* * * * *

0
12. Section 412.160 is amended by revising the definitions of 
``Achievement threshold'' and ``Benchmark'' to read as follows:


Sec.  412.160  Definitions for the Hospital Value-Based Purchasing 
(VBP) Program.

* * * * *
    Achievement threshold (or achievement performance standard) means 
the median (50th percentile) of hospital performance on a measure 
during a baseline period with respect to a fiscal year, for Hospital 
VBP Program measures other than the Medicare Spending per Beneficiary 
measure, and the median (50th percentile) of hospital performance on a 
measure during the performance period with respect to a fiscal year, 
for the Medicare Spending per Beneficiary measure.
* * * * *
    Benchmark means the arithmetic mean of the top decile of hospital 
performance on a measure during the baseline period with respect to a 
fiscal year, for Hospital VBP Program measures other than the Medicare 
Spending per Beneficiary measure, and the arithmetic mean of the top 
decile of hospital performance on a measure during the performance 
period with respect to a fiscal year, for the Medicare Spending per 
Beneficiary measure.
* * * * *

0
13. An undesignated center heading and new Sec. Sec.  412.170 and 
412.172 are added under Subpart I to read as follows:

Payment Adjustments Under the Hospital-Acquired Condition Reduction 
Program


Sec. Sec.  412.170  Definitions for the Hospital-Acquired Condition 
Reduction Program.

    As used in this section and Sec.  412.172, the following 
definitions apply:
    Applicable hospital is a hospital described in section 
1886(d)(1)(B) of the Act (including a hospital in Maryland that is paid 
under the waiver under section 1814(b)(3) of the Act and that, absent 
the waiver specified by section 1814(b)(3) of the Act, would have been 
paid under the hospital inpatient prospective payment system) as long 
as the hospital meets the criteria specified under Sec.  412.172(e).
    Applicable period is, with respect to a fiscal year, the 2-year 
period (specified by the Secretary) from which data are collected in 
order to calculate the total hospital-acquired condition score under 
the Hospital-Acquired Condition Reduction Program.
    Hospital-acquired condition is a condition as described in section 
1886(d)(4)(D)(iv) of the Act and any other condition determined 
appropriate by the Secretary that an individual acquires during a stay 
in an applicable hospital, as determined by the Secretary.


Sec.  412.172  Payment adjustments under the Hospital-Acquired 
Condition Reduction Program.

    (a) Scope. This section sets forth the requirements for determining 
the payment adjustments under the Hospital-Acquired Condition Reduction 
Program for hospitals that meet the criteria described under paragraph 
(e) of this section.
    (b) Payment adjustment. With respect to all discharges from an 
applicable hospital occurring during FY 2015 or a subsequent year, the 
amount of payment under this section, or section 1814(b)(3) of the Act 
as applicable, for such discharges during the fiscal year will be equal 
to 99 percent of the amount of payment that would otherwise apply to 
these discharges under this section or section 1814(b)(3) of the Act 
(determined after the application of the payment adjustment under the 
Hospital Readmissions Reduction Program under Sec.  412.154 and the 
adjustment made under the Hospital Value-Based Purchasing Program under 
Sec.  412.162 and section 1814(l)(4) of the Act but without regard to 
section 1886(p) of the Act).
    (c) Hospitals paid under section 1814(b)(3) of the Act (certain 
Maryland hospitals). CMS will determine whether to exempt Maryland 
hospitals that are paid under section 1814(b)(3) of the Act and not 
under the hospital inpatient prospective payment system from the 
application of the payment adjustments under this section. The State 
must submit an annual report to CMS that describes how a similar 
program to reduce hospital-acquired conditions in

[[Page 50968]]

that State achieves or surpasses the measured results in terms of 
health outcomes and cost savings for the Hospital-Acquired Conditions 
Reduction Program as applied to hospitals described in section 
1886(d)(1)(B) of the Act.
    (1) CMS will establish criteria for evaluation of Maryland's annual 
report to determine whether the State will be exempted from the 
application of the payment adjustments under this section for a given 
fiscal year.
    (2) Maryland's annual report and request for exemption from the 
Hospital-Acquired Condition Reduction Program must be resubmitted and 
reconsidered annually.
    (d) Risk adjustment. In carrying out the provisions of paragraph 
(e) of this section, CMS will establish and apply an appropriate risk-
adjustment methodology.
    (e) Criteria for applicable hospitals. (1) General. With respect to 
a subsection (d) hospital, CMS will identify the top quartile of all 
subsection (d) hospitals with respect to hospital-acquired conditions 
as measured during the applicable period.
    (2) Use of total hospital-acquired condition scores. CMS will use 
total hospital-acquired condition scores to identify applicable 
hospitals. CMS will identify the 25 percent of hospitals with the 
highest total scores.
    (3) Methodology for calculating total hospital-acquired condition 
scores. CMS will calculate the total hospital-acquired condition scores 
by weighing the selected measures according to the established 
methodology.
    (f) Reporting of hospital-specific information. CMS will make 
information available to the public regarding hospital-acquired 
condition rates of all hospitals under the Hospital-Acquired Condition 
Reduction Program.
    (1) CMS will provide each hospital with confidential hospital-
specific reports and discharge level information used in the 
calculation of its total hospital-acquired condition score.
    (2) Hospitals will have a period of 30 days after the receipt of 
the information provided under paragraph (f)(1) of this section to 
review and submit corrections for the hospital-acquired condition 
domain score for each condition that is used to calculate the total 
score for the fiscal year.
    (3) The administrative claims data used to calculate a hospital's 
total hospital-acquired condition score for a condition for a fiscal 
year are not subject to review and correction under paragraph (f)(2) of 
this section.
    (4) CMS will post the total hospital-acquired condition score, the 
domain score, and the score on each measure for each hospital on the 
Hospital Compare Web site.
    (g) Limitations on review. There is no administrative or judicial 
review under Sec.  412.170 and this section for the following:
    (1) The criteria describing applicable hospitals.
    (2) The applicable period.
    (3) The specification of hospital-acquired conditions.
    (4) The provision of reports to hospitals and the information made 
available to the public.

0
14. Section 412.523 is amended by--
0
a. Revising the introductory text of paragraph (c)(3).
0
b. Adding paragraph (c)(3)(x).
0
c. Redesignating paragraph (c)(4) as paragraph (c)(5).
0
d. Adding a new paragraph (c)(4).
    The additions read as follows:


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

* * * * *
    (c) * * *
    (3) Computation of the standard Federal rate. Subject to the 
provisions of paragraph (c)(4) of this section, the standard Federal 
rate is computed as follows:
* * * * *
    (x) For long-term care hospital prospective payment system fiscal 
year beginning October 1, 2013, and ending September 30, 2014. The 
standard Federal rate for the long-term care hospital prospective 
payment system beginning October 1, 2013, and ending September 30, 
2014, is the standard Federal rate for the previous long-term care 
hospital prospective payment system fiscal year updated by 1.7 percent, 
and further adjusted, as appropriate, as described in paragraph (d) of 
this section.
    (4) For fiscal year 2014 and subsequent fiscal years--
    (i) In the case of a long-term care hospital that does not submit 
quality reporting data to CMS in the form and manner and at a time 
specified by the Secretary, the annual update to the standard Federal 
rate specified in paragraph (c)(3) of this section is further reduced 
by 2.0 percentage points.
    (ii) Any reduction of the annual update to the standard Federal 
rate under paragraph (c)(4)(i) of this section will apply only to the 
fiscal year involved and will not be taken into account in computing 
the annual update to the standard Federal rate for a subsequent fiscal 
year.
* * * * *

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

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

    Authority:  Secs. 1102, 1861(v)(1)(A), and 1871 of the Social 
Security Act (42 U.S.C. 1302, 1395x(v)(1)(A), and 1395hh).


0
16. In Sec.  413.78, amend paragraphs (g)(2) introductory text, 
(g)(2)(ii), (g)(2)(iii), (g)(3)(i), and (3)(ii) (two places), by 
removing the term ``nonhospital'' and adding ``nonprovider'' in its 
place.

PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES

0
17. The authority for Part 414 continues to read as follows:

    Authority: Secs. 1102, 1871, and 1881(b)(l) of the Social 
Security Act (42 U.S.C. 1302, 1395hh, and 1395rr(b)(l)).


0
18. Subpart A is amended by adding Sec.  414.5 to read as follows:


Sec.  414.5  Hospital services paid under Medicare Part B when a Part A 
hospital inpatient claim is denied because the inpatient admission was 
not reasonable and necessary, but hospital outpatient services would 
have been reasonable and necessary in treating the beneficiary.

    (a) If a Medicare Part A claim for inpatient hospital services is 
denied because the inpatient admission was not reasonable and 
necessary, or if a hospital determines under Sec.  482.30(d) of this 
chapter or Sec.  485.641 of this chapter after a beneficiary is 
discharged that the beneficiary's inpatient admission was not 
reasonable and necessary, the hospital may be paid for any of the 
following Part B inpatient services that would have been reasonable and 
necessary if the beneficiary had been treated as a hospital outpatient 
rather than admitted as an inpatient, provided the beneficiary is 
enrolled in Medicare Part B:
    (1) Services described in Sec.  419.21(a) of this chapter that do 
not require an outpatient status.
    (2) Physical therapy services, speech-language pathology services, 
and occupational therapy services.
    (3) Ambulance services, as described in section 1861(v)(1)(U) of 
the Act, or, if applicable, the fee schedule established under section 
1834(l) of Act.
    (4) Except as provided in Sec.  419.2(b)(11) of this chapter, 
prosthetic

[[Page 50969]]

devices, prosthetics, prosthetic supplies, and orthotic devices.
    (5) Except as provided in Sec.  419.2(b)(10) of this chapter, 
durable medical equipment supplied by the hospital for the patient to 
take home.
    (6) Clinical diagnostic laboratory services.
    (7)(i) Effective December 8, 2003, screening mammography services; 
and
    (ii) Effective January 1, 2005, diagnostic mammography services.
    (8) Effective January 1, 2011, annual wellness visit providing 
personalized prevention plan services as defined in Sec.  410.15 of 
this chapter.
    (b) If a Medicare Part A claim for inpatient hospital services is 
denied because the inpatient admission was not reasonable and 
necessary, or if a hospital determines under Sec.  482.30(d) of this 
chapter or Sec.  485.641 of this chapter after a beneficiary is 
discharged that the beneficiary's inpatient admission was not 
reasonable and necessary, the hospital may be paid for hospital 
outpatient services described in Sec.  412.2(c)(5), Sec.  412.405, 
Sec.  412.540, or Sec.  412.604(f) of this chapter or Sec.  
413.40(c)(2) of this chapter that are furnished to the beneficiary 
prior to the point of inpatient admission (that is, the inpatient 
admission order).
    (c) The claims for the Part B services filed under the 
circumstances described in this section must be filed in accordance 
with the time limits for filing claims specified in Sec.  424.44(a) of 
this chapter.

PART 419--PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT 
DEPARTMENT SERVICES

0
19. The authority citation for Part 419 continues to read as follows:

    Authority:  Secs. 1102, 1833(t), and 1871 of the Social Security 
Act (42 U.S.C. 1302, 13951(t), and 1395hh).


0
20. Section 419.21 is amended by revising the section heading to read 
as follows:


Sec.  419.21  Hospital services subject to the outpatient prospective 
payment system.

* * * * *

0
21. Section 419.22 is amended by--
0
a. Revising the section heading.
0
b. Revising paragraph (h).
0
c. In paragraph (j), removing the cross-reference ``Sec.  
419.22(b)(11)'' and adding in its place ``Sec.  419.2(b)(11)''.
0
d. Adding paragraph (u).
    The revisions and addition read as follows:


Sec.  419.22  Hospital services excluded from payment under the 
hospital outpatient prospective payment system.

* * * * *
    (h) Physical therapy services, speech-language pathology services, 
and occupational therapy services described in section 1833(a)(8) of 
the Act for which payment is made under the fee schedule described in 
section 1834(k) of the Act.
* * * * *
    (u) Outpatient diabetes self-management training.

PART 424--CONDITIONS FOR MEDICARE PAYMENT

0
22. The authority citation for Part 424 continues to read as follows:

    Authority:  Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1032 and 1395hh).

0
23. Section 424.11 is amended by--
0
a. Revising paragraph (d).
0
b. In paragraph (e)(2), removing the cross-reference ``Sec.  
424.13(c)'' and adding in its place ``Sec.  424.13(d)''.
    The revision reads as follows:


Sec.  424.11  General procedures.

* * * * *
    (d) Timeliness. (1) The succeeding sections of this subpart also 
specify the timeframes for certification and for initial and subsequent 
recertifications.
    (2) A hospital or SNF may provide for obtaining a certification or 
recertification earlier than required by these regulations or vary the 
timeframe (within the prescribed outer limits) for different diagnostic 
or clinical categories.
    (3) Delayed certification and recertification statements are 
acceptable when there is a legitimate reason for delay. (For instance, 
the patient was unaware of his or her entitlement when he or she was 
treated.) Delayed certification and recertification statements must 
include an explanation of the reasons for the delay.
    (4) A delayed certification may be included with one or more 
recertifications on a single signed statement.
    (5) For all inpatient hospital or critical access hospital 
inpatient services, including inpatient psychiatric facility services, 
a delayed certification may not extend past discharge.
* * * * *

0
24. Section 424.13 is revised to read as follows:


Sec.  424.13  Requirements for inpatient services of hospitals other 
than inpatient psychiatric facilities.

    (a) Content of certification and recertification. Certification 
begins with the order for inpatient admission. Medicare Part A pays for 
inpatient hospital services (other than inpatient psychiatric facility 
services) only if a physician certifies and recertifies the following:
    (1) That the services were provided in accordance with Sec.  412.3 
of this chapter.
    (2) The reasons for either--
    (i) Hospitalization of the patient for inpatient medical treatment 
or medically required inpatient diagnostic study; or
    (ii) Special or unusual services for cost outlier cases (under the 
prospective payment system set forth in subpart F of Part 412 of this 
chapter).
    (3) The estimated time the patient will need to remain in the 
hospital.
    (4) The plans for posthospital care, if appropriate.
    (b) Timing of certification. For all hospital inpatient admissions, 
the certification must be completed, signed, and documented in the 
medical record prior to discharge. For outlier cases under subpart F of 
Part 412 of this chapter that are not subject to the PPS, the 
certification must be signed and documented in the medical record and 
as specified in paragraphs (e) through (h) of this section.
    (c) Certification of need for hospitalization when a SNF bed is not 
available. (1) The physician may certify or recertify need for 
continued hospitalization if he or she finds that the patient could 
receive proper treatment in a SNF but no bed is available in a 
participating SNF.
    (2) If this is the basis for the physician's certification or 
recertification, the required statement must so indicate; and the 
certifying physician is expected to continue efforts to place the 
patient in a participating SNF as soon as a bed becomes available.
    (d) Signatures.--(1) Basic rule. Except as specified in paragraph 
(d)(2) of this section, certifications and recertifications must be 
signed by the physician responsible for the case, or by another 
physician who has knowledge of the case and who is authorized to do so 
by the responsible physician or by the hospital's medical staff.
    (2) Exception. If the intermediary requests certification of the 
need to admit a patient in connection with dental procedures, because 
his or her underlying medical condition and clinical status or the 
severity of the dental procedures require hospitalization, that 
certification may be signed by the dentist caring for the patient.
    (e) Timing of certifications and recertifications: Outlier cases 
not subject to the prospective payment system (PPS).
    (1) For outlier cases that are not subject to the PPS, 
certification is

[[Page 50970]]

required no later than as of the 12th day of hospitalization. A 
hospital may, at its option, provide for the certification to be made 
earlier, or it may vary the timing of the certification within the 12-
day period by diagnostic or clinical categories.
    (2) The first recertification is required no later than as of the 
18th day of hospitalization.
    (3) Subsequent recertifications are required at intervals 
established by the UR committee (on a case-by-case basis if it so 
chooses), but no less frequently than every 30 days.
    (f) Timing of certification and recertification: Outlier cases 
subject to PPS. For outlier cases subject to the PPS, certification is 
required as follows:
    (1) For day outlier cases, certification is required no later than 
1 day after the hospital reasonably assumes that the case meets the 
outlier criteria, established in accordance with Sec.  412.80(a)(1)(i) 
of this chapter, or no later than 20 days into the hospital stay, 
whichever is earlier. The first and subsequent recertifications are 
required at intervals established by the UR committee (on a case-by-
case basis if it so chooses) but not less frequently than every 30 
days.
    (2) For cost outlier cases, certification is required no later than 
the date on which the hospital requests cost outlier payment or 20 days 
into the hospital stay, whichever is earlier. If possible, 
certification must be made before the hospital incurs costs for which 
it will seek cost outlier payment. In cost outlier cases, the first and 
subsequent recertifications are required at intervals established by 
the UR committee (on a case-by-case basis if it so chooses).
    (g) Recertification requirement fulfilled by utilization review. 
(1) At the hospital's option, extended stay review by its UR committee 
may take the place of the second and subsequent recertifications 
required for outlier cases not subject to PPS and for PPS day-outlier 
cases.
    (2) A utilization review that is used to fulfill the 
recertification requirement is considered timely if performed no later 
than the seventh day after the day the recertification would have been 
required. The next recertification would need to be made no later than 
the 30th day following such review; if review by the UR committee took 
the place of this recertification, the review could be performed as 
late as the seventh day following the 30th day.
    (h) Description of procedures. The hospital must have available on 
file a written description that specifies the time schedule for 
certifications and recertifications, and indicates whether utilization 
review of long-stay cases fulfills the requirement for second and 
subsequent recertifications of all outlier cases not subject to PPS and 
of PPS day outlier cases.

0
25. Section 424.14 is amended by revising paragraphs (a), (b), (d)(1), 
and (e) to read as follows:


Sec.  424.14  Requirements for inpatient services of inpatient 
psychiatric facilities.

    (a) Requirements for certification and recertification: General 
considerations. Certification begins with the order for inpatient 
admission. The content requirements differ from those for other 
hospitals because the care furnished in inpatient psychiatric 
facilities is often purely custodial and thus not covered under 
Medicare. The purpose of the statements, therefore, is to help ensure 
that Medicare pays only for services of the type appropriate for 
Medicare coverage. Accordingly, Medicare Part A pays for inpatient 
services in an inpatient psychiatric facility only if a physician 
certifies and recertifies the need for services consistent with the 
requirements of this section, as appropriate.
    (b) Content of certification. The physician must certify--
    (1) That inpatient psychiatric services were required for treatment 
that could reasonably be expected to improve the patient's condition, 
or for diagnostic study.
    (2) That the inpatient psychiatric services were provided in 
accordance with Sec.  412.3 of this chapter.
* * * * *
    (d) * * *
    (1) Certification is required at the time of admission or as soon 
thereafter as is reasonable and practicable, and must be completed and 
documented in the medical record prior to discharge.
* * * * *
    (e) Other requirements. Inpatient psychiatric facilities must also 
meet the requirements set forth in Sec.  424.13(c), (d), (g), and (h).

0
26. Section 424.15 is revised to read as follows:


Sec.  424.15  Requirements for inpatient CAH services.

    (a) Medicare Part A pays for inpatient CAH services only if a 
physician certifies that the individual may reasonably be expected to 
be discharged or transferred to a hospital within 96 hours after 
admission to the CAH, and that the services are provided in accordance 
with Sec.  412.3 of this chapter.
    (b) Certification begins with the order for inpatient admission. 
The certification must be completed, signed, and documented in the 
medical record prior to discharge.


Sec.  424.16  [Amended]

0
27. In Sec.  424.16, paragraph (a) is amended by removing the reference 
``Sec.  424.13(e)'' and adding it its place ``subpart B of this Part''.

PART 482--CONDITIONS OF PARTICIPATION FOR HOSPITALS

0
28. The authority citation for Part 482 continues to read as follows:

    Authority: Secs. 1102, 1871, and 1881 of the Social Security Act 
(42 U.S.C. 1302, 1395hh, and 1395rr), unless otherwise noted.


0
29. Section 482.23 is amended by revising paragraph (c)(3) to read as 
follows:


Sec.  482.23  Condition of participation: Nursing services.

* * * * *
    (c) * * *
    (3) With the exception of influenza and pneumococcal vaccines, 
which may be administered per physician-approved hospital policy after 
an assessment of contraindications, orders for drugs and biologicals 
must be documented and signed by a practitioner who is authorized to 
write orders in accordance with State law and hospital policy, and who 
is responsible for the care of the patient as specified under Sec.  
482.12(c).
* * * * *

PART 485--CONDITIONS OF PARTICIPATION: SPECIALIZED PROVIDERS

0
30. The authority citation for Part 485 continues to read as follows:

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


0
31. Section 485.620 is amended by revising paragraph (a) to read as 
follows:


Sec.  485.620  Condition of participation: Number of beds and length of 
stay.

    (a) Standard: Number of beds. Except as permitted for CAHs having 
distinct part units under Sec.  485.647, the CAH maintains no more than 
25 inpatient beds. Inpatient beds may be used for either inpatient or 
swing-bed services.
* * * * *

0
32. Section 485.635 is amended by revising paragraphs (a)(3)(vii), 
(b)(1), and (c)(1) to read as follows:


Sec.  485.635  Condition of participation: Provision of services.

    (a) * * *
    (3) * * *
    (vii) Procedures that ensure that the nutritional needs of 
inpatients are met

[[Page 50971]]

in accordance with recognized dietary practices and the orders of the 
practitioner responsible for the care of the patients, and that the 
requirement of Sec.  483.25(i) of this chapter is met with respect to 
inpatients receiving posthospital SNF care.
* * * * *
    (b) * * *
    (1) General: (i) The CAH provides those diagnostic and therapeutic 
services and supplies that are commonly furnished in a physician's 
office or at another entry point into the health care delivery system, 
such as a low intensity hospital outpatient department or emergency 
department. These CAH services include medical history, physical 
examination, specimen collection, assessment of health status, and 
treatment for a variety of medical conditions.
    (ii) The CAH furnishes acute care inpatient services.
* * * * *
    (c) * * *
    (1) The CAH has agreements or arrangements (as appropriate) with 
one or more providers or suppliers participating under Medicare to 
furnish other services to its patients, including--
    (i) Services of doctors of medicine or osteopathy;
    (ii) Additional or specialized diagnostic and clinical laboratory 
services that are not available at the CAH; and
    (iii) Food and other services to meet inpatients' nutritional needs 
to the extent these services are not provided directly by the CAH.
* * * * *

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

0
33. The authority citation for Part 489 continues to read as follows:

    Authority: Secs. 1102 1819, 1820(E), 1861, 1864(M), 1866, 1869, 
and 1871 of the Social Security Act (42 U.S.C. 1302, 1395i-3, 1395x, 
1395aa(m), 1395cc, 1395ff, and 1395(hh)).


0
34. The paragraph heading of Sec.  489.24(f) is revised to read as 
follows:


Sec.  489.24   Special responsibilities of Medicare hospitals in 
emergency cases.

* * * * *
    (f) Recipient hospital responsibilities. * * *
* * * * *
(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 29, 2013.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: July 30, 2013.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.

    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, 2013 and Payment Rates for LTCHs Effective for 
Discharges Occurring On or After October 1, 2013

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 2014 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 2014. 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 
final rule, we are establishing 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, 2013.
    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 2014.
    In general, except for SCHs and hospitals located in Puerto 
Rico, for FY 2014, 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.
    SCHs are paid based on whichever of the following rates yields 
the greatest aggregate payment: The Federal national rate 
(including, as finalized in section V.E.3. of the preamble to this 
final rule, uncompensated care payments under section 1886(r)(2) of 
the Act); 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.
    We note that section 606 of the American Taxpayer Relief Act of 
2012 (ATRA) extended the MDH program from the end of FY 2012 (that 
is, for discharges occurring before October 1, 2012) to the end of 
FY 2013 (that is, for discharges occurring before October 1, 2013). 
Under prior law, the MDH program was to be in effect through the end 
of FY 2012 only. Absent additional legislation further extending the 
MDH program, the MDH program will expire for discharges beginning in 
FY 2014. Therefore, due to the expiration of the MDH program 
beginning with FY 2014, we are not including hospitals that are 
currently MDHs (until October 1, 2013) in our update of the 
hospital-specific rates for FY 2014.
    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.2. 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 2014. 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 2014. 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 2014. In section V. of this Addendum, we discuss policy changes 
for determining the standard Federal rate for LTCHs paid under the 
LTCH PPS for FY 2014. 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 2014

    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 under 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 
under Sec. Sec.  412.211 and 412.212. Below we discuss the factors 
we are using for determining the prospective payment rates for FY 
2014.
    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.
     An update of 1.7 percent for all areas (that is, the FY 
2014 estimate of the market

[[Page 50972]]

basket rate-of-increase of 2.5 percent less an adjustment of 0.5 
percentage point for MFP and less 0.3 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 -0.3 percent (that is, the FY 2014 
estimate of the market basket rate-of-increase of 2.5 percent, less 
2.0 percentage points for failure to submit data under the Hospital 
IQR Program, less an adjustment of 0.5 percentage point for MFP, and 
less 0.3 percentage point).
     An update of 1.7 percent to the Puerto Rico-specific 
standardized amount (that is, the FY 2014 estimate of the market 
basket rate-of-increase of 2.5 percent less an adjustment of 0.5 
percentage point for MFP and less 0.3 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 under 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 under section 
1886(d)(8)(D) of the Act, by removing the FY 2013 budget neutrality 
factor and applying a revised factor.
     An adjustment to ensure the effects of the rural 
community hospital demonstration program 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 program for an 
additional 5 years, are budget neutral as required under section 
410A(c)(2) of Public Law 108-173.
     An adjustment to remove the FY 2013 outlier offset and 
apply an offset for FY 2014, as provided for under section 
1886(d)(3)(B) of the Act.
     As discussed below and in section II.D. of the preamble 
of this final rule, a recoupment to meet the requirements of section 
631 of ATRA to adjust the standardized amount to offset the 
estimated amount of the increase in aggregate payments as a result 
of not completing the prospective adjustment authorized under 
section 7(b)(1)(A) of Public Law 110-90 until FY 2013.
     As discussed below and in section XI.C. of the preamble 
of this final rule, an adjustment to offset the cost of the policy 
on admission and medical review criteria for hospital inpatient 
services under Medicare Part A.
    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 2013, for FY 2014, 
consistent with current law, we are continuing to apply the rural 
floor budget neutrality adjustment to hospital wage indices rather 
than the standardized amount. Also, consistent with section 3141 of 
the Affordable Care Act, instead of applying a State level rural 
floor budget neutrality adjustment to the wage index, we are 
applying a uniform, national budget neutrality adjustment to the 
proposed FY 2014 wage index for the rural floor. We note that, in 
section III.G.2.b. of the preamble to this final rule, we are 
extending the imputed floor policy (both the original methodology 
and alternative methodology) for one additional year, through 
September 30, 2014.
    Therefore, for this final rule, we are continuing to include the 
imputed floor (calculated under the original and alternative 
methodologies) in calculating the uniform, national rural floor 
budget neutrality adjustment, which will be reflected in the FY 2014 
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 
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 2014, we are rebasing and revising the national and 
Puerto Rico-specific labor-related and nonlabor-related shares from 
the percentages established for FY 2013. Specifically, under section 
1886(d)(3)(E) of the Act, the Secretary estimates from time to time 
the proportion of payments that are labor-related: ``The Secretary 
shall adjust the proportion, (as estimated by the Secretary from 
time to time) of hospitals' costs which are attributable to wages 
and wage-related costs, of the DRG prospective payment rates. . . 
.'' We refer to the proportion of hospitals' costs that are 
attributable to wages and wage-related costs as the ``labor-related 
share.'' For FY 2014, as discussed in section IV.B.4. of the 
preamble of this final rule, we are establishing a labor-related 
share of 69.6 percent for the national standardized amounts and 63.2 
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 69.6 percent of 
the national standardized amount. For FY 2014, all Puerto Rico 
hospitals have a wage index less than 1.0 because the average hourly 
rate of every hospital in Puerto Rico divided by the national 
average hourly rate (the sum of all salaries and hours for all 
hospitals in the 50 United States and Puerto Rico) results in a wage 
index below 1.0000. Therefore, the national labor-related share will 
be 62 percent because the wage index for all Puerto Rico hospitals 
is less than 1.0.
    When we divide the average hourly rate of every hospital in 
Puerto Rico by the Puerto Rico-Specific national average hourly rate 
(the sum of all salaries and hours for all hospitals only in Puerto 
Rico), we determine a Puerto Rico Specific wage index above or below 
1.0000, depending on the hospital. For hospitals located in Puerto 
Rico, we are applying a labor-related share of 63.2 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 Tables 
1A, 1B, and 1C that are listed and published in section VI. of the 
Addendum to this final rule and are available via the 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

[[Page 50973]]

Act equalizes the Puerto Rico-specific urban and rural area rates. 
Accordingly, we are calculating the FY 2014 national standardized 
amount and Puerto Rico-specific rate 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. We note that, in 
compliance with section 404 of the MMA, in this final rule, we are 
replacing the FY 2006-based IPPS operating and capital market 
baskets with the revised and rebased FY 2010-based IPPS operating 
and capital market baskets for FY 2014. As discussed in section V.A. 
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 2014 applicable 
percentage increase (which is based on IHS Global Insight, Inc.'s 
(IGI's) second quarter 2013 forecast of the FY 2010-based IPPS 
market basket) by the MFP adjustment (the 10-year moving average of 
MFP for the period ending FY 2014) of 0.5 percent, which is 
calculated based on IGI's second quarter 2013 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 
2014 by the estimated market basket percentage increase less 0.3 
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) of 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 2013 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 2014 is 2.5 percent. Therefore, for FY 2014, 
the update to the average standardized amount is 1.7 percent for 
hospitals in all areas (that is, the FY 2014 estimate of the market 
basket rate-of-increase of 2.5 percent less an adjustment of 0.5 
percentage point for MFP and less 0.3 percentage point). For 
hospitals that do not submit quality data pursuant to section 
1886(b)(3)(B)(viii) of the Act, the estimated update to the 
operating standardized amount is -0.3 percent (that is, the FY 2014 
estimate of the market basket rate-of-increase of 2.5 percent, less 
2.0 percentage points for failure to submit data under the Hospital 
IQR Program, less an adjustment of 0.5 percentage point for MFP, and 
less 0.3 percentage point). The standardized amounts in Tables 1A 
through 1C that are published in section VI. of this Addendum and 
that are 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 under 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 establishing an applicable percentage 
increase to the Puerto Rico-specific standardized amount of 1.7 
percent.
    Although the update factors for FY 2014 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 
2014 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 2014 standardized amount 
to remove the effects of the FY 2013 geographic reclassifications 
and outlier payments before applying the FY 2014 updates. We then 
apply budget neutrality offsets for outliers and geographic 
reclassifications to the standardized amount based on FY 2014 
payment policies.
    We do not remove the prior year's budget neutrality adjustments 
for reclassification and recalibration of the DRG relative 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 MS-DRG classifications, 
recalibration of the MS-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.
    In order to appropriately estimate aggregate payments in our 
modeling, we make several inclusions and exclusions so that the 
appropriate universe of claims and charges are included. We discuss 
IME Medicare Advantage payment amounts, fee-for-service only claims, 
and charges for anti-hemophilic blood factor and organ acquisition 
below.
    First, consistent with our methodology established in the FY 
2011 IPPS/LTCH PPS 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. We refer readers to the FY 2011 IPPS/LTCH PPS final rule 
for a complete discussion on our methodology of identifying and 
adding the total Medicare Advantage IME payment amount to the budget 
neutrality adjustments.
    Second, consistent with the methodology in the FY 2012 IPPS/LTCH 
PPS 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).
    Third, consistent with our methodology established in the FY 
2011 IPPS/LTCH PPS final rule (75 FR 50422 through 50423), we 
examined the MedPAR file and removed pharmacy charges for anti-
hemophilic 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.
    The Bundled Payments for Care Improvement (BPCI) initiative, 
developed under the authority of section 3021 of the Affordable Care 
Act (codified at section 1115A of the Act), is comprised of four 
broadly defined models of care, which link payments for multiple 
services beneficiaries receive during an episode of care. Under the 
BPCI initiative, organizations enter into payment arrangements that 
include financial and performance accountability for episodes of 
care. On January 31, 2013, CMS announced the health care 
organizations selected to participate in the BPCI initiative. For 
additional information on the BPCI initiative, we refer readers to 
the CMS Center for Medicare and Medicaid Innovation's Web site at: 
http://innovation.cms.gov/initiatives/Bundled-Payments/index.html.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53341 through 
53343), for FY 2013 and subsequent fiscal years, we finalized a 
methodology to treat hospitals that participate in the BPCI 
initiative the same as prior fiscal years for the IPPS payment 
modeling and rate setting process (which includes recalibration of 
the MS-DRG relative weights, ratesetting, calculation of the budget 
neutrality factors, and the impact analysis) without regard to a 
hospital's participation within these bundled payment

[[Page 50974]]

models (that is, as if they are not participating in those models 
under the BPCI initiative). Therefore, for FY 2014, we are 
continuing to include all applicable data from subsection (d) 
hospitals participating in BPCI Models 1, 2, and 4 in our IPPS 
payment modeling and ratesetting calculations. We refer the reader 
to the FY 2013 IPPS/LTCH PPS final rule for a complete discussion on 
our final policy for the treatment of hospitals in the BPCI 
initiative in our ratesetting process.
    The Affordable Care Act established the Hospital Readmissions 
Reduction Program and the Hospital VBP Program which adjust payments 
to certain IPPS hospitals beginning with discharges on or after 
October 1, 2012. Because the adjustments made under these programs 
affect the estimation of aggregate IPPS payments, in this final 
rule, consistent with our methodology established in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53687 through 53688), we believe it 
is appropriate to include adjustments for these programs within our 
budget neutrality calculations. We discuss the treatment of these 
two programs in the context of budget neutrality adjustments below.
    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 
are reduced to account for certain excess readmissions. Under the 
Hospital Readmissions Reduction Program, for discharges beginning on 
October 1, 2012 discharges from an ``applicable hospital'' are paid 
at an amount equal to the product of the ``base operating DRG 
payment amount'' and an ``adjustment factor'' that accounts for 
excess readmissions for the hospital for the fiscal year plus any 
applicable add-on payments. We refer readers to section V.G. of the 
preamble of this final rule for full details of our implementation 
of the Hospital Readmissions Reduction Program. We also note that 
the Hospital Readmissions Reduction Program provided for under 
section 1886(q) of the Act is not budget neutral.
    Section 1886(o) of the Act requires the Secretary to establish a 
Hospital VBP Program under which, for discharges beginning on 
October 1, 2012, value-based incentive payments are made in a fiscal 
year to eligible subsection (d) hospitals that meet performance 
standards established for a performance period for that fiscal year. 
As specified under section 1886(o)(7)(B)(i) of the Act, these value-
based incentive payments are funded by a reduction applied to each 
eligible hospital's base-operating DRG payment amount, for each 
discharge occurring in the fiscal year. As required by section 
1886(o)(7)(A) of the Act, the total amount of allocated funds 
available for value-based incentive payments with respect to a 
fiscal year is equal to the total amount of base-operating DRG 
payment reductions, as estimated by the Secretary. In a given fiscal 
year, hospitals may earn a value-based incentive payment amount for 
a fiscal year that is greater than, equal to, or less than the 
reduction amount, based on their performance on quality measures 
under the Hospital VBP Program. Thus, the Hospital VBP Program is 
estimated to have no net effect on overall payments. We refer 
readers to section V.H. of the preamble of this final rule for full 
details regarding the Hospital VBP Program.
    Both the hospital readmissions payment adjustment (reduction) 
and the hospital VBP payment adjustment (redistribution) are applied 
on a claim-by-claim basis by adjusting, as applicable, the base-
operating DRG payment amount for individual subsection (d) 
hospitals, which affects the overall sum of aggregate payments on 
each side of the comparison within the budget neutrality 
calculations. For example, when we calculate the budget neutrality 
factor for MS-DRG reclassification and recalibration of the relative 
weights, we compare aggregate payments estimated using the prior 
year's GROUPER and relative weights to estimated payments using the 
new GROUPER and relative weights. (We refer readers to section 
II.4.a. of this Addendum for full details.) Other factors, such as 
the DSH and IME payment adjustments, are the same on both sides of 
the comparison because we are only seeking to ensure that aggregate 
payments do not increase or decrease as a result of the changes of 
MS-DRG reclassification and recalibration.
    In order to properly determine aggregate payments on each side 
of the comparison, for FY 2014 and subsequent years, we are 
continuing to apply the hospital readmissions payment adjustment and 
the hospital VBP payment adjustment on each side of the comparison 
consistent with the methodology we adopted in the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53687 through 53688). That is, we are applying 
the readmissions payment adjustment factor and the hospital VBP 
payment adjustment factor on both sides of our comparison of 
aggregate payments when determining all budget neutrality factors 
described in section II.A.4. of this Addendum.
    For the purpose of calculating the FY 2014 readmissions payment 
adjustment factors, we are using excess readmission ratios and 
aggregate payments for excess readmissions based on admissions from 
the prior fiscal year's applicable period because hospitals have had 
the opportunity to review and correct these data before the data 
were made public under the policy we adopted regarding the reporting 
of hospital-specific readmission rates, consistent with section 
1886(q)(6) of the Act. For this final rule, we are calculating the 
readmissions payment adjustment factors using excess readmission 
ratios and aggregate payments for excess readmissions based on 
admissions from the finalized applicable period for FY 2014 as 
hospitals have had the opportunity to review and correct these data 
under our policy regarding the reporting of hospital-specific 
readmission rates consistent with section 1886(q)(6) of the Act. We 
discuss our policy regarding the reporting of hospital-specific 
readmission rates for FY 2014 in section V.G.3.f. of the preamble of 
this final rule. (For additional information on our general policy 
for the reporting of hospital-specific readmission rates, consistent 
with section 1886(q)(6) of the Act, we refer readers to the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53399 through 53400).)
    In addition, for this final rule, for the purpose of modeling 
aggregate payments when determining all budget neutrality factors, 
we are using proxy hospital VBP payment adjustment factors for FY 
2014 that are based on data from a historical period because 
hospitals have not yet had an opportunity to review and submit 
corrections for their data from the FY 2014 performance period. (For 
additional information on our policy regarding the review and 
correction of hospital-specific measure rates under the Hospital VBP 
Program, consistent with section 1886(o)(10)(A)(ii) of the Act, we 
refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53578 
through 53581), the CY 2012 OPPS/ASC final rule with comment period 
(76 FR 74544 through 74547), and the Hospital Inpatient VBP final 
rule (76 FR 26534 through 26536).)
    The Affordable Care Act also establishes a new section 1886(r) 
of the Act that modifies the methodology for computing the Medicare 
DSH payment adjustment beginning in FY 2014. Beginning in FY 2014, 
IPPS hospitals receiving DSH payment adjustments will receive an 
empirically justified Medicare DSH payment of 25 percent of the 
amount they previously would have received under the current 
statutory formula under section 1886(d)(5)(F) of the Act for the 
Medicare DSH payment adjustment. In accordance with section 
1886(r)(2) of the Act, the remaining amount, equal to an estimate of 
75 percent of what otherwise would have been paid as Medicare DSH 
payments, reduced to reflect changes in the percentage of 
individuals under age 65 who are uninsured, will be available to 
make additional payments to Medicare DSH hospitals based on their 
share of the total amount of uncompensated care reported by Medicare 
DSH hospitals for a given time period. In order to properly 
determine aggregate payments on each side of the comparison for 
budget neutrality, prior to FY2014, we included estimated Medicare 
DSH payments on both sides of our comparison of aggregate payments 
when determining all budget neutrality factors described in section 
II.A.4. of this Addendum.
    To do this for FY 2014 and subsequent years, we are including 
estimated empirically justified Medicare DSH payments that will be 
paid in accordance with section 1886(r)(1) of the Act and are also 
including estimates of the additional uncompensated care payments 
made to hospitals receiving Medicare DSH as described by section 
1886(r)(2) of the Act. That is, we are considering estimated 
empirically justified Medicare DSH payments at 25 percent of what 
would otherwise be paid and also the estimated additional 
uncompensated care payments for hospitals receiving Medicare DSH on 
both sides of our comparison of aggregate payments when determining 
all budget neutrality factors described in section II.A.4. of this 
Addendum.
    We note that, when calculating total payments for budget 
neutrality, to determine total payments for SCHs we model total 
hospital-specific rate payments and total

[[Page 50975]]

federal rate payments and then include whichever one of the total 
payments are greater. As discussed in section V.E.3.f. of the 
preamble to this final rule and below, we are finalizing a 
methodology under which we will take into consideration 
uncompensated care payments in the comparison of payments under the 
Federal rate and the hospital-specific rate for SCHs. Therefore, we 
included estimated uncompensated care payments in this comparison.

a. Recalibration of MS-DRG Relative 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.H. of the preamble of this final rule, we normalized the 
recalibrated MS-DRG relative weights by an adjustment factor so that 
the average case relative weight after recalibration is equal to the 
average case relative weight prior to recalibration. However, 
equating the average case relative weight after recalibration to the 
average case relative 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 relative 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 wage 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 2014, we are adjusting 100 percent of the 
wage index factor for occupational mix. We describe the occupational 
mix adjustment in section III.F. of the preamble of this final rule.
    For FY 2014, to comply with the requirement that MS-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 2012 discharge data to simulate payments 
and compared aggregate payments using the FY 2013 labor-related 
share percentages, the FY 2013 relative weights, and the FY 2013 
pre-reclassified wage data and applied the FY 2014 hospital 
readmissions payment adjustments and estimated FY 2014 hospital VBP 
payment adjustments to aggregate payments using the FY 2013 labor-
related share percentages, the FY 2014 relative weights, and the FY 
2013 pre-reclassified wage data and applied the same hospital 
readmissions payment adjustments and estimated hospital VBP payment 
adjustments. Based on this comparison, we computed a budget 
neutrality adjustment factor equal to 0.997989. As discussed in 
section IV. of this Addendum, we also are applying the MS-DRG 
reclassification and recalibration budget neutrality factor of 
0.997989 to the hospital-specific rates that are effective for cost 
reporting periods beginning on or after October 1, 2013.
    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 MS-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 MS-DRG reclassification and 
recalibration budget neutrality factor of 0.997989 (by using the 
same methodology described above to determine the MS-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 2012 discharge data to 
simulate payments and compared aggregate payments using the FY 2014 
relative weights and the FY 2013 pre-reclassified wage indices, 
applied the FY 2013 labor-related share of 68.8 percent to all 
hospitals (regardless of whether the hospital's wage index was above 
or below 1.0) and applied the FY 2014 hospital readmissions payment 
adjustment and the FY 2014 estimated hospital VBP payment adjustment 
when estimating aggregate payments using the FY 2014 relative 
weights and the FY 2014 pre-reclassified wage indices, applied the 
labor-related share for FY 2014 of 69.6 percent to all hospitals 
(regardless of whether the hospital's wage index was above or below 
1.0), and applied the same FY 2014 hospital readmissions payment 
adjustments and estimated FY 2014 hospital VBP payment adjustments. 
In addition, we applied the MS-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 2013 to FY 2014. By applying this 
methodology, we determined a budget neutrality factor of 0.999947 
for changes to the wage index. Finally, we multiplied the MS-DRG 
reclassification and recalibration budget neutrality factor of 
0.997989 (derived in the first step) by the budget neutrality factor 
of 0.999947 for changes to the wage index (derived in the second 
step) to determine the MS-DRG reclassification and recalibration and 
updated wage index budget neutrality factor of 0.997936.

b. Reclassified Hospitals--Budget Neutrality Adjustment

    Section 1886(d)(8)(B) of the Act provides that 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 for 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 2014, we used FY 
2012 discharge data to simulate payments and compared total IPPS 
payments with FY 2014 relative weights, FY 2014 labor-related share 
percentages, and FY 2014 wage data prior to any reclassifications 
under sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act and 
applied the FY 2014 hospital readmissions payment adjustments and 
the estimated FY 2014 hospital VBP payment adjustments to total IPPS 
payments with FY 2014 relative weights, FY 2014 labor-related share 
percentages, and FY 2014 wage data after such reclassifications and 
applied the same hospital readmissions payment adjustments and the 
estimated hospital VBP payment adjustments. Based on these 
simulations, we calculated an adjustment factor of 0.990718 to 
ensure that the effects of these provisions are budget neutral, 
consistent with the statute.
    The FY 2014 budget neutrality adjustment factor was applied to 
the standardized amount after removing the effects of the FY 2013 
budget neutrality adjustment factor. We note that the FY 2014 budget 
neutrality adjustment reflects FY 2014 wage index reclassifications 
approved by the MGCRB or the Administrator.

c. Rural Floor Budget Neutrality Adjustment

    As noted above, as discussed in section III.G. 2.b. of the 
preamble of this final rule, in the FY 2012 IPPS/LTCH PPS final 
rule, we extended the imputed floor calculated under the original 
methodology through FY 2013 (76 FR 51594). In the FY 2013 IPPS/LTCH 
PPS final rule, we established an alternative

[[Page 50976]]

methodology for calculating the imputed floor and established a 
policy that the minimum wage index value for an all-urban state 
would be the higher of the value determined under the original 
methodology or the value computed using the alternative methodology 
(77 FR 53368 through 53369). 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. In addition, we note in section III.G.2.b. of the 
preamble of this final rule, we are extending the imputed floor 
using the higher of the value determined under the original 
methodology or the alternative methodology for FY 2014. Consistent 
with the methodology for treating the imputed floor, similar to the 
methodology we used in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53368 through 53369), we included this alternative methodology for 
computing the imputed floor index in the calculation of the uniform, 
national rural floor budget neutrality adjustment for FY 2014. Also, 
consistent with section 3141 of the Affordable Care Act and as 
discussed in section III.G. of the preamble of this final rule, the 
budget neutrality adjustment for the rural and imputed floors is a 
national adjustment to the wage index.
    Since FY 2012, there has been one hospital in rural Puerto Rico. 
Therefore, similar to our calculation in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51593 and 51788) and the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53689), for FY 2014, we are calculating a national 
rural Puerto Rico wage index (used to adjust the labor-related share 
of the national standardized amount for hospitals located 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 located in Puerto Rico that receive 25 percent 
of the Puerto Rico-specific standardized amount). Because this rural 
Puerto Rico hospital still 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 
regarding the computation of the rural Puerto Rico wage index can be 
found in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51594).
    To calculate the national rural floor and imputed floor budget 
neutrality adjustment factor and the Puerto Rico-specific rural 
floor budget neutrality adjustment factor, we used FY 2012 discharge 
data and FY 2014 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 the 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 0.990150 and 
the Puerto Rico-specific budget neutrality adjustment factor of 
0.990897. 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 applied to the Puerto 
Rico-specific wage indices to produce a Puerto Rico-specific rural 
floor budget neutral wage index.
    Comment: Many commenters opposed the continued application of a 
nationwide rural floor budget neutrality adjustment. One commenter 
noted that, under the current rural floor policy, all hospitals in 
Massachusetts are eligible for the rural floor due to one rural 
hospital that results in an approximate 4.4 percent increase in 
payments for Massachusetts hospitals, which creates a disparity for 
other hospitals around the country. The commenter also noted that, 
under the rural floor policy, hospitals in Connecticut will receive 
an increase of approximately 4.9 percent in payments due to the 
rural floor. The commenters believed that a nationwide rural floor 
budget neutrality adjustment initiates a policy that unfairly skews 
Medicare payments, thus reducing payments to thousands of hospitals 
while benefiting less than 5 percent of hospitals. The commenter 
requested that CMS reverse this ``misguided and harmful policy.'' 
Another commenter noted that a change to the nationwide rural floor 
budget neutrality adjustment would require legislative action but 
urged CMS to ``contemplate any and all other options within its 
authority to mitigate the impact of the policy or counter one 
state's attempt to manipulate the Medicare payment system.'' Another 
commenter stated that hospitals nationwide are struggling with 
reduced payments and impending cuts and believed that ``scarce 
funding should reward value and efficiency in health care and not be 
diverted based on artful manipulation of obscure payment formulas.''
    Response: We thank the commenters for their comments and share 
the concerns of the commenters. Section 3141 of the Affordable Care 
Act (Pub. L. 111-148) requires that a national budget neutrality 
adjustment be applied in implementing the rural floor so CMS cannot 
change this policy. The commenter did not suggest any alternatives 
to contemplate to mitigate the impact of this policy and CMS does 
not believe that it currently has the authority to implement 
alternatives to mitigate the impact. Therefore, barring a 
legislative change by Congress, we are unable to change the rural 
floor budget neutrality adjustment from a national to statewide 
adjustment.
    Comment: One commenter stated that ``CMS should consider 
implementing a policy for both IPPS and OPPS that would result in 
only hospitals in rural areas being included in the statewide rural 
floor wage index used for urban hospitals in areas with wage indexes 
that are lower than the statewide rural wage index.'' The commenter 
believed that such a policy would prevent urban hospitals from 
reclassifying to rural status simply to improve the rural wage index 
which might be used as a floor for urban hospitals in lower wage 
areas of a State. The commenter added that it believed that CMS has 
the regulatory authority to make such a policy change without the 
need for legislation.
    Response: We thank the commenter for its comments. As the 
commenter requested, we will consider the commenter's suggestion in 
future rulemaking.

d. Case-Mix Budget Neutrality Adjustment

    Below we summarize the recoupment adjustment to the FY 2014 
payment rates, as required by section 631 of ATRA, to account for 
the increase in aggregate payments as a result of not completing the 
prospective adjustment authorized under section 7(b)(1)(A) of Public 
Law 110-90 until FY 2013. We refer readers to section II.D. of the 
preamble of this final rule for a complete discussion regarding our 
policies finalized in this final rule and previously finalized 
policies (including our historical adjustments to the payment rates) 
relating to the effect of changes in documentation and coding that 
do not reflect real changes in case-mix. We note that section II.D. 
of the preamble of this final rule also includes a discussion on 
documentation and coding effects that occurred through FY 2010, 
including the request for public comments in the FY 2014 IPPS/LTCH 
PPS proposed rule as to whether any portion of the proposed -0.8 
percent recoupment adjustment discussed below should be reduced and 
instead applied as a prospective adjustment for the cumulative MS-
DRG documentation and coding effect through FY 2010.

(1) Recoupment or Repayment Adjustment Authorized by Section 631 of the 
American Taxpayer Relief Act of 2012 (ATRA) to the National 
Standardized Amount

    Section 631 of the ATRA amended section 7(b)(1)(B) of Public Law 
110-90 to require the Secretary to make a recoupment adjustment 
totaling $11 billion by FY 2017. Our actuaries estimate that if CMS 
were to fully account for the $11 billion recoupment required by 
section 631 of ATRA in FY 2014, a onetime -9.3 percent adjustment to 
the standardized amount would be necessary. It is often our practice 
to delay or phase-in rate adjustments over more than 1 year, in 
order to moderate the effect on rates in any 1 year. Therefore, 
consistent with the policies that we have adopted in many similar 
cases, we are applying a -0.8 percent adjustment to the standardized 
amount in FY 2014. We note that, as section 631 of the ATRA 
instructs CMS to make a recoupment adjustment only to the 
standardized amount, this adjustment will not apply to the Puerto 
Rico-specific rate.

e. Adjustment to Offset the Cost of the Policy on Admission and Medical 
Review Criteria for Hospital Inpatient Services Under Medicare Part A

    As discussed previously in section XI.C. of the preamble of this 
final rule, we are finalizing, as proposed, our proposal to revise 
our Part B inpatient billing policy to allow payment of all hospital 
services that were furnished and would have been reasonable and 
necessary if the beneficiary had been treated as an outpatient, 
rather than admitted to the hospital as an inpatient, except for 
those services specifically requiring an outpatient status. This 
policy will apply when CMS or a Medicare review contractor 
determines that the hospital admission was

[[Page 50977]]

not reasonable and necessary or when a hospital determines after a 
beneficiary has been discharged that the beneficiary should have 
received hospital outpatient services rather than hospital inpatient 
services. We are also finalizing our policy to continue applying the 
timely filing restriction to the billing of all Part B inpatient 
services, under which claims for Part B services must be filed 
within 1 year from the date of service. As we discuss in section 
XI.C. of the preamble of this final rule, in addition to evaluating 
our policy related to Part B inpatient billing following denials of 
Part A inpatient claims on the basis that the inpatient admission 
was not reasonable and necessary or following self-audit, we also 
believe that it is important to provide more clarity regarding the 
relationship between inpatient admission decisions and Medicare 
payment. Toward that end, in section XI.C. of the preamble of this 
final rule, we are clarifying that a beneficiary becomes a hospital 
inpatient when formally admitted following the physician order for 
hospital inpatient admission, and will also clarify when we believe 
that hospital inpatient admissions are reasonable and necessary 
based on how long beneficiaries have spent, or are reasonably 
expected to spend, in the hospital as inpatients. Under our final 
policy, Medicare's external review contractors will presume that 
hospital inpatient admissions are reasonable and necessary for 
beneficiaries who require more than one Medicare utilization day 
(defined by encounters crossing 2 ``midnights'') in the hospital 
receiving medically necessary services. Similarly, we will presume 
that generally services spanning less than 2 midnights should have 
been provided on an outpatient basis, unless there is clear 
physician documentation in the medical record supporting the 
physician's order and expectation that the beneficiary required an 
inpatient level of care. (For a complete discussion on our inpatient 
admission guidelines, including our time-based presumption of 
medical necessity for hospital inpatient services based on the 
beneficiary's length of stay as part of our medical review criteria 
for payment of hospital inpatient services under Medicare Part A, we 
refer readers to section XI.C. of this final rule.)
    Our actuaries project a net increase in IPPS expenditures as a 
result of the policy that medical review of inpatient admissions 
will include a presumption that hospital inpatient admissions are 
reasonable and necessary for beneficiaries who require more than 1 
Medicare utilization day (defined by encounters crossing 2 
``midnights'') in the hospital receiving medically necessary 
services after inpatient admission, discussed in section XI.C. of 
the preamble of this final rule (as summarized above). These 
additional expenditures result from an expected net increase in 
hospital inpatient encounters due to some encounters spanning more 
than 2 midnights moving to the IPPS from the OPPS, and some 
encounters of less than 2 midnights moving from the IPPS to the 
OPPS. In making this projection, the actuaries analyzed Medicare 
claims data for extended hospital outpatient encounters and shorter 
stay hospital inpatient encounters, and estimated the number of 
encounters that are expected to shift from outpatient to inpatient 
and vice versa (that is, the number that are expected to shift from 
inpatient to outpatient). In section XI.C.4. of the preamble of this 
final rule, we discuss that our actuaries estimate that this 
projected net increase in inpatient encounters will increase IPPS 
expenditures by approximately $220 million. In light of the 
widespread impact on the IPPS of the policy and the systemic nature 
of the issue, we believe that it is appropriate to use our 
exceptions and adjustments authority under section 1886(d)(5)(I)(i) 
of the Act to offset the estimated $220 million in additional IPPS 
expenditures associated with this policy by reducing the national 
standardized amount, the Puerto Rico-specific standardized amount, 
and hospital-specific rates by 0.2 percent (or a 0.998 adjustment). 
We refer readers to section XI.C. of the preamble of this final rule 
for a complete discussion on this adjustment to offset the estimated 
cost of the time-based presumption of medical necessity for hospital 
inpatient services based on the beneficiary's length of stay as part 
of our medical review criteria for hospital inpatient services under 
Medicare Part A.

f. Rural Community Hospital Demonstration Program Adjustment

    As discussed in section V.K. of the preamble of this final rule, 
section 410A of Public Law 108-173 originally required the Secretary 
to establish a demonstration program 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 program for an additional 5-year period, and allowed 
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 2013 
IPPS/LTCH PPS final rule (77 FR 53449 through 53453), 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 program 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 program, 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 2014, we are adjusting the national IPPS payment rates 
according to the same methodology that we used for FY 2013, as set 
forth in section V.K. of the preamble of this final rule, to account 
for the estimated additional costs of the demonstration program for 
FY 2014. For this final rule, the estimated amount of this 
adjustment to the national IPPS payment rates for FY 2014 is 
$46,549,861. We note that we proposed that if updated data became 
available prior to the publication of the FY 2014 IPPS/LTCH PPS 
final rule, we would use that data, to the extent appropriate, to 
estimate the costs of the demonstration program in FY 2014. 
Therefore, the estimated budget neutrality offset amount changed in 
this final rule to reflect the updated data.
    In addition, we proposed that if settled cost reports for all of 
the demonstration hospitals that participated in the applicable 
fiscal year (2007, 2008, 2009 or 2010) were made available prior to 
the FY 2014 IPPS/LTCH PPS final rule, we would incorporate into the 
FY 2014 budget neutrality offset amount any additional amounts by 
which the final settled costs of the demonstration in any of these 
years (as described previously) exceeded the budget neutrality 
offset amount applicable to such year as finalized in the respective 
year's IPPS final rule. Because finalized cost reports for FY 2007 
have become available since the publication of the proposed rule, we 
are including in the budget neutrality offset amount for FY 2014 the 
amount by which the final settled costs of the demonstration program 
for FY 2007 (as shown in the finalized cost reports for hospitals 
that participated in the demonstration program in FY 2007) exceeded 
the budget neutrality offset amount that was finalized in the FY 
2007 IPPS final rule. This amount is $6,039,880.
    Therefore, the total amount that will be applied to the FY 2014 
national IPPS rates as an offset to account for the additional costs 
of the demonstration program is the sum of these two amounts--
$52,589,741. Accordingly, using the most recent data available to 
account for the estimated costs of the demonstration program, for FY 
2014, we computed a factor of 0.999415 for the rural community 
hospital demonstration program budget neutrality adjustment that 
will be applied to the IPPS standard Federal payment rate. We 
anticipate that finalized cost reports for FYs 2008, 2009, 2010, and 
2011 will be available prior to the FY 2015 IPPS/LTCH PPS proposed 
rule.

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

[[Page 50978]]

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 2014 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 (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.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/outlier.html.

(1) FY 2014 Outlier Fixed-Loss Cost Threshold

    In the FY 2014 IPPS/LTCH PPS proposed rule, we stated that in 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53691 through 53696), we 
received comments from the public concerning our methodology for 
calculating the outlier threshold. Specifically, many commenters 
expressed concern that CMS is still not reaching the 5.1 percent 
target for outlier payments and believed there is still room for 
improvement. The commenters made various suggestions to improve the 
current methodology used to calculate the outlier threshold. In that 
final rule we responded that we appreciate the commenters providing 
multiple alternative methodologies to adjust the CCRs used in our 
outlier fixed-loss cost threshold. Due to the many options the 
commenters presented, we stated that the most prudent approach was 
to study the merits of each methodology and, if appropriate, make a 
proposal in the FY 2014 IPPS/LTCH PPS proposed rule if we believed 
that making a change to our current methodology would improve our 
methodology for projecting the outlier fixed-loss cost threshold. 
Since publication of the FY 2013 IPPS/LTCH PPS final rule, we have 
studied the merits of the commenters' suggestions to improve the 
outlier threshold methodology. In the proposed rule, we proposed the 
following outlier threshold methodology for FY 2014 with revisions 
from the prior fiscal year.
    As we have done in the past, to calculate the proposed FY 2014 
outlier threshold, we simulated payments by applying proposed FY 
2014 payment rates and policies using cases from the FY 2012 MedPAR 
file. Therefore, in order to determine the proposed FY 2014 outlier 
threshold, we inflated the charges on the MedPAR claims by 2 years, 
from FY 2012 to FY 2014. Since FY 2005, we have used the same 
methodology to inflate charges. For FY 2014 and subsequent years, we 
proposed to further refine our current methodology which uses more 
recent data that reflect the rate-of-change in hospital charges 
under the new outlier policy. In the FY 2005 IPPS final rule (69 FR 
49277), to compute the 1-year average annualized rate-of-change in 
charges per case, we stated that we were taking the unprecedented 
step of comparing the average charge per case from the most recent 6 
month period of charge data available to the average charge per case 
from the same 6 month period from the prior year rather than using a 
full year of charge data. At that time, we noted that we adopted 
this methodology to calculate the outlier threshold for FY 2005 as a 
result of the special circumstances surrounding the revisions to the 
outlier payment methodology; specifically the exceptionally high 
rate of hospital charge inflation that was reflected in the data for 
FYs 2001, 2002, and 2003. We also noted that we would continue to 
consider other methodologies for determining charge inflation when 
calculating the outlier threshold in the future. We refer the reader 
to the FY 2005 IPPS final rule for a complete discussion on this 
methodology.
    For FY 2014, if we had proposed to continue to use our current 
methodology that we adopted in FY 2005, we would have computed the 
1-year average annualized rate-of-change in charges per case by 
comparing the last quarter of FY 2011 in combination with the first 
quarter of FY 2012 (July 1, 2011, through December 31, 2011) to the 
last quarter of FY 2012 in combination with the first quarter of FY 
2013 (July 1, 2012, through December 31, 2012). This rate-of-change 
was 4.7 percent (1.046908) or 9.6 percent (1.096016) over 2 years. 
After 9 years of using the same methodology, the special 
circumstances of the exceptionally high rate of hospital charge 
inflation that was reflected in the data for FYs 2001, 2002, and 
2003 may not be as applicable. We believe the policies that we 
implemented in the FY 2003 Outlier final rule (outlier 
reconciliation and no longer assigning the statewide average CCR for 
those hospitals that fall below a CCR floor) have helped control 
inflation of hospital charges.
    Therefore, instead of comparing periods of the most recent 6 
months of charge data, we proposed to adopt a new methodology to 
compare periods of 1-year of the most recent charge data in order to 
inflate charges. We stated that we believe a methodology that is 
based on 1-year of charge data will provide a more stable measure to 
project the average charge per case since a 6 month measure 
inherently uses fewer claims than a 1-year measure, which makes it 
more susceptible to fluctuations in the average charge per case as a 
result of any significant charge increases or decreases by 
hospitals. Under this new proposed methodology, to compute the 1-
year average annualized rate-of-change in charges per case for FY 
2014, we proposed to compare the second quarter of FY 2011 through 
the first quarter of FY 2012 (January 1, 2011, through December 31, 
2011) to the second quarter of FY 2012 through the first quarter of 
FY 2013 (January 1, 2012, through December 31, 2012). This rate-of-
change was 4.8 percent (1.048458) or 9.9 percent (1.099264) over 2 
years.
    Comment: Many commenters supported the use of the most recent 1-
year period of charge data instead of the most recent 6 months of 
charge data to inflate charges.
    Response: We appreciate the commenters' support and are 
finalizing, as proposed, the policy to use the most recent 1-year 
period of charge data for the reasons stated above. We refer readers 
to the discussion below for complete details concerning our final 
outlier threshold methodology.
    As we have done in the past, we proposed to establish the 
proposed FY 2014 outlier threshold using hospital CCRs from the 
December 2012 update to the Provider-Specific File (PSF)--the most 
recent available data at the time of the proposed rule. For FY 2014, 
we also proposed to continue to apply an adjustment factor to the 
CCRs to account for cost and charge inflation (as explained below). 
In the FY 2007 IPPS final rule (71 FR 48150), we worked with the 
Office of Actuary to develop the current methodology used to adjust 
the CCRs. We have used this same methodology to adjust the CCRs from 
FY 2007 through FY 2013.
    Over the years, many commenters have stated that our current 
methodology is unnecessary complicated. In addition, as mentioned 
above, in the FY 2013 IPPS/LTCH PPS final rule, commenters made 
various suggestions to improve the current methodology used to 
calculate the outlier threshold and we stated that we would study 
the merits of each methodology and, if appropriate, make a proposal 
in the FY 2014 IPPS/LTCH PPS proposed rule if we believe making a 
change to our current methodology would improve our projection of 
the outlier fixed-loss cost threshold. In that same final rule, some 
commenters suggested the use of historical CCR data from the PSF to 
compute a rate-of-change in CCRs. Under this approach, the 
commenters compared the national average case-weighted operating and 
capital CCR from the most recent update of the PSF to the national 
average case-weighted operating and capital CCR from the same period 
of the prior year. The commenters stated that although this 
adjustment would be based on 1 year's data, the commenters believed 
that the use of historical data to adjust the CCRs is consistent 
with CMS' estimation of charge inflation.
    After reviewing the commenters' suggestion, we agree that the 
use of historical data to adjust the CCRs is simpler and is 
consistent with CMS' estimation of charge inflation.

[[Page 50979]]

    Therefore, for FY 2014, we proposed to adjust the CCRs from the 
December 2012 update of the PSF by comparing the percentage change 
in the national average case-weighted operating CCR and capital CCR 
from the December 2011 update of the PSF to the national average 
case-weighted operating CCR and capital CCR from the December 2012 
update of the PSF. We note that we used total transfer-adjusted 
cases from FY 2012 to determine the national average case-weighted 
CCRs for both sides of the comparison. We stated that we believe it 
is appropriate to use the same case count on both sides of the 
comparison as this will produce the true percentage change in the 
average case-weighted operating and capital CCR from one year to the 
next without any effect from a change in case count on different 
sides of the comparison.
    Using the proposed methodology above, we calculated a December 
2011 operating national average case-weighted CCR of 0.303178 and a 
December 2012 operating national average case-weighted CCR of 
0.295049. We then calculated the percentage change between the two 
national operating case-weighted CCRs by subtracting the December 
2011 operating national average case-weighted CCR from the December 
2012 operating national average case-weighted CCR and then dividing 
by the December 2011 national operating average case-weighted CCR. 
This resulted in a national operating CCR adjustment factor of 
0.973187.
    We used the same methodology proposed above to also adjust the 
capital CCRs. Specifically, we calculated a December 2011 capital 
national average case-weighted CCR of 0.025994 and a December 2012 
capital national average case-weighted CCR of 0.0249373. We then 
calculated the percentage change between the two national capital 
case-weighted CCRs by subtracting the December 2011 capital national 
average case-weighted CCR from the December 2012 capital national 
average case-weighted CCR and then dividing by the December 2011 
capital national average case-weighted CCR. This resulted in a 
national capital CCR adjustment factor of 0.959337.
    Consistent with our methodology in the past and as stated in the 
FY 2009 IPPS final rule (73 FR 48763), we stated that 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.
    Comment: One commenter matched the CCRs from the proposed rule 
impact file to the December 2012 PSF and found that 221 providers 
did not match. The commenter noted that it calculated a weighted 
mean deviation of -4.7 percent, which is greater than the historical 
average deviation from the years 2008 through 2013 which ranged from 
-0.3 percent to 3.4 percent. The commenter concluded that the -4.7 
percent weighted mean deviation demonstrates that CMS used 
significantly outdated CCRs to make projections for the FY 2014 
fixed-loss threshold. The commenter recommended that this error be 
rectified in the final rule, which will result in a substantially 
reduced threshold for the final rule. In addition, the commenter 
recommended that CMS use the most recently updated PSF file for the 
final rule.
    Response: With regard to the commenter's finding 221 providers 
with CCRs from the proposed rule impact file that did not match the 
December 2012 PSF, we note that we apply the following edits to 
providers' CCRs in the PSF. We believe these edits are appropriate 
in order to accurately model the outlier threshold. We first search 
for Indian Health providers and those providers assigned the 
statewide average CCR from the current fiscal year. We then replace 
these CCRs with the statewide average CCR for the upcoming fiscal 
year. We also assign the statewide average CCR (for the upcoming 
fiscal year) to those providers that have no value in the CCR field 
in the PSF. We believe that the edits above are the reason why the 
commenter found 221 providers that had CCRs in the impact file that 
did not match the CCRs in the December 2012 PSF. With regard to the 
comment concerning the weighted mean deviation, we believe this 
measure can fluctuate depending on the pool of providers whose PSF 
CCR is replaced with the statewide average CCR for the upcoming 
fiscal year. We believe we have accurately calculated and applied 
these statewide average CCRs and will continue to monitor any large 
variances (to the weighted mean deviation) in the future. With 
regard to using the most recently updated PSF file for the final 
rule, we respond to a similar comment below.
    Comment: Many commenters supported the proposed revised 
methodology to adjust hospital CCRs used in the calculation of the 
outlier fixed-loss cost threshold.
    Response: We appreciate the commenters' support and are 
finalizing, as proposed, to use the methodology above to adjust 
hospital CCRs in the calculation of the outlier fixed-loss cost 
threshold.
    As stated above, for FY 2014, we applied the proposed FY 2014 
rates and policies using cases from the FY 2012 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.G.3. of the preamble 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 2014, 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 2014. If we did not take 
into account this provision, our estimate of total FY 2014 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.
    As we did in establishing the FY 2009 outlier threshold (73 FR 
57891), in our projection of FY 2014 outlier payments, we proposed 
not to make any adjustments for the possibility that hospitals' CCRs 
and outlier payments may be reconciled upon cost report settlement. 
We stated 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 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 not to make any assumptions about the effects of 
reconciliation on the outlier threshold calculation.
    Comment: One commenter was concerned that CMS did not consider 
outlier reconciliation in the development of the outlier threshold. 
The commenter stated that CMS did not provide any objective data 
concerning the number of hospitals that have been subject to outlier 
reconciliation and the amounts recovered. The commenter further 
stated that, in February 2003, the Secretary signed an emergency 
interim final regulation that would have corrected the outlier 
threshold and included outlier reconciliation payments (in the 
calculation of the outlier threshold) but that rule was not issued 
because of objections from the Office of Management and Budget. The 
commenter asserted that if it was possible to account for outlier 
reconciliation payments at the initial implementation of the outlier 
reconciliation policy in the calculation of the threshold, it should 
be possible to do so 10 years later. The commenter also searched 
cost reports from the HCRIS database for the years 2003 through 2009 
(Form CMS-2552-96) and, based on these data, provided its estimate 
of the annual amounts recovered by CMS through reconciliation which 
totaled $85,797,699. The commenter believed that these data can be 
used to provide a baseline and trend information to assess whether 
outlier reconciliation is a significant factor to be considered in 
the development of the

[[Page 50980]]

outlier threshold. The commenter noted that it was unable to extract 
outlier reconciliation payment information from cost reports filed 
under Form CMS-2552-10; the commenter was puzzled as to why this 
data was not being captured. The commenter also requested that CMS 
disclose in the final rule and future rulemaking the amount CMS has 
recovered through reconciliation by year.
    Response: We received a similar comment in response to the 
policies presented in last year's rule, and we appreciate the 
commenter, again, informing us of its concern regarding our policy 
of not including outlier reconciliation within the development of 
the outlier fixed-loss cost threshold. The commenter provided data 
from HCRIS that demonstrated total outlier reconciliation payments 
from 2003-2009 was $85,797,699, which equates to approximately 
$12,256,814 annually. We do not believe that this relatively small 
annual amount would have an impact on the outlier threshold because 
total outlier payments are approximately $4.3 billion. Further, with 
regard to the interim final rule referenced by the commenter that 
would have adjusted the outlier threshold by accounting for payment 
changes due to outlier reconciliation, that rule was never finalized 
or implemented. As stated in prior final rules, 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 as demonstrated by the 
total outlier payments provided by the commenter. 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 and are again finalizing 
our policy not to make any assumptions about the effects of 
reconciliation on the outlier threshold calculation.
    Also, outlier reconciliation is a function of the cost report 
and 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 should be publicly available through the cost report. 
With regard to the commenter not being able to retrieve outlier 
reconciliation payments for cost reports filed under Form CMS-2552-
10, we will follow up with our information system team to ensure 
this information is readily available to the public. Since the 
effective date of Change Request 7192 on April 1, 2011, we have 
approved the reconciliation of outlier payments for some hospitals. 
Other hospitals that were flagged for outlier reconciliation are 
still under review for approval. In addition, some hospitals 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 described in sections V.G. and V.H., respectively, of the 
preamble of this final rule, sections 1886(q) and 1886(o) of the Act 
establish the Hospital Readmissions Reduction Program and the 
Hospital VBP Program, respectively. We do not believe it is 
appropriate to include the hospital VBP payment adjustments and the 
hospital readmissions payment adjustments in the outlier threshold 
calculation or the outlier offset to the standardized amount. 
Specifically, consistent with our definition of the base operating 
DRG payment amount for the Hospital Readmissions Reduction Program 
under Sec.  412.152 and the Hospital VBP Program under Sec.  
412.160, outlier payments under section 1886(d)(5)(A) of the Act are 
not affected by these payment adjustments. Therefore, outlier 
payments would continue to be calculated based on the unadjusted 
base DRG payment amount (as opposed to using the base-operating DRG 
payment amount adjusted by the hospital readmissions payment 
adjustment and the hospital VBP payment adjustment). Consequently, 
we proposed to exclude the hospital VBP payment adjustments and the 
hospital readmissions payment adjustments from the calculation of 
the outlier fixed-loss cost threshold.
    Using this proposed methodology, we proposed an outlier fixed-
loss cost threshold for FY 2014 equal to the prospective payment 
rate for the DRG, plus any IME and DSH payments, and any add-on 
payments for new technology, plus $24,140.
    In the proposed rule, we noted that the proposed FY 2014 
threshold was higher than the FY 2013 final outlier threshold of 
$21,821. We stated that we believe that the decrease in DSH payments 
due to the implementation of section 1886(r)(1) of the Act 
contributed to a higher proposed fixed-loss outlier threshold for FY 
2014. We noted that the additional payments based on uncompensated 
care made to hospitals receiving Medicare DSH under section 
1886(r)(2) of the Act were not taken into consideration when 
determining outlier payments because we did not propose to make this 
payment on a per discharge basis. However, when computing a claim by 
claim outlier threshold, we calculate DSH payments under section 
1886(d)(5)(F) of the Act with the reduction required under section 
1886(r)(1) (the original DSH amount multiplied by 0.25). Therefore, 
we stated that we believe that, decreasing DSH payments decreases 
total payments in typical cases, which are used to compute the claim 
by claim outlier threshold thus leading to an increase in outlier 
payments. This requires that we raise the outlier threshold to 
decrease the amount of outlier dollars expended in order to reach 
the 5.1 percent target.
    Comment: Many commenters opposed CMS' proposal not to include 
payments under section 1886(r)(2) of the Act (from here on referred 
to as uncompensated care payments) in the calculation of the fixed-
loss outlier threshold.
    One commenter stated that by ignoring uncompensated care 
payments in the calculation of outlier determinations (the outlier 
fixed loss cost threshold and payments), CMS is assuming there will 
be a 75-percent cut to DSH payments while, under section 1886(r)(2) 
of the Act, approximately 88 percent of the amount cut will be paid 
back to hospitals. Therefore, the commenter believed the outlier 
fixed-loss cost threshold is overstated and requested that the 
threshold be adjusted to reflect these additional payments.
    Another commenter stated that CMS did not calculate the 
threshold with regard to a 100 percent DSH adjustment rather than a 
25 percent DSH adjustment because CMS proposed that some of the DSH 
payment will not be made on a claim by claim basis. The commenter 
explained that if CMS agrees to include uncompensated care payments 
on the claim, CMS should make outlier determinations that include 
those payments. The commenter also provided several reasons why 
outlier determinations should include uncompensated care payments 
regardless of whether uncompensated care payments are included on 
the claim. Firstly, the commenter stated that allowing the mechanics 
of DSH payments to affect outlier determinations is unfair to non-
DSH hospitals. The commenter explained that, by reducing the amount 
of DSH payments included in the outlier calculation, non-DSH 
hospitals would see their claim by claim outlier thresholds rise, 
resulting in fewer cases that would qualify for outlier payments; 
this would result in a reduction in payments to these non-DSH 
hospitals solely because Congress changed the DSH payment 
methodology (in order to better target payments under that 
subsection to hospitals with high rates of uncompensated care) and 
CMS proposed to alter the mechanics for making DSH payments to DSH 
hospitals by including only the empirically justified DSH payments 
on the claim. Other commenters had similar concerns. The commenter 
also noted that there is no indication in section 3133 of the 
Affordable Care Act or section 1886(d)(5)(A) of the Act that 
Congress intended such a result. The commenter asserted that whether 
CMS chooses to make the additional uncompensated care payments 
through the claims processing system or some other mechanism, it 
should not create fundamental payment changes in other components of 
the PPS system, absent some evidence that Congress intended such an 
impact.
    Secondly, the commenter cited sections 1886(d)(5)(A) and 1886(r) 
of the Act and stated that it is the commenter's view that these 
sections compel all amounts attributable to DSH to be part of 
outlier determinations whether or not such amounts are paid on a per 
claim basis. The commenter explained that section 1886(d)(5)(A) of 
the Act provides that ``a subsection (d) hospital may request 
additional payments in any case where charges, adjusted to cost, . . 
. exceed the sum of the applicable DRG prospective payment rate plus 
any amounts payable under subparagraphs (B) and (F) plus a fixed 
dollar amount determined by the Secretary.'' The commenter noted 
that subparagraph

[[Page 50981]]

(F)(i) was amended by section 3133 of the Affordable Care Act to 
provide that payments under the subparagraph are ``[s]ubject to to 
subsection (r).'' Additionally, the commenter stated that within 
subsection (r), subparagraph (d)(5)(F) is referenced both with 
regard to ``Empirically Justified DSH payments'' in subparagraph 
(r)(1) and the ``Additional Payment'' under subparagraph (r)(2). The 
commenter concluded that it seems logical that both such payments, 
which are part of the overall DSH payment adjustment, would have to 
be considered in the aggregate for purposes of outlier 
determinations.
    The commenter suggested three different methodologies to account 
for changes to Medicare DSH payments in outlier determinations. The 
first was to multiply the empirically justified Medicare DSH payment 
by 4, which resulted in a fixed-loss cost threshold of $20,950. The 
commenter believed that this approach is very simple and is similar 
to the second approach. The second approach assigns the 
uncompensated care payments to hospitals and discharges based on the 
operating cost for each case, which results in a fixed-loss cost 
threshold of $20,939. The final method allocates the uncompensated 
care payments to all cases equally, which results in a fixed-loss 
cost threshold of $22,028. The commenter stated that it expressed no 
specific preferences regarding the methods described above, but 
noted that the consensus of its members was that the final 
methodology is more reflective of how uncompensated care payments 
should occur through the claims processing system.
    Response: As discussed in section V.E.3.f. of the preamble of 
this final rule, for FY 2014, we are finalizing a process to 
distribute interim uncompensated care payments on a per-discharge 
basis through our claims processing system, with a reconciliation of 
the hospital's total uncompensated care payment at cost report 
settlement. The estimated per-discharge uncompensated care amount is 
based on the amount we have finalized to distribute for a fiscal 
year divided by the average number of discharges, or claims, in the 
most recently available 3 full-years in the fiscal year Medicare 
claims dataset. For FY 2014 payments, we will use the average number 
of claims from the most recent 3 years of MedPAR claims data, FY 
2010, FY 2011 and FY 2012, as this is the most recently available 
data on hospital utilization. As discussed in section V.E.3.f. of 
the preamble of this final rule, we believe that distributing 
uncompensated care payments on a per-discharge basis would allow 
these payments to be taken into consideration for the comparison of 
payments under the Federal rate and the hospital-specific rate for 
SCHs. We refer readers to section V.E.3. of the preamble of this 
final rule for a complete discussion of the Medicare DSH payment 
adjustment and the new uncompensated care payments.
    Consistent with the policy above to make uncompensated care 
payments on a per-discharge basis through our claims processing 
system, we agree that uncompensated care payments should be 
considered in outlier determinations. We also agree that to the 
extent section 1886(r) of the Act modifies the existing DSH payment 
methodology under section 1886(d)(5)(F), the new uncompensated care 
payment under section 1886(r)(2), like the empirically justified 
Medicare DSH payment under section 1886(r)(1), may be considered an 
amount payable under section 1886(d)(5)(F) of the Act such that it 
would be reasonable to include the payment in the outlier 
determination under section 1886(d)(5)(A). We also agree with the 
commenter's third suggested methodology to allocate an estimated 
per-discharge uncompensated care payment amount to all cases for the 
hospitals eligible to receive the uncompensated care payment amount 
in the calculation of the outlier fixed-loss cost threshold 
methodology. We believe this method to be superior to the other two 
methods suggested because we believe it most closely approximates 
the inclusion of all of the uncompensated care payments in 
determining the fixed-loss threshold. We believe that the 
commenter's first suggested methodology of multiplying the 
empirically justified Medicare DSH payment by 4 results in the 
inclusion of a higher amount of uncompensated care payments in the 
determination of the fixed-loss threshold than will actually be 
paid. This approach fails to account for the statutory requirement 
that total uncompensated care payments are not equal to 75 percent 
of the amount that would otherwise be paid as DSH payment 
adjustments but rather the amount is reduced by Factor 2 in order to 
reflect changes in the rate of uninsurance as a result of the 
implementation of the Affordable Care Act. Similarly, we believe 
that the commenter's second methodology of assigning uncompensated 
care payments based on the operating costs of a case could also lead 
to a different amount of uncompensated care payments being included 
in the determination of the fixed-loss threshold than is actually 
paid. Uncompensated care payments are calculated independently of 
operating costs and assigning these payments on such a basis would 
not necessarily allocate them appropriately. We believe that 
allocating an eligible hospital's estimated uncompensated care 
payment to all cases equally in the calculation of the outlier 
fixed-loss cost threshold would best approximate the amount we would 
pay in uncompensated care payments during the year because, when we 
make claim payments to a hospital eligible for such payments, we 
will make estimated per-discharge uncompensated care payments to all 
cases equally. Furthermore, we believe that using the estimated per-
claim uncompensated care payment amount to determine outlier 
estimates provides predictability as to the amount of uncompensated 
care payments included in the calculation of outlier payments. To 
determine outlier payments in the claims processing system, 
beginning with discharges on or after October 1, 2013, we will 
include estimated uncompensated care payments in the claim-by-claim 
outlier threshold calculation used to make outlier payments. Below 
we discuss our computation of the final outlier fixed loss cost 
threshold for FY 2014 and how we include uncompensated care 
payments.
    Comment: One commenter recommended that CMS maintain the outlier 
threshold at $21,821, which is the threshold that CMS finalized for 
FY 2013. The commenter explained that CMS has a history of 
projecting inaccurately the percentage of inpatient PPS payments 
that would qualify for outlier payments and an increase to the 
fixed-loss outlier threshold would result in a lesser number of 
cases that would qualify for outlier payments. Another commenter had 
the same concerns and believed the outlier threshold was simply too 
high. An additional commenter noted that, for some hospitals, DSH 
payments (at 75 percent of DSH) represent 5 to 7 percent of total 
Medicare payments. The commenter was unclear how a 5 to 7 percent 
decrease in Medicare payments necessitates a 10-percent increase in 
the fixed-loss outlier threshold from the prior fiscal year. The 
commenter recommended that CMS review and reconsider raising the 
threshold by 10 percent; the commenter also believed a more 
reasonable increase to the fixed loss outlier threshold is in the 5-
percent range. Another commenter recommended a small increase to the 
fixed-loss threshold in light of the concerns above.
    One commenter noted that CMS is proposing to increase the 
outlier threshold by 10 percent for FY 2014. The commenter noted 
that, in order for hospitals to maintain this payment stream, 
hospitals are incentivized to increase charges by 10 percent. As a 
result, the commenter requested that CMS reevaluate and lower the 
final fixed-loss outlier threshold so hospitals can keep charge 
inflation as neutral as possible.
    Response: As noted above, section 1886(d)(5)(A)(iv) of the Act 
requires outlier payments to be not less than 5 percent nor more 
than 6 percent of total estimated or projected payments. Therefore, 
we cannot adopt the commenters' suggestion to maintain the FY 2013 
outlier fixed-loss cost threshold for FY 2014 because setting a 
threshold that is based on the current fiscal year for the coming 
fiscal year is inconsistent with the statute. When we calculate the 
threshold, we use the latest data that is available at the time of 
the proposed and final rule. Also, for FY 2014, as discussed above, 
we refined the calculation of the outlier fixed-loss cost threshold 
in order that outlier payments will meet the 5.1 percent target. We 
cannot put a cap on the increase or decrease of the outlier 
threshold nor can we arbitrarily lower the threshold as the 
commenters requested, as this would also be inconsistent with the 
statute.
    Comment: One commenter was concerned that, with each rulemaking, 
the final outlier threshold established by CMS is always 
significantly lower than the threshold set forth in the proposed 
rule. The commenter speculated that this may occur due to the use of 
updated CCRs and other data in calculating the final rule threshold. 
As a result, the commenter emphasized the need for CMS to use the 
most recent data available when calculating the outlier threshold. 
The commenter stated that, with regard to the current rulemaking, 
CMS used data from the December 2012 PSF in the proposed rule,

[[Page 50982]]

when the March 2013 PSF was available at the time the proposed rule 
was issued. Using the March 2013 PSF, the commenter calculated an 
outlier threshold of $23,542 (compared to the threshold in the 
proposed rule of $24,140, which used the December 2012 PSF).
    Response: CMS' historical policy is to use the best available 
data when setting the payment rates and factors in both the proposed 
and final rules. Sometimes there are variables that change between 
the proposed and final rule due to the availability of more recent 
data, such as the charge inflation factor and the CCR adjustment 
factors that can cause fluctuations in the threshold amount. Other 
factors such as changes to the wage indexes and market basket 
increase can also cause the outlier fixed-loss cost threshold to 
fluctuate between the proposed rule and the final rule each year. We 
use the latest data that is available at the time of the proposed 
and final rule, such as the most recent update of MedPAR claims data 
and CCRs from the most recent update of the PSF. With regard to the 
commenter noting the availability of the March 2013 PSF at the time 
the proposed rule was issued, this file was not available when we 
calculated the proposed outlier fixed-loss cost threshold as part of 
the development of the proposed rule. Therefore, for the proposed 
rule, we used the latest update available, which was the December 
2012 PSF. If we were to wait for the March 2013 PSF to become 
available, this would cause further delay of publication of the 
proposed rule which could possibly cause CMS to miss the statutory 
requirement of issuing the final rule 60 days prior to the upcoming 
fiscal year.
    Comment: Many commenters appreciated CMS' efforts to refine the 
calculation of the outlier threshold. The commenters recommended 
that CMS continue to monitor the new fixed-loss outlier threshold 
methodology to determine if it has, in fact, improved accuracy.
    Response: We appreciate the commenters for their support and 
agree with the commenters to monitor the new methodology to 
determine if it has, in fact, improved accuracy.
    Below we discuss our methodology to calculate the final outlier 
fixed-loss cost threshold for FY 2014. As discussed above, we are 
finalizing our proposal to refine the methodology by using the most 
recent one year period of charge data instead of the most recent 6 
months of charge data to inflate charges. We also are revising our 
methodology to adjust hospital CCRs in the calculation of the 
outlier fixed-loss cost threshold. Finally, we agree with the 
commenters that the new uncompensated care payments under section 
1886(r)(2) of the Act should be included in the calculation of the 
outlier fixed-loss cost threshold.
    As we have done in the past, to calculate the final FY 2014 
outlier threshold, we simulated payments by applying FY 2014 payment 
rates and policies using cases from the FY 2012 MedPAR file. 
Therefore, in order to determine the final FY 2014 outlier 
threshold, we inflated the charges on the MedPAR claims by 2 years, 
from FY 2012 to FY 2014. We note that when we calculate the outlier 
fixed-loss cost threshold, for SCHs, we model total hospital-
specific rate payments and total federal rate payments and then 
exclude from the outlier threshold calculation those SCHs whose 
hospital-specific rate payments are greater than their Federal rate 
payments, as these hospitals will not receive outlier payments. As 
discussed above, we are finalizing a policy to take into 
consideration uncompensated care payments in the comparison of 
payments under the Federal rate and the hospital-specific rate for 
SCHs. Therefore, we included estimated uncompensated care payments 
in this comparison (and then excluded from the outlier threshold 
calculation those SCHs whose hospital-specific rate payments were 
greater than their Federal rate payments). For FY 2014 and 
subsequent years, as discussed above, we are finalizing our proposal 
to refine our current methodology which uses more recent data that 
reflect the rate-of-change in hospital charges under the new outlier 
policy. As discussed above, instead of comparing periods of the most 
recent 6 months of charge data, we are finalizing our proposal to 
adopt a new methodology to inflate charges that use periods of 1-
year of the most recent charge data. We believe a methodology that 
is based on 1-year of charge data will provide a more stable measure 
to project the average charge per case because a 6-month measure 
inherently uses fewer claims than a 1-year measure, which makes it 
more susceptible to fluctuations in the average charge per case as a 
result of any significant charge increases or decreases by 
hospitals. Under this new methodology, to compute the 1-year average 
annualized rate-of-change in charges per case for FY 2014, we 
compare the third quarter of FY 2011 through the second quarter of 
FY 2012 (April 1, 2011, through March 31, 2011) to the third quarter 
of FY 2012 through the second quarter of FY 2013 (April 1, 2012, 
through March 31, 2013). This rate-of-change was 4.7 percent 
(1.047329) or 9.7 percent (1.096898) over 2 years.
    As we have done in the past, we are establishing the final FY 
2014 outlier threshold using hospital CCRs from the March 2013 
update to the Provider-Specific File (PSF)--the most recent 
available data at the time of this final rule. For FY 2014, we are 
also continuing to apply an adjustment factor to the CCRs to account 
for cost and charge inflation (as explained below). Instead of using 
our prior methodology that was developed with the Office of Actuary 
to adjust the CCRs, for FY 2014 and subsequent years, we are 
finalizing as proposed to adjust the CCRs from the March 2013 update 
of the PSF by comparing the percentage change in the national 
average case-weighted operating CCR and capital CCR from the March 
2013 update of the PSF to the national average case-weighted 
operating CCR and capital CCR from the March 2012 update of the PSF. 
We note that we used total transfer-adjusted cases from FY 2012 to 
determine the national average case-weighted CCRs for both sides of 
the comparison. As stated in the proposed rule, we believe it is 
appropriate to use the same case count on both sides of the 
comparison as this will produce the true percentage change in the 
average case-weighted operating and capital CCR from one year to the 
next without any effect from a change in case count on different 
sides of the comparison.
    Using the methodology adopted above, we calculated a March 2012 
operating national average case-weighted CCR of 0.302317 and a March 
2013 operating national average case-weighted CCR of 0.292106. We 
then calculate the percentage change between the two national 
operating case-weighted CCRs by subtracting the March 2012 operating 
national average case-weighted CCR from the March 2013 operating 
national average case-weighted CCR and then dividing by the March 
2012 national operating average case-weighted CCR. This resulted in 
a national operating CCR adjustment factor of 0.966224.
    We used the same methodology above to also adjust the capital 
CCRs. Specifically, we calculated a March 2012 capital national 
average case-weighted CCR of 0.025993 and a March 2013 capital 
national average case-weighted CCR of 0.025013. We then calculated 
the percentage change between the two national capital case-weighted 
CCRs by subtracting the March 2012 capital national average case-
weighted CCR from the March 2013 capital national average case-
weighted CCR and then dividing by the March 2012 capital national 
average case-weighted CCR. This resulted in a national capital CCR 
adjustment factor of 0.964524.
    Consistent with our methodology in the past and 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.
    As stated above, for FY 2014, we applied the final FY 2014 rates 
and policies using cases from the FY 2012 MedPAR files in 
calculating the final outlier threshold.
    As noted above, for purposes of estimating the final outlier 
threshold for FY 2014, it was necessary to apply the frontier State 
adjustment 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 2014. If we did not take into account this provision, our 
estimate of total FY 2014 payments would be too low, and, as a 
result, our final outlier threshold would be too high, such that 
estimated outlier payments would be less than our projected 5.1 
percent of total payments.
    As discussed above, in our projection of FY 2014 outlier 
payments, we did not make any adjustments for the possibility that 
hospitals' CCRs and outlier payments may be reconciled upon cost 
report settlement. Also, as stated above, we do not believe it is 
appropriate to include the hospital VBP payment adjustments and the 
hospital readmissions payment adjustments in the

[[Page 50983]]

outlier threshold calculation or the outlier offset to the 
standardized amount. Consequently, we excluded the hospital VBP 
payment adjustments and the hospital readmissions payment 
adjustments from the calculation of the outlier fixed-loss cost 
threshold.
    As discussed above, we included estimated uncompensated care 
payments in the computation of the final outlier fixed-loss cost 
threshold. Specifically, we used the estimated per-discharge 
uncompensated care payments to hospitals eligible for the 
uncompensated care payment for all cases in the calculation of the 
outlier fixed-loss cost threshold methodology.
    Using this methodology, we calculated a final outlier fixed-loss 
cost threshold for FY 2014 equal to the prospective payment rate for 
the MS-DRG, plus any IME, empirically justified Medicare DSH 
payments, estimated uncompensated care payment, and any add-on 
payments for new technology, plus $21,748.
    We note that the final FY 2014 threshold is lower than the FY 
2014 proposed outlier threshold of $24,140. We believe that taking 
into consideration uncompensated care payments in the calculation of 
the outlier threshold contributed to a lower final fixed-loss 
outlier threshold for FY 2014.

(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 2014 will 
result in outlier payments that will equal 5.1 percent of operating 
DRG payments and 6.07 percent of capital payments based on the 
Federal rate.
    In accordance with section 1886(d)(3)(B) of the Act, we are 
reducing the FY 2014 standardized amount by the same percentage to 
account for the projected proportion of payments paid as outliers.
    The outlier adjustment factors that will be applied to the 
standardized amount based on the FY 2014 outlier threshold are as 
follows:

------------------------------------------------------------------------
                                             Operating
                                           standardized       Capital
                                              amounts      federal rate
------------------------------------------------------------------------
National................................        0.948995        0.939255
Puerto Rico.............................        0.943455        0.932305
------------------------------------------------------------------------

    We are applying the outlier adjustment factors to the FY 2014 
rates after removing the effects of the FY 2013 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 1.186 or capital CCRs greater 
than 0.173, or hospitals for which the fiscal intermediary or MAC is 
unable to calculate a CCR (as described under 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, 
2013, these statewide average ratios will replace the ratios posted 
on our Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY-2013-IPPS-Final-Rule-Home-Page-Items/FY2013-Final-Rule-Tables.html. 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 2014 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. In addition, 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 2012 and FY 2013 Outlier Payments

    In the FY 2013 IPPS final rule (77 FR 53697 through 53698), we 
stated that, based on available data, we estimated that actual FY 
2012 outlier payments would be approximately 5.0 percent of actual 
total MS-DRG payments. This estimate was computed based on 
simulations using the FY 2011 MedPAR file (discharge data for FY 
2011 claims). That is, the estimate of actual outlier payments did 
not reflect actual FY 2012 claims, but instead reflected the 
application of FY 2012 payment rates and policies to available FY 
2011 claims.
    Our current estimate, using available FY 2012 claims data, is 
that actual outlier payments for FY 2012 were approximately 4.87 
percent of actual total MS-DRG payments. Thus, the data indicate 
that, for FY 2012, the percentage of actual outlier payments 
relative to actual total payments is lower than we projected for FY 
2012. Consistent with the policy and statutory interpretation we 
have maintained since the inception of the IPPS, we do not make 
retroactive adjustments to outlier payments to ensure that total 
outlier payments for FY 2012 are equal to 5.1 percent of total MS-
DRG payments.
    We currently estimate that, using the latest CCRs from the March 
2013 update of the PSF, actual outlier payments for FY 2013 will be 
approximately 4.77 percent of actual total MS-DRG payments, 
approximately 0.33 percentage point lower than the 5.1 percent we 
projected when setting the outlier policies for FY 2013. This 
estimate of 4.77 percent is based on simulations using the FY 2012 
MedPAR file (discharge data for FY 2012 claims).
    Comment: One commenter believed it is critical for CMS to 
accurately calculate prior year actual outlier payment estimates. 
The commenter was concerned with CMS' estimate of FY 2012 outlier 
payments at 5.47 percent. The commenter attempted to validate CMS 
analysis and determined that the FY 2012 outlier payout was 4.86 
percent. The commenter stated that the starting point for any 
assessment of the need to change methods to develop the outlier 
threshold will be informed by how successful prior methods were in 
actually meeting the target through actual payments.

[[Page 50984]]

    Response: We thank the commenter for bringing this issue to our 
attention. In the proposed rule, we inadvertently used CCRs from FY 
2011 in our estimate of the FY 2012 outlier payments. For this final 
rule, we corrected this error and determined an estimated FY 2012 
outlier payment that is nearly identical to the commenters. We 
believe the refinements made to the calculation of the FY 2014 
outlier threshold will help ensure that outlier payments meet the 
5.1 percent target.

5. FY 2014 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 2014. 
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 69.6 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 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 1.7 percent for FY 
2014, and an update of -0.3 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 2014 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 63.2 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 2013 
national standardized amount. The second column shows the changes 
from the FY 2013 standardized amounts for hospitals that satisfy the 
quality data submission requirement and, therefore, receive the full 
update of 1.7 percent. The third column shows the changes for 
hospitals receiving the reduced update of -0.3 percent. The first 
row of the table shows the updated (through FY 2013) average 
standardized amount after restoring the FY 2013 offsets for outlier 
payments, demonstration budget neutrality, the geographic 
reclassification budget neutrality, and the retrospective 
documentation and coding adjustment under section 7(b)(1)(B) of 
Public Law 110-90. The MS-DRG reclassification and recalibration 
wage index budget neutrality factors are cumulative. Therefore, 
those FY 2013 factors are not removed from this table.

   Comparison of FY 2013 Standardized Amounts to the FY 2014 Standardized Amount With Full and Reduced Update
----------------------------------------------------------------------------------------------------------------
                                                  Full update (1.7  Reduced update (-
                                Full update (1.7   percent);  wage    0.3 percent);
                                 percent); wage    index  is less    wage index  is      Reduced update (-0.3
                                index is greater  than or equal to    greater  than     percent); wage index is
                                  than 1.0000;     1.0000; labor/    1.0000;  labor/    less than or  equal to
                                 labor/non-labor   non-labor share     non- labor      1.0000;  labor/non- labor
                                share percentage   percentage (62/  share percentage   share  percentage (62/38)
                                   (69.6/30.4)           38)           (69.6/30.4)
----------------------------------------------------------------------------------------------------------------
FY 2013 Base Rate after
 removing:
    1. FY 2013 Geographic
     Reclassification Budget
     Neutrality (0.991276).
    2. FY 2013 Rural Community
     Hospital Demonstration
     Program Budget Neutrality
     (0.999677).
    3. Cumulative FY 2008, FY   Labor: $4,176.63  Labor: $3,720.56  Labor: $4,176.63  Labor: $3,720.56
     2009, FY 2012, FY 2013     Nonlabor:         Nonlabor:         Nonlabor:         Nonlabor: $2,280.34
     Documentation and Coding    $1,824.27.        $2,280.34.        $1,824.27.
     Adjustment as Required
     under Sections 7(b)(1)(A)
     and 7(b)(1)(B) of Public
     Law 110-90 (0.9478).
    4. FY 2013 Operating
     Outlier Offset (0.948999).
FY 2014 Update Factor.........  1.017...........  1.017...........  0.997...........  0.997
FY 2014 MS-DRG Recalibration    0.997936........  0.997936........  0.997936........  0.997936
 and Wage Index Budget
 Neutrality Factor.
FY 2014 Reclassification        0.990718........  0.990718........  0.990718........  0.990718
 Budget Neutrality Factor.
FY 2014 Rural Community         0.999415........  0.999415........  0.999415........  0.999415
 Demonstration Program Budget
 Neutrality Factor.
FY 2014 Operating Outlier       0.948995........  0.948995........  0.948995........  0.948995
 Factor.
Adjustment to Offset the Cost   0.998...........  0.998...........  0.998...........  0.998
 of the Policy on Admission
 and Medical Review Criteria
 for Hospital Inpatient
 Services under Medicare Part
 A.

[[Page 50985]]

 
Cumulative Factor: FY 2008, FY  0.9403..........  0.9403..........  0.9403..........  0.9403
 2009, FY 2012, and FY 2013
 Documentation and Coding
 Adjustment as Required under
 Sections 7(b)(1)(A) and
 7(b)(1)(B) of Public Law 110-
 90 and Documentation and
 Coding Recoupment Adjustment
 as required under Section 631
 of the American Taxpayer
 Relief Act of 2012.
Final National Standardized     Labor: $3,737.71  Labor: $3,329.57  Labor: $3,664.21  Labor: $3,264.10
 Amount for FY 2014.            Nonlabor:         Nonlabor:         Nonlabor:         Nonlabor: $2,000.57
                                 $1,632.57.        $2,040.71.        $1,600.46.
----------------------------------------------------------------------------------------------------------------

    The following table illustrates the changes from the FY 2013 
Puerto Rico-specific payment rate for hospitals located in Puerto 
Rico. The second column shows the changes from the FY 2013 Puerto 
Rico specific payment rate for hospitals with a Puerto Rico-specific 
wage index greater than 1.0000. The third column shows the changes 
from the FY 2013 Puerto Rico specific payment rate for hospitals 
with a Puerto Rico-specific wage index less than 1.0000. The first 
row of the table shows the updated (through FY 2013) Puerto Rico-
specific payment rate after restoring the FY 2013 offsets for Puerto 
Rico-specific outlier payments, rural community hospital 
demonstration program budget neutrality, and the geographic 
reclassification budget neutrality. The MS-DRG recalibration budget 
neutrality factor is cumulative and is not removed from this table.

    Comparison of FY 2013 Puerto Rico-Specific Payment Rate to the FY 2014 Puerto Rico-Specific Payment Rate
----------------------------------------------------------------------------------------------------------------
                                                Update (1.7 percent);
                                                wage index is greater
                                                 than 1.0000; labor/    Update (1.7 percent); wage index is less
                                                   non-labor share      than or equal to 1.0000; labor/non-labor
                                                  percentage (63.2/             share percentage (62/38)
                                                        36.8)
----------------------------------------------------------------------------------------------------------------
FY 2013 Puerto Rico Base Rate, after removing:
    1. FY 2013 Geographic Reclassification
     Budget Neutrality (0.991276).
    2. FY 2013 Rural Community Hospital
     Demonstration Program Budget Neutrality
     (0.999677).
    3. FY 2013 Puerto Rico Operating Outlier    Labor: $1,700.33.....  Labor: $1,668.05
     Offset (0.944760).                         Nonlabor: $990.07....  Nonlabor: $1,022.35
FY 2014 Update Factor.........................  1.017................  1.017
FY 2014 MS-DRG Recalibration Budget Neutrality  0.997989.............  0.997989
 Factor.
FY 2014 Reclassification Budget Neutrality      0.990718.............  0.990718
 Factor.
FY 2014 Rural Community Hospital Demonstration  0.999415.............  0.999415
 Program Budget Neutrality Factor.
FY 2014 Puerto Rico Operating Outlier Factor..  0.943455.............  0.943455
Adjustment to Offset the Cost of the Policy on  0.998................  0.998
 Admission and Medical Review Criteria for
 Hospital Inpatient Services under Medicare
 Part A.
Final Puerto Rico-Specific Payment Rate for FY  Labor: $1,608.90.....  Labor: $1,578.35
 2014.                                          Nonlabor: $936.82....  Nonlabor: $967.37
----------------------------------------------------------------------------------------------------------------

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 2014. 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 2014 wage index.

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

    Section 1886(d)(5)(H) of the Act provides discretionary 
authority to the Secretary to make ``such adjustments . . . as the 
Secretary deems appropriate 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. To account for higher 
nonlabor-related costs for these two States, we multiply the 
nonlabor-related portion of the standardized amount for hospitals 
located in Alaska and Hawaii by an

[[Page 50986]]

adjustment factor. For FY 2011 and in prior fiscal years, we used 
the most recent 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 to update this nonlabor 
portion.
    In the FY 2013 IPPS/LTCH PPS proposed and final rules (77 FR 
28145 through 28146 and 77 FR 53700 through 53701, respectively), we 
explained that statutory changes transitioned the Alaska and Hawaii 
COLAs to locality pay. We further explained that, beginning in FY 
2012, as OPM transitioned away from COLAs, we continued to use the 
same ``frozen'' COLA factors that were used to adjust payments in FY 
2011 (based on OPM's 2009 COLA factors) to adjust the nonlabor-
related portion of the standardized amount for hospitals located in 
Alaska and Hawaii while we explored alternatives for updating the 
COLA factors in the future. In the FY 2013 IPPS/LTCH PPS final rule, 
for FY 2013, we continued to use the same COLA factors used to 
adjust payments in FY 2012 (which are based on OPM's 2009 COLA 
factors). We also established a methodology to update the COLA 
factors for Alaska and Hawaii that were published by OPM every 4 
years (at the same time as the update to the labor-related share of 
the IPPS market basket), beginning in FY 2014. We refer readers to 
the FY 2013 IPPS/LTCH PPS proposed and final rules for additional 
background and a detailed description of this methodology (77 FR 
28145 through 28146 and 77 FR 53700 through 53701, respectively).
    For FY 2014, we proposed to update the COLA factors published by 
OPM for 2009 (as these are the last COLA factors OPM published prior 
to transitioning from COLAs to locality pay) using the methodology 
that we finalized in the FY 2013 IPPS/LTCH PPS final rule. Under our 
proposal, we proposed COLA factors for FY 2014 for the three 
specified urban areas of Alaska (Anchorage, Fairbanks and Juneau) of 
1.23; for the City and County of Honolulu, the County of Kauai, the 
County of Maui, the County of Kalawao, and ``All other'' areas of 
Alaska of 1.25; and for the County of Hawaii of 1.19. For additional 
details on our proposal, we refer readers to the FY 2014 IPPS/LTCH 
PPS proposed rule (77 FR 27770 through 27771). We did not receive 
any public comments on our proposed COLA factors for FY 2014 and, 
therefore, are adopting them as final in this final rule without 
modification. The development of the COLA factors for FY 2014 is 
described below.
    For FY 2014, we are updating the COLA factors for Alaska and 
Hawaii published by OPM for 2009 (as these are the last COLA factors 
OPM published prior to transitioning from COLAs to locality pay) 
using the methodology that we finalized in the FY 2013 IPPS/LTCH PPS 
final rule. Specifically, under our methodology, we are using a 
comparison of the growth in the Consumer Price Indices (CPIs) in 
Anchorage and Honolulu relative to the growth in the overall CPI as 
published by the Bureau of Labor Statistics (BLS) to update the COLA 
adjustment factors for all areas in Alaska and Hawaii, respectively. 
As discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 28145 
through 28146), because BLS publishes CPI data for only Anchorage, 
Alaska and Honolulu, Hawaii, our methodology for updating the COLA 
factors uses a comparison of the growth in the CPIs for those cities 
relative to the growth in the overall CPI to update the COLA 
adjustment factors for all areas in Alaska and Hawaii, respectively. 
We believe that the relative price differences between these cities 
and the United States (as measured by the CPIs mentioned above) are 
generally appropriate proxies for the relative price differences 
between the ``other areas'' of Alaska and Hawaii and the United 
States.
    The CPIs for ``All Items'' that BLS publishes for Anchorage, 
Alaska, Honolulu, Hawaii, and for the average U.S. city are based on 
a different mix of commodities and services than is reflected in the 
nonlabor-related share of the IPPS market basket. As such, under the 
methodology we established to update the COLA factors, we calculated 
a ``reweighted CPI'' using the CPI for commodities and the CPI for 
services for each of the geographic areas to mirror the composition 
of the IPPS market basket nonlabor-related share. The current 
composition of BLS' CPI for ``All Items'' for all of the respective 
areas is approximately 40 percent commodities and 60 percent 
services. However, the nonlabor-related share of the IPPS market 
basket is comprised of approximately 60 percent commodities and 40 
percent services. Therefore, under the methodology we established in 
the FY 2013 IPPS/LTCH PPS final rule, we have created reweighted 
indexes for Anchorage, Alaska, Honolulu, Hawaii, and the average 
U.S. city using the respective CPI commodities index and CPI 
services index and applying the approximate 60/40 weights from the 
IPPS market basket. We believe that this methodology is appropriate 
because we would continue to make a COLA adjustment for hospitals 
located in Alaska and Hawaii by multiplying the nonlabor-related 
portion of the standardized amount by a COLA factor.
    Under the COLA factor update methodology we established in the 
FY 2013 IPPS/LTCH PPS final rule, we further exercised our 
discretionary authority to adjust payments made to hospitals located 
in Alaska and Hawaii by incorporating a 25-percent cap on the CPI-
updated COLA factors used to adjust the nonlabor-related portion of 
the standardized amounts, which is consistent with a statutorily 
mandated 25-percent cap that was applied to OPM's published COLA 
factors. We believe that this is appropriate because our CPI-updated 
COLA factors for FY 2014 use the 2009 OPM COLA factors as a basis. 
In addition, we are continuing to establish COLA factors that are 
rounded to 2 decimal places, which is consistent with the number of 
decimal places in the 2009 OPM COLA factors that are used as the 
basis for calculating the FY 2014 COLA factors. This policy also 
will maintain consistency with the rounding used for the 25-percent 
cap on the COLA factors (that is, a COLA factor of no more than 
1.25).
    Applying this methodology, we are establishing the COLA factors 
for FY 2014 that will adjust the nonlabor-related portion of the 
standardized amount for hospitals located in Alaska and Hawaii as 
shown in the table below.

 FY 2014 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.................................               1.19
    County of Kauai..................................               1.25
    County of Maui and County of Kalawao.............               1.25
------------------------------------------------------------------------

    Each of the COLA factors was calculated using data through 2012 
as these are the latest historical CPI data published by the BLS. 
The reweighted CPI for Honolulu, Hawaii grew faster than the 
reweighted CPI for the average U.S. city over the time period from 
2009 to 2012, with a growth rate of 8.9 percent and 8.3 percent, 
respectively. As a result, for FY 2014, we calculated COLA factors 
for the City and County of Honolulu, the County of Kauai, the County 
of Maui, and the County of Kalawao to be 1.26 compared to the FY 
2013 COLA factor of 1.25. However, as stated above, our COLA factor 
update methodology caps COLA factors at

[[Page 50987]]

1.25. In addition, the COLA factor calculated for the County of 
Hawaii for FY 2014 is 1.19 compared to the FY 2013 COLA factor of 
1.18.
    The reweighted CPI for Anchorage, Alaska grew slower than the 
reweighted CPI for the average U.S. city over the time period from 
2009 to 2012, with a growth rate of 8.0 percent and 8.3 percent, 
respectively. However, applying this slower relative growth rate to 
the FY 2009 COLA factors for each of the Alaska areas results in no 
change to the COLA factors for the Alaska areas for FY 2014 (1.25 
for ``All other'' areas of Alaska and 1.23 for the three specified 
urban areas of Alaska (Anchorage, Fairbanks and Juneau)) as compared 
to the FY 2013 COLA factors.

C. Calculation of the Prospective Payment Rates

General Formula for Calculation of the Prospective Payment Rates for FY 
2014

    In general, the operating prospective payment rate for all 
hospitals paid under the IPPS located outside of Puerto Rico, except 
SCHs, for FY 2014 equals the Federal rate (which includes 
uncompensated care payments). (As noted above, due to the expiration 
of the MDH program, beginning with FY 2014, we are not including 
MDHs in our discussion of the update of the hospital-specific rates 
for FY 2014.)
    SCHs are paid based on whichever of the following rates yields 
the greatest aggregate payment: The Federal national rate (which, as 
finalized in section V.E.3. of the preamble of this final rule, 
includes uncompensated care payments); 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 
to determine the rate that yields the greatest aggregate payment.
    The prospective payment rate for SCHs for FY 2014 equals the 
higher of the applicable Federal rate, or the hospital-specific rate 
as described below. The prospective payment rate for hospitals 
located in Puerto Rico for FY 2014 equals 25 percent of the Puerto 
Rico-specific payment 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 V.C. of the preamble of this final rule. The 
base-operating DRG payment amount may be further adjusted by the 
hospital readmissions payment adjustment and the hospital VBP 
payment adjustment as described under sections 1886(q) and 1886(o) 
of the Act, respectively. Finally, we add the uncompensated care 
payment to the total claim payment amount. We note that, as 
finalized above, we take uncompensated care payments into 
consideration when calculating outlier payments.

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

a. Calculation of Hospital-Specific Rate

    Section 1886(b)(3)(C) of the Act provides that SCHs are paid 
based on whichever of the following rates yields the greatest 
aggregate payment: The Federal rate (which, as finalized in section 
V.E.3. of the preamble of this final rule, includes uncompensated 
care payments); 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 to determine the rate that 
yields the greatest aggregate payment. For a more detailed 
discussion of the calculation of the hospital-specific rates, we 
refer readers 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). We also refer readers to section V.E. of the 
preamble of this final rule for a complete discussion on DSH and 
uncompensated care payments.

b. Updating the FY 1982, FY 1987, FY 1996 and FY 2006 Hospital-Specific 
Rate for FY 2013

    Section 1886(b)(3)(B)(iv) of the Act provides that the 
applicable percentage increase applicable to the hospital-specific 
rates for SCHs 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 equal to the update factor for 
all other IPPS hospitals, the update to the hospital-specific rates 
for SCHs 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 is 1.7 percent (that is, 
the FY 2014 estimate of the market basket rate-of-increase of 2.5 
percent less an adjustment of 0.5 percentage point for MFP and less 
0.3 percentage point) for hospitals that submit quality data or -0.3 
percent (that is, the FY 2014 estimate of the market basket rate-of-
increase of 2.5 percent, less 2.0 percentage points for failure to 
submit data under the Hospital IQR Program, less an adjustment of 
0.5 percentage point for MFP, and less 0.3 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, we refer readers to section V.A. 
of the preamble of this final rule.
    In addition, because SCHs 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 MS-DRG 
classifications and the recalibration of the MS-DRG relative weights 
are made in a manner so that aggregate IPPS payments are unaffected. 
Therefore, a SCH's hospital-specific rate is adjusted by the MS-DRG 
reclassification and recalibration budget neutrality factor of 
0.997989, as discussed in section III. of this Addendum. The 
resulting rate is used in determining the payment rate an SCH will 
receive for its discharges beginning on or after October 1, 2013. We 
note that, in this final rule, for FY 2014, we are not making a 
documentation and coding adjustment to the hospital-specific rate. 
We refer readers to section II.D. of the preamble of this final rule 
for a complete discussion regarding our finalized policies and 
previously finalized policies (including our historical adjustments 
to the payment rates) relating to the effect of changes in 
documentation and coding that do not reflect real changes in case-
mix. We note that section II.D. of the preamble of this final rule 
also includes a discussion on documentation and coding effects that 
occurred through FY 2010, including the request for public comments 
in the FY 2014 IPPS/LTCH PPS proposed rule as to whether any portion 
of the -0.8 percent recoupment adjustment discussed in section 
II.D.6. of the preamble of this final rule should be reduced and 
instead applied as a prospective adjustment for the cumulative MS-
DRG documentation and coding effect through FY 2010.

c. Adjustment to Offset the Cost of the Admission and Medical Review 
Criteria for Hospital Inpatient Services Under Medicare Part A Policy 
and Clarification

    As discussed previously, in section XI.C. of the preamble of 
this final rule, our actuaries project additional IPPS expenditures 
will result from our policy that medical review of inpatient 
admissions will include a presumption that hospital inpatient 
admissions are reasonable and necessary for beneficiaries who 
require more than 1 Medicare utilization day (defined by encounters 
crossing 2 ``midnights'') in the hospital receiving medically 
necessary services after inpatient admission (which is presented in 
section XI.C. of the preamble of this final rule). We believe that 
it is appropriate to use our exceptions and adjustments authority 
under section 1886(d)(5)(I)(i) of the Act to apply reductions

[[Page 50988]]

of 0.2 percent (or a 0.998 adjustment) to the IPPS rates, including 
the FY 2014 hospital-specific rate for SCHs, to offset our estimate 
of the increase in IPPS payments. We refer readers to section XI.C. 
of the preamble of this final rule for a complete discussion of our 
policy on admission and medical review criteria for hospital 
inpatient services under Medicare Part A.

3. General Formula for Calculation of Prospective Payment Rates for 
Hospitals Located in Puerto Rico Beginning on or After October 1, 2013, 
and Before October 1, 2014

    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-Specific Rate

    The Puerto Rico-specific prospective payment rate is determined 
as follows:
    Step 1--Select the applicable average standardized amount 
considering the applicable wage index (obtained from 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 (obtained from 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 Prospective Payment 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 (obtained from 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-specific rate and the national 
prospective payment 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.
    Finally, we add the uncompensated care payment to the total 
claim payment amount. We note that, as finalized above, we take 
uncompensated care payments into consideration when calculating 
outlier payments.

c. Adjustment to Offset the Cost of the Admission and Medical Review 
Criteria for Hospital Inpatient Services Under Medicare Part A Policy 
and Clarification

    As discussed previously, in section XI.C. of the preamble of 
this final rule, our actuaries project additional IPPS expenditures 
will result from our policy that medical review of inpatient 
admissions will include a presumption that hospital inpatient 
admissions are reasonable and necessary for beneficiaries who 
require more than 1 Medicare utilization day (defined by encounters 
crossing 2 ``midnights'') in the hospital receiving medically 
necessary services after inpatient admission (which is presented in 
section XI.C. of the preamble of this final rule). We believe that 
it is appropriate to use our exceptions and adjustments authority 
under section 1886(d)(5)(I)(i) of the Act to apply reductions of 0.2 
percent (or a 0.998 adjustment) to the IPPS rates, including the FY 
2014 national standardized amount and the Puerto Rico standardized 
amount, to offset our estimate of the increase in IPPS payments. We 
refer readers to section XI.C. of the preamble of this final rule 
for a complete discussion of our policy on admission and medical 
review criteria for hospital inpatient services under Medicare Part 
A.

III. Changes to Payment Rates for Acute Care Hospital Inpatient 
Capital-Related Costs for FY 2014

    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, over a 
10-year transition period (which extended through FY 2001) the 
payment methodology for Medicare acute care hospital inpatient 
capital-related costs changed 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 2014, which is effective 
for discharges occurring on or after October 1, 2013.
    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 
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 exceptions under Sec.  412.348. (We note that, as 
discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53705), 
there is generally no longer a need for an exceptions payment 
adjustment factor.) However, in limited circumstances, an additional 
payment exception for extraordinary circumstances is provided for 
under Sec.  412.348(f) for qualifying hospitals. Therefore, in 
accordance with Sec.  412.308(c)(3), an exceptions payment 
adjustment factor may need to be applied if such payments are made. 
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.
    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. Effective October 
1, 2004, in accordance with section 504 of Public Law 108-173, 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 25 percent of the applicable standardized amount specific 
to Puerto Rico hospitals and 75 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, 2004, we also revised the methodology for 
computing capital payments made to hospitals located in Puerto Rico 
to be based on a blend of 25 percent of the Puerto Rico capital rate 
and 75 percent of the national capital Federal rate (69 FR 49185).

A. Determination of the 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 2014. In 
particular, we explain why the FY 2014 capital Federal rate 
increases approximately 0.9 percent, compared to the FY 2013 capital 
Federal rate. As discussed in the impact analysis in Appendix A to 
this final rule, we estimate that capital payments per discharge 
will increase 1.6 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

[[Page 50989]]

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 2014 under that framework is 0.9 percent based on the 
best data available at this time. The update factor under that 
framework is based on a projected 1.2 percent increase in the 
revised and rebased FY 2010-based CIPI (discussed in more detail in 
section IV.D. of the preamble of this final rule), a 0.0 percentage 
point adjustment for intensity, a 0.0 percentage point adjustment 
for case-mix, a 0.0 percentage point adjustment for the FY 2012 DRG 
reclassification and recalibration, and a forecast error correction 
of -0.3 percentage point. 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 
2014 CIPI projection in that same section of this Addendum. Below we 
describe the policy adjustments that we are applying in the update 
framework for FY 2014.
    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-weighted 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 to the FY 2006 
IPPS final rule (70 FR 47707).)
    For FY 2014, we are projecting a 0.5 percent total increase in 
the case-mix index. We estimated that the real case-mix increase 
will also equal 0.5 percent for FY 2014. 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 2014 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 of illness. 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 2012 DRG reclassification and recalibration as 
part of our update for FY 2014. We estimate that FY 2012 DRG 
reclassification and recalibration resulted in no change in the 
case-mix when compared with the case-mix index that would have 
resulted if we had not made the reclassification and recalibration 
changes to the DRGs. Therefore, as we proposed, we are making a 0.0 
percentage point adjustment for reclassification and recalibration 
in the update framework for FY 2014.
    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 -0.3 percentage point was calculated for the FY 
2014 update. That is, current historical data indicate that the 
forecasted FY 2012 rate-of-increase of the FY 2006-based CIPI (1.5 
percent) used in calculating the FY 2012 update factor slightly 
overstated the actual realized FY 2012 price increases of the FY 
2006-based CIPI (1.2 percent) by 0.3 percentage point because the 
prices associated with both the depreciation and interest cost 
categories grew more slowly than anticipated. Historically, when 
forecast error of the CIPI is greater than 0.25 percentage point in 
absolute terms, it is reflected in the update recommended under this 
framework. Therefore, as we proposed, we are making a -0.3 
percentage point adjustment for forecast error in the update for FY 
2014.
    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 noncost-
effective services. Our intensity measure is based on a 5-year 
average.
    We calculate case-mix constant intensity as the change in total 
cost per discharge, 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.
    In this final rule, we are continuing to use a Medicare-specific 
intensity measure that is based on a 5-year adjusted average of cost 
per discharge for FY 2014 (we refer readers to the FY 2011 IPPS/LTCH 
PPS final rule (75 FR 50436) for a full description of our Medicare-
specific intensity measure). Specifically, for FY 2014, we are using 
an intensity measure that is based on an average of cost per 
discharge data from the 5-year period beginning with FY 2006 and 
extending through FY 2011. Based on these data, we estimated that 
case-mix constant intensity declined during FYs 2006 through 2011. 
In the past, when we found intensity to be declining, we believed a 
zero (rather than a 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 2014. 
Therefore, as we proposed, we are making a 0.0 percentage point 
adjustment for intensity in the update for FY 2014.
    Above, we described the basis of the components used to develop 
the 0.9 percent capital update factor under the capital update 
framework for FY 2014 as shown in the table below.

          CMS FY 2014 Update Factor to the Capital Federal Rate
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Capital Input Price Index*......................................     1.2
Intensity.......................................................     0.0
Case-Mix Adjustment Factors:
    Real Across DRG Change......................................    -0.5
    Projected Case-Mix Change...................................     0.5
                                                                 -------
        Subtotal................................................     1.2
Effect of FY 2012 Reclassification and Recalibration............     0.0
Forecast Error Correction.......................................    -0.3
                                                                 -------
        Total Update............................................     0.9
------------------------------------------------------------------------
*The capital input price index is based on the revised and rebased FY
  2010-based CIPI discussed in section IV.D. of the preamble of this
  final rule.

b. Comparison of CMS and MedPAC Update Recommendation

    In its March 2013 Report to Congress, MedPAC did not make a 
specific update recommendation for capital IPPS payments

[[Page 50990]]

for FY 2014. (We refer readers to MedPAC's Report to the Congress: 
Medicare Payment Policy, March 2013, 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 2013, we estimated that outlier payments for capital will 
equal 6.38 percent of inpatient capital-related payments based on 
the capital Federal rate in FY 2013. Based on the thresholds as set 
forth in section II.A. of this Addendum, we estimate that outlier 
payments for capital-related costs would equal 6.07 percent for 
inpatient capital-related payments based on the capital Federal rate 
in FY 2014. Therefore, we are applying an outlier adjustment factor 
of 0.9393 in determining the capital Federal rate for FY 2014. Thus, 
we estimate that the percentage of capital outlier payments to total 
capital Federal rate payments for FY 2014 will be slightly lower 
than the percentage for FY 2013.
    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 2014 outlier adjustment 
of 0.9393 is a 0.33 percent change from the FY 2013 outlier 
adjustment of 0.9362. Therefore, the net change in the outlier 
adjustment to the capital Federal rate for FY 2014 is 1.0033 
(0.9393/0.9362). Thus, the outlier adjustment will increase the FY 
2014 capital Federal rate by 0.33 percent compared to the FY 2013 
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.
    To determine the factors for FY 2014, we compared (separately 
for the national capital rate and the Puerto Rico capital rate) 
estimated aggregate capital Federal rate payments based on the FY 
2013 MS-DRG classifications and relative weights and the FY 2013 GAF 
to estimated aggregate capital Federal rate payments based on the FY 
2013 MS-DRG classifications and relative weights and the FY 2014 
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 factor of 0.9997 for FY 
2014 to the previous cumulative FY 2013 adjustment factor of 0.9904, 
yielding an adjustment factor of 0.9900 through FY 2014. For the 
Puerto Rico GAFs, we are applying an incremental budget neutrality 
adjustment factor of 0.9990 for FY 2014 to the previous cumulative 
FY 2013 adjustment factor of 1.0095, yielding a cumulative 
adjustment factor of 1.0084 through FY 2014.
    We then compared estimated aggregate capital Federal rate 
payments based on the FY 2013 MS-DRG relative weights and the FY 
2014 GAFs to estimated aggregate capital Federal rate payments based 
on the cumulative effects of the FY 2014 MS-DRG classifications and 
relative weights and the FY 2014 GAFs. The incremental adjustment 
factor for DRG classifications and changes in relative weights is 
0.9990 both nationally and for Puerto Rico. The cumulative 
adjustment factors for MS-DRG classifications and changes in 
relative weights and for changes in the GAFs through FY 2014 are 
0.9881 nationally and 1.0076 for Puerto Rico. (We note that all the 
values are calculated with unrounded numbers.) The GAF/DRG budget 
neutrality adjustment factors are built permanently into the capital 
rates; that is, they are applied cumulatively in determining the 
capital Federal rate. This follows the requirement under Sec.  
412.308(c)(4)(ii) 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 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 MS-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 MS-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.
    The cumulative adjustment 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 2014 geographic 
reclassification decisions made by the MGCRB compared to FY 2013 
decisions. However, it does not account for changes in payments due 
to changes in the DSH and IME adjustment factors.

4. Capital Federal Rate for FY 2014

    For FY 2013, we established a capital Federal rate of $425.49 
(77 FR 53706). We are establishing an update of 0.9 percent in 
determining the FY 2014 capital Federal rate for all hospitals. In 
addition, as discussed in greater detail in section IV.C. of the 
preamble of this final rule, we are making a reduction of 0.2 
percent to the capital IPPS rates, to offset the estimated 
additional IPPS expenditures that are projected to result from our 
policy on admission and medical review criteria for hospital 
inpatient services under Medicare Part A.
    As a result of the 0.9 percent update, the budget neutrality 
factors, and the 0.2 percent reduction to offset the estimated 
additional IPPS expenditures projected to result from our policy on 
admission and medical review criteria for hospital inpatient 
services discussed above, we are establishing a national capital 
Federal rate of $429.31 for FY 2014. The national capital Federal 
rate for FY 2014 was calculated as follows:
     The FY 2014 update factor is 1.009, that is, the update 
is 0.9 percent.
     The FY 2014 budget neutrality adjustment factor that is 
applied to the capital Federal rate for changes in the MS-DRG 
classifications and relative weights and changes in the GAFs is 
0.9987.
     The FY 2014 outlier adjustment factor is 0.9393.
     An adjustment factor of 0.9980 (that is, a reduction of 
0.2 percent) to offset the estimated additional IPPS expenditures 
that are projected to result from our policy on admission and 
medical review criteria for hospital inpatient services under 
Medicare Part A.
    (We note that, as discussed in section VI.D. of the preamble of 
this final rule, we are not making an additional MS-DRG 
documentation and coding adjustment to the capital IPPS Federal 
rates for FY 2014.)
    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 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. (As noted previously in this section, there is no need for an 
exceptions payment adjustment budget neutrality factor in 
determining the FY 2014 capital Federal rate.)
    We are providing the following chart that shows how each of the 
factors and adjustments for FY 2014 affects the computation of the 
FY 2014 national capital Federal rate in comparison to the FY 2013 
national capital Federal rate. The FY 2014 update factor has the 
effect of increasing the capital Federal rate by 0.9 percent 
compared to the FY 2013 capital Federal rate. The GAF/DRG budget 
neutrality adjustment factor has the effect of decreasing the 
capital Federal rate by 0.13 percent. The FY 2014 outlier adjustment 
factor has the effect of increasing the capital Federal rate by 0.33 
percent

[[Page 50991]]

compared to the FY 2013 capital Federal rate. The adjustment to 
account for the estimated additional IPPS expenditures that are 
projected to result from our policy on admission and medical review 
criteria for hospital inpatient services under Medicare Part A has 
the effect of decreasing the capital Federal rate by 0.2 percent 
compared to the FY 2013 capital Federal rate. The combined effect of 
all the changes will increase the national capital Federal rate by 
1.90 percent compared to the FY 2013 national capital Federal rate.

      Comparison of Factors and Adjustments: FY 2013 Capital Federal Rate and FY 2014 Capital Federal Rate
----------------------------------------------------------------------------------------------------------------
                                           FY 2013            FY 2014             Change         Percent change
----------------------------------------------------------------------------------------------------------------
Update Factor \1\...................             1.0120             1.0090             1.0090               0.90
GAF/DRG Adjustment Factor \1\.......             0.9998             0.9987             0.9987              -0.13
Outlier Adjustment Factor \2\.......             0.9362             0.9393             1.0033               0.33
Adjustment for admission and medical                N/A             0.9980             0.9980              -0.20
 review criteria \3\................
Capital Federal Rate................            $425.49            $429.31             1.0190               1.90
----------------------------------------------------------------------------------------------------------------
\1\ The update factor and the GAF/DRG budget neutrality adjustment factors are built permanently into the
  capital Federal rates. Thus, for example, the incremental change from FY 2013 to FY 2014 resulting from the
  application of the 0.9987 GAF/DRG budget neutrality adjustment factor for FY 2014 is a net change of 0.9987
  (or -0.13 percent).
\2\ The outlier reduction factor is not built permanently into the capital Federal rate; that is, the factor is
  not applied cumulatively in determining the capital Federal rate. Thus, for example, the net change resulting
  from the application of the FY 2014 outlier adjustment factor is 0.9393/0.9362, or 1.0033 (or 0.33 percent).
\3\ The adjustment to account for the estimated additional IPPS expenditures that are projected to result from
  our policy on admission and medical review criteria for hospital inpatient services under Medicare Part A
  (discussed in section VI.C. of the preamble of this final rule).

    In this final rule, we also are providing the following chart 
that shows how the final FY 2014 capital Federal rate differs from 
the proposed FY 2014 capital Federal rate as presented in the FY 
2014 IPPS/LTCH PPS proposed rule.

 Comparison of Factors and Adjustments: Proposed FY 2014 Capital Federal Rate and Final FY 2014 Capital Federal
                                                      Rate
----------------------------------------------------------------------------------------------------------------
                                           Proposed            Final              Change         Percent change
----------------------------------------------------------------------------------------------------------------
Update Factor.......................             1.0090             1.0090             1.0000               0.00
GAF/DRG Adjustment Factor...........             0.9988             0.9987             0.9999              -0.01
Outlier Adjustment Factor...........             0.9451             0.9393             0.9938              -0.62
Adjustment for admission and medical             0.9980             0.9980             1.0000               0.00
 review criteria....................
Capital Federal Rate................            $432.03            $429.31             0.9937              -0.63
----------------------------------------------------------------------------------------------------------------

6. Special Capital Rate for Puerto Rico Hospitals

    Section 412.374 provides for the use of a blended payment system 
for payments made 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, beginning with discharges occurring on or after October 1, 
2004, capital payments made 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 adjustment factors 
for the national GAF and for the Puerto Rico GAF. However, we apply 
the same budget neutrality adjustment factor for MS-DRG 
reclassifications and recalibration nationally and for Puerto Rico. 
The budget neutrality adjustment factors 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).
    For FY 2013, the special capital rate for hospitals located in 
Puerto Rico was $207.25 (77 FR 53707). With the changes we are 
making to the other factors used to determine the capital Federal 
rate (including the adjustment to account for the estimated 
additional IPPS expenditures that are projected to result from our 
policy on admission and medical review criteria for hospital 
inpatient services under Medicare Part A (discussed in section IX.C. 
of the preamble of this final rule)), the FY 2014 special capital 
rate for hospitals in Puerto Rico is $209.82.

B. Calculation of the Inpatient Capital-Related Prospective 
Payments for FY 2014

    For purposes of calculating payments for each discharge during 
FY 2014, the capital 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 2014 are in 
section II.A. of this Addendum. For FY 2014, a case would qualify as 
a cost outlier if the cost for the case plus the (operating) IME and 
DSH payments (including both the empirically justified Medicare DSH 
payment and the estimated uncompensated care payment, as discussed 
in section II.A.4.g.(1) of this Addendum) is greater than the 
prospective payment rate for the MS-DRG plus the fixed-loss amount 
of $21,748.
    Currently, as provided under Sec.  412.304(c)(2), we pay a new 
hospital 85

[[Page 50992]]

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 
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. As we proposed, in this 
final rule, we are rebasing and revising the CIPI to a FY 2010 base 
year to reflect the more current structure of capital costs in 
hospitals. A complete discussion of this rebasing is provided in 
section IV.D. of the preamble of this final rule. The CIPI was last 
rebased to FY 2006 in the FY 2010 IPPS/RY 2010 LTCH PPS final rule 
(74 FR 44021).

2. Forecast of the CIPI for FY 2014

    Based on the latest forecast by IHS Global Insight, Inc. (second 
quarter of 2013), we are forecasting the FY 2010-based CIPI to 
increase 1.2 percent in FY 2014. This reflects a projected 1.9 
percent increase in vintage-weighted depreciation prices (building 
and fixed equipment, and movable equipment), and a projected 2.8 
percent increase in other capital expense prices in FY 2014, 
partially offset by a projected 2.3 percent decline in vintage-
weighted interest expenses in FY 2014. The weighted average of these 
three factors produces the forecasted 1.2 percent increase for the 
FY 2010-based CIPI as a whole in FY 2014.

IV. Changes to Payment Rates for Excluded Hospitals: Rate-of-Increase 
Percentages for FY 2014

    Historically, certain 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 certain 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 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 2014 IPPS/LTCH PPS proposed rule (78 FR 27777), we 
proposed that the FY 2014 rate-of-increase percentage for updating 
the target amounts for the 11 cancer hospitals, children's 
hospitals, and RNHCIs would be the estimated percentage increase in 
the FY 2014 IPPS operating market basket, in accordance with 
applicable regulations at Sec.  413.40. As described in section IV. 
of the preamble of the proposed rule, we proposed to revise and 
rebase the IPPS operating market basket to a FY 2010 base year. 
Therefore, we proposed to use the percentage increase in the FY 
2010-based IPPS operating market basket to update the target amounts 
for children's hospitals, 11 cancer hospitals, and RNHCIs for FY 
2014 and subsequent fiscal years. Accordingly, we proposed that the 
FY 2014 rate-of-increase percentage to be applied to the target 
amount for these cancer hospitals, children's hospitals, and RNHCIs 
would be the FY 2014 percentage increase in the FY 2010-based IPPS 
operating market basket. Based on IHS Global Insight, Inc.'s 2013 
first quarter forecast, we estimated that the FY 2010-based IPPS 
operating market basket update for FY 2014 was 2.5 percent (that is, 
the estimate of the market basket rate-of-increase). However, we 
proposed that if more recent data became available for the final 
rule, we would use them to calculate the IPPS operating market 
basket update for FY 2014. Therefore, based on IHS Global Insight, 
Inc.'s 2013 second quarter forecast, with historical data through 
the 2013 first quarter, we estimate that the final FY 2010-based 
IPPS operating market basket update for FY 2014 is 2.5 percent (that 
is, the estimate of the market basket rate-of-increase). For cancer 
and children's hospitals and RNHCIs, the final FY 2014 rate-of-
increase percentage that will be applied to the FY 2013 target 
amounts in order to determine the final FY 2014 target amount is 2.5 
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 was based on 
cost-based reimbursement rules under 42 CFR Part 413 (certain 
providers do not receive a transition 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 VIII. of the preamble of this final rule 
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 2014. The annual updates for the IRF PPS and the IPF PPS are 
issued by the agency in separate Federal Register documents.

V. Updates to the Payment Rates for the LTCH PPS for FY 2014

A. LTCH PPS Standard Federal Rate for FY 2014

1. Background

    In section VIII. of the preamble of this final rule, we discuss 
our updates to the payment rates, factors, and specific policies 
under the LTCH PPS for FY 2014.
    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. Therefore, 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 made an adjustment for 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

[[Page 50993]]

regulations at Sec. Sec.  412.523(c)(3)(iv) through (c)(3)(vii). For 
FYs 2012 and 2013, we updated the standard Federal rate by the most 
recent estimate of the LTCH PPS market basket at that time, 
including additional statutory adjustments required by section 
1886(m)(3)(A) of the Act as set forth in the regulations at 
Sec. Sec.  412.523(c)(3)(viii) through (c)(3)(ix).
    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 VIII.C.2.b. of the 
preamble of this proposed 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 VIII.C.2.b. 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 use the term ``fiscal year'' rather than 
``rate year'' for 2011 and subsequent years.)
    For FY 2013, 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 2.6 percent 
and the 0.8 percentage point reductions required by sections 
1886(m)(3)(A)(i) and 1886(m)(3)(A)(ii) with 1886(m)(4)(C) of the 
Act. Accordingly, at Sec.  412.523(c)(3)(ix) of the regulations, we 
established an annual update of 1.8 percent to the standard Federal 
rate for FY 2013 (77 FR 53708 through 53711 and 53481).
    For FY 2014, as discussed in greater detail in section 
VIII.C.2.e. of the preamble of this final rule, we are establishing 
an annual update to the LTCH PPS standard Federal rate based on the 
full estimated increase in the LTCH PPS market basket, less the MFP 
adjustment consistent with section 1886(m)(3)(A)(i) of the Act, and 
less the 0.3 percentage point required by sections 1886(m)(3)(A)(ii) 
and (m)(4)(D) of the Act. In addition, as discussed in greater 
detail in section VIII.C.2.c., beginning in FY 2014, the annual 
update is further reduced by 2.0 percentage points for LTCHs that 
fail to submit quality reporting data in accordance with the LTCHQR 
Program under section 1886(m)(5) of the Act.
    Specifically, in this final rule, based on the best available 
data, we are establishing an annual update to the standard Federal 
rate of 1.7 percent provided the LTCH submits quality reporting data 
for FY 2014 in accordance with the LTCHQR Program under section 
1886(m)(5) of the Act, which is based on the full estimated increase 
in the LTCH PPS market basket of 2.5 percent, less the MFP 
adjustment of 0.5 percentage point consistent with section 
1886(m)(3)(A)(i) of the Act, and less the 0.3 percentage point 
required by sections 1886(m)(3)(A)(ii) and (m)(4)(D) of the Act. As 
discussed in greater detail in section VIII.C.2.c., for LTCHs that 
fail to submit quality reporting data for FY 2014 in accordance with 
the LTCHQR Program, the annual update is further reduced by 2.0 
percentage points as required by section 1886(m)(5) of the Act. 
Accordingly, we are establishing an annual update to the LTCH PPS 
standard Federal rate of -0.3 percent for LTCHs that fail to submit 
quality reporting data for FY 2014. This is calculated based on the 
full estimated increase in the LTCH PPS market basket of 2.5 
percent, less a MFP adjustment of 0.5 percentage point, less an 
additional adjustment of 0.3 percentage point required by the 
statute, and less 2.0 percentage points for failure to submit 
quality reporting data as required by section 1886(m)(5) of the Act.

2. Development of the FY 2014 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. Consistent with our historical practice, for FY 2014, 
we applied the annual update to the LTCH PPS standard Federal rate 
from the previous year. In determining the standard Federal rate for 
FY 2014, we also are making certain regulatory adjustments. 
Specifically, we are applying an adjustment factor under the second 
year of the 3-year phase-in of the one-time prospective adjustment 
to the standard Federal rate under Sec.  412.523(d)(3), as discussed 
in greater detail in section VIII.C.3. of the preamble of this final 
rule. In addition, in determining the FY 2014 standard Federal rate, 
we are applying a budget neutrality adjustment factor for the 
changes related to the area wage adjustment (that is, changes to the 
wage data and labor-related share) in accordance with Sec.  
412.523(d)(4).
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53708 through 
53710 and 53481), we established an annual update to the LTCH PPS 
standard Federal rate of 1.8 percent for FY 2013 based on the full 
estimated LTCH PPS market basket increase of 2.6 percent, less the 
MFP adjustment of 0.7 percentage point consistent with section 
1886(m)(3)(A)(i) of the Act and less the 0.1 percentage point 
required by sections 1886(m)(3)(A)(ii) and (m)(4)(C) of the Act. 
Accordingly, at Sec.  412.523(c)(3)(ix), we established an annual 
update to the standard Federal rate for FY 2013 of 1.8 percent. That 
is, we applied an update factor of 1.018 to the FY 2012 Federal rate 
of $40,222.05 to determine the FY 2013 standard Federal rate. 
Effective December 29, 2012, we also adjusted the standard Federal 
rate for FY 2013 by the one-time prospective adjustment factor for 
FY 2013 of 0.98734 under Sec.  412.523(d)(3)(ii) (this adjustment 
was not applied to payments for discharges occurring before December 
29, 2012, consistent with the statute). Furthermore, for FY 2013, we 
applied an area wage level budget neutrality factor of 0.999265 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 established a standard Federal rate for FY 2013 of 
$40,397.96 (calculated as $40,222.05 x 1.018 x 0.98734 x 0.999265). 
Furthermore, consistent with the statute, the one-time prospective 
adjustment factor of 0.98734 applied to the standard Federal rate 
for FY 2013 is not applied to payments for discharges occurring 
before December 29, 2012. Therefore, payment for discharges 
occurring on or after October 1, 2012, and on or before December 28, 
2012, does not reflect that adjustment and instead are paid based on 
a standard Federal rate of $40,915.95 (calculated as $40,397.96 
divided by 0.98734).
    In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27778), we 
proposed to establish an annual update to the LTCH PPS standard 
Federal rate of 1.8 percent (that is, an update factor of 1.018) for 
FY 2014, based on the full estimated increase in the LTCH PPS market 
basket of 2.5 percent, less the MFP adjustment of 0.4 percentage 
point, consistent with section 1886(m)(3)(A)(i) of the Act, and less 
the 0.3 percentage point required by sections 1886(m)(3)(A)(ii) and 
(m)(4)(D) of the Act, provided the LTCH submits quality data in 
accordance with the LTCHQR Program under section 1886(m)(5) of the 
Act. Therefore, under Sec.  412.523(c)(3)(x), we proposed to apply a 
factor of 1.018 to the FY 2013 standard Federal rate of $40,397.96 
to determine the FY 2014 standard Federal rate. These factors were 
based on IGI's first quarter 2013 forecast, which were the best 
available data at that time. Consistent with our historical practice 
of using the best available data, we also proposed that if more 
recent data became available to determine the market basket estimate 
or the MFP adjustment, we would use such data for the final rule, if 
appropriate (78 FR 27666). For LTCHs that fail to submit quality 
reporting data for FY 2014 under the LTCHQR Program, under Sec.  
412.523(c)(3)(x) in conjunction with Sec.  412.523(c)(4), we 
proposed to reduce the annual update to the LTCH PPS standard 
Federal rate by an additional 2.0 percentage points consistent with 
section 1886(m)(5) of the Act. Therefore, we proposed to establish 
an annual update to the LTCH PPS standard Federal rate of -0.2 
percent (that is, 1.8 percent minus 2.0 percentage points = -0.2 
percent or an update factor of 0.9980) for FY 2014 for LTCHs that 
fail to submit quality reporting data for FY 2014 under the LTCHQR 
Program. We also proposed that the standard Federal rate for FY 2014 
would be further adjusted by an adjustment factor of 0.98734 for FY 
2014 under the second year of the 3-year phase-in of the one-time 
prospective adjustment at Sec.  412.523(d)(3)(ii). In addition, for 
FY 2014, we proposed to apply an area wage level budget neutrality 
factor of 1.000433 to the standard Federal

[[Page 50994]]

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. Accordingly, we proposed 
to establish a standard Federal rate of $40,622.06 (calculated as 
$40,397.96 x 1.018 x 0.98734 x 1.000433) for discharges occurring in 
FY 2014, provided the LTCH submits quality reporting data for FY 
2014 in accordance with the LTCHQR Program under section 1886(m)(5) 
of the Act. For LTCHs that fail to submit quality reporting data for 
FY 2014 in accordance with the LTCHQR Program under section 
1886(m)(5) of the Act, we proposed to establish a standard Federal 
of $39,823.99 (calculated as $40,397.96 x 0.998 x 0.98734 x 
1.000433) for discharges occurring in FY 2014.
    In this final rule, we are establishing an annual update to the 
LTCH PPS standard Federal rate of 1.7 percent (that is, an update 
factor of 1.017) for FY 2014, based on the full estimated increase 
in the LTCH PPS market basket of 2.5 percent, less the MFP 
adjustment of 0.5 percentage point, consistent with section 
1886(m)(3)(A)(i) of the Act, and less the 0.3 percentage point 
required by sections 1886(m)(3)(A)(ii) and (m)(4)(D) of the Act, 
provided the LTCH submits quality data in accordance with the LTCHQR 
Program under section 1886(m)(5) of the Act. Therefore, under Sec.  
412.523(c)(3)(x), we are applying a factor of 1.017 to the FY 2013 
standard Federal rate of $40,397.96 (as established in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53710)) to determine the FY 2014 
standard Federal rate. For LTCHs that fail to submit quality 
reporting data for FY 2014 under the LTCHQR Program, under Sec.  
412.523(c)(3)(x) in conjunction with Sec.  412.523(c)(4), we are 
reducing the annual update to the LTCH PPS standard Federal rate by 
an additional 2.0 percentage points consistent with section 
1886(m)(5) of the Act. Therefore, we are establishing an annual 
update to the LTCH PPS standard Federal rate of -0.3 percent (that 
is, 1.7 percent minus 2.0 percentage points = -0.3 percent or an 
update factor of 0.9970) for FY 2014 for LTCHs that fail to submit 
quality reporting data for FY 2014 under the LTCHQR Program. We also 
are establishing that the standard Federal rate for FY 2014 is 
further adjusted by an adjustment factor of 0.98734 for FY 2014 
under the second year of the 3-year phase-in of the one-time 
prospective adjustment at Sec.  412.523(d)(3)(ii). In addition, for 
FY 2014, we are applying an area wage level budget neutrality factor 
of 1.0010531 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. Accordingly, we are establishing a standard Federal rate 
for FY 2014 of $40,607.31 (calculated as $40,397.96 x 1.017 x 
0.98734 x 1.0010531) for discharges occurring on or after October 1, 
2013, and on or before September 30, 2014, provided the LTCH submits 
quality reporting data for FY 2014 in accordance with the LTCHQR 
Program under section 1886(m)(5) of the Act. For LTCHs that fail to 
submit quality reporting data for FY 2014 in accordance with the 
LTCHQR Program under section 1886(m)(5) of the Act, we are 
establishing a standard Federal rate for FY 2014 of $39,808.74 
(calculated as $40,397.96 x 0.997 x 0.98734 x 1.0010531) for 
discharges occurring on or after October 1, 2013, and on or before 
September 30, 2014.

B. Adjustment for Area Wage Levels Under the LTCH PPS for FY 2014

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.
    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 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 56015 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 an 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) (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 generally updated the LTCH PPS CBSA-based 
labor market area definitions annually since they were adopted for 
RY 2006 when updates from OMB were available (73 FR 26812 through 
26814, 74 FR 44023 through 44204, and 75 FR 50444 through 50445).
    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 adopted their continued use for FY 2012 and FY 
2013 (76 FR 51808 and 77 FR 53710, respectively). In the FY 2013 
IPPS/LTCH PPS final rule, we explained that in 2013 OMB planned to 
announce new area delineations based on its 2010 standards and the 
2010 Census data and, therefore, for the FY 2013 LTCH area wage 
level adjustment, we would continue to use the same labor market 
areas that we adopted for FY 2012 (77 FR 53710). In fact, on 
February 28, 2013, OMB issued OMB Bulletin No. 13-01, announcing 
revisions to the delineation of Metropolitan Statistical Areas, 
Micropolitian Statistical Areas, and Combined Statistical Areas, and 
guidance on uses of the delineation of these areas. A copy of this 
bulletin may be obtained at http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. According to OMB, this 
bulletin provides the delineations of all Metropolitan Statistical 
Areas, Metropolitan Divisions, Micropolitan Statistical Areas, 
Combined Statistical Areas, and New England City and Town Areas in 
the United States and Puerto Rico based on the standards published 
in the Federal Register on June 28, 2010 (75 FR 37246 through 37252) 
and Census Bureau data.
    In order to implement these changes for the LTCH PPS (as in the 
case of the IPPS, as discussed in section III.B. of the preamble of 
this final rule), it is necessary to identify the new area 
designations for each county and hospital in the country. While the 
revisions OMB published on February 28, 2013, are not as sweeping as 
the changes OMB announced in 2003, the February 28, 2013 bulletin 
does contain a number of significant changes. For example, there are 
new CBSAs, urban counties that have become rural, rural counties 
that have become urban, and existing CBSAs that have been split 
apart.
    Because the update was not issued until February 28, 2013, and 
the changes made by

[[Page 50995]]

the update and their ramifications must be extensively reviewed and 
verified, we were unable to undertake such a lengthy process before 
publication of the FY 2014 proposed rule. As we explained in the FY 
2014 IPPS/LTCH PPS proposed rule (77 FR 27779), by the time the 
update was issued, that proposed rule was in the advanced stages of 
development. We had already developed the FY 2014 proposed LTCH PPS 
wage indexes based on the previous OMB definitions that are 
currently used under the LTCH PPS. We noted that CMS was faced with 
a similar situation 10 years ago, when OMB announced changes 
resulting from the 2000 Census in June 2003. At that time, CMS 
proposed and implemented the changes under the IPPS for FY 2005, 
followed by the adoption under the LTCH PPS in RY 2006 (as noted 
previously). Similarly, to allow for sufficient time to assess the 
new changes and their ramifications, consistent with the approach 
proposed under the IPPS (discussed in section III.B. of the preamble 
of this proposed rule), we intend to propose the adoption of the 
newest CBSA designations and the corresponding changes to the wage 
index based on those CBSA changes under the LTCH PPS for FY 2015 
through notice and comment rulemaking. Therefore, for FY 2014, we 
proposed to continue to use the same labor market areas that were 
used under the LTCH PPS for FY 2013 (77 FR 53710) as we assess the 
new changes to the CBSA designations and their effect on LTCH PPS 
payments.
    We did not receive any public comments specifically on our 
proposal to continue to use the same labor market areas that were 
used under the LTCH PPS for FY 2013 with the intention of proposing 
the adoption of the newest CBSA designations under the LTCH PPS for 
FY 2015 through notice and comment rulemaking. Accordingly, we are 
adopting this proposal as final without modification. We note that 
we received several public comments in support of this proposed 
approach under the IPPS, which we discuss in section III.B. of the 
preamble of this final rule.
    For FY 2014, therefore, we are using the same labor market areas 
that are being used under the LTCH PPS for FY 2013 (77 FR 53710) as 
we assess the new changes to the CBSA designations and their effect 
on LTCH PPS payments. This is consistent with the approach being 
taken under the IPPS, and as noted previously, the LTCH PPS 
currently uses the same CBSA-based designations implemented for 
acute care hospitals under the IPPS. We refer readers to the RY 2006 
LTCH PPS final rule (70 FR 24182 through 24191) for further 
information on the CBSA-based labor market area definitions 
currently used under the LTCH PPS. In addition, we refer readers to 
the FY 2005 IPPS final rule (69 FR 49026 through 49032) for those 
interested in learning about the issues that may need to be 
addressed in developing a proposal to implement the latest OMB 
update to the CBSA designations for FY 2015, and some of the policy 
decisions that may need to be taken into consideration in the 
development of such a proposal.

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 an 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: Labor-Related, Administrative and Business 
Support Services, and All-Other: Labor-Related Services) and a 
labor-related portion of capital costs using the applicable LTCH PPS 
market basket. (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) and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51766 through 
51769 and 51808).)
    For FY 2013, we revised and rebased the market basket used under 
the LTCH PPS by adopting the newly created FY 2009-based LTCH-
specific market basket. In addition, we determined the labor-related 
share for FY 2013 as the sum of the FY 2013 relative importance of 
each labor-related cost category of the FY 2009-based LTCH-specific 
market basket. Specifically, we determined the LTCH PPS labor-
related share for FY 2013 based on the relative importance of the 
labor-related share of operating costs (Wages and Salaries, Employee 
Benefits, Professional Fees: Labor-Related, Administrative and 
Business Support Services, and All Other: Labor-Related Services) 
and the labor-related share of capital costs of the LTCH-specific 
market basket based on FY 2009 data, as we believed these were the 
best data available to reflect the cost structure of LTCHs. In the 
FY 2013 IPPS/LTCH PPS final rule (77 FR 53477 through 53479 and 
53710 through 53711), we established a labor-related share under the 
LTCH PPS for FY 2013 of 63.096 percent based on IGI's second quarter 
2012 forecast of the FY 2009-based LTCH-specific market basket for 
FY 2013, as these were the most recent available data at that time 
that reflected the cost structure of LTCHs. (For additional details 
on the development of the LTCH PPS labor-related share for FY 2013, 
we refer readers to section VII.C.3.f. of the preamble of the FY 
2013 IPPS/LTCH PPS final rule.)
    Consistent with our historical practice, in the FY 2014 IPPS/
LTCH PPS proposed rule (77 FR 27779 through 27780), we proposed to 
determine the LTCH PPS labor-related share for FY 2014 based on the 
proposed FY 2014 relative importance of each labor-related cost 
category, which would reflect the different rates of price change 
for these cost categories between the base year (FY 2009) and FY 
2014. Specifically, based on IGI's first quarter 2013 forecast of 
the FY 2009-based LTCH-specific market basket, we proposed a labor-
related share under the LTCH PPS for FY 2014 of 62.717 percent. In 
addition, we proposed that if more recent data become available, we 
would use those data in determining the labor-related share under 
the LTCH PPS for FY 2014 in the final rule.
    Comment: Several commenters requested that CMS explain why the 
FY 2014 LTCH PPS proposed labor-related share (62.717 percent) is 
significantly different than the FY 2014 IPPS proposed labor-related 
share (69.6 percent) and the FY 2014 IRF PPS proposed labor-related 
share (69.658 percent). Furthermore, the commenters stated that if 
the primary difference is the use of separate market baskets, CMS 
should explain whether this was considered at the time the LTCH-
specific market basket was adopted for the LTCH PPS.
    Response: As the commenters suggested, the labor-related share 
for LTCHs is lower than the labor-related shares for IPPS hospitals 
and IRFs because of differences in the base year cost weights of the 
specific market baskets that are used for each PPS. The market 
basket cost weights that are used to derive the LTCH labor-related 
share are based on FY 2009 Medicare cost report data from LTCHs. The 
IPPS proposed labor-related share is derived using the proposed FY 
2010-based IPPS market basket cost weights (based on Medicare cost 
report data from IPPS hospitals) and the IRF proposed labor-related 
share is derived using the FY 2008-based RPL market basket cost 
weights (based on Medicare cost report data from IRFs, IPFs, and 
LTCHs).
    When we finalized the use of the LTCH-specific market basket in 
the FY 2013 IPPS/LTCH final rule (77 FR 53478 through 53479), we 
stated that the principal factors contributing to the difference in 
the labor-related shares between the FY 2009-based LTCH-specific 
market basket and the FY 2008-based RPL market basket were the base 
year cost weight differences found in two specific categories: Wages 
and Salaries, and Benefits. We stated that the lower share of costs 
attributable to wages and salaries, and benefits found in the FY 
2009-based LTCH-specific market basket was a direct result of 
incorporating cost data exclusively from LTCHs, as opposed to 
incorporating cost report data from freestanding IRFs, freestanding 
IPFs, and LTCHs combined (as is the case in the RPL market basket). 
Similarly, the IPPS labor-related share is based primarily on IPPS 
Medicare cost report data and would reflect the cost structure of 
IPPS hospitals. We continue to believe, as stated in the FY 2013 
IPPS/LTCH PPS final rule, that a labor-related share for LTCHs that 
is based on Medicare cost report data obtained exclusively from the 
universe of LTCH providers appropriately reflects the national 
average cost structures of LTCHs, and appropriately identifies the 
labor-related share for use under the LTCH PPS.
    Comment: Several commenters stated that CMS should consider 
whether the methodology for adjusting the LTCH labor-related share 
should be modified now that the LTCH PPS no longer uses the RPL 
market basket.
    Response: We believe that the methodology for determining the 
labor-related share is technically appropriate as it estimates the 
proportion of LTCH costs that are labor-intensive and vary with, or 
are influenced by, the local labor market. The methodology for 
determining the proposed LTCH labor-related share for FY 2014 is the 
same general method

[[Page 50996]]

as used to derive the FY 2014 IRF PPS proposed labor-related share, 
as well as the labor-related shares for other Medicare prospective 
payment systems such as the IPF PPS and the SNF PPS. That is, the 
labor-related share is equal to the sum of the relative importance 
of each labor-related cost category in the LTCH market basket. We 
calculate the labor-related relative importance for FY 2014 in four 
steps. First, we compute the FY 2014 price index level for the total 
market basket and each cost category of the market basket. Second, 
we calculate a ratio for each cost category by dividing the FY 2014 
price index level for that cost category by the total market basket 
price index level. Third, we determine the FY 2014 relative 
importance for each cost category by multiplying this ratio by the 
base year (FY 2009) weight. Finally, we add the FY 2014 relative 
importance for each of the labor related cost categories. The 
purpose of the relative importance is to capture the different rates 
of price change for each of the market basket cost categories 
between the base year (FY 2009 for LTCHs) and FY 2014. Therefore, to 
the extent an individual price proxy for a specific cost category is 
projected to grow faster from FY 2009 to FY 2014 relative to the 
proxies for other cost categories, the relative importance for that 
category in FY 2014 will be higher than the base year cost weight in 
FY 2009.
    After consideration of the public comments we received, 
consistent with our historical practice, as we proposed, we are 
determining the LTCH PPS labor-related share for FY 2014 based on 
the FY 2014 relative importance of each labor-related cost category, 
and reflects the different rates of price change for these cost 
categories between the base year (FY 2009) and FY 2014. For this 
final rule, we are determining the LTCH PPS labor-related share for 
FY 2014 based on IGI's second quarter 2013 forecast of the FY 2009-
based LTCH-specific market basket as this is currently the best 
available data.
    The table below shows the FY 2014 labor-related share relative 
importance using IGI's second quarter 2013 forecast of the FY 2009-
based LTCH-specific market basket. The sum of the relative 
importance for FY 2014 for operating costs (Wages and Salaries, 
Employee Benefits, Professional Fees: Labor-related, Administrative 
and Business Support Services, and All Other: Labor-related 
Services) is 58.317 percent. We are establishing that the portion of 
capital-related costs that is influenced by the local labor market 
continues to be estimated to be 46 percent. Because the relative 
importance for capital-related costs is 9.174 percent of the FY 
2009-based LTCH-specific market basket in FY 2014, we are taking 46 
percent of 9.174 percent to determine the labor-related share of 
capital-related costs for FY 2014, which results in 4.220 percent 
(0.46 x 9.174). We then add that 4.220 percent for the capital-
related cost amount to the 58.317 percent for the operating cost 
amount to determine the total labor-related share for FY 2014. 
Therefore, 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 are 
establishing a labor-related share under the LTCH PPS in FY 2014 of 
62.537 percent. This labor-related share is determined using the 
same methodology as employed in calculating all previous LTCH labor-
related shares.

  FY 2014 Labor-Related Share Relative Importance Based on the FY 2009-
                    Based LTCH-Specific Market Basket
------------------------------------------------------------------------
                                                            FY 2014
                                                      Labor[dash]related
                                                        share  relative
                                                          importance
------------------------------------------------------------------------
Wages and Salaries..................................           45.012
Employee Benefits...................................            8.094
Professional Fees: Labor-Related....................            2.207
Administrative and Business Support Services........            0.499
All Other: Labor-Related Services...................            2.505
                                                     -------------------
    Subtotal........................................           58.317
Labor-Related Portion of Capital Costs (46%)........            4.220
                                                     -------------------
        Total Labor-Related Share...................           62.537
------------------------------------------------------------------------

4. LTCH PPS Wage Index for FY 2014

    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 an LTCH's actual location without regard to the urban or rural 
designation of any related or affiliated provider.
    In the FY 2013 LTCH PPS final rule (77 FR 53711 through 53712), 
we calculated the FY 2013 LTCH PPS wage index values using the same 
data used for the FY 2013 acute care hospital IPPS (that is, data 
from cost reporting periods beginning during FY 2009), 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 2013 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). 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. 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 2014, under 
the broad authority conferred upon the Secretary by section 123 of 
the BBRA, as amended by section 307(b) of the BIPA, to determine 
appropriate adjustments under the LTCH PPS, as we proposed, we are 
using wage data collected from cost reports submitted by IPPS 
hospitals for cost reporting periods beginning during FY 2010, 
without taking into account geographic reclassification under 
sections 1886(d)(8) and 1886(d)(10) of the Act. We are using FY 2010 
data because these data are the most recent complete data available. 
These are the same data used to compute the FY 2014 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 readers to the FY 2010 IPPS/RY 
2010 LTCH PPS final rule (74 FR 44024 through 44025).)
    As we proposed, the FY 2014 LTCH PPS wage index values were 
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.G. of the 
preamble of this final rule). Furthermore, in determining the FY 
2014 LTCH PPS wage index values in this final rule, as we proposed, 
we are continuing to use our existing policy for determining wage 
index values in areas where there are no IPPS wage data. 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 we are continuing to use this methodology for FY 2014. (We 
refer readers to the RY 2009 LTCH PPS final rule (73 FR 26817 
through 26818) for an explanation of and rationale for our policy 
for determining LTCH PPS wage index values for areas that have no 
IPPS wage data.)
    There are currently no LTCHs located in labor areas without IPPS 
hospital wage data (or IPPS hospitals) for FY 2014. However, we 
calculated LTCH PPS wage index values for such an area using our 
established methodology in the event that, in the future, an 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.
    Based on the FY 2010 IPPS wage data that we used to determine 
the FY 2014 LTCH PPS wage index values in this final rule, there are

[[Page 50997]]

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 2014 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 on the CMS Web site). We note that, as 
IPPS wage data are dynamic, it is possible that urban areas without 
IPPS wage data will vary in the future.
    Based on FY 2010 IPPS wage data that we are using to determine 
the FY 2014 LTCH PPS wage index values in this final rule, there are 
no rural areas without IPPS hospital wage data. Therefore, it was 
not necessary to use our established methodology to calculate an 
LTCH PPS wage index value for rural areas with no IPPS wage data for 
FY 2014. We note that, as IPPS wage data are dynamic, it is possible 
that rural areas without IPPS wage data will vary in the future.
    The FY 2014 LTCH wage index values that will be applicable for 
LTCH discharges occurring on or after October 1, 2013, through 
September 30, 2014, 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 on the 
CMS Web site.

5. 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. Under Sec.  
412.525(c)(2), any changes to the wage index values or labor-related 
share are 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, we determine 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. Accordingly, under Sec.  
412.523(d)(4), we apply an area wage level adjustment budget 
neutrality factor in determining the standard Federal rate, and we 
also established a methodology for calculating an area wage level 
adjustment budget neutrality factor. (For additional information on 
the establishment of our budget neutrality policy for changes to the 
area wage level adjustment, we refer readers to the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51771 through 51773 and 51809).)
    For FY 2014, in accordance with Sec.  412.523(d)(4), as we 
proposed, we are applying an area wage level adjustment budget 
neutrality factor to adjust the standard Federal rate to account for 
the estimated effect of the proposed adjustments or updates to the 
area wage level adjustment under Sec.  412.525(c)(1) on estimated 
aggregate LTCH PPS payments using the methodology we established in 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51773). Specifically, we 
determined an area wage level adjustment budget neutrality factor 
that is applied to the standard Federal rate under Sec.  
412.523(d)(4) for FY 2014 using the following methodology:
    Step 1--We simulated estimated aggregate LTCH PPS payments using 
the FY 2013 wage index values (as established in Tables 12A and 12B 
listed in the Addendum to the FY 2013 IPPS/LTCH PPS final rule and 
available via the Internet on the CMS Web site) and the FY 2013 
labor-related share of 63.096 percent (as established in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53477 through 53479 and 53710 
through 53711).
    Step 2--We simulated estimated aggregate LTCH PPS payments using 
the FY 2014 wage index values (as shown in Tables 12A and 12B listed 
in the Addendum to this final rule and available via the Internet on 
the CMS Web site) and the FY 2014 labor-related share of 62.537 
percent (based on the latest available data as discussed previously 
in section V.B.3. of this Addendum).
    Step 3--We calculated the ratio of these estimated total LTCH 
PPS payments by dividing the estimated total LTCH PPS payments using 
the FY 2013 area wage level adjustments (calculated in Step 1) by 
the estimated total LTCH PPS payments using the FY 2014 area wage 
level adjustments (calculated in Step 2) to determine the area wage 
level adjustment budget neutrality factor for FY 2014.
    Step 4--We then applied the FY 2014 area wage level adjustment 
budget neutrality factor from Step 3 to determine the FY 2014 LTCH 
PPS standard Federal rate after the application of the FY 2014 
annual update (discussed in section V.A.2. of the Addendum to this 
final rule). For this final rule, using the steps in the methodology 
described above, we determined a FY 2014 area wage level adjustment 
budget neutrality factor of 1.0010531. Accordingly, in section 
V.A.2. of the Addendum to this final rule, to determine the FY 2014 
LTCH PPS standard Federal rate, we are applying an area wage level 
adjustment budget neutrality factor of 1.0010531, in accordance with 
Sec.  412.523(d)(4). The FY 2014 LTCH PPS standard Federal rate 
shown in Table 1E of the Addendum to this final rule reflects this 
adjustment factor.

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

    Under Sec.  412.525(b), a cost-of-living adjustment (COLA) is 
provided 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.
    As discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53481 through 53482 and 53712 through 53713), historically, 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 LTCH PPS payments for LTCHs located in 
Alaska and Hawaii. Statutory changes have transitioned the Alaska 
and Hawaii COLAs to locality pay (phased in over a 3-year period 
beginning in January 2010, with COLA rates being frozen as of 
October 28, 2009, and then proportionately reduced to reflect the 
phase-in of locality pay). We explained that we did not believe it 
was appropriate to use either the 2010 or 2011 reduced COLA factors 
to adjust the nonlabor-related portion of the standard Federal rate 
for LTCHs located in Alaska and Hawaii for Medicare payment 
purposes. In addition, we believe that it was appropriate to use 
``frozen'' COLA factors to adjust payments, while we explored 
alternatives for updating the COLA factors in the future.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53712 through 
53713), we continued to use the same ``frozen'' COLA factors used in 
FY 2012 to adjust the nonlabor-related portion of the standard 
Federal rate for LTCHs located in Alaska and Hawaii in FY 2013 under 
Sec.  412.525(b). In that same final rule, we also established a 
methodology to update the COLA factors for Alaska and Hawaii, every 
4 years (at the same time as the update to the labor-related share 
of the IPPS market basket), beginning in FY 2014. The methodology we 
established to update the COLA factors is based on a comparison of 
the growth in the CPIs for Anchorage, Alaska and Honolulu, Hawaii 
relative to the growth in the CPI for the average U.S. city as 
published by the Bureau of Labor Statistics (BLS). As also explained 
in that same final rule, we believe that using these updated COLA 
factors will appropriately adjust the nonlabor-related portion of 
the standard Federal rate for LTCHs located in Alaska and Hawaii. 
(For additional details on the methodology we established in the FY 
2013 IPPS/LTCH PPS final rule to update the COLA factors for Alaska 
and Hawaii beginning in FY 2014, we refer readers to section 
VII.D.3. of the preamble of that final rule (77 FR 53481 through 
53482).)
    For FY 2014, we proposed to update the COLA factors published 
for Alaska and Hawaii by OPM for 2009 (as these are the last COLA 
factors OPM published prior to transitioning from COLAs to locality 
pay) using the methodology that we finalized in the FY 2013 IPPS/
LTCH PPS final rule. Under our proposal, we proposed COLA factors 
for FY 2014 for the three specified urban areas of Alaska 
(Anchorage, Fairbanks and Juneau) of 1.23; for the City and County 
of Honolulu, the County of Kauai, the County of Maui, the County of 
Kalawao, and ``All other'' areas of Alaska of 1.25; and for the 
County of Hawaii of 1.19. For additional details on our proposal, we 
refer readers to the FY 2014 IPPS/LTCH PPS proposed rule (77 FR 
27781 through 27782). We did not receive any public comments on our 
proposed COLA factors for FY 2014, and are adopting them as final in 
this final rule without modification. The development of the FY 2014 
COLA factors for Alaska and Hawaii is described below.

[[Page 50998]]

    In this final rule, for FY 2014, under the broad authority 
conferred upon the Secretary by section 123 of the BBRA, as amended 
by section 307(b) of the BIPA, to determine appropriate adjustments 
under the LTCH PPS, we are updating the COLA factors published by 
OPM for 2009 (as these are the last COLA factors OPM published prior 
to transitioning from COLAs to locality pay) using the methodology 
that we finalized in the FY 2013 IPPS/LTCH PPS final rule for 
purposes of making a COLA for LTCHs located in Alaska and Hawaii 
under Sec.  412.525(b). Specifically, the methodology uses a 
comparison of the growth in the CPIs for Anchorage, Alaska and 
Honolulu, Hawaii relative to the growth in the CPI for the average 
U.S. city as published by the BLS. As discussed in that same final 
rule (77 FR 53481 through 53482), because BLS publishes CPI data for 
only Anchorage, Alaska and Honolulu, Hawaii, our methodology uses a 
comparison of the growth in the Consumer Price Indices (CPIs) for 
those cities relative to the growth in the overall CPI to update the 
COLA factors for all areas located in Alaska and Hawaii, 
respectively. We believe that the relative price differences between 
these cities and the United States (as measured by the CPIs 
mentioned above) are generally appropriate and necessary proxies for 
the relative price differences between the ``other areas'' of Alaska 
and Hawaii and the United States.
    The ``CPI for All Items'' that BLS publishes for Anchorage, 
Honolulu, and for the average U.S. city are based on a different mix 
of commodities and services than is reflected in the nonlabor-
related share of the IPPS market basket. We note that the mix of 
commodities and services for the nonlabor-related share based on the 
LTCH market basket is similar to that of the nonlabor-related share 
of the IPPS market basket. As such, under the methodology we 
established to update the COLA factors, we calculated a ``reweighted 
CPI'' using the CPI for commodities and the CPI for services for 
each of the geographic areas to mirror the composition of the IPPS 
market basket nonlabor-related share.
    The current composition of BLS' CPI for All Items for all of the 
respective areas is approximately 40 percent commodities and 60 
percent services. However, the nonlabor-related share of the IPPS 
market basket is comprised of approximately 60 percent commodities 
and 40 percent services. Therefore, under the methodology we 
established in the FY 2013 IPPS/LTCH PPS final rule we have created 
reweighted indexes for Anchorage, Alaska and Honolulu, Hawaii, and 
the average U.S. city using the respective CPI commodities index and 
CPI services index and applying the approximate 60/40 weights from 
the proposed IPPS market basket. We believe that this method of 
reweighting is appropriate because we would continue to make a COLA 
for LTCHs located in Alaska and Hawaii by multiplying the nonlabor-
related portion of the LTCH PPS standard Federal rate by a COLA 
factor.
    Under the COLA factor update methodology we established in the 
FY 2013 IPPS/LTCH PPS final rule, we further exercised our 
discretionary authority to adjust payments made to LTCHs located in 
Alaska and Hawaii by incorporating a 25-percent cap on the CPI-
updated COLA factors used to adjust the nonlabor-related portion of 
the LTCH PPS standard Federal rate, which is consistent with a 
statutorily mandated 25-percent cap that was applied to OPM's 
published COLA factors. We believe that this is appropriate because 
our CPI-updated COLA factors for FY 2014 uses the 2009 OPM COLA 
factors as a basis. In addition, we are continuing to establish COLA 
factors that are rounded to 2 decimal places, which is consistent 
with the number of decimal places in the 2009 OPM COLA factors that 
are used as the basis for calculating the FY 2014 COLA factors. This 
policy will also maintain consistency with the rounding used for the 
25-percent cap on the COLA factors (that is, a COLA factor of no 
more than 1.25).
    Applying this methodology, we are establishing the COLA factors 
for FY 2014 that will adjust the nonlabor-related portion of the 
standard Federal rate for LTCHs located in Alaska and Hawaii as 
shown in the table below.

 Cost-of-Living Adjustment Factors for Alaska and Hawaii Hospitals under
                        the LTCH PPS for FY 2014
------------------------------------------------------------------------
 
------------------------------------------------------------------------
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....................................            1.19
    County of Kauai.....................................            1.25
    County of Maui and County of Kalawao................            1.25
------------------------------------------------------------------------

    Each of the COLA factors was calculated using data through 2012, 
as these are the latest historical CPI data published by the BLS. 
The reweighted CPI for Honolulu, Hawaii grew faster than the 
reweighted CPI for the average U.S. city over the time period from 
2009 to 2012, with a growth rate of 8.9 percent and 8.3 percent, 
respectively. As a result, for FY 2014, we calculated COLA factors 
for the City and County of Honolulu, the County of Kauai, the County 
of Maui, and the County of Kalawao to be 1.26 compared to the FY 
2013 COLA factor of 1.25. However, as stated above, our COLA factor 
update methodology caps the COLA factors at 1.25. In addition, the 
COLA factor calculated for the County of Hawaii for FY 2014 is 1.19 
compared to the FY 2013 COLA factor of 1.18.
    The reweighted CPI for Anchorage, Alaska grew slower than the 
reweighted CPI for the average U.S. city over the time period from 
2009 to 2012, with a growth rate of 8.0 percent and 8.3 percent, 
respectively. However, applying this slower relative growth rate to 
the FY 2009 COLA factors for each of the Alaska areas results in no 
change to the COLA factors for the Alaska areas for FY 2014 (1.25 
for ``All other areas of Alaska'' and 1.23 for the three specified 
urban areas of Alaska (Anchorage, Fairbanks, and Juneau) as compared 
to the FY 2013 COLA factors.

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 the 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 for 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

[[Page 50999]]

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 an 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 an 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, an LTCH's CCR is 
calculated by dividing an 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, an LTCH is assigned the applicable statewide average 
CCR if, among other things, an 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 CCRs based on erroneous 
data should not be used to identify and make payments for outlier 
cases. Therefore, under our established policy, generally, if an 
LTCH's calculated CCR is above the applicable ceiling, the 
applicable LTCH PPS statewide average CCR is assigned to the LTCH 
instead of the CCR computed from its most recent (settled or 
tentatively settled) cost report data.
    In the proposed rule, using our established methodology for 
determining the LTCH total CCR ceiling (described above), based on 
IPPS total CCR data from the December 2012 update of the PSF, we 
proposed to establish a total CCR ceiling of 1.254 under the LTCH 
PPS for FY 2014 in accordance with Sec.  412.525(a)(4)(iv)(C)(2) for 
HCOs and Sec.  412.529(f)(4)(iii)(B) for SSOs. 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 2014 in the final rule. We did 
not receive any public comments on our proposals related to 
determining the LTCH total CCR ceiling for FY 2014, and are adopting 
them as final, without modification, in this final rule.
    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 2013 
update of the PSF, we are establishing a total CCR ceiling of 1.305 
under the LTCH PPS that will be effective for discharges occurring 
on or after October 1, 2013 through September 30, 2014.

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 an 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 an 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 an 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 2012 update of 
the PSF, we proposed LTCH PPS statewide average total CCRs for urban 
and rural hospitals that would be effective for FY 2014 in Table 8C 
listed in section VI. of the Addendum to that proposed rule and 
available via the Internet. We did not receive any public comments 
on our proposals related to determining the LTCH PPS statewide 
average CCRs for FY 2014, and are adopting them as final, without 
modification, in this final rule.
    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 
2013 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, 2013 
through September 20, 2014, in Table 8C listed in section VI. of the 
Addendum to this final rule (and available via the Internet). 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. 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 Connecticut 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 2013. Therefore, consistent with 
our existing methodology, we are using the national average total 
CCR for rural IPPS hospitals for rural Connecticut 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, in 
determining the urban and rural statewide average total CCRs for 
Maryland LTCHs paid under the LTCH PPS, we are continuing to use, as 
a proxy, the national average total CCR for urban IPPS hospitals and 
the national average total CCR for rural IPPS hospitals, 
respectively. We are using this proxy because we believe that the 
CCR data in the PSF for Maryland hospitals may not be entirely 
accurate (as discussed in

[[Page 51000]]

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 2014

    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 2013 IPPS/LTCH PPS final rule (77 FR 53715), we 
presented our policies regarding the methodology and data we used to 
establish the fixed-loss amount of $15,408 for FY 2013. In the FY 
2014 IPPS/LTCH PPS proposed rule (78 FR 27784), we proposed to 
continue to use our existing methodology to calculate the fixed-loss 
amount for FY 2014 (based on the 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 2014, we 
proposed to use the most recent available LTCH claims data and CCR 
data, that is, LTCH claims data from the December 2012 update of the 
FY 2012 MedPAR file and CCRs from the December 2012 update of the 
PSF, as these data were the most recent complete LTCH data available 
at that time.
    Comment: One commenter noted that the year-to year-establishment 
of the LTCH PPS high-cost outlier fixed-loss threshold amounts has 
generally resulted in high-cost outlier payments that are estimated 
to be less than the 8.0 percent of total LTCH PPS payments required 
under the regulations. The commenter pointed out that in the 
proposed rule, CMS stated that the high-cost outlier fixed-loss 
threshold amount established for FY 2013 is projected to ``fall 
short'' of the 8.0 percent of total LTCH PPS payment target. Because 
the commenter believed that CMS' current methodology for 
establishing the annual high-cost outlier fixed-loss threshold 
amount is not adequate and requires correction, the commenter 
requested that CMS provide for both ``retrospective and prospective 
corrective actions'' for high-cost outlier payments in FY 2014, 
stating that in analogous situations (such as documentation and 
coding) where CMS has determined its past payment rates were 
inaccurate, it has instituted corrective payment adjustments in 
future years payment rates. Specifically, the commenter recommended 
that CMS implement a positive adjustment in FY 2014 to retroactively 
account for the cumulative year-to-year underpayment of the 8.0 
percent high-cost outlier target. The commenter also recommended 
that, in the absence of demonstrating that it is able to improve the 
accuracy of the establishment of high-cost outlier fixed-loss 
threshold amounts, CMS should prospectively revise (that is, 
decrease) the fixed-loss threshold amount for FY 2014 and subsequent 
years to correct for its ``average error rate'' in past years. The 
commenter did not provide any specific recommendations for how these 
``retrospective and prospective corrective'' adjustments should be 
determined. In addition, the commenter did not provide its own 
analysis of the estimated level of high-cost outlier payments under 
the LTCH PPS.
    Response: The commenter correctly pointed out that we currently 
project that high-cost outlier payments will be approximately 7.0 
percent of the estimated total LTCH PPS payments in FY 2013. We wish 
to clarify that this estimate of FY 2013 LTCH PPS payments is only a 
projected estimate and it is based on payment simulations using FY 
2013 claims data, adjusted for estimates of inflation, as these are 
currently the most recent available claims data. Precise figures on 
actual outlier payments for a given fiscal year cannot be determined 
until well after that fiscal year ends. As a result, we do not 
believe that we currently have sufficient data to make a meaningful 
adjustment to the outlier threshold at this time. However, in light 
of the concerns raised by the commenter, we intend to analyze 
estimated actual FY 2013 high-cost outlier payments once sufficient 
data are available. Because we proposed to continue to use our 
existing methodology to calculate the fixed-loss amount for FY 2014 
and the commenter did not provide any specific adjustments to our 
existing methodology, we are not making any changes to our existing 
methodology to calculate the fixed-loss amount for FY 2014 in this 
final rule. However, we intend to explore potential adjustments to 
improve the accuracy of our methodology for the annual establishment 
of the fixed-loss amount that could be proposed and adopted in the 
future through notice-and-comment rulemaking.
    We are not adopting the commenter's suggestion to make 
``retrospective and prospective corrective actions'' for high-cost 
outlier payments in FY 2014 to account for the cumulative year-to-
year high-cost outlier underpayment, or to correct for the ``average 
error rate'' in the fixed-loss amounts in past years. As we have 
articulated on numerous occasions (primarily in the IPPS context, 
which has a similar high-cost outlier policy as there is under the 
LTCH PPS), we believe that an important goal of any PPS is 
predictability and, therefore, we believe that the fixed-loss 
outlier threshold should be projected based on the best available 
historical data and should not include retrospective or prospective 
``corrective'' adjustments. A retrospective or prospective 
``corrective'' adjustment to the fixed-loss outlier threshold would 
affect all hospitals subject to the LTCH PPS, thereby undercutting 
the predictability of the system as a whole (68 FR 34502). In 
addition, the payment simulations that we use to determine the 
outlier threshold factor in all payments and policies would affect 
actual payments for the fiscal year at hand in order to ensure 
accuracy when determining outlier payments that are projected to be 
8.0 percent of total LTCH PPS payments. Including a ``corrective 
adjustment factor'' that is not relative to the current fiscal year 
does not lend greater accuracy to the estimate of payments that are 
projected to be 8.0 percent of total LTCH PPS payments (70 FR 
47495). We also note that our high-cost outlier policies under a PPS 
are intended to reimburse hospitals for treating extraordinarily 
costly cases and outlier payments are intended to approximate the 
marginal cost of providing care above the outlier fixed-loss cost 
threshold. Any adjustment to the outlier threshold or Federal rate 
in a given year to account for ``overpayments'' or ``underpayments'' 
of high-cost outliers in other years would result in us making 
outlier payments that were not directly related to the actual cost 
of furnishing care in extraordinarily costly cases (70 FR 47495). 
Consistent with our historical high-cost outlier policies and the 
goals of a prospective payment system, for the reasons discussed 
above, we do not believe that it is appropriate to make retroactive 
adjustments to high-cost outlier payments to ensure that total 
outlier payments in a past year are equal to the estimated 
``target,'' and we are not adopting the commenters suggestion to 
make ``retrospective and prospective corrective'' adjustments in 
determining high-cost outlier payments in FY 2014.
    Therefore, in this final rule, for FY 2014, in general, we are 
continuing to use our existing methodology to calculate a fixed-loss 
amount for FY 2014 using the best available data that will maintain 
estimated HCO payments at the projected 8 percent of total estimated 
LTCH PPS payments (based on the rates and policies presented in this 
final rule). Specifically, for this final rule, we are using LTCH 
claims data from the March 2013 update of the FY 2012 MedPAR file 
and CCRs from the March 2013 update of the PSF to determine a fixed-
loss amount that will result in estimated outlier payments projected 
to be equal to 8 percent of total

[[Page 51001]]

estimated payments in FY 2014 because these data are the most recent 
complete LTCH data available at this time. (For additional detail on 
the rationale for setting the HCO payment ``target'' at 8 percent of 
total estimated LTCH PPS payments, we refer readers to the FY 2003 
LTCH PPS final rule (67 FR 56022 through 56024).) Using our existing 
methodology, we are establishing a fixed-loss amount of $13,314 for 
FY 2014.
    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 $13,314 for FY 2014. Therefore, we are making an additional 
payment for 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 $13,314). We also note that the 
fixed-loss amount of $13,314 for FY 2014 is lower than the FY 2013 
fixed-loss amount of $15,408, and the proposed FY 2014 fixed-loss 
amount of $14,139. The decrease from the proposed FY 2014 fixed-loss 
amount ($14,139) to the final FY 2014 fixed-loss amount ($13,314) is 
primarily due to updated CCRs for many LTCHs between the December 
2012 update of the PSF (used to determine the proposed FY 2014 
fixed-loss amount) and the March 2013 update of the PSF (used to 
determine the final FY 2014 fixed-loss amount). Specifically, we 
found that over 30 percent of LTCHs had a CCR update between the 
December 2012 update of the PSF and the March 2013 update of the 
PSF, which results in an overall decrease in the average LTCH CCR of 
approximately 0.7 percent from the CCRs we used to determine the 
proposed FY 2014 fixed-loss outlier threshold. CCRs from the March 
2013 update of the PSF reflect much more recent hospital-specific 
data, including CCRs from LTCHs' most recent tentatively settled 
cost report. In many cases, for part of FY 2014, MACs will determine 
actual outlier payment amounts using the same CCRs that are in the 
March 2013 update of the PSF.
    Because the estimated cost of the case used in determining HCO 
payments is calculated by multiplying the LTCH's CCR by the Medicare 
allowable charges for the case, an overall decrease in the average 
CCRs generally results in lower estimated costs and, therefore, 
lower outlier payments. As a result, based on our payment 
simulations using the most recent available data at this time, the 
decrease in the fixed-loss amount for FY 2014 is necessary to 
maintain the existing requirement that estimated outlier payments 
would equal 8 percent of estimated total LTCH PPS payments. (As 
noted above, for further information on the existing 8 percent HCO 
``target'' requirement, 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 will 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 
will result in a decrease in the amount of the additional payment 
for an HCO case because the maximum loss that an 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, an LTCH discharge could qualify as an 
SSO case (as defined in the regulations at Sec.  412.529 in 
conjunction with Sec.  412.503) and also as an 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 an HCO. 
Therefore, for an SSO case in FY 2014, the HCO payment will 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 $13,314 
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 2014

    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 applicable LTCH PPS wage index (FY 2014 values are shown in 
Tables 12A and 12B listed in section VI. of the Addendum of this 
final rule and are available via the Internet). The standard Federal 
rate is also adjusted to account for the higher costs of LTCHs 
located in Alaska and Hawaii by the applicable COLA factors (the 
proposed FY 2014 factors are shown in the chart in section V.C. of 
this Addendum) in accordance with Sec.  412.525(b). In this final 
rule, we are establishing a standard Federal rate for FY 2014 of 
$40,607.31 (provided the LTCH submits quality reporting data for FY 
2014 in accordance with the LTCHQR Program under section 1886(m)(5) 
of the Act), as discussed above in section V.A.2. of the Addendum to 
this final rule. We illustrate the methodology to adjust the LTCH 
PPS Federal standard rate for FY 2014 in the following example:
    Example: During FY 2014, a Medicare patient is in an LTCH 
located in Chicago, Illinois (CBSA 16974) and discharged on January 
1, 2014. The FY 2014 LTCH PPS wage index value for CBSA 16974 is 
1.0418 (obtained from Table 12A listed in section VI. of the 
Addendum of this final rule and available via the Internet on the 
CMS Web site). The Medicare patient is classified into MS-LTC-DRG 28 
(Spinal Procedures with MCC), which has a relative weight for FY 
2014 of 1.6227 (obtained from Table 11 listed in section VI. of the 
Addendum of this final rule and available via the Internet on the 
CMS Web site). The LTCH submitted quality reporting data for FY 2014 
in accordance with the LTCHQR Program under section 1886(m)(5) of 
the Act.
    To calculate the LTCH's total adjusted Federal prospective 
payment for this Medicare patient in FY 2014, we computed the wage-
adjusted Federal prospective payment amount by multiplying the 
unadjusted FY 2014 standard Federal rate ($40,607.31, for LTCHs that 
submit quality reporting data for FY 2014 in accordance with the 
LTCHQR Program under section 1886(m)(5) of the Act) by the labor-
related share (62.537 percent) and the wage index value (1.0418). 
This wage-adjusted amount was then added to the nonlabor-related 
portion of the unadjusted standard Federal rate (37.463 percent; 
adjusted for cost of living, if applicable) to determine the 
adjusted Federal rate, which was then multiplied by the MS-LTC-DRG 
relative weight (1.6227) to calculate the total adjusted Federal 
LTCH PPS prospective payment for FY 2014 ($67,615.96). The table 
below illustrates the components of the calculations in this 
example.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Unadjusted Standard Federal Prospective Payment Rate          $40,607.31
 (provided the LTCH submits quality data in
 accordance with the LTCHQR Program under section
 1886(m)(5) of the Act)..............................
Labor-Related Share..................................          x 0.62537
                                                      ------------------
Labor-Related Portion of the Federal Rate............       = $25,394.59
Wage Index (CBSA 16974)..............................           x 1.0418
                                                      ------------------
Wage-Adjusted Labor Share of Federal Rate............       = $26,456.08
Nonlabor-Related Portion of the Federal Rate                + $15,212.72
 ($40,607.31 x 0.37463)..............................
                                                      ------------------
Adjusted Federal Rate Amount.........................       = $41,668.80
MS-LTC-DRG 28 Relative Weight........................           x 1.6227
                                                      ------------------
    Total Adjusted Federal Prospective Payment.......       = $67,615.96
------------------------------------------------------------------------


[[Page 51002]]

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, similar to FYs 
2012 and 2013, for the FY 2014 rulemaking cycle, the IPPS and LTCH 
tables will not be published as part of the annual IPPS/LTCH PPS 
proposed and final rulemakings and will be available only through 
the Internet. Specifically, IPPS Tables 2, 3A, 3B, 4A, 4B, 4C, 4D, 
4E, 4F, 4J, 5, 6B, 6G, 6H, 6I, 6J, 6K, 7A, 7B, 8A, 8B, 9A, 9C, 10, 
15, and 16A and LTCH PPS Tables 8C, 11, 12A, 12B, 13A, and 13B 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. As discussed in section II.G.9. and 
11. of the preamble of this final rule, Tables 6A and 6C through 6F 
will not be issued with this FY 2014 final rule because there are no 
new, revised, or deleted ICD-9-CM diagnosis codes and no revised or 
deleted procedures codes. As discussed in section V.C. of the 
preamble of this final rule, effective FY 2014 and forward, the low-
volume hospital definition and payment adjustment methodology under 
section 1886(d)(12) of the Act returns to the pre-Affordable Care 
Act definition and payment adjustment methodology (we refer readers 
to section V.C. for complete details on the low-volume hospital 
payment adjustment). Therefore, we are no longer including a table 
(previously Table 14) in this final rule that lists the low-volume 
payment adjustments.
    Readers who experience any problems accessing any of the tables 
that are posted on the CMS Web sites identified below should contact 
Michael Treitel at (410) 786-4552.
    The following IPPS tables for this FY 2014 final rule are 
available only through the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on the link on the left side of 
the screen titled, ``FY 2014 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 2012; Hospital Wage Indexes for 
Federal Fiscal Year 2014; Hospital Average Hourly Wages for Federal 
Fiscal Years 2012 (2008 Wage Data), 2013 (2009 Wage Data), and 2014 
(2010 Wage Data); and 3-Year Average of Hospital Average Hourly 
Wages
Table 3A.--FY 2014 and 3-Year* Average Hourly Wage for Acute Care 
Hospitals in Urban Areas by CBSA
Table 3B.--FY 2014 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 
2014
Table 4B.--Wage Index and Capital Geographic Adjustment Factor (GAF) 
for Acute Care Hospitals in Rural Areas by CBSA and by State--FY 
2014
Table 4C.--Wage Index and Capital Geographic Adjustment Factor (GAF) 
for Acute Care Hospitals That Are Reclassified by CBSA and by 
State--FY 2014
Table 4D.--States Designated as Frontier, with Acute Care Hospitals 
Receiving at a Minimum the Frontier State Floor Wage Index; Urban 
Areas with Acute Care Hospitals Receiving the Statewide Rural Floor 
or Imputed Floor Wage Index--FY 2014
Table 4E.--Urban CBSAs and Constituent Counties for Acute Care 
Hospitals--FY 2014
Table 4F.--Puerto Rico Wage Index and Capital Geographic Adjustment 
Factor (GAF) for Acute Care Hospitals by CBSA--FY 2014
Table 4J.--Out-Migration Adjustment for Acute Care Hospitals--FY 
2014
Table 5.--List of Medicare Severity Diagnosis-Related Groups (MS-
DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean 
Length of Stay--FY 2014
Table 6B.--New Procedure Codes--FY 2014
Table 6G.--Additions to the CC Exclusions List--FY 2014
Table 6H.--Deletions from the CC Exclusions List--FY 2014
Table 6I.--Major CC List--FY 2014
Table 6J.--Complete CC List--FY 2014
Table 6K.--Complete List of CC Exclusions--FY 2014
Table 7A.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2012 MedPAR Update--March 2013 GROUPER V30.0 MS-
DRGs
Table 7B.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2012 MedPAR Update--March 2013 GROUPER V31.0 MS-
DRGs
Table 8A.--FY 2014 Statewide Average Operating Cost-to-Charge Ratios 
(CCRs) for Acute Care Hospitals (Urban and Rural)
Table 8B.--FY 2014 Statewide Average Capital Cost-to-Charge Ratios 
(CCRs) for Acute Care Hospitals
Table 9A.--Hospital Reclassifications and Redesignations--FY 2014
Table 9C.--Hospitals Redesignated as Rural under Section 
1886(d)(8)(E) of the Act--FY 2014
Table 10.--New Technology Add-On Payment Thresholds \1,2\ for 
Applications for FY 2015
Table 15.--FY 2014 Readmissions Adjustment Factors
Table 16A.--Updated Proxy Hospital Inpatient Value-Based Purchasing 
(VBP) Program Adjustment Factors for FY 2014

    The following LTCH PPS tables for this FY 2014 final rule are 
available only through the Internet on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the list item for 
Regulation Number CMS-1599-F.

Table 8C.--FY 2014 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, Short-Stay Outlier (SSO) Threshold, and ``IPPS Comparable 
Threshold'' for Discharges Occurring from October 1, 2013 through 
September 30, 2014 under the LTCH PPS
Table 12A.--LTCH PPS Wage Index for Urban Areas for Discharges 
Occurring from October 1, 2013 through September 30, 2014
Table 12B.--LTCH PPS Wage Index for Rural Areas for Discharges 
Occurring from October 1, 2013 through September 30, 2014
Table 13A.--Composition of Low-Volume Quintiles for MS-LTC-DRGs--FY 
2014
Table 13B.--No-Volume MS-LTC-DRG Crosswalk for FY 2014

    Table 1A--National Adjusted Operating Standardized Amounts, Labor/Nonlabor (69.6 Percent Labor Share/30.4
                        Percent Nonlabor Share If Wage Index Is Greater Than 1)--FY 2014
----------------------------------------------------------------------------------------------------------------
                Full Update (1.7 Percent)                              Reduced Update (-0.3 Percent)
----------------------------------------------------------------------------------------------------------------
       Labor-related               Nonlabor-related              Labor-related             Nonlabor-related
----------------------------------------------------------------------------------------------------------------
             $3,737.71                    $1,632.57                    $3,664.21                   $1,600.46
----------------------------------------------------------------------------------------------------------------


  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 2014
----------------------------------------------------------------------------------------------------------------
                Full Update (1.7 Percent)                              Reduced Update (-0.3 Percent)
----------------------------------------------------------------------------------------------------------------
       Labor-related               Nonlabor-related              Labor-related             Nonlabor-related
----------------------------------------------------------------------------------------------------------------
             $3,329.57                    $2,040.71                    $3,264.10                   $2,000.57
----------------------------------------------------------------------------------------------------------------


[[Page 51003]]


  Table 1C--Adjusted Operating Standardized Amounts For Puerto Rico, Labor/Nonlabor (National: 62 Percent Labor
 Share/38 Percent Nonlabor Share Because Wage Index Is Less Than Or Equal To 1; Puerto Rico: 63.2 Percent Labor
 Share/36.8 Percent Nonlabor Share If Wage Index Is Greater Than 1 Or 62 Percent Labor Share/38 Percent Nonlabor
                             Share If Wage Index Is Less Than Or Equal To 1--FY 2014
----------------------------------------------------------------------------------------------------------------
                                        Rates if wage index is greater than 1       Rates if wage index is less
                                   ----------------------------------------------       than or equal to 1
        Standardized amount                                                      -------------------------------
                                            Labor                 Nonlabor             Labor         Nonlabor
----------------------------------------------------------------------------------------------------------------
National \1\......................  Not Applicable.......  Not Applicable.......       $3,329.57       $2,040.71
Puerto Rico.......................  $1,608.90............  $936.82..............        1,578.35          967.37
----------------------------------------------------------------------------------------------------------------
\1\ For FY 2014, there are no CBSAs in Puerto Rico with a national wage index greater than 1.


                            Table 1D--Capital Standard Federal Payment Rate--FY 2014
----------------------------------------------------------------------------------------------------------------
                                                                                  Rate
----------------------------------------------------------------------------------------------------------------
National..............................................                                                   $429.31
Puerto Rico...........................................                                                    209.82
----------------------------------------------------------------------------------------------------------------


    Table 1E--LTCH Standard Federal Prospective Payment Rate--FY 2014
------------------------------------------------------------------------
                                   Full update (1.7   Reduced update* (-
                                       percent)          0.3 percent)
------------------------------------------------------------------------
Standard Federal Rate...........         $40,607.31          $39,808.74
------------------------------------------------------------------------
* For LTCHs that fail to submit quality reporting data for FY 2014 in
  accordance with the LTCH Quality Reporting (LTCHQR) Program, the
  annual update is reduced by 2.0 percentage points as required by
  section 1886(m)(5) of the Act.

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 2014 
acute care hospital operating and capital payments will redistribute 
amounts in excess of $100 million to acute care hospitals. 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 $498 million increase in FY 2014 
operating payments (or 0.5 percent change) and an estimated $134 
million increase in FY 2014 capital payments (or 1.6 percent 
change). These changes are relative to payments made in FY 2013. The 
impact analysis of the capital payments can be found in section I.K. 
of this Appendix. In addition, as described in section I.L. of this 
Appendix, LTCHs are expected to experience an increase in payments 
by $72 million in FY 2014 relative to FY 2013.
    Our operating impact estimate includes the -0.8 percent 
documentation and coding adjustment applied to the IPPS standardized 
amount, which represents part of the recoupment required under 
section 631 of the ATRA. It includes the -0.2 percent adjustment 
applied to the IPPS standardized amount, the hospital-specific rate, 
and the Puerto Rico-specific rate to offset the cost of the policy 
on admission and medical review criteria for hospital inpatient 
services under Medicare Part A. In addition, our operating payment 
impact estimate includes the 1.7 percent hospital update to the 
standardized amount (which includes the estimated 2.5 percent market 
basket update less 0.5 percentage point for the multifactor 
productivity adjustment and less 0.3 percentage point required under 
the Affordable Care Act). The estimates of IPPS operating payments 
to acute care hospitals do not reflect any changes in hospital 
admissions or real case-mix intensity, which will also affect 
overall payment changes.
    The analysis in this Appendix, in conjunction with the remainder 
of this document, demonstrates that this 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. This 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 
delivering necessary care to Medicare beneficiaries. In addition, we 
share national goals of preserving the Medicare Hospital Insurance 
Trust Fund.
    We believe that 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

[[Page 51004]]

changes, as well as statutory changes effective for FY 2014, 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 31 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, 45 such 
hospitals in Maryland remain excluded from the IPPS pursuant to the 
waiver under section 1814(b)(3) of the Act.
    As of March 2013, there were 3,407 IPPS acute care hospitals 
included in our analysis. This represents approximately 55 percent 
of all Medicare-participating hospitals. The majority of this impact 
analysis focuses on this set of hospitals. There also are 
approximately 1,328 CAHs. These small, limited service hospitals are 
paid on the basis of reasonable costs rather than under the IPPS. 
IPPS-excluded hospitals and units include IPFs, IRFs, LTCHs, RNHCIs, 
children's hospitals, and 11 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 2014 is discussed in section I.L. of this 
Appendix.

F. Effects on Hospitals and Hospital Units Excluded From the IPPS

    As of March 2013, there were 97 children's hospitals, 11 cancer 
hospitals, and 18 RNHCIs being paid on a reasonable cost basis 
subject to the rate-of-increase ceiling under Sec.  413.40. (In 
accordance with Sec.  403.752(a) of the regulation, RNHCIs are paid 
under Sec.  413.40.) Among the remaining providers, 234 
rehabilitation hospitals and 898 rehabilitation units, and 437 
LTCHs, are paid the Federal prospective per discharge rate under the 
IRF PPS and the LTCH PPS, respectively, and 472 psychiatric 
hospitals and 1,155 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 on LTCHs are discussed in section I.L. of 
this Appendix.
    For children's hospitals, the 11 cancer hospitals, and RNHCIs, 
the update of the rate-of-increase limit (or target amount) is the 
estimated FY 2014 percentage increase in the IPPS operating market 
basket, consistent with section 1886(b)(3)(B)(ii) of the Act, and 
Sec. Sec.  403.752(a) and 413.40 of the regulations. As discussed in 
section IV. of the preamble of this final rule, we are rebasing the 
IPPS operating market basket to a FY 2010 base year. Therefore, we 
are using the percentage increase in the FY 2010-based IPPS 
operating market basket to update the target amounts for FY 2014 and 
subsequent years for children's hospitals, the 11 cancer hospitals, 
and RNHCIs that are paid based on reasonable costs subject to the 
rate-of-increase limits. Consistent with current law, based on IHS 
Global Insight, Inc.'s 2013 second quarter forecast of the FY 2010-
based market basket increase, we are estimating that the FY 2014 
update based on the IPPS operating market basket is 2.5 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 0.5 
percentage point for FY 2014) and a 0.3 percentage point reduction 
to the market basket update resulting in a 1.7 percent applicable 
percentage increase for IPPS hospitals subject to a reduction of 2.0 
percentage points if the hospital fails to submit quality data under 
rules established by the Secretary in accordance with section 
1886(b)(3)(B)(viii) of the Act. Children's hospitals, the 11 cancer 
hospitals, and RNCHIs that continue to be paid based on reasonable 
costs subject to rate-of-increase limits under Sec.  413.40 of the 
regulations are not subject to the reductions in the applicable 
percentage increase required under the Affordable Care Act. 
Therefore, for RNHCIs, children's hospitals, and the 11 cancer 
hospitals paid under Sec.  413.40 of the regulations, the update is 
the percentage increase in the FY 2014 IPPS operating market basket, 
estimated at 2.5 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 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 paid.
    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 the lesser of: (1) 50 percent of its 
reasonable costs in excess of 110 percent of the limit, or (2) 10 
percent of its limit. In addition, under the various provisions set 
forth in Sec.  413.40, 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 2014 for operating costs of acute 
care hospitals. The FY 2014 updates to the capital payments to acute 
care hospitals are discussed in section I.K. of this Appendix.
    Based on the overall percentage change in payments per case 
estimated using our payment simulation model, we estimate that total 
FY 2014 operating payments will increase by 0.5 percent compared to 
FY 2013. In addition to the applicable percentage increase, this 
amount reflects the FY 2014 recoupment adjustment for documentation 
and coding described in section II.D. of the preamble of this final 
rule and the adjustment to offset the cost of the policy on 
admission and medical review criteria for hospital inpatient 
services under Medicare Part A: A -0.8 percent recoupment adjustment 
to the IPPS national standardized amounts for the documentation and 
coding adjustment and a -0.2 percent adjustment to the IPPS national 
standardized amount, the Puerto Rico-specific rate and the hospital-
specific rate for the policy on admission and medical review 
criteria. The impacts do not reflect changes in the number of 
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 the 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 will 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 2012 
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 2012 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

[[Page 51005]]

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 2014 are 
discussed in section I.K. of this Appendix.
    We discuss the following changes below:
     The effects of the application of the documentation and 
coding adjustment, the adjustment to offset the costs of the policy 
on admission and medical review criteria and the 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.
     The effects of the changes to the relative weights and 
MS-DRG grouper, including the methodology to calculate the MS-DRG 
cost based relative weights using 19 departmental CCRs instead of 
the current 15 departmental CCRs.
     The effects of the changes in hospitals' wage index 
values reflecting updated wage data from hospitals' cost reporting 
periods beginning during FY 2010, compared to the FY 2009 wage data 
and the changes in the labor related share from 68.8 percent for FY 
2013 to 69.6 percent for FY 2014 for hospitals with a wage index 
greater than 1.0.
     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 as of publication of this final rule that will be effective 
for FY 2014.
     The effects of the rural floor and imputed floor with 
the application of the national budget neutrality factor applied to 
the wage index.
     The effects of the frontier State wage index adjustment 
under the statutory 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 the implementation of section 
1886(d)(13) of the Act, as added by 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 effects of the policies for implementation of the 
Hospital Readmissions Reduction Program under section 1886(q) of the 
Act, as added by section 3025 of the Affordable Care Act, that 
adjusts hospital's base operating DRG amount by an adjustment factor 
to account for a hospital's excess readmissions.
     The effects of the expiration of the special payment 
status for MDHs under section 606 of the ATRA under which MDHs that 
currently receive the higher of payments made under the Federal 
standardized amount or the payments made under the Federal 
standardized amount plus 75 percent of the difference between the 
Federal standardized amount and the hospital-specific rate will be 
paid based on the Federal standardized amount starting in FY 2014.
     The effects of the implementation of section 3133 of 
the Affordable Care Act that reduces Medicare DSH payments to 25 
percent of what hospitals had been previously paid under section 
1886(d)(5)(F) of the Act and establishes an additional payment to be 
made to hospitals that receive DSH payments for their relative share 
of the total amount of uncompensated care.
     The total estimated change in payments based on the FY 
2014 policies relative to payments based on FY 2013 policies that 
include the applicable percentage increase of 1.7 percent (or 2.5 
percent market basket update with a reduction of 0.5 percentage 
point for the multifactor productivity adjustment, and a 0.3 
percentage point reduction, as required under the Affordable Care 
Act).
    To illustrate the impact of the FY 2014 changes, our analysis 
begins with a FY 2013 baseline simulation model using: the FY 2014 
applicable percentage increase of 1.7 percent and the documentation 
and coding recoupment adjustment of 0.8 percent to the Federal 
standardized amount and the adjustment 0.2 percent to the Federal 
standardized amount, the hospital-specific rate, and the Puerto 
Rico-specific rate for the policy on admission and medical review 
criteria; the FY 2013 MS-DRG GROUPER (Version 30.0); the most 
current CBSA designations for hospitals based on OMB's MSA 
definitions; the FY 2013 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 
and each subsequent year, the update factor will include a reduction 
of 2.0 percentage points for any subsection (d) hospital that does 
not submit data on measures 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 regard to section 1886(b)(3)(B)(ix), (xi), or (xii) of the 
Act.) At the time that this impact was prepared, 46 hospitals did 
not receive the full market basket rate-of-increase for FY 2013 
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 2014 using a reduced update 
for these 46 hospitals. However, we do not have enough information 
at this time to determine which hospitals will not receive the full 
update factor for FY 2014.
    Each policy change, statutory or otherwise, is then added 
incrementally to this baseline, finally arriving at an FY 2014 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 2013 to FY 2014. 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 2014 using an applicable percentage increase of 1.7 
percent. This includes our forecasted IPPS operating hospital market 
basket increase of 2.5 percent with a reduction of 0.5 percentage 
point for the multifactor productivity adjustment and a 0.3 
percentage point reduction as required under the Affordable Care 
Act. (Hospitals that fail to comply with the quality data submission 
requirements would receive an update of -0.3 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 also are equal to 
the applicable percentage increase, or 1.7 percent. In addition, we 
are updating the Puerto Rico-specific amount by an applicable 
percentage increase of 1.7 percent.
    A second significant factor that affects the changes in 
hospitals' payments per case from FY 2013 to FY 2014 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 2013 that are no longer reclassified in FY 2014. 
Conversely, payments may increase for hospitals not reclassified in 
FY 2013 that are reclassified in FY 2014.
    A third significant factor is that we currently estimate that 
actual outlier payments during FY 2013 will be 4.8 percent of total 
MS-DRG payments. When the FY 2013 final rule was published, we 
projected FY 2013 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 2013 (as discussed in the Addendum to 
this final rule) are reflected in the analyses below comparing our 
current estimates of FY 2013 payments per case to estimated FY 2014 
payments per case (with outlier payments projected to equal 5.1 
percent of total MS-DRG payments).

2. Analysis of Table I

    Table I displays the results of our analysis of the changes for 
FY 2014. 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 3,407 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 2,485 
hospitals located in urban areas included in our analysis. Among 
these, there are 1,370 hospitals located in large urban areas 
(populations over 1 million), and 1,115 hospitals in other urban 
areas (populations of 1 million or fewer). In addition, there are 
922 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

[[Page 51006]]

census divisions, also shown separately for urban and rural 
hospitals.
    The second part of Table I shows hospital groups based on 
hospitals' FY 2014 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 2,496; 
1,380; 1,116; and 911, 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 
Medicare DSH payments, or some combination of these two adjustments. 
There are 2,380 nonteaching hospitals in our analysis, 785 teaching 
hospitals with fewer than 100 residents, and 242 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 former MDHs). 
There were 207 RRCs, 330 SCHs, 187 former MDHs, and 124 hospitals 
that are both SCHs and RRCs, and 11 hospitals that were former 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 2011 or FY 
2010 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 2014. The second grouping 
shows the MGCRB rural reclassifications. The final category shows 
the impact of the policy changes on the 15 cardiac hospitals.
BILLING CODE 4120-01-P

[[Page 51007]]

[GRAPHIC] [TIFF OMITTED] TR19AU13.019


[[Page 51008]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.020


[[Page 51009]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.021


[[Page 51010]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.022


[[Page 51011]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.023


[[Page 51012]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.024


[[Page 51013]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.025


[[Page 51014]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.026


[[Page 51015]]


[GRAPHIC] [TIFF OMITTED] TR19AU13.027


[[Page 51016]]


BILLING CODE 4120-01-C

a. Effects of the Hospital Update, Documentation and Coding Adjustment 
and Adjustment for the Policy on Admission and Medical Review Criteria 
(Column 2)

    As discussed in section II.D. of the preamble of this final 
rule, this column includes the hospital update, including the 2.5 
percent market basket update, the reduction of 0.5 percentage point 
for the multifactor productivity adjustment, and the 0.3 percentage 
point reduction in accordance with the Affordable Care Act. In 
addition, this column includes the FY 2014 documentation and coding 
recoupment adjustment of -0.8 percent on the national standardized 
amount as part of the recoupment required by section 631 of the 
ATRA. Finally, we are applying a -0.2 percent adjustment to offset 
the cost of the policy on admission and medical review criteria for 
hospital inpatient services under Medicare Part A that is applied to 
the national standardized amount, the hospital-specific rate, and 
the Puerto Rico specific rate. As a result, we are making a 0.7 
percent update to the national standardized amount.
    This column also includes the 1.5 percent update to the 
hospital-specific rates, which includes the 1.7 percent for the 
hospital update and -0.2 percent adjustment to offset the cost of 
the policy on admission and medical review criteria for hospital 
inpatient services under Medicare Part A.
    Overall, hospitals will experience a 0.7 percent increase in 
payments primarily due to the effects of the hospital update and 
documentation and coding adjustment on the national standardized 
amount. Hospitals that are paid under the hospital-specific rate, 
namely SCHs, will experience a 1.5 percent increase in payments; 
therefore, hospital categories with SCHs paid under the hospital-
specific rate will experience increases in payments of more than 0.7 
percent.

b. Effects of the Changes to the MS-DRG Reclassifications and Relative 
Cost-Based Weights With Recalibration Budget Neutrality (Column 3)

    Column 3 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 final 
rule, the FY 2014 MS-DRG relative weights will be 100 percent cost-
based and 100 percent MS-DRGs. For FY 2014, the MS-DRGs are 
calculated using the FY 2012 MedPAR data grouped to the Version 31.0 
(FY 2014) MS-DRGs. In addition, for FY 2014, we are moving from 15 
departmental CCRs to 19 departmental CCRs to calculate the cost-
based relative weights. The four additional CCRs of implantable 
devices, CT scan, MRI, and cardiac catheterization have generally 
increased the relative weight values for surgical MS-DRGs and 
decreased the relative weight values for medical MS-DRGs. The 
methodology to calculate 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 3 indicates that changes 
due to the 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 0.997989 on to the standardized amount. 
Hospital categories that generally treat more surgical cases than 
medical cases will experience increases in their payments due to the 
changes to the relative weight methodology. Rural hospitals will 
experience a 0.4 percent decrease in payments because rural 
hospitals tend to treat fewer surgical cases than medical cases, 
while teaching hospitals with more than 100 residents will 
experience an increase in payments by 0.1 percent as those hospitals 
treat more surgical cases than medical cases.

c. Effects of the Wage Index Changes (Column 4)

    Column 4 shows the impact of updated wage data and the change to 
the labor-related share 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 2014 is based on data 
submitted for hospital cost reporting periods beginning on or after 
October 1, 2009 and before October 1, 2010. The estimated impact of 
the updated wage data and the labor-related share on hospital 
payments is isolated in Column 4 by holding the other payment 
parameters constant in this simulation. That is, Column 4 shows the 
percentage change in payments when going from a model using the FY 
2013 wage index, based on FY 2009 wage data, the FY 2013 labor-
related share of 68.8 percent and having a 100-percent occupational 
mix adjustment applied, to a model using the FY 2014 pre-
reclassification wage index with the labor-related share of 69.6 
percent, also having a 100-percent occupational mix adjustment 
applied, based on FY 2010 wage data (while holding other payment 
parameters such as use of the Version 31.0 MS-DRG GROUPER constant). 
The occupational mix adjustment is based on the 2010 occupational 
mix survey.
    In addition, the column shows the impact of the application of 
the 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 2014, we are calculating the wage budget neutrality factor to 
ensure that payments under updated wage data and the labor-related 
share of 69.6 percent 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 1.0. 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 0.999947, and the overall 
payment change is zero percent.
    Column 4 shows the impacts of updating the wage data using FY 
2010 cost reports. Overall, the new wage data and the labor-related 
share, combined with the wage budget neutrality adjustment, will 
lead to a 0.0 percent change for all hospitals as shown in Column 4.
    In looking at the wage data itself, the national average hourly 
wage increased 2.4 percent compared to FY 2013. Therefore, the only 
manner in which to maintain or exceed the previous year's wage index 
was to match or exceed the national 2.4 percent increase in average 
hourly wage. Of the 3,395 hospitals with wage data for both FYs 2013 
and 2014, 1,575, or 46.4 percent, will experience an average hourly 
wage increase of 2.4 percent or more.
    The following chart compares the shifts in wage index values for 
hospitals due to changes in the average hourly wage data for FY 2014 
relative to FY 2013. Among urban hospitals, none will experience an 
increase or decrease of more than 5 percent. Among rural hospitals, 
none will experience an increase or decrease of more than 5 percent. 
However, 919 rural hospitals will experience increases or decreases 
of less than 5 percent, while 2,476 urban hospitals will experience 
increases or decreases of less than 5 percent. These figures reflect 
changes in the ``pre-reclassified, occupational mix-adjusted wage 
index,'' that is, the wage index before the application of 
geographic reclassification, the rural and imputed floors, the out-
migration adjustment, and other wage index exceptions and 
adjustments. (We refer readers to sections III.G.2. through III.I. 
of the preamble of this final rule for a complete discussion of the 
exceptions and adjustments to the wage index.) We note that the 
``post-reclassified wage index'' or ``payment wage index,'' the wage 
index that includes all such exceptions and adjustments (as 
reflected in Tables 2, 4A, 4B, 4C, and 4F of the Addendum to this 
final rule, which are available via the Internet on the CMS Web 
site) is used to adjust the labor-related share of a hospital's 
standardized amount, either 69.6 percent or 62 percent, depending 
upon whether a hospital's wage index is greater than 1.0 or less 
than or equal to 1.0. Therefore, the pre-reclassified wage index 
figures in the chart below may illustrate a somewhat larger or 
smaller change than will occur in a hospital's payment wage index 
and total payment.
    The following chart shows the projected impact of changes in the 
average hourly wage data for urban and rural hospitals.

[[Page 51017]]



------------------------------------------------------------------------
                                                   Number of hospitals
  Percentage change in area wage index values  -------------------------
                                                   Urban        Rural
------------------------------------------------------------------------
Increase more than 10 percent.................            0            0
Increase more than 5 percent and less than 10             0            0
 percent......................................
Increase or decrease less than 5 percent......        2,476          919
Decrease more than 5 percent and less than 10             0            0
 percent......................................
Decrease more than 10 percent.................            0            0
------------------------------------------------------------------------

d. Combined Effects of the MS-DRG and Wage Index Changes (Column 5)

    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 0.999947 and a recalibration budget neutrality factor of 
0.997989 (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 0.997936, or approximately -0.21 
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. 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 0.1 percent change in payments.

e. Effects of MGCRB Reclassifications (Column 6)

    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 6 reflect the per 
case payment impact of moving from this baseline to a simulation 
incorporating the MGCRB decisions for FY 2014 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 proposed 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 purposes of this impact analysis, we are applying an adjustment 
of 0.990718 to ensure that the effects of the reclassifications 
under section 1886(d)(10) of the Act are budget neutral (section 
II.A. of the Addendum to this final rule). Geographic 
reclassification generally benefits hospitals in rural areas. We 
estimate that the geographic reclassification will increase payments 
to rural hospitals by an average of 1.7 percent. By region, all the 
rural hospital categories, with the exception of one rural Puerto 
Rico hospital, will experience increases in payments due to MGCRB 
reclassifications.
    Table 9A listed in section VI. of the Addendum to this final 
rule and available via the Internet on the CMS Web site reflects the 
reclassifications for FY 2014.

f. Effects of the Rural and Imputed Floor, Including Application of 
National Budget Neutrality (Column 7)

    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 
FYs 2011, 2012, and 2013 IPPS/LTCH PPS final rules, 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. We apply a uniform budget neutrality adjustment to 
the wage index. In addition, the imputed floor, which is also 
included in the calculation of the budget neutrality adjustment to 
the wage index, was extended in FY 2012 for 2 additional years. In 
the past, only urban hospitals in New Jersey received the imputed 
floor. As discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53369), we established an alternative temporary methodology for the 
imputed floor, which resulted in an imputed floor for Rhode Island 
for FY 2013. For FY 2014, we are extending the imputed rural floor, 
as calculated under the original methodology and the alternative 
methodology.
    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. We have calculated a FY 2014 
rural floor budget neutrality factor to be applied to the wage index 
of 0.990150, which will reduce wage indexes by 0.99 percent.
    Column 7 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 2014 wage index of providers before the rural 
floor and imputed floor adjustment and the post-reclassification FY 
2014 wage index of providers with the rural floor and imputed floor 
adjustment. Only urban hospitals can benefit from the rural and 
imputed floors. 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) will experience a decrease in 
payments due to the budget neutrality adjustment that is applied 
nationally to their wage index.
    We estimate that 424 hospitals benefit from the rural and 
imputed floors while the remaining 2,983 IPPS hospitals in our model 
have their wage index reduced by the rural floor budget neutrality 
adjustment of 0.990150 (or 0.99 percent). We project that, in 
aggregate, rural hospitals will experience a 0.3 percent decrease in 
payments as a result of the application of the 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 4.3 percent 
increase in payments primarily due to the application of the rural 
floor in Massachusetts and Connecticut. All 60 urban providers in 
Massachusetts are expected to receive the rural floor wage index 
value, including rural floor budget neutrality, of 1.3052 increasing 
payments, overall, to Massachusetts by an estimated $168 million. 
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, for the FY 2012 wage index, the rural floor for 
Massachusetts was established by the conversion of a CAH to an IPPS 
hospital that is geographically located in rural Massachusetts. The 
rural floor in Massachusetts continues to be set by the wage index 
of the hospital in rural Massachusetts that converted from CAH to 
IPPS status. We estimate that Massachusetts hospitals will receive 
approximately a 5.5 percent increase in IPPS payments due to the 
application of the rural floor in FY 2014. In addition, 19 out of 32 
hospitals in Connecticut will increase payments to those rural floor 
hospitals by $70 million (and, overall, increase payments to the 
State by an estimated $65 million).
    Urban Puerto Rico hospitals are expected to experience a 0.0 
percent change in

[[Page 51018]]

payments as a result of the application of a Puerto Rico rural floor 
with the application of the Puerto Rico rural floor budget 
neutrality adjustment. Urban Puerto Rico hospitals will receive a 
rural floor as a result of a one IPPS hospital located in rural 
Puerto Rico setting the rural floor. We are applying a rural floor 
budget neutrality factor to the Puerto Rico-specific wage index of 
0.990897 or -0.9 percent. The Puerto Rico-specific wage index 
adjusts the Puerto Rico-specific standardized amount, which 
represents 25 percent of payments to Puerto Rico hospitals. The 
increases in payments experienced by the urban Puerto Rico hospitals 
that benefit from a rural floor are offset by the decreases in 
payments by the nonrural floor urban Puerto Rico hospitals that have 
their wage indexes downwardly adjusted by the rural floor budget 
neutrality adjustment. As a result, overall, urban Puerto Rico 
hospitals will experience a 0.0 percent change in payments due to 
the application of the rural floor with rural floor budget 
neutrality.
    There are 25 hospitals out of the 65 hospitals in New Jersey 
that benefit from the extension of the imputed floor and will 
receive the imputed floor wage index value, including the rural 
floor budget neutrality, of 1.1133, which we estimate will increase 
payments to those imputed floor hospitals by $29 million (the State, 
overall, will see an increase in payments of approximately $14 
million). Four Rhode Island hospitals will benefit from the imputed 
rural floor calculated under the alternative methodology and receive 
an additional $3.5 million (the State, overall, will receive an 
additional $1.7 million).
    In response to a public comment addressed in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51593), 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 below displays the number 
of IPPS hospitals located in each State. Column 2 displays the 
number of hospitals in each State that will receive the rural floor 
or imputed floor wage index for FY 2014. Column 3 displays the 
percentage of total payments each State will receive or contribute 
to fund the rural floor and imputed floor with national budget 
neutrality. The column compares the post-reclassification FY 2014 
wage index of providers before the rural floor and imputed floor 
adjustment and the post-reclassification FY 2013 wage index of 
providers with the rural floor and imputed floor adjustment. Column 
4 displays the 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.
    Comment: Commenters expressed appreciation for the detailed 
impact analyses provided in the FY 2014 IPPS/LTCH PPS proposed rule. 
One commenter requested CMS to include an impact table of the rural 
floor for FY 2015 rule, after the new OMB MSA data are incorporated 
into our analysis.
    Response: We appreciate the comments on the analysis in the 
proposed rule (78 FR 27795 through 27796) and will take this request 
into consideration for future rulemaking.
    Comment: Several commenters requested that, for the final rule, 
CMS include additional analyses related to the national rural floor 
budget neutrality. The commenters suggested that those analyses 
include an updated State-by-State impact table that includes the 
cumulative impact of the rural floor under the IPPS and OPPS, and 
shows 2 years of the redistribution and a table that projects the 
estimated 10-year State-specific effects of continuing the current 
policy.
    Response: We acknowledge the commenters' requests for additional 
analyses on the rural floor budget neutrality policy. We note that 
the IPPS and OPPS impacts analyses are conducted on different claims 
data with a different set of providers and set of modeling 
assumptions; therefore, we cannot logically combine the IPPS and 
OPPS payment impacts of the rural floor to present in one State-by-
State table. Commenters may request to see the OPPS impacts of the 
rural floor policy through the public comment period for the CY 2014 
OPPS/ASC proposed rule that closes on September 6, 2013. In 
addition, we are unable to provide a State-by-State impact with 2-
year or 10-year projections of the rural floor because the rural 
floor is based on wage data that are updated annually. Therefore, we 
believe it would be difficult to accurately portray the rural floor 
in 10-year projections. We have updated our State-by-State rural 
floor budget neutrality impact analysis for the FY 2014 IPPS/LTCH 
PPS final rule.

      FY 2014 IPPS Estimated Payments Due to Rural Floor and Imputed Floor With National Budget Neutrality
----------------------------------------------------------------------------------------------------------------
                                                                               Percent  change
                                                                              in  payments due
                                                                Number of       to application
                                              Number of         hospitals      of rural floor    Difference  (in
                  State                       hospitals     receiving  rural     and imputed        millions)
                                                                floor or         floor with
                                                              imputed floor        budget
                                                                                 neutrality
                                                       (1)               (2)               (3)               (4)
----------------------------------------------------------------------------------------------------------------
Alabama.................................                93                 3              -0.5              -7.9
Alaska..................................                 6                 4               3.3               4.7
Arizona.................................                57                 7              -0.3              -5.3
Arkansas................................                45                 0              -0.5              -5.2
California..............................               309               182                 1              94.1
Colorado................................                46                 6               0.1               1.3
Connecticut.............................                32                19               4.2              65.4
Delaware................................                 6                 0              -0.6              -2.4
Washington, D.C.........................                 7                 0              -0.6              -2.6
Florida.................................               168                 7              -0.4             -29.7
Georgia.................................               107                 0              -0.5             -12.7
Hawaii..................................                14                 0              -0.4              -1.2
Idaho...................................                14                 0              -0.4              -1.2
Illinois................................               127                 1              -0.6             -27.4
Indiana.................................                89                 0              -0.5             -12.8
Iowa....................................                34                 0              -0.2              -2.3
Kansas..................................                55                 0              -0.4              -3.7
Kentucky................................                65                 1              -0.5              -8.3
Louisiana...............................                99                 3              -0.5              -6.7
Maine...................................                20                 0              -0.5              -2.4
Massachusetts...........................                61                60               5.5             167.6
Michigan................................                95                 0              -0.5             -22.4
Minnesota...............................                51                 0              -0.5              -9.4
Mississippi.............................                65                 1              -0.5              -5.3

[[Page 51019]]

 
Missouri................................                77                 0              -0.4             -10.9
Montana.................................                12                 4              -0.1              -0.4
Nebraska................................                23                 0              -0.4              -2.5
Nevada..................................                24                19               1.7              11.2
New Hampshire...........................                13                 9               1.9               8.6
New Jersey..............................                64                25               0.4              13.8
New Mexico..............................                25                 0              -0.3              -1.5
New York................................               166                 0              -0.6             -47.7
North Carolina..........................                87                 0              -0.4             -12.6
North Dakota............................                 6                 1              -0.3              -0.8
Ohio....................................               137                 7              -0.4             -16.9
Oklahoma................................                86                 2              -0.5              -5.6
Oregon..................................                33                 0              -0.5              -4.5
Pennsylvania............................               157                11              -0.5             -21.0
Puerto Rico.............................                52                13                 0               0.0
Rhode Island............................                11                 4               0.5               1.7
South Carolina..........................                57                 5              -0.3              -5.4
South Dakota............................                19                 0              -0.3              -1.0
Tennessee...............................                97                18              -0.3              -7.6
Texas...................................               324                 3              -0.5             -32.2
Utah....................................                32                 0              -0.3              -1.5
Vermont.................................                 6                 0              -0.4              -0.8
Virginia................................                78                 1              -0.4             -10.7
Washington..............................                49                 5              -0.1              -2.4
West Virginia...........................                30                 1              -0.4              -3.3
Wisconsin...............................                66                 2              -0.5              -8.0
Wyoming.................................                11                 0              -0.2              -0.2
----------------------------------------------------------------------------------------------------------------

g. Effects of the Application of the Frontier State Wage Index (Column 
8)

    Section 10324(a) of 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, four States (Montana, 
North Dakota, South Dakota, and Wyoming) are considered frontier 
States and 46 hospitals located in those States will receive a 
frontier wage index of 1.0000. Although Nevada is also, by 
definition, a frontier State and was assigned a frontier floor value 
of 1.0000 for FY 2012, its FY 2013 rural floor value of 1.0256 was 
greater and, therefore, was the State's minimum wage index for FY 
2013. For FY 2014, its post-reclassification wage index is also 
above 1.0000, hospitals located in Nevada will not experience a 
change in payment as a result of this provision. Overall, this 
provision is not budget neutral and is estimated to increase IPPS 
operating payments by approximately $60 million or approximately 0.1 
percent.

h. Effects of the Wage Index Adjustment for Out-Migration (Column 9)

    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. There are 250 providers that will receive the 
out-migration wage adjustment in FY 2014. 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 $22 million.

i. Effects of the Expiration of MDH Special Payment Status (Column 10)

    Column 10 shows our estimate of the changes in payments due to 
the expiration of MDH status, a nonbudget neutral payment provision. 
MDH status had previously expired for FY 2013 under section 3124 of 
the Affordable Care Act, but was extended for an additional year 
through FY 2013 under section 606 of the ATRA. Hospitals that 
qualified to be MDHs receive the higher of payments made under the 
Federal standardized amount or the payments made under the Federal 
standardized amount plus 75 percent of the difference between the 
Federal standardized amount and the hospital-specific rate (a 
hospital-specific cost-based rate). Because this provision was not 
budget neutral, the expiration of this payment provision results in 
a 0.2 percent decrease in payments overall. There are currently 198 
MDHs and MDH/RRCs, of which 118 are estimated to be paid under the 
blended payment of the Federal standardized amount and hospital-
specific rate for FY 2013. Because those 118 MDHs will no longer 
receive the blended payment and will be paid only under the Federal 
standardized amount in FY 2014, it is estimated that those hospitals 
will experience an overall decrease in payments of approximately 
$175 million.

j. Effects of the Reductions under the Hospital Readmissions Reduction 
Program (Column 11)

    Column 11 shows our estimates of the effects of the policies for 
reductions in payments under the Hospital Readmissions

[[Page 51020]]

Reduction Program, which was established under section 3025 of the 
Affordable Care Act. The Hospital Readmissions Reduction Program 
requires a reduction to a hospital's base operating DRG payments to 
account for excess readmissions, which is based on a hospital's 
risk-adjusted readmission rate during a 3-year period for three 
applicable conditions: Acute Myocardial Infarction, Heart Failure, 
and Pneumonia. This provision is not budget neutral. A hospital's 
readmission adjustment is the higher of a ratio of the hospital's 
aggregate payments for excess readmissions to their aggregate 
payments for all discharges, or a floor, which has been defined in 
statute as 0.98 (or a 2.0 percent reduction) for FY 2014. A 
hospital's base operating DRG payment (that is, wage-adjusted DRG 
payment amount, as discussed in section V.G. of the preamble of this 
final rule) is the portion of the IPPS payment subject to the 
readmissions payment adjustment (DSH, IME, outliers and low-volume 
add-on payments are not subject to the readmissions adjustment). In 
this final rule, we estimate that 2,225 hospitals will have their 
base operating DRG payments reduced by their hospital-specific 
readmissions adjustment, resulting in a 0.2 percent decrease, or 
approximately $227 million, in payments to hospitals overall for FY 
2014 relative to no provision.
    Rural west south central hospitals and hospitals with high 
Medicare utilization of over 65 percent will experience the highest 
decreases of 0.5 percent. Puerto Rico hospitals show a zero percent 
change in payments because they are exempt from the provision. Urban 
non-DSH hospitals and urban DSH hospitals will experience 0.2 
percent decrease in payments under the Hospital Readmissions 
Reduction Program.

k. Effects of the Changes to Medicare DSH Payments (Column 12)

    Column 12 shows the effects of the implementation of adjustments 
to Medicare DSH payments made under section 3133 of the Affordable 
Care Act. Under section 3133, hospitals that are eligible to receive 
Medicare DSH payments will receive 25 percent of the amount they 
previously would have received under the current statutory formula 
for Medicare DSH payments. The remainder, equal to an estimate of 75 
percent of what otherwise would have been paid as Medicare DSH 
payments, reduced to reflect changes in the percentage of 
individuals under age 65 who are uninsured and additional statutory 
adjustments, will become available to make additional payments to 
each hospital that qualifies for Medicare DSH payments. Each 
Medicare DSH hospital will receive an additional payment based on 
its estimated share of the total amount of uncompensated care for 
all Medicare DSHs. The reduction to Medicare DSH payments is not 
budget neutral.
    We are establishing that the amount to be distributed on the 
basis of uncompensated care, which is 75 percent of what otherwise 
would have been paid for Medicare DSH payment adjustments (that is, 
Factor 1), is adjusted to 94.3 percent of that amount for changes in 
the percentage of individuals under age 65 who are uninsured and 
additional statutory adjustments (that is, Factor 1 multiplied by 
Factor 2). As a result, we project that the reduction of Medicare 
DSH payments, together with the introduction of the new 
uncompensated care payment, will reduce payments overall by 0.4 
percent as compared to Medicare DSH payments prior to the 
implementation of section 3133 of the Affordable Care Act. This is 
less of a reduction to payments than what had been estimated in the 
FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27797) because we are 
finalizing that Factor 2, the changes in the percentage of 
individuals under age 65 who are uninsured and additional statutory 
adjustments, is based on a fiscal year estimate of uninsurance, as 
opposed to a calendar year estimate of uninsurance. The Factor 2 
that had been proposed in the FY 2014 IPPS/LTCH PPS proposed rule 
was 88.8 percent, while the Factor 2 that we are finalizing in this 
final rule is 94.3 percent, which is less of a reduction to the 
total amount of payments made for uncompensated care as compared to 
the proposed rule. The uncompensated care payment has redistributive 
effects based on a disproportionate share hospital's low income 
insured patient days (sum of Medicaid patient days and Medicare SSI 
patient days) relative to all disproportionate share hospitals 
Medicaid patient days and Medicare SSI patient days, and the payment 
amount is not tied to a hospital's discharges.
    Urban and rural hospitals located in the Middle Atlantic will 
experience larger increases of 0.4 percent and 0.8 percent, 
respectively. Government hospitals and hospitals with low Medicare 
utilization (Medicare days are less than 25 percent of total 
inpatient day) will experience some of the largest increases in 
payments of 0.9 percent and 3.7 percent respectively.

l. Effects of All FY 2014 Changes (Column 13)

    Column 13 shows our estimate of the changes in payments per 
discharge from FY 2013 and FY 2014, resulting from all changes 
reflected in this final rule for FY 2014. It includes combined 
effects of the previous columns in the table.
    The average increase in payments under the IPPS for all 
hospitals is approximately 0.5 percent for FY 2014 relative to FY 
2013. As discussed in section II.D. of the preamble of this final 
rule, this column includes the FY 2014 documentation and coding 
recoupment adjustment of -0.8 percent on the national standardized 
amount as part of the recoupment required under section 631 of the 
ATRA. In addition, this column includes the annual hospital update 
of 1.7 percent to the national standardized amount. This annual 
hospital update includes the 2.5 percent market basket update, the 
reduction of 0.5 percentage point for the multifactor productivity 
adjustment, and the 0.3 percentage point reduction under section 
3401 of the Affordable Care Act. Finally, it includes the -0.2 
percent adjustment of the national standardized amount, the 
hospital-specific payment rate, and the Puerto Rico-specific rate to 
offset the costs of the policy on admission and medical review 
criteria for hospital inpatient services under Medicare Part A. As 
described in Column 2, the annual hospital update, combined with the 
documentation and coding adjustment and the adjustment to offset the 
cost of the policy on admission and medical review criteria for 
hospital inpatient services under Medicare Part A, will result in a 
0.7 percent increase in payments in FY 2014 relative to FY 2013. 
Column 5 shows an increase in payments by 0.1 percent due to the 
effects of the cumulative DRG and wage budget neutrality. Column 8 
describes an estimated 0.1 percent increase in payments due to the 
frontier State wage index. Column 10 describes the estimated 0.2 
percent decrease in payments due to the expiration of the MDH status 
under section 606 of the ATRA. Column 11 shows the estimated 0.2 
percent decrease in payments due to the reductions in payments under 
the Hospital Readmissions Reduction Program, which reduce a 
hospital's base operating DRG payments by a readmission adjustment 
factor based on a hospital's performance on readmissions for 
specified conditions. Column 12 shows the estimated 0.4 percent 
decrease in Medicare DSH payments due to the changes made under 
section 3133 of the Affordable Care Act, which reduces Medicare DSH 
payments by 75 percent and redistributes the remainder, equal to an 
estimate of 75 percent of what otherwise would have been paid as 
Medicare DSH payments, reduced to reflect changes in the percentage 
of individuals under age 65 who are uninsured, to each hospital that 
qualifies for Medicare DSH payments as an uncompensated care payment 
based on the hospital's relative share of the total amount of 
uncompensated care. The impact of moving from our estimate of FY 
2013 outlier payments, 4.8 percent, to the estimate of FY 2014 
outlier payments, 5.1 percent, will result in an increase of 0.3 
percent in FY 2014 payments relative to FY 2013. There also might 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 13 may not equal the sum of the estimated 
percentage changes described above.
    Overall payments to hospitals paid under the IPPS are estimated 
to increase by 0.5 percent for FY 2014. Much of the payment changes 
among the hospital categories are largely attributed to the 
reduction in Medicare DSH payment adjustments and the redistribution 
of a portion of the Medicare DSH payments as an additional payment 
for a hospital's relative uncompensated care amount. Hospitals in 
urban areas will experience a 0.7 percent increase in payments per 
discharge in FY 2014 compared to FY 2013. Hospital payments per 
discharge in rural areas are estimated to decrease by 1.6 percent in 
FY 2014 as compared to FY 2013 largely due to the expiration of MDH 
status and reductions to Medicare DSH payments.

3. Impact Analysis of Table II

    Table II presents the projected impact of the changes for FY 
2014 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 2013 with the average payments per 
discharge for FY 2014, as calculated under our models. Thus, this 
table presents, in terms of the average dollar amounts paid per

[[Page 51021]]

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 13 of Table I.

    Table II--Impact Analysis of Changes for FY 2014 Acute Care Hospital Operating Prospective Payment System
                                            [Payments per discharge]
----------------------------------------------------------------------------------------------------------------
                                                             Average FY 2013   Average FY 2014
                                              Number of        payment per       payment per       All FY 2014
                                              hospitals         discharge         discharge          changes
                                                       (1)               (2)               (3)               (4)
----------------------------------------------------------------------------------------------------------------
All Hospitals...........................             3,407            10,897            10,948               0.5
By Geographic Location:
    Urban hospitals.....................             2,485            11,308            11,385               0.7
    Large urban areas...................             1,370            11,982            12,106                 1
    Other urban areas...................             1,115            10,487            10,508               0.2
    Rural hospitals.....................               922             8,137             8,007              -1.6
Bed Size (Urban):
    0-99 beds...........................               624             8,716             8,850               1.5
    100-199 beds........................               767             9,542             9,550               0.1
    200-299 beds........................               462            10,251            10,299               0.5
    300-499 beds........................               420            11,643            11,722               0.7
    500 or more beds....................               212            13,827            13,973               1.1
Bed Size (Rural):
    0-49 beds...........................               341             6,602             6,428              -2.6
    50-99 beds..........................               326             7,598             7,345              -3.3
    100-149 beds........................               151             7,911             7,865              -0.6
    150-199 beds........................                59             8,928             8,860              -0.8
    200 or more beds....................                45             9,866             9,811              -0.6
Urban by Region:
    New England.........................               120            12,375            12,426               0.4
    Middle Atlantic.....................               318            12,377            12,628                 2
    South Atlantic......................               375            10,301            10,356               0.5
    East North Central..................               395            10,497            10,531               0.3
    East South Central..................               149             9,869             9,900               0.3
    West North Central..................               166            11,109            11,150               0.4
    West South Central..................               373            10,341            10,391               0.5
    Mountain............................               156            11,611            11,792               1.6
    Pacific.............................               382            14,438            14,363              -0.5
    Puerto Rico.........................                51             5,593             7,932              41.8
Rural by Region:
    New England.........................                23            10,933            10,653              -2.6
    Middle Atlantic.....................                69             8,694             8,597              -1.1
    South Atlantic......................               165             7,809             7,672              -1.8
    East North Central..................               119             8,333             8,218              -1.4
    East South Central..................               171             7,450             7,257              -2.6
    West North Central..................                99             8,695             8,636              -0.7
    West South Central..................               181             7,058             6,894              -2.3
    Mountain............................                65             9,091             9,157               0.7
    Pacific.............................                29            11,024            11,021               0.0
    Puerto Rico.........................                 1             2,799             2,918               4.2
By Payment Classification:
    Urban hospitals.....................             2,496            11,295            11,374               0.7
    Large urban areas...................             1,380            11,971            12,094               1.0
    Other urban areas...................             1,116            10,461            10,485               0.2
    Rural areas.........................               911             8,296             8,165              -1.6
Teaching Status:
    Nonteaching.........................             2,380             9,132             9,114              -0.2
    Fewer than 100 residents............               785            10,686            10,743               0.5
    100 or more residents...............               242            15,910            16,128               1.4
Urban DSH:
    Non-DSH.............................               690             9,471             9,538               0.7
    100 or more beds....................             1,569            11,743            11,816               0.6
    Less than 100 beds..................               331             8,057             8,193               1.7
Rural DSH:
    SCH.................................               265             8,176             8,118              -0.7
    RRC.................................               228             9,080             8,980              -1.1
    100 or more beds....................                29             7,230             7,256               0.4
    Less than 100 beds..................               295             6,465             6,215              -3.9
Urban teaching and DSH:
    Both teaching and DSH...............               826            12,848            12,966               0.9
    Teaching and no DSH.................               136            10,497            10,632               1.3
    No teaching and DSH.................             1,074             9,634             9,640               0.1

[[Page 51022]]

 
    No teaching and no DSH..............               460             9,061             9,140               0.9
Special Hospital Types:
    RRC.................................               207             9,375             9,281              -1.0
    SCH.................................               330             8,837             8,822              -0.2
    Former MDH..........................               187             6,904             6,185             -10.4
    SCH and RRC.........................               124             9,958             9,993               0.3
    Former MDH and RRC..................                11             9,052             7,621             -15.8
Type of Ownership:
    Voluntary...........................             1,943            11,053            11,102               0.4
    Proprietary.........................               900             9,739             9,699              -0.4
    Government..........................               542            11,686            11,880               1.7
Medicare Utilization as a Percent of
 Inpatient Days:
    0-25................................               450            14,649            15,395               5.1
    25-50...............................             2,011            11,082            11,080               0.0
    50-65...............................               736             8,856             8,811              -0.5
    Over 65.............................               139             7,374             7,116              -3.5
FY 2014 Reclassifications by the
 Medicare Geographic Classification
 Review Board:
    All Reclassified Hospitals..........               669            10,264            10,268               0.0
    Non-Reclassified Hospitals..........             2,738            11,075            11,139               0.6
    Urban Hospitals Reclassified........               359            11,065            11,128               0.6
    Urban Nonreclassified Hospitals, FY              2,084            11,375            11,459               0.7
     2014:..............................
    All Rural Hospitals Reclassified FY                310             8,639             8,523              -1.4
     2014:..............................
    Rural Nonreclassified Hospitals FY                 552             7,462             7,315              -2.0
     2014:..............................
    All Section 401 Reclassified                        49             9,838             9,675              -1.7
     Hospitals:.........................
    Other Reclassified Hospitals                        61             7,826             7,579              -3.2
     (Section 1886(d)(8)(B))............
Specialty Hospitals
    Cardiac specialty Hospitals.........                15            11,699            11,878               1.5
----------------------------------------------------------------------------------------------------------------

H. Effects of Other Policy Changes

1. Effects of Policy on MS-DRGs for Preventable 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 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. 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.
    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 2014...............................................               $26
FY 2015...............................................                28
FY 2016...............................................                30
FY 2017...............................................                33
FY 2018...............................................                36
------------------------------------------------------------------------

    In section V.I. of the preamble of this final rule, we are 
implementing the HAC Reduction Program. We refer readers to section 
I.H.6. of this Appendix A for a discussion of the impact of this 
implementation.

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 
three applications (KcentraTM, Argus[supreg] II Retinal 
Prosthesis System and the Zilver[supreg] PTX[supreg] Drug Eluting 
Peripheral Stent) for add-on payments for new medical services and 
technologies for FY 2014, as well as the status of the new 
technology that was approved to receive new technology add-on 
payments in FY 2013. We note that two of the applications (the 
NeuroPace Responsive Neurostimulator System (RNS) System and the 
Abbott Vascular MitraClip[supreg] System) discussed in the proposed 
rule did not receive FDA approval by the July 1 deadline as required 
by the regulations at 42 CFR 412.87(c). Therefore,

[[Page 51023]]

we did not review these two applications in this final rule.
    As explained in the preamble to this final rule, add-on payments 
for new medical services and technologies 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 approving all three applications for new technology add-on 
payments for FY 2014. As we proposed, in this final rule, we also 
are continuing to make new technology add-on payments in FY 2014 for 
Voraxaze[supreg], DificidTM, and the Zenith[supreg] F. 
Graft (because all these technology are 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 
estimates below are based on the increase in add-on payments for FY 
2014 as if every claim that would qualify for a new technology add-
on payment would receive the maximum add-on payment. Based on the 
applicant's estimate from FY 2013, we currently estimate that new 
technology add-on payments for Voraxaze[supreg] will increase 
overall FY 2014 payments by $6,300,000. Based on the applicant's 
estimate from FY 2013, we currently estimate that new technology 
add-on payments for DificidTM will increase overall FY 
2014 payments by $34,839,784. Based on the applicant's estimate from 
FY 2013, we currently estimate that new technology add-on payments 
for the Zenith[supreg] F. Graft will increase overall FY 2014 
payments by $4,085,750. Based on the applicant's estimate for FY 
2014, we currently estimate that new technology add-on payments for 
KcentraTM will increase overall FY 2014 payments by 
$5,449,888 (maximum add on payment of $1,587.50 * 3,433 patients). 
Based on the applicant's estimate for FY 2014, we currently estimate 
that new technology add-on payments for the Argus[supreg] II Retinal 
Prosthesis System will increase overall FY 2014 payments by 
$3,601,437 (maximum add on payment of $72,028.75 * 50 patients). 
Based on the applicant's estimate for FY 2014, we currently estimate 
that new technology add-on payments for the the Zilver[supreg] 
PTX[supreg] Drug Eluting Peripheral Stent will increase overall FY 
2014 payments by $20,463,000 (maximum add on payment of $1,705.25 * 
12,000 patients).

3. Effects of the Payment Adjustment for Low-Volume Hospitals for FY 
2014

    In section V.C. of the preamble to this final rule, we discuss 
the provisions of the ATRA (Pub. L. 112-240) that extended for an 
additional year, through FY 2013, the temporary changes to the low-
volume hospital definition and the methodology for determining the 
payment adjustment made by the Affordable Care Act for FYs 2011 and 
2012. In accordance with section 1886(d)(12) of the Act, beginning 
with FY 2014, the low-volume hospital definition and payment 
adjustment methodology revert back to the statutory requirements 
that were in effect prior to the amendments made by the Affordable 
Care Act. Therefore, effective for FY 2014 and subsequent years, in 
order to qualify as a low-volume hospital, a subsection (d) hospital 
must be more than 25 road miles from another subsection (d) hospital 
and have less than 200 discharges (that is, less than 200 discharges 
total, including both Medicare and non-Medicare discharges) during 
the fiscal year.
    Based on FY 2012 claims data (March 2013 update of the MedPAR 
file), we estimate that approximately 592 hospitals qualify as a 
low-volume hospital in FY 2013, and with the statutory changes to 
the low-volume hospital payment adjustment for FY 2014, we estimate 
only approximately 6 hospitals will continue to qualify as a low-
volume hospital in FY 2014. We project that the expiration of the 
temporary changes to the low-volume hospital definition and the 
payment adjustment methodology made by the Affordable Care Act and 
extended by the ATRA will result in a decrease in payments of 
approximately $266 million in FY 2014 as compared to the payments 
these hospitals would have otherwise received in FY 2014 in the 
absence of the statutory changes to the low-volume hospital payment 
adjustment for FY 2014. This estimate accounts for our projection of 
the 6 IPPS low-volume hospitals remaining in FY 2014 that will 
continue to receive a low-volume hospital payment adjustment of an 
additional 25 percent.

4. Effects of Extension of the MDH Program through FY 2013

    In section V.F. of the preamble of this final rule, we briefly 
discuss the statutory extension of the MDH program through FY 2013 
made by section 606 of the ATRA. We refer readers to a March 7, 2013 
notice that we published in the Federal Register to announce the 
extension of the MDH program for FY 2013 in accordance with this 
ATRA provision, where we also stated the impact on Medicare 
expenditures of the statutory extension (78 FR 14689).

5. Effects of Changes under the FY 2014 Hospital Value-Based Purchasing 
(VBP) Program

    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 that meet performance standards during the performance 
period for discharges occurring on or after October 1, 2012. These 
incentive payments will be funded for FY 2014 through a reduction to 
the FY 2014 base operating DRG payment for each discharge of 1.25 
percent, as required by section 1886(o)(7)(B) 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. We are required to ensure that the 
total amount available for value-based incentive payments is equal 
to the total amount of reduced payments for all hospitals for the 
fiscal year, as estimated by the Secretary.
    We finalized numerous policies related to the FY 2014 Hospital 
VBP Program in the CY 2012 OPPS/ASC final rule with comment period 
(76 FR 74527 through 74547) and the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53567 through 53614), including an additional measure in the 
Clinical Process of Care domain, minimum numbers of cases and 
measures for the Outcome domain, performance and baseline periods 
for FY 2014 measures, performance standards, domain weighting, and 
requirements for the review and corrections processes. We also refer 
readers to the Hospital Inpatient VBP Program final rule (76 FR 
26495 through 26511) where we finalized three 30-day mortality 
measures, to be placed in the new Outcome domain for the FY 2014 
Hospital VBP Program.
    In section V.H. of the preamble of this final rule, we estimate 
the available pool of funds for value-based incentive payments in 
the FY 2014 Hospital VBP Program, which, in accordance with section 
1886(o)(7)(C)(ii) of the Act, will be 1.25 percent of base operating 
DRG payments, or a total of approximately $1.1 billion. This 
estimated available pool for FY 2014 is based on the historical pool 
of hospitals that were eligible to participate in the FY 2013 
Hospital VBP Program and the payment information from the March 2013 
update to the FY 2012 MedPAR file.
    The estimated impacts of the FY 2014 Hospital VBP Program by 
hospital characteristic, found in the table below, are based on 
historical TPSs. We used the FY 2013 Hospital VBP Program TPSs to 
calculate the proxy adjustment factors used for this impact 
analysis. These are the most recently available scores that 
hospitals were given an opportunity to review and correct. The proxy 
adjustment factors use estimated annual base operating DRG payment 
amounts derived from the March 2013 update to the FY 2012 MedPAR 
file. The proxy adjustment factors can be found in Table 16A 
associated with this final rule (available on the CMS Web site). The 
impact analysis shows that, for the FY 2014 Hospital VBP Program, 
the number of hospitals that will receive an increase in base 
operating DRG payment amount is slightly higher than the number of 
hospitals that will receive a decrease. Approximately 44 percent of 
hospitals would have a change in base operating DRG payment amount 
that is between -0.2 percent and +0.2 percent. Among urban 
hospitals, those in the West South Central region will have the 
highest average increase in base operating DRG payment amount, and 
among rural hospitals, those in the East North Central region will 
have the highest average increase in base operating DRG payment 
amount. Both urban and rural hospitals in the Middle Atlantic and 
Pacific will receive an average decrease in base operating DRG 
payment amount. As the percent of disproportionate share (DSH) 
payments increases, we see a decrease in base operating DRG payment 
amount, while as the Medicare utilization (MCR) percent increases, 
we see an increase in base operating DRG payment amount. Nonteaching 
hospitals will have an average positive adjustment to the base 
operating DRG payment amount, and teaching hospitals will have an 
average decrease in base operating DRG payment amount. The table, 
``Impact Analysis of Base Operating DRG Payment Amount Changes 
Resulting

[[Page 51024]]

from the FY 2014 Hospital VBP Program'' below reflects two changes, 
as compared to the corresponding table in the proposed rule. First, 
the table now lists the straight averages of percent change in the 
base operating DRG payment amount, while the proposed rule displayed 
case-weighted averages. Second, the variable used to identify 
teaching hospitals has been updated to the IME adjustment factor for 
Operating PPS (TCHOP), while the proposed rule used the transfer 
adjusted cases under Grouper V30, for Medicare Advantage cases 
submitted by teaching hospitals that receive a Fee-For-Service IME 
payment (IME--CASETA30).

 Impact Analysis of Base Operating DRG Payment Amount Changes Resulting
                  From the FY 2014 Hospital VBP Program
------------------------------------------------------------------------
                                             Number of      Average (in
                                             hospitals       percent)
------------------------------------------------------------------------
BY GEOGRAPHIC LOCATION:
    All Hospitals.......................           2,984           0.023
        Large Urban.....................           1,226           0.018
        Other Urban.....................           1,015           0.048
        Rural Area......................             740          -0.003
    Urban hospitals.....................           2,241           0.032
        0-99 beds.......................             465           0.180
        100-199 beds....................             717          -0.001
        200-299 beds....................             435           0.017
        300-499 beds....................             421          -0.023
        500 or more beds................             203          -0.050
    Rural hospitals.....................             740          -0.003
        0-49 beds.......................             162           0.058
        50-99 beds......................             324          -0.042
        100-149 beds....................             150           0.007
        150-199 beds....................              57           0.009
        200 or more beds................              47           0.003
BY REGION:
    Urban By Region.....................           2,241           0.032
        New England.....................             113          -0.004
        Middle Atlantic.................             295          -0.064
        South Atlantic..................             356           0.072
        East North Central..............             373           0.046
        East South Central..............             129           0.021
        West North Central..............             155           0.104
        West South Central..............             314           0.117
        Mountain........................             155           0.043
        Pacific.........................             351          -0.040
    Rural By Region.....................             740          -0.003
        New England.....................              21           0.015
        Middle Atlantic.................              64          -0.139
        South Atlantic..................             143           0.005
        East North Central..............             117           0.090
        East South Central..............             114           0.014
        West North Central..............              85           0.003
        West South Central..............             114          -0.022
        Mountain........................              54          -0.044
        Pacific.........................              28          -0.075
BY MCR PERCENT:
    0-25................................             288           0.016
    25-50...............................           1,715           0.026
    50-65...............................             853           0.018
    Over 65.............................              79           0.038
BY DSH PERCENT:
    0-25................................           1,429           0.085
    25-50...............................           1,257          -0.008
    50-65...............................             157          -0.070
    Over 65.............................             138          -0.226
BY TEACHING STATUS:
    Teaching............................             995          -0.027
    Non-Teaching........................           1,986           0.048
------------------------------------------------------------------------

    We have provided the updated impact analysis for this FY 2014 
IPPS/LTCH PPS final rule; however, actual FY 2014 Hospital VBP 
Program TPSs will not be reviewed and corrected by hospitals until 
after the FY 2014 IPPS/LTCH PPS final rule has been published. 
Therefore, the same historical universe of eligible hospitals and 
corresponding TPSs from the FY 2013 Hospital VBP Program was used 
for the updated impact analysis. As noted above, the updated impact 
analysis for this final rule reflects estimated annual base 
operating DRG payment amount changes based on the March 2013 update 
to the FY 2012 MedPAR file.

6. Effects of Implementation of the HAC Reduction Program

    In section V.I. of the preamble of this final rule, we are 
establishing measures, scoring, and a risk adjustment methodology to 
implement the FY 2015 payment reduction under the HAC Reduction 
Program. Section 1886(p) of the Act, as added under section 3008(a) 
of the Affordable Care Act, establishes an adjustment to hospital 
payments for HACs, or a HAC Reduction program, under which payments 
to applicable hospitals are adjusted to provide an incentive to 
reduce HACs, effective for

[[Page 51025]]

discharges beginning on October 1, 2014 and for subsequent program 
years.
    We note that there is no payment impact for FY 2014. For FY 
2015, we are presenting the overall impact of the HAC Reduction 
Program provision along with other IPPS payment provision impacts in 
section I.G. of this Appendix A. The tables and analyses that we are 
presenting below show the distributional effect of the measures and 
scoring system for this program included in this final rule.
    We note that we intend to finalize a Total HAC Score methodology 
that assigns weights for Domain 1 and Domain 2 at 35 percent and 65 
percent, respectively. Based on this methodology, the table below 
presents data on the proportion of hospitals, by structural 
characteristic, in the worst performing quartile based on the 35/65 
weighting scheme.
    The data for this simulation are derived from the AHRQ PSI 
results based on Medicare fee-for-service (FFS) discharges from July 
2009 through June 2011, using the enrollment database ``PARA'' 
variable to identify Medicare FFS discharges and version 4.4 of the 
AHRQ software. The CDC measure results were used based on results 
posted on the Hospital Compare Web site in December 2012. To analyze 
the results by hospital characteristic, the hospital characteristics 
as reported in the American Hospital Association 2010 survey data 
and the FY 2013 impact file were used. Of the 3,468 hospitals 
included in this analysis, 3,339 hospitals were included for bed 
size, teaching status, and ownership; 3,458 hospitals were included 
for urbanicity; 3,414 hospitals were included in the 
disproportionate share percentage (DSH); and 3,468 hospitals were 
included for region. These differences in denominator are due to the 
source of the hospital characteristic data.
    The percentages indicate how many hospitals at each level of a 
characteristic would be penalized by the scoring approach. For 
example, in regards to bed size, 18.1 percent of hospitals (or 119 
hospitals) with fewer than 50 beds would be subject to a payment 
adjustment, 26.6 percent of hospitals (or 181 hospitals) with a bed 
size range of 50-99 would be subject to a payment adjustment, 22.8 
percent of hospitals (or 204 hospitals) with a bed size range of 
100-199 would be subject to a payment adjustment, 26.0 percent of 
hospitals (or 133 hospitals) with a bed size range of 200-299 would 
be subject to a payment adjustment, 26.5 percent of hospitals (or 71 
hospitals) with a bed size range of 300-399 would be subject to a 
payment adjustment, 29.6 percent of hospitals (or 37 hospitals) with 
a bed size range of 400-499 would be subject to a payment 
adjustment, and 36.6 percent of hospitals (or 75 hospitals) with a 
bed size range of 500 plus would be subject to a payment adjustment.
    With regard to the teaching status characteristic of hospitals 
in the worst performing quartile, 48.6 percent of hospitals (or 134 
hospitals) that are teaching facilities would be subject to a 
payment adjustment, and 22.4 percent (or 686 hospitals) that are 
nonteaching facilities would be subject to a payment adjustment.
    With regard to the ownership characteristic of hospitals in the 
worst performing quartile, 25.2 percent of hospitals (or 511 
hospitals) that are non-profit facilities would be subject to a 
payment adjustment, 26.5 percent of hospitals (or 148 hospitals) 
that are government facilities would be subject to a payment 
adjustment, and 21.3 percent (or 161 hospitals) that are for-profit 
facilities would be subject to a payment adjustment.
    With regard to the disproportionate share percentage (DSH) 
characteristic, 19.4 percent (or 145 hospitals) that are not DSH 
facilities would be subject to a payment adjustment, 22.6 percent 
(or 149 hospitals) that are DSH Quartile 1 facilities would be 
subject to a payment adjustment, 22.6 percent (or 150 hospitals) 
that are DSH Quartile 2 facilities would be subject to a payment 
adjustment, 27.8 percent (or 186 hospitals) that are DSH Quartile 3 
facilities would be subject to a payment adjustment, and 29.7 
percent (or 200 hospitals) that are DSH Quartile 4 facilities would 
be subject to a payment adjustment.
    With regard to regional characteristic of hospitals in the worst 
performing quartile, 22.4 percent (or 32 hospitals) that are located 
in the New England region would be subject to a payment adjustment, 
26.4 percent (or 103 hospitals) that are located in the Mid-Atlantic 
region would be subject to a payment adjustment, 24.9 percent (or 
131 hospitals) that are located in the East North Central region 
would be subject to a payment adjustment, 25.8 percent (or 71 
hospitals) that are located in the West North Central region would 
be subject to a payment adjustment, 26.0 percent (or 152 hospitals) 
that are located in the South Atlantic region would be subject to a 
payment adjustment, 20.1 percent (or 66 hospitals) that are located 
in the East South Central region would be subject to a payment 
adjustment, 21.9 percent (or 124 hospitals) that are located in the 
West South Central region would be subject to a payment adjustment, 
24.2 percent (or 58 hospitals) that are located in the Mountain 
region would be subject to a payment adjustment, and 25.3 percent 
(or 105 hospitals) that are located in the Pacific region would be 
subject to a payment adjustment.

 Proportion of Hospitals in the Worst Performing Quartile (>75th Percentile) of the Total HAC Score by Hospital
                        Characteristic and by Simulation With the 35/65 Weighting Scheme
----------------------------------------------------------------------------------------------------------------
                            Hospital characteristics                                 Simulation with the 35/65
---------------------------------------------------------------------------------    weighting scheme in worst
                                                                                        performing quartile
                                                     Number of                   -------------------------------
                 Characteristic                      hospitals        Percent        Number of
                                                                                     hospitals        Percent
----------------------------------------------------------------------------------------------------------------
Bed Size:
    <50.........................................             656            19.6             119            18.1
    50-99.......................................             680            20.4             181            26.6
    100-199.....................................             893            26.7             204            22.8
    200-299.....................................             512            15.3             133            26.0
    300--399....................................             268             8.0              71            26.5
    400--499....................................             125             3.7              37            29.6
    500+........................................             205             6.1              75            36.6
Teaching Status:
    Teaching....................................             276             8.3             134            48.6
    NonTeaching.................................           3,063            91.7             686            22.4
Ownership:
    Non-Profit..................................           2,026            60.7             511            25.2
    Government..................................             558            16.7             148            26.5
    For-Profit..................................             755            22.6             161            21.3
Urbanicity:
    Urban.......................................           2,493            72.1             639            25.6
    Rural.......................................             965            27.9             201            20.8
Disproportionate Share Percentage:
    Non-DSH.....................................             749            21.9             145            19.4
    DSH Quartile 1..............................             658            19.3             149            22.6
    DSH Quartile 2..............................             665            19.5             150            22.6

[[Page 51026]]

 
    DSH Quartile 3..............................             669            19.6             186            27.8
    DSH Quartile 4..............................             673            19.7             200            29.7
Region:
    New England.................................             143             4.1              32            22.4
    Mid-Atlantic................................             390            11.2             103            26.4
    East North Central..........................             526            15.2             131            24.9
    West North Central..........................             275             7.9              71            25.8
    South Atlantic..............................             584            16.8             152            26.0
    East South Central..........................             329             9.5              66            20.1
    West South Central..........................             566            16.3             124            21.9
    Mountain....................................             240             6.9              58            24.2
    Pacific.....................................             415            12.0             105            25.3
----------------------------------------------------------------------------------------------------------------

7. Effects of the Policy Changes Relating to Payments for GME and IME

    In section V.J.2. of the preamble of this final rule, we discuss 
our policy to include labor and delivery days in the Medicare 
utilization calculation. We are establishing, consistent with the 
inpatient day counting rules for DSH as clarified in the FY 2010 
IPPS/RY 2010 LTCH PPS final rule, that effective for cost reporting 
periods beginning on or after October 1, 2013, for purposes of 
applying the Medicare utilization ratio, we will include labor and 
delivery inpatient days in the numerator (to the extent that there 
are any labor and delivery inpatient days associated with Medicare 
beneficiaries), and all labor and delivery inpatient days in the 
denominator (associated with all inpatients of the hospital). In 
addition to payments for direct GME, we believe this policy also 
will affect other Medicare policies where either the number of 
inpatient days or a ratio of Medicare inpatient days to total 
inpatient days is used to determine eligibility or payment. However, 
this policy will not impact Medicare payments calculated on a 
reasonable cost basis for routine inpatient services, which are 
apportioned in accordance with 42 CFR 413.53(a)(1). We believe that 
including labor and delivery days in the Medicare utilization 
calculation will result in a savings of approximately $19 million 
for FY 2014. We note that the projected savings of $19 million 
included in this final rule are somewhat higher than the projected 
savings of $15 million included in the FY 2014 IPPS/LTCH PPS 
proposed rule because there were a greater number of teaching 
hospitals included in the data used for the purpose of determining 
the impact of this finalized policy.
    As discussed in section V.J.3. of the preamble of this final 
rule, in accordance with section 5506 of the Affordable Care Act 
which instructs the Secretary to establish a process to increase the 
FTE resident caps for other hospitals based upon the FTE resident 
caps in teaching hospitals that closed ``on or after a date that is 
2 years before the date of enactment'' (that is March 23, 2008), we 
notify the public of the closure of two teaching hospitals and the 
initiation of another round of the section 5506 application and 
selection process to redistribute FTE resident slots. We are 
initiating ``Round 6'' of section 5506, to redistribute the FTE 
resident slots of Cooper Green Mercy Hospital in Birmingham, AL, 
which closed on January 1, 2013, and Sacred Heart Hospital in 
Chicago, IL, which closed July 20, 2013. We are using this final 
rule as a vehicle to initiate another round of the section 5506 
application and selection process, which is an ongoing provision 
triggered each time a teaching hospital closes. Therefore, there is 
no impact for this provision.
    In section V.J.4. of the preamble of this final rule, we are 
establishing that another IPPS or IPPS-excluded hospital may not 
count the resident(s) training at the CAH for IME and/or direct GME 
purposes, even if that hospital is paying for the residents' salary 
and fringe benefits. Specifically, we are establishing that, 
effective for portions of cost reporting periods occurring on or 
after October 1, 2013, a hospital may not claim the FTE residents 
that are training at a CAH for IME and/or direct GME purposes. 
However, under policies that were applicable prior to October 1, 
2013 and that continue to apply on and after October 1, 2013, the 
CAH may incur the costs of training the FTE residents for the time 
that the FTE residents rotate to the CAH, and receive payment based 
on 101 percent of its Medicare reasonable costs under 42 CFR 413.70.
    We do not believe that there is any financial impact of this 
policy, as we are not precluding all Medicare payment for residents 
training at CAHs. Rather, we are precluding payment to one group of 
providers (that is, hospitals), but continuing to allow payment to 
another group (that is, CAHs). Under the previous policy, either a 
hospital could receive IME and direct GME payment for the time spent 
by residents training at a CAH if the hospital incurred the cost of 
that training, or the CAH could receive payment under Sec.  413.70 
if the CAH incurred the training cost. Under the policy finalized in 
this rule, hospitals will no longer be allowed to receive IME and 
direct GME payment for the costs associated with training residents 
at a CAH. However, CAHs can continue to receive payment under Sec.  
413.70 for the allowable costs associated with training residents at 
a CAH in approved residency training programs.
    In section V.J.5. of the preamble of this final rule, we discuss 
the provisions of section 711 of the Medicare Modernization Act 
(Pub. L. 108-173) which amended section of 1886(h)(2)(D)(iv)(I) of 
the Act to freeze annual CPI-U updates to hospital-specific PRAs for 
direct GME payment purposes for those PRAs that exceed the ceiling 
for FYs 2004 through 2013. Therefore, the ``freeze'' for PRAs that 
exceed the ceiling expires beginning in FY 2014. That is, for cost 
reporting periods beginning on or after October 1, 2013, the usual 
full CPI-U update, as determined under 42 CFR 413.77(c)(1) will 
apply to all PRAs for direct GME payment purposes. We note that we 
are not establishing any policies related to this provision in this 
final rule. We are merely providing notice to the public that a 
statutory provision will no longer apply in FY 2014.

8. Effects of Implementation of Rural Community Hospital Demonstration 
Program

    In section V.K. 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 V.K. of the preamble of this 
final rule, in the IPPS final rules for each of the previous 9 
fiscal years, we have estimated the additional payments made by the 
program for each of the participating hospitals as a result of the 
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

[[Page 51027]]

other words, we are applying budget neutrality across the payment 
system as a whole rather than across the participants of this 
demonstration. 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 adjusting the national IPPS rates according to the 
methodology set forth elsewhere in this final rule. The adjustment 
to the national IPPS rates to account for estimated demonstration 
cost for FY 2014 for the 7 ``pre-expansion'' participating hospitals 
that are currently participating in the demonstration and the 15 
additional hospitals participating as a result of the expansion of 
the demonstration under the Affordable Care Act is $46,549,861. In 
addition, in this FY 2014 final rule, because the finalized cost 
reports for hospitals participating in the demonstration in FY 2007 
have become available, we are incorporating into the FY 2014 budget 
neutrality offset amount the amount by which the final settled costs 
of the demonstration for FY 2007 exceeded the budget neutrality 
offset amount applicable to that year as finalized in the respective 
year's IPPS final rule. The amount is $6,039,880. Therefore, the 
total adjustment to the national IPPS rates for FY 2014 is the sum 
of these two amounts, or $52,589,741. We intend to incorporate into 
the FY 2015 final rule the amounts by which the cost of the 
demonstration program for hospitals participating in the 
demonstration for FYs 2008 through 2011 and the amounts that were 
offset by the budget neutrality adjustment for these years, assuming 
that these finalized cost reports become available.

9. Effects of the Extended Effective Date for Policy on Hospital 
Services Furnished under Arrangements

    In section V.M. of the preamble of this final rule, we discuss 
our change in the implementation date of our revised policy, as 
outlined in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51711) under 
which we limit the circumstances under which a hospital may furnish 
services to Medicare beneficiaries ``under arrangements.'' We are 
changing the implementation date of the requirement to be effective 
for services provided on or after January 1, 2015 (instead of 
effective with cost reporting periods beginning on or after October 
1, 2013). Because there are hospitals in the midst of significant 
building projects that, when completed, will enable the hospital to 
provide routine services in compliance with the requirements of this 
revised policy, we believe that it is appropriate to further delay 
the effective date. We expect that, with the additional time before 
the revised ``under arrangement'' policy becomes effective, 
hospitals will complete the work needed to ensure compliance with 
the new requirement. Effective for services provided on or after 
January 1, 2015, all hospitals will need to be in full compliance 
with the revised policy for services furnished under arrangement. We 
have determined that the impact of this effective date change would 
be negligible.

I. Effects of Policy Relating to the Furnishing of Acute Care 
Inpatient Services by CAHs

    In section VII.C. of the preamble of this final rule, we discuss 
our policy to revise the requirements under the CoPs for CAHs to 
specify that CAHs must provide acute care inpatient services. We 
estimate that the costs to CAHs to implement this policy will be 
minimal.
    Comment: One commenter expressed concern about the impact a 
requirement to furnish acute care inpatient services could have upon 
operational capacity and necessary workforce needs of many CAHs.
    Response: We appreciate this comment, but we believe the 
evidence strongly suggests that most CAHs will not experience an 
increase in operational costs, including costs relating to 
workforce. The vast majority of CAHs, approximately 99 percent, 
already are providing acute care inpatient services. Therefore, we 
believe most CAHs will view these revisions to the regulatory text 
as a clarification confirming their usual and customary business 
practices.

J. Effects of Changes to the CoPs for Hospitals Relating to the 
Administration of Pneumococcal Vaccines

    In section X. of the preamble of this final rule, we discuss our 
policy to amend the standard under the CoPs for hospitals relating 
to the administration of pneumococcal vaccine by nursing staff. We 
are deleting the term ``polysaccharide'' vaccine in the standard to 
allow hospitals to include any type of pneumococcal vaccine as part 
of its physician-approved policy for administration by nurses 
without a prior practitioner order.
    While we expect this change to have a positive effect on 
hospitals by providing them with additional regulatory flexibility 
in this area, it is difficult to estimate this positive effect in 
terms of actual cost savings for hospitals. We believe that the 
change will carry the additional benefit of improving patient access 
to pneumococcal vaccines if hospitals choose to exercise the 
potential regulatory flexibility and purchase and stock more than 
one type of pneumococcal vaccine as a result. This benefit will be 
particularly apparent if there were a shortage of one type of the 
pneumococcal vaccine in the future. In conclusion, while we cannot 
estimate any cost savings that will result from this change, we are 
confident that it will not impose any burden on hospitals.

K. Effects of Changes in the Capital IPPS

1. General Considerations

    For the impact analysis presented below, we used data from the 
March 2013 update of the FY 2012 MedPAR file and the March 2013 
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 2013 update of the most recently available hospital cost 
report data (FYs 2010 and 2011) 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.
    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 individual hospitals are placed in the wrong 
category.
    Using cases from the March 2013 update of the FY 2012 MedPAR 
file, we simulated payments under the capital IPPS for FY 2013 and 
FY 2014 for a comparison of total payments per case. Any short-term, 
acute care hospitals not paid under the general IPPS (for example, 
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 2014 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 0.5 percent in both FYs 2013 and 2014.
     We estimate that Medicare discharges will be 
approximately 12.4 million in FY 2013 and 12.6 million in FY 2014.
     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 Addendum to this final rule, the update is 0.90 percent for FY 
2014.
     In addition to the FY 2014 update factor, the FY 2014 
capital Federal rate was calculated based on a GAF/DRG budget 
neutrality adjustment factor of 0.9987, an outlier adjustment factor 
of 0.9393, and an adjustment factor of 0.9980 to offset the 
estimated additional IPPS expenditures that are projected to result 
from our policy on admission and medical review criteria for 
hospital inpatient services under Medicare Part A, as discussed in 
section VI.C. of the preamble of this final rule.

[[Page 51028]]

2. Results

    We used the actuarial model described above to estimate the 
potential impact of our changes for FY 2014 on total capital 
payments per case, using a universe of 3,407 hospitals. As described 
above, the individual hospital payment parameters are taken from the 
best available data, including the March 2013 update of the FY 2012 
MedPAR file, the March 2013 update to the PSF, and the most recent 
cost report data from the March 2013 update of HCRIS. In Table III, 
we present a comparison of estimated total payments per case for FY 
2013 and estimated total payments per case for FY 2014 based on the 
FY 2014 payment policies. Column 2 shows estimates of payments per 
case under our model for FY 2013. Column 3 shows estimates of 
payments per case under our model for FY 2014. Column 4 shows the 
total percentage change in payments from FY 2013 to FY 2014. The 
change represented in Column 4 includes the 0.90 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 2014 are expected to increase as compared to capital 
payments per case in FY 2013. The capital Federal rate for FY 2014 
will increase approximately 0.9 percent as compared to the FY 2013 
capital Federal rate. Overall, across all hospitals, the changes to 
the GAFs are expected to have no net effect on capital payments. 
However, regionally, the effects of the changes to the GAFs on 
capital payments are consistent with the projected changes in 
payments due to changes in the wage index (and policies affecting 
the wage index) as shown in Table I in section I.G. of this 
Appendix.
    We are estimating a slight increase in outlier payments in FY 
2014 as compared to FY 2013. This is primarily because of the 
decrease to the outlier fixed-loss amount (discussed in section 
II.A.4.f. of the Addendum to this final rule).
    The net impact of these changes is an estimated 1.6 percent 
change in capital payments per case from FY 2013 to FY 2014 for all 
hospitals (as shown below in Table III).
    The geographic comparison shows that, on average, all hospitals 
are expected to experience an increase in capital IPPS payments per 
case in FY 2014 as compared to FY 2013. These expected increases are 
primarily due to the increase in the capital Federal rate, as well 
as small projected increases in outlier payments. These increases 
are somewhat offset in all but a few regions by the projected 
decrease in payments because of the GAFs. Capital IPPS payments per 
case for large urban hospitals are estimated to increase 1.7 
percent, while capital IPPS payments per case for other urban 
hospitals are estimated to increase 1.6 percent. Rural hospitals, on 
average, are expected to experience a 0.9 percent increase in 
capital payments per case from FY 2013 to FY 2014. The primary 
factors contributing to the difference in the projected increase in 
capital IPPS payments per case for urban hospitals as compared to 
rural hospitals are a decrease in capital payments to rural 
hospitals due to changes to the GAF and a relatively lower projected 
increase in capital payments to rural hospitals due to the changes 
to the MS-DRG relative weights.
    The comparisons by region show that the estimated increases in 
capital payments per case from FY 2013 to FY 2014 in urban areas 
ranges from a 2.4 percent increase for the Middle Atlantic urban 
region to a 1.0 percent increase for the Mountain urban region. For 
rural regions (excluding Puerto Rico), the Pacific rural region is 
expected to experience the largest increase in capital IPPS payments 
per case of 2.3 percent, while the East South Central rural region 
is projected to have a 0.5 percent increase in capital payments per 
case. Unlike other urban and rural regions where changes in the GAFs 
contribute to a decrease in capital payments, the changes in the 
GAFs contribute to the expected increase in capital IPPS payments 
per case for the Pacific urban and rural regions, as well as the 
Middle Atlantic and New England urban regions. The influences of the 
GAFs to increase payments more or less than the average estimated 
increase are consistent with the changes in the wage index for 
hospitals located in these areas, as discussed in section I. of this 
Appendix. In contrast to other rural regions, the larger than 
average projected increase in payments (5.2 percent) for the Puerto 
Rico rural region is primarily due to changes in the MS-DRG relative 
weights.
    Hospitals of all types of ownership (that is, voluntary 
hospitals, government hospitals, and proprietary hospitals) are 
estimated to experience an increase in capital payments per case 
from FY 2013 to FY 2014. The increase in capital payments for both 
government and proprietary hospitals is estimated at 1.4 percent, 
and voluntary hospitals are estimated to experience a 1.7 percent 
increase in capital payments per case from FY 2013 to FY 2014.
    Section 1886(d)(10) of the Act established the MGCRB. Hospitals 
may apply for reclassification for purposes of the wage index for FY 
2014. 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 as of the 
publication of this final rule for FY 2014, we show the average 
capital payments per case for reclassified hospitals for FY 2014. 
Urban reclassified hospitals are expected to experience the largest 
increase in capital payments of 2.0 percent, whereas urban 
nonreclassified hospitals are expected to experience an increase of 
1.6 percent. The estimated percentage increase for rural 
reclassified hospitals is 1.5 percent. However, rural 
nonreclassified hospitals are expected to experience a 0.1 percent 
decrease 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 a 1.3 percent increase in capital 
payments from FY 2013 to FY 2014.

                                Table III--Comparison of Total Payments per Case
                                 [FY 2013 Payments Compared to FY 2014 Payments]
----------------------------------------------------------------------------------------------------------------
                                          Number of       Average FY 2013    Average FY 2014
                                          hospitals        payments/case      payments/case          Change
----------------------------------------------------------------------------------------------------------------
By Geographic Location:
    All hospitals...................              3,407                815                828                1.6
    Large urban areas (populations                1,370                902                917                1.7
     over 1 million)................
    Other urban areas (populations                1,115                792                805                1.6
     of 1 million of fewer).........
    Rural areas.....................                922                563                568                0.9
    Urban hospitals.................              2,485                852                866                1.6
        0-99 beds...................                624                712                716                0.6
        100-199 beds................                767                737                747                1.4
        200-299 beds................                462                786                798                1.5
        300-499 beds................                420                868                883                1.7
        500 or more beds............                212              1,015              1,035                2.0
    Rural hospitals.................                922                563                568                0.9
        0-49 beds...................                341                457                459                0.3
        50-99 beds..................                326                516                520                0.8
        100-149 beds................                151                559                564                0.7
        150-199 beds................                 59                627                635                1.3
        200 or more beds............                 45                675                684                1.3
By Region:
    Urban by Region.................              2,485                852                866                1.6

[[Page 51029]]

 
        New England.................                120                928                947                2.1
        Middle Atlantic.............                318                899                920                2.4
        South Atlantic..............                375                785                795                1.2
        East North Central..........                395                815                827                1.4
        East South Central..........                149                741                751                1.4
        West North Central..........                166                854                865                1.3
        West South Central..........                373                786                795                1.2
        Mountain....................                156                889                897                1.0
        Pacific.....................                382              1,063              1,087                2.3
        Puerto Rico.................                 51                383                390                1.9
    Rural by Region.................                922                563                568                0.9
        New England.................                 23                762                777                1.9
        Middle Atlantic.............                 69                580                586                1.1
        South Atlantic..............                165                545                549                0.6
        East North Central..........                119                584                590                1.0
        East South Central..........                171                516                519                0.5
        West North Central..........                 99                595                603                1.2
        West South Central..........                181                502                505                0.6
        Mountain....................                 65                616                622                1.0
        Pacific.....................                 29                722                738                2.3
        Puerto Rico.................                  1                198                208                5.2
By Payment Classification:
    All hospitals...................              3,407                815                828                1.6
    Large urban areas (populations                1,380                901                916                1.7
     over 1 million)................
    Other urban areas (populations                1,116                791                804                1.6
     of 1 million or fewer).........
    Rural areas.....................                911                572                577                0.7
Teaching Status:
        Non-teaching................              2,380                698                707                1.2
        Fewer than 100 Residents....                785                802                815                1.6
        100 or more Residents.......                242              1,145              1,169                2.1
Urban DSH:
            100 or more beds........              1,569                872                886                1.7
            Less than 100 beds......                331                619                628                1.4
Rural DSH:
            Sole Community (SCH/                    265                531                532                0.3
             EACH)..................
            Referral Center (RRC/                   228                627                633                1.0
             EACH)..................
Other Rural:
                100 or more beds....                 29                525                522               -0.5
                Less than 100 beds..                295                461                463                0.3
Urban teaching and DSH:
        Both teaching and DSH.......                826                942                959                1.8
        Teaching and no DSH.........                136                836                852                1.9
        No teaching and DSH.........              1,074                736                746                1.4
        No teaching and no DSH......                460                771                779                1.1
Rural Hospital Types:
        Non special status hospitals              2,371                857                871                1.6
        RRC/EACH....................                 73                774                794                2.6
        SCH/EACH....................                 37                752                765                1.6
        SCH, RRC and EACH...........                 17                775                802                3.5
Hospitals Reclassified by the
 Medicare Geographic Classification
 Review Board:
FY2014 Reclassifications:
        All Urban Reclassified......                359                833                849                2.0
        All Urban Non-Reclassified..              2,084                859                872                1.6
        All Rural Reclassified......                310                600                609                1.5
        All Rural Non-Reclassified..                552                512                512               -0.1
        Other Reclassified Hospitals                 53                554                561                1.3
         (Section 1886(d)(8)(B))....
Type of Ownership:
        Voluntary...................              1,943                829                843                1.7
        Proprietary.................                900                736                746                1.4
        Government..................                542                846                857                1.4
Medicare Utilization as a Percent of
 Inpatient Days:
        0-25........................                450              1,020              1,040                2.0
        25-50.......................              2,011                831                845                1.6
        50-65.......................                736                681                690                1.3
        Over 65.....................                139                548                553                0.9
----------------------------------------------------------------------------------------------------------------


[[Page 51030]]

L. Effects of Payment Rate Changes and Policy Changes under the 
LTCH PPS

1. Introduction and General Considerations

    In section VIII. of the preamble of this final rule 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 2014. In the 
preamble of this final rule, 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 rate, 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, there are 425 LTCHs included in this impacts 
analysis, which includes data for 81 nonprofit (voluntary ownership 
control) LTCHs, 326 proprietary LTCHs, and 18 LTCHs that are 
government-owned and operated. (We note that although there are 
currently approximately 440 LTCHs, for purposes of this impact 
analysis, we excluded the data of all inclusive rate providers and 
the LTCHs that are paid in accordance with demonstration projects, 
consistent with the development of the FY 2014 MS-LTC-DRG relative 
weights (discussed in section VIII.B.3.c. of the preamble of this 
final rule)). In the impact analysis, we used the payment rate, 
factors, and policies presented in this final rule, including the 
1.7 percent annual update for LTCHs that submit quality data in 
accordance with section 1886(m)(5)(C) of the Act, which is based on 
the full estimated increase of the LTCH PPS market basket and the 
reductions required by sections 1886(m)(3) and (m)(4) of the Act, 
the second year phase of a one-time prospective adjustment factor of 
0.98734 (approximately -1.3 percent), the update to the MS-LTC-DRG 
classifications and relative weights, the update to the wage index 
values and labor-related share, and the best available claims and 
CCR data to estimate the change in payments for FY 2014. (As 
discussed in section VIII.C. of the preamble of this final rule, in 
accordance with section 1886(m)(5)(C) of the Act, for LTCHs that 
fail to submit quality data, the annual update to the LTCH PPS 
standard Federal rate is reduced by 2.0 percentage points beginning 
in FY 2014.)
    The standard Federal rate for FY 2013 is $40,397.96. However, 
consistent with the statute, the payment for FY 2013 discharges 
occurring on or before December 28, 2012 does not reflect the one-
time prospective adjustment under Sec.  412.523(d)(3) of the 
regulations, and such discharges are paid based on a standard 
Federal rate of $40,915.95 (77 FR 53710). For FY 2014, we are 
establishing a standard Federal rate of $40,607.31, which reflects 
the 1.7 percent annual update to the standard Federal rate, and the 
area wage budget neutrality factor of 1.0010531 to ensure that the 
changes in the wage indexes and labor-related share do not influence 
aggregate payments, and the second year of the phase-in of the one-
time prospective adjustment factor of 0.98734. We note that the 
factors described above to determine the FY 2014 standard Federal 
rate are applied to the FY 2013 Federal standard rate set forth 
under section Sec.  412.523(c)(3)(ix)(A) (that is, $40,397.96).
    Based on the best available data for the 425 LTCHs in our 
database, we estimate that the annual update to the standard Federal 
rate for FY 2014 (discussed in section V.A.2. of the Addendum to 
this final rule) and the changes to the area wage adjustment for FY 
2014 (discussed in section V.B. of the Addendum to this final rule), 
in addition to an estimated increase in high cost outlier (HCO) 
payments will result in an increase in estimated payments from FY 
2013 of approximately $72 million. Based on the 425 LTCHs in our 
database, we estimate that the FY 2014 LTCH PPS payments will be 
approximately $5.610 billion, as compared to estimated FY 2013 LTCH 
PPS payments of approximately $5.538 billion. Because the combined 
distributional effects and estimated changes to the Medicare program 
payments are over approximately $100 million, this final rule is 
considered a major economic rule, as defined in this section. We 
note that the approximate $72 million for the projected increase in 
estimated aggregate LTCH PPS payments from FY 2013 to FY 2014 does 
not reflect changes in LTCH admissions or case-mix intensity in 
estimated LTCH PPS payments, which also will affect overall payment 
changes. (We note that this impact does not include an estimate 
effect of the 2.0 percentage points reduction to the annual update 
to the LTCH PPS standard Federal rate for LTCHs that fail to submit 
quality data, as required by section 1886(m)(5)(C) of the Act, 
because we have not determined at this time which, if any, LTCHs 
failed to submit the requisite quality data for FY 2014 under the 
LTCH Quality Reporting Program.)
    The projected 1.3 percent increase in estimated payments per 
discharge from FY 2013 to FY 2014 is attributable to several 
factors, including the 1.7 percent annual update to the standard 
Federal rate, the one-time prospective adjustment factor for FY 2014 
of 0.98734 (approximately -1.3 percent), and projected increases in 
estimated HCO payments. As Table IV shows, the change attributable 
solely to the annual update to the standard Federal rate (1.7 
percent), including the one-time prospective adjustment factor for 
FY 2014 under the second year of the phase-in (approximately -1.3 
percent), is projected to result in an increase of 0.4 percent in 
payments per discharge from FY 2013 to FY 2014, on average, for all 
LTCHs. We note, the estimated change in payments solely attributable 
to the annual update to the standard Federal rate does not take into 
account that the one-time prospective adjustment to the standard 
Federal rate for FY 2013 under Sec.  412.523(d)(3) is not applied to 
payments for discharges occurring before December 29, 2012, 
consistent with the statute (and, therefore, are paid based on a 
relatively higher rate). The change in payments solely attributable 
to the annual update to the standard Federal rate for FY 2014 will 
be a smaller increase in payments relative to the pre-December 29, 
2012 LTCH payment rates (approximately 0.1 percent instead of 0.4 
percent). In addition to the 1.7 percent annual update for FY 2014 
and the -1.3 percent one-time prospective adjustment factor for FY 
2014, this estimated increase in aggregate LTCH PPS payments of 0.2 
percent also includes estimated payments for SSO cases that are paid 
using special methodologies that are not affected by the annual 
update to the standard Federal rate. Therefore, for some hospital 
categories, the projected increase in payments based on the standard 
Federal rate is less than the 0.4 percent annual update for FY 2014.
    Because we are applying an area wage level budget neutrality 
factor to the standard Federal rate, the annual update to the wage 
data and labor-related share does not impact the increase in 
aggregate payments. In addition, we note that the updates to the 
standard Federal rate to determine the estimated effects described 
above were applied to the FY 2013 standard Federal rate set forth 
under section Sec.  412.523(c)(3)(ix)(A) (that is, $40,397.96).
    As discussed in section V.B. of the Addendum to this final rule, 
we are updating the wage index values for FY 2014 based on the most 
recent available data. In addition, we are decreasing the labor-
related share from 63.096 percent to 62.537 percent under the LTCH 
PPS for FY 2014, based on the most recent available data on the 
relative importance of the labor-related share of operating and 
capital costs based on the FY 2009-based LTCH-specific market 
basket. We also are applying an area wage level budget neutrality 
factor of 1.0010531, which increases the standard Federal rate by 
approximately 0.1 percent. Therefore, the changes to the wage data 
and labor-related share do not result in a change in estimated 
aggregate LTCH PPS payments.
    Table IV below shows the impact of the payment rate and the 
policy changes on LTCH PPS payments for FY 2014 presented in this 
final rule by comparing estimated FY 2013 payments to estimated FY 
2014 payments. The projected increase in payments per discharge from 
FY 2013 to FY 2014 is 1.3 percent (shown in Column 8). This 
projected increase in payments is attributable to the impacts of the 
change to the standard Federal rate (0.4 percent in Column 6) and 
the effect of the estimated increase in payments for HCO cases and 
SSO cases (1.0 percent and 0.2 percent, respectively). That is, 
estimated total HCO payments are projected to increase from FY 2013 
to FY 2014 in order to ensure that the estimated HCO payments will 
be 8 percent of the total estimated LTCH PPS payments in FY 2014. An 
analysis of the most recent available LTCH PPS claims data (that is, 
FY 2012 claims data from the March 2013 update of the MedPAR file) 
indicates that the FY 2013 HCO threshold of $15,408 (as established 
in the FY 2013 IPPS/LTCH PPS final rule) may result in HCO payments 
in FY 2014 that fall below the estimated 8 percent. Specifically, we 
currently estimate that HCO payments will be approximately 7.0 
percent of the estimated total LTCH PPS payments in FY 2013. We 
estimate that the impact of the increase in HCO payments will result 
in

[[Page 51031]]

approximately a 1.0 percent increase in estimated payments from FY 
2013 to FY 2014, on average, for all LTCHs. Furthermore, in 
calculating the estimated increase in payments from FY 2013 to FY 
2014 for HCOs, we increased estimated costs by the applicable market 
basket percentage increase as projected by our actuaries. This 
increase in estimated costs also results in a projected increase in 
SSO payments of approximately 0.2 percent relative to last year. The 
net result of these projected changes in HCO and SSO payments in FY 
2014 is an estimated change in aggregate payments of 1.2 percent. We 
note that estimated payments for all SSO cases comprise 
approximately 12 percent of the estimated total LTCH PPS payments, 
and estimated payments for HCO cases comprise approximately 8 
percent of the estimated total FY 2014 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 (approximately 58 percent) are based on the estimated cost 
of the 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 0.9 percent increase in estimated payments per 
discharge for FY 2014 as compared to FY 2013 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 28 rural LTCHs in our 
database (out of 425 LTCHs) for which complete data were available.
    The estimated increase in LTCH PPS payments from FY 2013 to FY 
2014 for rural LTCHs (0.9 percent) is less than the national average 
increase (1.3 percent). The estimated increase in LTCH PPS payments 
from FY 2013 to FY 2014 for rural LTCHs is primarily due to the 
increase to the standard Federal rate. However, rural LTCHs are 
experiencing slightly lower increases than the national average due 
to decreases in their wage index for FY 2014 compared to FY 2013.

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.L.1. of this Appendix, we 
project an increase in aggregate LTCH PPS payments in FY 2014 
relative to FY 2013 of approximately $72 million based on the 425 
LTCHs in our database.

b. Expiration of Statutory Delay of Full Implementation of the 25-
Percent Threshold Payment Adjustment Policy and 1-Year Extension

    As discussed in section VIII.D. of the preamble of this final 
rule, the statutory delay of the full application of the 25-percent 
threshold payment adjustment for LTCHs under Sec.  412.534 and Sec.  
412.536 expired for cost reporting periods beginning on or after 
July 1, 2012, or October 1, 2012, as applicable. As explained in 
section VIII.D. of the preamble of this final rule, we established a 
1-year regulatory extension of the statutory moratorium for cost 
reporting periods beginning on or after October 1, 2012, and before 
October 1, 2013 (and for discharges occurring on or after October 1, 
2012, through the end of the cost reporting period of LTCHs with 
cost reporting periods beginning on or after July 1, 2012, and 
before September 30, 2012). We are not extending the regulatory 
moratorium, therefore, it will expire for certain LTCHs for cost 
reporting periods beginning on or after October 1, 2013, and as 
discussed in section VIII.D. of the preamble of this final rule. We 
currently estimate that the expiration of this moratorium will 
result in a reduction of approximately $90 million in LTCHs PPS 
payments in FY 2014. We note that our current estimate of the impact 
of the expiration of moratorium on the full application of the 25-
percent threshold payment adjustment policy is significantly lower 
than our estimate presented in the FY 2014 IPPS/LTCH PPS proposed 
rule (78 FR 27498). Based on the best available data at that time, 
we estimated that the expiration of moratorium on the full 
application of the 25-percent threshold payment adjustment policy 
would result in a reduction in payments of approximately $190 
million to LTCHs in FY 2014.
    Comment: Based on its own analysis of the 25-percent threshold 
payment adjustment policy, one commenter believed that we may not 
have appropriately applied all adjustments under the 25-percent 
threshold payment adjustment policy in our estimate of the impact 
presented in the FY 2014 IPPS/LTCH PPS proposed rule. As a result, 
the commenter asserted that the estimated $190 million decrease in 
payments to LTCHs in FY 2014 was overstated. Specifically, the 
commenter believed that LTCH discharges that qualify for exclusion 
from the 25-percent threshold payment adjustment policy because 
Medicare payments for those patients included a high cost outlier 
payment to the hospital prior to admission to the LTCH may have been 
mistakenly included as patients subject to the 25-percent threshold 
payment adjustment. Therefore, the commenter requested that we 
review our estimated impact of the 25-percent threshold payment 
adjustment policy for the final rule.
    Response: Upon review of the payment model that was used to 
estimate the impact of the expiration of the moratorium on the full 
application of the 25-percent threshold payment adjustment policy 
for the proposed rule, we determined that the commenter is correct. 
We did inadvertently treat LTCH discharges for which Medicare made a 
high cost outlier payment to the hospital for the patient's stay 
prior to admission to the LTCH as being subject to a payment 
adjustment under the 25-percent threshold payment adjustment policy, 
which resulted in an overstatement in the projected decrease in 
payments to LTCHs that would result from the payment adjustment. We 
appreciate the commenter bringing this inadvertent error to our 
attention and have made the necessary correction to the payment 
model we used to estimate the impact of the expiration of the 
moratorium on the full application of the 25-percent threshold 
payment adjustment policy for this final rule. In addition to that 
correction, we also updated the actuarial assumptions regarding 
Medicare utilization that were used in the calculation of our 
projected impact, including a projected decrease in Medicare Part A 
Fee-For-Service (FFS) enrollment. Incorporating the high cost 
outlier correction to our payment model along with the updated 
actuarial assumptions regarding Medicare utilization results in a 
significant change to our estimated impact of the full application 
of the 25-percent threshold payment adjustment policy on LTCH PPS 
payments in FY 2014 from the proposed rule (a $190 million decrease) 
to this final rule (a $90 million decrease).

c. Impact on Providers

    The basic methodology for determining a per discharge LTCH PPS 
payment is set forth under 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 LTCHs located in 
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 
2014, it is necessary to estimate payments per discharge for FY 2013 
using the rates, factors (including the FY 2013 GROUPER (Version 
30.0), and relative weights and the policies established in the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53458 through 53502 and 53708 
through 53716). It is also necessary to estimate the payments per 
discharge that will be made under the LTCH PPS rates, factors, 
policies, and GROUPER (Version 31.0) for FY 2014 (as discussed in 
section VIII. of the preamble of this final rule and section V. of 
the Addendum to this final rule). These estimates of FY 2013 and FY 
2014 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 2013 payments to estimated FY 
2014 payments (on a per discharge basis) for each category of LTCHs.

[[Page 51032]]

We are establishing a standard Federal rate for FY 2014 of 
$40,607.31 that includes the 1.7 percent annual update, the area 
wage budget neutrality factor of 1.0010531, and the one-time 
prospective adjustment to the standard Federal rate for FY 2014 of 
0.98734 (approximately -1.3 percent).
    Hospital groups were based on characteristics provided in the 
OSCAR data, FY 2009 through FY 2011 cost report data in HCRIS, and 
PSF data. 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 payment rates and policy changes 
among the various categories of existing providers, we used LTCH 
cases from the FY 2012 MedPAR file to estimate payments for FY 2013 
and to estimate payments for FY 2014 for 425 LTCHs. We believe that 
the discharges based on the FY 2012 MedPAR data for the 425 LTCHs in 
our database, which includes 326 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.

d. 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 2012 MedPAR files. For modeling 
estimated LTCH PPS payments for FY 2013, we used the FY 2013 
standard Federal rate (that is, $40,915.95 used to make payments for 
LTCH discharges occurring on or after October 1, 2012 through 
December 28, 2012, and $40,397.96 for discharges occurring on or 
after December 29, 2012 through September 30, 2013).
    For modeling estimated LTCH PPS payments for FY 2014, we used 
the FY 2014 standard Federal rate of $40,607.31, which includes the 
one-time prospective adjustment of 0.98734 for FY 2014 for the 
second year of the 3-year phase-in. The FY 2014 standard Federal 
rate of $40,607.31 includes the application of an area wage level 
budget neutrality factor of 1.0010531 (as discussed in section 
V.B.5. of the Addendum to this final rule). Furthermore, in modeling 
estimated LTCH PPS payments for both FY 2013 and FY 2014 in this 
impact analysis, we applied the FY 2013 and the FY 2014 adjustments 
for area wage levels and the COLA for LTCHs located in Alaska and 
Hawaii. Specifically, we adjusted for differences in area wage 
levels in determining estimated FY 2013 payments using the current 
LTCH PPS labor-related share of 63.096 percent (77 FR 53711) and the 
wage index values established in the Tables 12A and 12B listed in 
the Addendum to the FY 2013 IPPS/LTCH PPS final rule (which are 
available via the Internet (77 FR 53717)). We also applied the FY 
2013 COLA factors shown in the table in section V.C. of the Addendum 
to that final rule (77 FR 53713) to adjust the FY 2013 nonlabor-
related share (36.904 percent) for LTCHs located in Alaska and 
Hawaii. Similarly, we adjusted for differences in area wage levels 
in determining the estimated FY 2014 payments using the FY 2014 LTCH 
PPS labor-related share of 62.537 percent and the FY 2014 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 2014 COLA factors shown in the table in section 
V.C. of the Addendum to this final rule to the FY 2014 nonlabor-
related share (37.463 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.D. of the 
Addendum to this final rule). In modeling payments for SSO and HCO 
cases in FY 2014, we applied an inflation factor of 4.9 percent 
(determined by OACT) to estimate the costs of each case using the 
charges reported on the claims in the FY 2012 MedPAR files and the 
best available CCRs from the March 2013 update of the PSF. 
Furthermore, in modeling estimated LTCH PPS payments for FY 2014 in 
this impact analysis, we used the FY 2014 fixed-loss amount of 
$13,314 (as discussed in section V.D. of the Addendum to this final 
rule).
    These impacts reflect the estimated ``losses'' or ``gains'' 
among the various classifications of LTCHs from FY 2013 to FY 2014 
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 2013 (as described above).
     The fifth column shows the estimated payment per 
discharge for FY 2014 (as described above).
     The sixth column shows the percentage change in 
estimated payments per discharge from FY 2013 to FY 2014 due to the 
annual update to the standard Federal rate (as discussed in section 
V.A.2. of the Addendum to this final rule), including the second 
year of the phase-in of the one-time prospective adjustment factor 
for FY 2014. (As noted previously, the estimate payment changes 
shown in this column do not take into account that the one-time 
prospective adjustment to the standard Federal rate for FY 2013 
under Sec.  412.523(d)(3) is not applied to payments for discharges 
occurring before December 29, 2012, consistent with the statute.)
     The seventh column shows the percentage change in 
estimated payments per discharge from FY 2013 to FY 2014 for changes 
to the area wage level adjustment (that is, the wage indexes and 
labor-related share), including the application of an area wage 
level budget neutrality factor, (as discussed in section V.B. of the 
Addendum to this final rule.
     The eighth column shows the percentage change in 
estimated payments per discharge from FY 2013 (Column 4) to FY 2014 
(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 2014
                                           [Estimated FY 2013 payments compared to estimated FY 2014 payments]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          Percent change
                                                                                                                           in  estimated
                                                                                                          Percent change   payments per
                                                                                                           in  estimated  discharge from  Percent change
                                                                            Average FY      Average FY     payments per    FY 2013 to FY   in  payments
                                             Number of    Number of LTCH   2013 LTCH PPS   2014 LTCH PPS  discharge from     2014 for     per  discharge
           LTCH Classification                 LTCHs         PPS cases      payment per     payment per    FY 2013 to FY  changes to the   from FY 2013
                                                                               case          case \1\      2014 for the      area wage    to FY 2014 for
                                                                                                           annual update       level        all changes
                                                                                                          to the Federal    adjustment          \4\
                                                                                                             rate \2\      with  budget
                                                                                                                          neutrality \3\
(1)                                                  (2)             (3)             (4)             (5)             (6)             (7)             (8)
--------------------------------------------------------------------------------------------------------------------------------------------------------
ALL PROVIDERS...........................             425         140,888         $39,308         $39,816             0.4             0.0             1.3
BY LOCATION:
    RURAL...............................              28           6,562          34,978          35,304             0.4            -0.2             0.9
    URBAN...............................             397         134,326          39,519          40,036             0.4             0.0             1.3
    LARGE...............................             198          77,789          41,475          42,066             0.4             0.1             1.4
    OTHER...............................             199          56,537          36,827          37,243             0.4            -0.1             1.1

[[Page 51033]]

 
BY PARTICIPATION DATE:
    BEFORE OCT. 1983....................              16           5,662          35,125          35,633             0.4             0.0             1.4
    OCT. 1983-SEPT. 1993................              44          17,322          41,877          42,476             0.4             0.1             1.4
    OCT. 1993-SEPT. 2002................             183          64,278          38,650          39,076             0.4            -0.1             1.1
    OCTOBER 2002 and AFTER..............             182          53,626          39,707          40,285             0.4             0.1             1.5
BY OWNERSHIP TYPE:
    VOLUNTARY...........................              81          19,540          39,436          40,136             0.4             0.0             1.8
    PROPRIETARY.........................             326         118,352          39,176          39,645             0.4             0.0             1.2
    GOVERNMENT..........................              18           2,996          43,684          44,446             0.4            -0.1             1.7
BY REGION:
    NEW ENGLAND.........................              14           7,287          35,077          35,550             0.4             0.1             1.3
    MIDDLE ATLANTIC.....................              30           8,389          41,642          42,355             0.4             0.4             1.7
    SOUTH ATLANTIC......................              61          18,169          41,544          42,039             0.4            -0.1             1.2
    EAST NORTH CENTRAL..................              70          20,473          40,487          41,068             0.4             0.0             1.4
    EAST SOUTH CENTRAL..................              31           8,813          39,444          40,016             0.4            -0.1             1.4
    WEST NORTH CENTRAL..................              26           6,521          39,500          40,032             0.4            -0.3             1.3
    WEST SOUTH CENTRAL..................             136          50,357          35,181          35,496             0.4            -0.2             0.9
    MOUNTAIN............................              32           7,055          42,904          43,500             0.4            -0.3             1.4
    PACIFIC.............................              25          13,824          48,456          49,371             0.3             0.6             1.9
BY BED SIZE:
    BEDS: 0-24..........................              25           2,723          34,215          34,417             0.4            -0.3             0.6
    BEDS: 25-49.........................             202          47,011          38,477          38,943             0.4             0.0             1.2
    BEDS: 50-74.........................             117          37,910          40,133          40,733             0.4             0.0             1.5
    BEDS: 75-124........................              46          22,720          41,224          41,781             0.4             0.1             1.4
    BEDS: 125-199.......................              22          16,152          38,293          38,676             0.4            -0.2             1.0
    BEDS: 200 +.........................              13          14,372          38,924          39,447             0.4             0.1             1.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimated FY 2014 LTCH PPS payments based on the payment rate and policy changes presented in the preamble and the Addendum to this final rule.
\2\ Percent change in estimated payments per discharge from FY 2013 to FY 2014 for the annual update to the standard Federal rate and the one-time
  prospective adjustment factor for FY 2014 as discussed in section V.A.2. of the Addendum to this final rule. Note, this column does not take into
  account that the one-time prospective adjustment to the standard Federal rate for FY 2013 under Sec.   412.523(d)(3) is not applied to payments for
  discharges occurring before December 29, 2012, consistent with the statute (and therefore, are paid based on a relatively higher rate).
\3\ Percent change in estimated payments per discharge from FY 2013 to FY 2014 for changes to the area wage level adjustment under 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 2013 LTCH PPS (shown in Column 4) to FY 2014 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.

e. Results

    Based on the most recent available data for 425 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 1.3 
percent, on average, for all LTCHs from FY 2013 to FY 2014 as a 
result of the payment rate and policy changes presented in this 
final rule, including an estimated increase in HCO payments. This 
estimated 1.3 percent increase in LTCH PPS payments per discharge 
from the FY 2013 to FY 2014 for all LTCHs (as shown in Table IV) was 
determined by comparing estimated FY 2014 LTCH PPS payments (using 
the payment rate and policies discussed in this final rule) to 
estimated FY 2013 LTCH PPS payments (as described above in section 
I.L.1. of this Appendix).
    We are establishing a standard Federal rate of $40,607.31 for FY 
2014. Specifically, we are updating the standard Federal rate for FY 
2014 by 1.7 percent, which is based on the latest estimate of the 
LTCH PPS market basket increase (2.5 percent), the reduction of 0.5 
percentage point for the MFP adjustment, and the 0.3 percentage 
point reduction consistent with sections 1886(m)(3) and (m)(4) of 
the Act. In addition, we are applying a one-time prospective 
adjustment factor for FY 2014 of 0.98734 (approximately -1.3 
percent) to the standard Federal rate for the second year of the 3-
year phase-in. We note that consistent with the statute, the one-
time prospective adjustment to the standard Federal rate for FY 2013 
is not applied to payments for discharges occurring before December 
29, 2012. Therefore, payments for FY 2013 discharges occurring on or 
before December 28, 2012, are paid based on a standard Federal rate 
that does not reflect that adjustment (and, therefore, are paid 
based on a relatively higher rate).
    We noted earlier in this section that, for most categories of 
LTCHs, as shown in Table IV (Column 6), the payment increase due to 
the 1.7 percent annual update to the standard Federal rate and the 
application of the one-time prospective adjustment for FY 2014 of 
approximately -1.3 percent for the second year of the 3-year phase-
in is projected to result in approximately a 0.4 percent increase in 
estimated payments per discharge for all LTCHs from FY 2013 to FY 
2014. (As noted previously, the estimate payment changes shown in 
this column were determined based on the FY 2013 standard Federal 
rate of $40,915.95, and do not take into account that the one-time 
prospective adjustment to the standard Federal rate for FY 2013 
under Sec.  412.523(d)(3) is not applied to payments for discharges 
occurring before December 29, 2012, consistent with the statute.)

[[Page 51034]]

    In addition, our estimate of the changes in payments due to the 
update to the standard Federal rate also reflects estimated payments 
for SSO cases that are paid using special methodologies that are not 
affected by the update to the standard Federal rate. For these 
reasons, we estimate that payments may increase by less than 0.4 
percent for certain hospital categories due to the annual update to 
the standard Federal rate and the application of the second phase of 
the one-time prospective adjustment for FY 2014.

(1) Location

    Based on the most recent available data, the vast majority of 
LTCHs are located in urban areas. Only approximately 7 percent of 
the LTCHs are identified as being located in a rural area, and 
approximately 5 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 
2013 to FY 2014 for all hospitals is 1.3 percent for all changes. 
For rural LTCHs, the percent change for all changes is estimated to 
be 0.9 percent, while for urban LTCHs, we estimate the increase 
would be 1.3 percent. Large urban LTCHs are projected to experience 
an increase of 1.4 percent in estimated payments per discharge from 
FY 2013 to FY 2014, while other urban LTCHs are projected to 
experience an increase of 1.1 percent in estimated payments per 
discharge from FY 2013 to FY 2014, 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) October 
2002 and after. Based on the most recent available data, the 
categories of LTCHs with the largest percentage of LTCH cases 
(approximately 46 percent) are in hospitals that began participating 
in the Medicare program between October 1993 and September 2002, and 
hospitals that began participating in the Medicare program October 
2002 and after, and they are projected to experience a 1.1 and 1.5 
percent in estimated payments per discharge from FY 2013 to FY 2014, 
respectively, as shown in Table IV.
    Approximately 4 percent of LTCHs began participating in the 
Medicare program before October 1983, and these LTCHs are projected 
to experience a slightly higher than average percent increase (1.4 
percent) in estimated payments per discharge from FY 2013 to FY 
2014, as shown in Table IV. Approximately 10 percent of LTCHs began 
participating in the Medicare program between October 1983 and 
September 1993. These LTCHs are also projected to experience a 1.4 
percent increase in estimated payments from FY 2013 to FY 2014.

(3) Ownership Control

    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 LTCHs in the 
voluntary category will experience a higher than the average 
increase (1.8 percent) in estimated FY 2014 LTCH PPS payments per 
discharge as compared to estimated payments in FY 2013 primarily 
because we project the estimated increase in HCO payments to be 
higher than the average increase for these LTCHs. The majority 
(nearly 77 percent) of LTCHs are identified as proprietary and these 
LTCHs are projected to experience slightly below the national 
average increase (1.2 percent) in estimated payments per discharge 
from FY 2013 to FY 2014. Finally, government-owned and operated 
LTCHs are expected to experience a larger than average increase in 
payments of 1.7 percent in estimated payments per discharge from FY 
2013 to FY 2014.

(4) Census Region

    Estimated payments per discharge for FY 2014 are projected to 
increase for LTCHs located in all regions in comparison to FY 2013. 
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 Middle Atlantic and Pacific regions (1.7 percent and 
1.9 percent, respectively as shown in Table IV). The estimated 
percent increase in payments per discharge from FY 2013 to FY 2014 
for those regions is largely attributable to the changes in the area 
wage level adjustment.
    In contrast, LTCHs located in the South Atlantic and West South 
Central regions are projected to experience the smallest increase in 
estimated payments per discharge from FY 2013 to FY 2014. The lower 
than national average estimated increase in payments of 1.2 percent 
for LTCHs in the South Atlantic and 0.9 percent for LTCHs in the 
West South Central region is primarily due to estimated decreases in 
payments associated with the changes to 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. Most bed size categories are projected to receive 
either a slightly higher or slightly lower than average increase in 
estimated payments per discharge from FY 2013 to FY 2014. We project 
that small LTCHs (0-24 beds) will experience a 0.6 percent increase 
in payments, mostly due to decreases in the area wage level 
adjustment, while large LTCHs (200+ beds) will experience a 1.3 
percent increase in payments. LTCHs with between 50 and 74 beds are 
expected to experience an above average increase in payments per 
discharge from FY 2013 to FY 2014 (1.5 percent).

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 2014 relative to FY 2013 of approximately $72 
million (or approximately 1.3 percent) for the 425 LTCHs in our 
database. In addition, the effects of the expiration of the 
regulatory moratorium on the full application of the 25-percent 
threshold payment adjustment policy effective for cost reporting 
periods beginning or after October 1, 2013 (as discussed in section 
VIII.D. of the preamble of this final rule) will result in a payment 
reduction of approximately $90 million to LTCHs.

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.

M. Effects of Requirements for Hospital Inpatient Quality Reporting 
(IQR) Program

    In section IX.A. of the preamble 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 annual percentage 
increase for the FY 2016 payment determination. Information is not 
available to determine the precise number of hospitals that would 
not meet the requirements to receive the full annual percentage 
increase for the FY 2016 payment determination. At the time that the 
analysis was prepared, 77 hospitals did not receive the full annual 
percentage increase for the FY 2014 payment determination.
    We estimate that the total burden associated with the voluntary 
electronic quality measure reporting option will be similar to the 
burden outlined for hospitals in the Medicare EHR Incentive Program 
Stage 2 final rule (77 FR 53968 through 54162). However, by allowing 
hospitals to submit data for a maximum of four measure sets (16 
measures) that could be used to satisfy the requirements for both 
programs, each hospital that participates in the voluntary 
electronic quality measure reporting option could realize a 
reduction in burden of up to approximately 800 hours. This estimate 
assumes an annual collection burden for chart-abstracted Stroke, VTE 
and PC-01 to be a combined 816 hours annually per hospital and an 
estimated 2.66 hours to submit those measures electronically for one 
quarter. Since the ED measures are a subset of the global measure 
set that also includes the Immunization measures, which will 
continue to be collected via chart-abstraction, we do not believe 
there will be a significant reduction in burden for electronic 
submission of the ED-1 and ED-2 measures.
    We are finalizing our proposals related to validation, including 
submission of and payment for secure electronic versions of medical 
information for validation for the FY 2016 payment determination and 
subsequent years, as described in the ICRs for the Hospital IQR 
Program, and these changes will result in a cost savings to CMS of 
approximately $1.3 million.

N. Effects of Requirements for the PPS-Exempt Cancer Hospital 
Quality Reporting (PCHQR) Program for FY 2014

    In section IX.B. of the preamble of this final rule, we discuss 
our policies for FYs 2015 and 2016 for the quality data reporting 
program for PPS-exempt cancer hospitals (PCHs), which we refer to as 
the PCHQR Program. The PCHQR Program is authorized under section 
1866(k) of the Act, which was added by section 3005 of the 
Affordable Care

[[Page 51035]]

Act. The quality reporting requirements affect all PCHs 
participating in Medicare. In the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53556 through 53561), we adopted five quality measures for 
the FY 2014 payment determination and subsequent years.
    In this final rule, we are finalizing our program policy that 
PCHs submit data on 1 additional measure beginning with the FY 2015 
program and 12 additional measures beginning with the FY 2016 
program, for a total of 18 measures. We did not make changes to the 
reporting requirements that we have previously finalized for the 
five measures we first adopted beginning with the FY 2014 PCHQR 
Program.
    The anticipated burden to these PCHs consists of the following: 
training of appropriate staff members on how to use the NSHN for the 
reporting of the SSI measure, CMS (QualityNet) for the reporting of 
the SCIP measures, and the CMS Web Measures Tool for the reporting 
of the clinical process/oncology care measures; the time required 
for collection and aggregation of data; and the time required for 
the reporting of data by the PCH's representative.
    In addition, in order for a PCH to participate in the collection 
of HCAHPS data, a PCH must either: (1) Contract with an approved 
HCAHPS survey vendor that will conduct the survey and submit data on 
the PCH's behalf to the QIO Clinical Warehouse; or (2) self-
administer the survey without using a vendor, provided that the PCH 
attends HCAHPS training. Finally, all PCHs that do not already 
report data under the PCHQR Program will need to register with 
QualityNet, identify a QualityNet administrator, complete an online 
Notice of Participation form, and learn the CMS contractor's and the 
CDC's collection mechanism in order to submit data for those 
measures.
    One of our priorities is to help achieve better health and 
better health care for individuals through collection of valid, 
reliable, and relevant measures of quality health care data. Such 
data can be displayed publicly and used to further the development 
of health care quality, which, in turn, helps to further our 
objectives and goals. Health care organizations can use their health 
care quality data for many purposes such as in their risk management 
programs, health care acquired infection prevention programs and 
research and development of medical programs, among others.
    We will share the information collected under the PCHQR Program 
with the public as is required under the statute. These data will be 
displayed on the Hospital Compare Web site. The goals of making 
these data available to the public in a public user-friendly and 
relevant format, include, but are not limited to: (1) Keeping the 
public informed of the quality of care that is being provided in 
PCHs as a whole; (2) keeping the public informed of the quality of 
care being provided in specific PCHs; (3) allowing the public to 
compare and contrast the data about specific PCHs, thus enabling the 
public to make informed health care decisions regarding PCHs; and 
(4) providing information about current trends in health care. There 
are many other public uses for these quality data concerning PCHs. 
Further, keeping the public informed of quality of care provided in 
health care has always been of high priority to CMS.
    We also seek to align the PCHQR Program measures and reporting 
requirements with current HHS high priority conditions and topics 
and to ultimately provide a comprehensive assessment of the quality 
of health care delivered in a variety of settings.

O. Effects of Requirements for the LTCH Quality Reporting (LTCHQR) 
Program for FY 2014 through FY 2018

    In section IX.C. of the preamble of this final rule, we discuss 
the implementation of section 3004(a) of the Affordable Care Act, 
which added section 1886(m)(5) to the Act. Section 1886(m)(5) of the 
Act provides that, for rate year 2014 and each subsequent year, any 
LTCH that does not submit data to the Secretary in accordance with 
section 1886(m)(5)(C) of the Act will receive a 2.0 percentage point 
reduction to the annual update to the standard Federal rate for 
discharges for the hospital during the applicable fiscal year. The 
initial requirements for this LTCHQR Program were finalized in 
section VII.C. of the FY 2012 IPPS/LTCH PPS final rule (76 FR 51743 
through 51756).
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51839 through 
51840), we estimated that only a few LTCHs would not receive the 
full payment update in any fiscal year because they did not submit 
data under the LTCHQR Program. We believe that the above statement 
made in the FY 2012 IPPS/LTCH PPS final rule remains valid. Data 
collection for the LTCHQR Program began October 1, 2012. We are now 
able to verify, following this first quarter (October 1, 2012-
December 31, 2012) of data collection and submission, that a 
majority of CMS-certified LTCHs are submitting quality data to the 
LTCHQR Program. We believe that a majority of LTCHs will continue to 
collect and submit data for the FY 2015 payment determination and 
subsequent years because they will continue to view the LTCHQR 
Program as an important step in improving the quality of care 
patients receive in the LTCHs.
    As discussed in section VIII.D.3. of the preamble of the FY 2013 
IPPS/LTCH PPS final rule, for the FY 2015 payment determination and 
subsequent years, we retained the three quality measures that were 
finalized for use in the LTCHQR Program in the FY 2012 IPPS/LTCH PPS 
final rule, with some modifications. These measures are: (1) NHSN 
Catheter-Associated Urinary Tract Infections (CAUTI) Outcome Measure 
(NQF 0138); (2) NHSN Central Line Catheter-Associated Blood 
Stream Infection Event (CLABSI) Outcome Measure (NQF 0139); 
and (3) an Application of the Percent of Residents or Patients with 
Pressure Ulcers That Are New or Worsened (Short-Stay) (NQF 
0678). In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51780 
through 51781), we estimated that the total yearly cost to all LTCHs 
that are paid under the LTCH PPS 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) will be approximately $756, 326. We adopted this 
same burden estimate in the FY 2013 IPPS/LTCH PPS final rule.
    As part of its endorsement maintenance process under NQF's 
Patient Safety Measures Project (http://www.qualityforum.org/projects/patient_safety_measures.aspx), the NQF reviewed the CAUTI 
and CLABSI measures that we adopted in the FY 2012 IPPS/LTCH PPS 
final rule. As a result of this review, the NQF expanded the scope 
of its endorsement to include additional care settings, including 
LTCHs. In the FY 2013 IPPS/LTCH PPS final rule, we adopted the CAUTI 
and CLABSI measures in their expanded form for the FY 2014 payment 
determination and subsequent years.
    We did not believe that the total burden estimate of $756,326 
that we made in the FY 2012 IPPS/LTCH PPS final rule would be 
affected by this expansion of the CAUTI and CLABSI measures. We made 
this statement because these expanded measures were the same 
measures we adopted in the FY 2012 IPPS/LTCH PPS final rule, except 
that the measure names had been changed and the scope of NQF 
endorsement expanded so as to be applicable to the LTCH setting. The 
expanded CAUTI and CLABSI measures made no changes to the way that 
data were to be collected and reported by LTCHs. Thus, the use of 
the expanded CAUTI and CLABSI measures continued to place no 
additional financial burden on LTCHs. In addition, we believed that 
this financial burden should remain relatively stable over the first 
several years of this LTCHQR Program, subject to normal inflationary 
increases, such as increased labor wage rates.
    As discussed in section VIII.D.4.b. of the preamble of the FY 
2013 IPPS/LTCH PPS final rule, for the FY 2016 payment determination 
and subsequent years, we added two additional quality measures to 
the LTCHQR Program. These quality measures are: (1) Percent of 
Residents or Patients Who Were Assessed and Appropriately Given the 
Seasonal Influenza Vaccine (Short-Stay) (NQF 0680); and (2) 
Influenza Vaccination Coverage Among Healthcare Personnel (NQF 
0431). LTCHs will submit data for the staff immunization 
measure to the CDC's NHSN. Details related to the use of NHSN for 
data submission and information on definitions, numerator data, 
denominator data, data analyses, and measure specifications for the 
Influenza Vaccination Coverage among Healthcare Personnel (NQF 
0431) measure can be found at http://www.cdc.gov/nhsn/LTACH/hcp-flu-vac/index.html.
    Data for the patient influenza vaccination measure will be 
collected using the LTCH CARE Data Set Version 2.01, and we confirm 
that the new data item set consists of 3 additional items added to 
the LTCH CARE Data Set Version 1.01, creating Version 2.01 of the 
LTCH CARE Data Set. These items are harmonized with data elements 
(O0250: Influenza Vaccination Status) from the Minimum Data Set 
(MDS) 3.0.\213\ The LTCH

[[Page 51036]]

CARE Data Set Version 2.01 was approved by the Office of Management 
and Budget (OMB) on June 10, 2013 under the Paperwork Reduction Act 
(PRA).\214\ The OMB control number is 0938-1163. The specifications 
and data elements for this measure are available in the CMS Long-
Term Care Hospital Quality Reporting Program Manual Version 2.0 
(Draft, May 2013) available on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/Downloads/LTCH-QR-Program-Manual-v20-DRAFT.zip.
---------------------------------------------------------------------------

    \213\ Centers for Medicare & Medicaid Services. MDS 3.0 Item 
Subsets V1.10.4 for the April 1, 2012 Release. Retrieved from 
https://www.cms.gov/NursingHomeQualityInits/30_NHQIMDS30TechnicalInformation.asp.
    \214\ The LTCH CARE Data Set Version 2.01 was approved on June 
10, 2013 by OMB in accordance with the PRA. The OMB Control Number 
is 0938-1163. Expiration Date June 30, 2016.
---------------------------------------------------------------------------

    On May 15, 2013, the LTCHQR Program ended the submission 
timeframe for the first quarter of quality measure reporting. As a 
result, we have become more familiar with the burden of this 
program. We have now received feedback from LTCH providers about the 
time burden associated with the completion of the LTCH CARE Data 
Set. We have considered feedback from LTCHs in the form of public 
comments to the most recent LTCH proposed rule (FY 2014 IPPS/LTCH 
PPS proposed rule), questions during Open Door forums, and LTCH 
helpdesk inquiries. LTCHs have stated that we had underestimated the 
amount of time that is required of the LTCH staff to complete the 
LTCH CARE Data Set on each LTCH patient.
    In response to the feedback received, we have significantly 
revised our burden estimates. For example, in our previous PRA 
package burden estimate ($756,326 and 26,100 annual hours for all 
LTCHs) we estimated burden based solely on LTCH yearly discharges of 
Medicare beneficiaries, while the revised burden estimate 
($2,971,250 and 212,160 annual hours for all LTCHs) has been updated 
to reflect the requirement that LTCHs submit data for yearly LTCH 
discharges of both Medicare and non-Medicare patients. CMS has 
always required LTCHs to submit quality data on both Medicare and 
non-Medicare patients, however, we did not include estimates 
encompassing all payers into our proposed rule. In addition, the 
original burden calculation ($756,326 and 26,100 annual hours for 
all LTCHs) only took into account one assessment per patient 
(admission), while the revised estimate ($2,971,250 and 212,160 
annual hours for all LTCHs) has been updated to reflect the 
requirement that LTCHs submit two assessment records per patient 
(admission and discharge).
    While the burden calculation for this PRA submission has 
increased significantly compared to our original calculation, we 
believe that the calculation now more accurately reflects the burden 
associated with implementing data collection and submission, as 
mandated by section 1886(m)(5) of the Act. For a complete discussion 
on the current LTCH CARE Data Set version 2.01 burden estimate, we 
refer readers to the PRA package approved by OMB on June 10, 
2013.\215\
---------------------------------------------------------------------------

    \215\ The LTCH CARE Data Set Version 2.01 was approved on June 
10, 2013 by OMB in accordance with the PRA. The OMB Control Number 
is 0938-1163. Expiration Date June 30, 2016.
---------------------------------------------------------------------------

    In sections IX.C.8.b. and c. of the preamble to this final rule, 
we are finalizing our proposal to adopt four new quality measures 
for inclusion in the LTCHQR Program: (1) NHSN Facility-Wide 
Inpatient Hospital-Onset Methicillin-resistant Staphylococcus aureus 
(MRSA) Bacteremia Outcome Measure (NQF 1716); (2) NHSN 
Facility-Wide Inpatient Hospital-Onset Clostridium Difficile (C. 
Difficile) Outcome Measure (NQF 1717); (3) All-Cause 
Unplanned Readmission Measure for 30 Days Post-Discharge from Long-
Term Care Hospitals; and (4) Application of Percent of Residents 
Experiencing One or More Falls with Major Injury (Long-Stay) (NQF 
0674). The first three measures will apply to the FY 2017 
payment determination and subsequent years. The fourth measure will 
apply to the FY 2018 payment determination and subsequent years.
    Of the measures listed above, we believe that the first two 
measures (NHSN Facility-Wide Inpatient Hospital-Onset Methicillin-
resistant Staphylococcus aureus (MRSA) Bacteremia Outcome Measure 
(NQF 1716) and NHSN Facility-Wide Inpatient Hospital-Onset 
Clostridium Difficile (C. Difficile) Outcome Measure (NQF 
1717)) will only minimally increase burden on LTCHs. These 
two measures are reported through the CDC's NHSN. LTCHs are familiar 
with the submission of quality data using this system as they began 
submitting required quality data through NHSN on October 1, 2012 for 
the CAUTI and CLABSI measures. The third measure (All-Cause 
Unplanned Readmission Measure for 30 Days Post-Discharge from Long-
Term Care Hospitals) is a Medicare FFS claims-based measure, and 
therefore will not increase the reporting burden of LTCHs. Lastly, 
we believe the fourth measure (application of Percent of Residents 
Experiencing One or More Falls with Major Injury (Long-Stay) (NQF 
0674) will also have a minimal impact on the reporting 
burden, as calculated for the LTCH CARE Data Set Version 2.01 
approved by the Office of Management and Budget (OMB) in accordance 
with the Paperwork Reduction Act (PRA).\216\ This measure will be 
collected using the LTCH CARE Data Set to which a total of two 
questions will be added in order to allow CMS to collect the data 
necessary to calculate this measure.
---------------------------------------------------------------------------

    \216\ The LTCH CARE Data Set Version 2.01 was approved on June 
10, 2013 by OMB in accordance with the PRA. The OMB Control Number 
is 0938-1163. Expiration Date June 30, 2016.
---------------------------------------------------------------------------

    The public comments that we received addressing burden and data 
collection associated with the LTCHQR Program are addressed in 
sections IX.C. and XIII.B.9. of the preamble of this final rule, 
where we discuss in detail the information collection requirements 
and the burden associated with those requirements.

P. Effects of Changes to the Requirements for the Inpatient 
Psychiatric Facilities Quality Reporting (IPFQR) Program

    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53644), we 
finalized policies to implement the Inpatient Psychiatric Facilities 
Quality Reporting (IPFQR) Program. One goal of the IPFQR Program is 
to implement the statutory requirements of section 1886(s)(4) of the 
Act, as added by sections 3401(f) and 10322(a) of the Affordable 
Care Act. In addition, one of our priorities is to help achieve 
better health and better health care for individuals through 
collection of valid, reliable, and relevant measures of quality 
health care data. Such data will be publicly posted and, thus, 
available for use in furthering the development of health care 
quality, which, in turn, helps to further our objectives and goals. 
IPFs can use such health care quality data for many purposes such as 
in their risk management programs, patient safety and quality 
improvement initiatives and research and development of mental 
health programs, among others.
    In section IX.D. of the preamble of this final rule, we are 
finalizing our proposal that, for the FY 2016 payment determination 
and subsequent years, IPFs must submit aggregate data on one 
additional chart-abstracted measure (SUB-1: Alcohol Use Screening), 
for a total of 7 chart-abstracted measures. We note that, at this 
time, we have decided to not finalize SUB-4 (Alcohol & Drug Use: 
Assessing Status After Discharge). Although we proposed to use 
chart-abstraction, we are finalizing claims-based data collection 
for the Follow-Up After Hospitalization for Mental Illness (FUH) 
measure, which reduces burden on IPFs. In addition, we are 
finalizing a request for voluntary information. We did not make 
changes to the administrative, reporting or submission requirements 
for the existing six measures previously finalized in last year's 
rule (77 FR 53654 through 53657). However, there will be new 
reporting and submission requirements associated with the two 
additional measures and request for voluntary information for the FY 
2016 payment determination and subsequent years.

II. Alternatives Considered

    This final rule contains a range of policies. It also provides 
descriptions of the statutory provisions that are addressed, 
identifies the finalized policies, and presents rationales for our 
decisions and, where relevant, alternatives that were considered.

III. 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 0.5 percent in operating payments. As discussed 
in section I.G. of this Appendix, we estimate that operating 
payments will increase by approximately $498 million in FY 2014 
relative to FY 2013. However, when we account for the impact of the 
changes in Medicare DSH payments and the impact of the new 
additional payments based on uncompensated care in accordance with 
section 3133 of the Affordable Care Act, based on estimates provided 
by the CMS Office of the Actuary, consistent with our policy 
discussed in section V.E. of the preamble of this final rule, we 
estimate that

[[Page 51037]]

operating payments would increase by approximately $1.3 billion 
relative to FY 2013. In addition, we estimate a savings of $26 
million associated with the HACs policies in FY 2014, which is an 
additional $2 million in savings as compared to FY 2013. We estimate 
that the expiration of the expansion of low-volume hospital payments 
in FY 2014 under section 605 of the ATRA will result in a decrease 
in payments of approximately $268 million. We estimate new 
technology payments will increase payments by $29 million in FY 
2014. We estimate that the finalized policy to include labor and 
delivery patient days in the patient day utilization calculation for 
GME payments will decrease payments to providers by $19 million. 
Finally, we estimate that the policies related to validation, 
including submission of and payment for secure electronic versions 
of medical information for validation for the FY 2016 payment 
determination and subsequent years, as described in the ICRs for the 
Hospital IQR Program in section XII.B.6. of the preamble of this 
final rule, will result in a cost savings to CMS of approximately 
$1.3 million. These estimates, combined with our FY 2014 operating 
estimate of $1.3 billion, result in an estimated increase of 
approximately $1.1 billion for FY 2014. We estimate that hospitals 
will experience a 1.6 percent increase in capital payments per case, 
as shown in Table III of section I.I. of this Appendix. We project 
that there will be a $134 million increase in capital payments in FY 
2014 compared to FY 2013. The cumulative operating and capital 
payments would result in a net increase of approximately $1.2 
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 2014. 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 2014. Accordingly, 
based on the best available data for the 423 LTCHs in our database, 
we estimate that FY 2014 LTCH PPS payments will increase 
approximately $72 million relative to FY 2013 as a result of the 
payment rates and factors presented in this final rule. In addition, 
we estimate that the expiration of the moratorium on the full 
application of the ``25-percent threshold'' payment adjustment 
policy under current law, beginning with cost reporting period 
beginning on or after October 1, 2013 as discussed in section 
VIII.D. of the preamble of this final rule, will result in a 
reduction in LTCH PPS payments of $90 million. Additionally, costs 
to LTCHs associated with the completion of the data for the LTCHQR 
Program is estimated to be $2.97 million.

IV. Accounting Statements and Tables

A. 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 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.
    The costs to the Federal Government associated with the policies 
in this final rule are estimated at $1.2 billion.

 Table V--Accounting Statement: Classification of Estimated Expenditures
                 under the IPPS from FY 2013 to FY 2014
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  $1.2 billion.
From Whom to Whom.........................  Federal Government to IPPS
                                             Medicare Providers.
------------------------------------------------------------------------

B. LTCHs

    As discussed in section I.L. of this Appendix, the impact 
analysis of the payment rates and factors presented in this final 
rule under the LTCH PPS, in conjunction with the estimated payment 
impact of the moratorium on the full application of the ``25-percent 
threshold'' payment adjustment policy under current law, is 
projected to result in a decrease in estimated aggregate LTCH PPS 
payments in FY 2014 relative to FY 2013 of approximately $18 million 
based on the data for 423 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 the changes to the 
LTCH PPS. Table VI provides our best estimate of the estimated 
decrease in Medicare payments under the LTCH PPS as a result of the 
payment rates and factors and other provisions presented in this 
final rule based on the data for the 425 LTCHs in our database. All 
expenditures are classified as transfers to Medicare providers (that 
is, LTCHs). Lastly, we present the costs to LTCHs associated with 
the completion of the data for the LTCHQR Program at $2.97 million.
    The savings to the Federal Government associated with the 
policies for LTCHs in this final rule is estimated at $18 million.

Table VI--Accounting Statement: Classification of Estimated Expenditures
            From the FY 2013 LTCH PPS to the FY 2014 LTCH PPS
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  -$18 million.
From Whom to Whom.........................  Federal Government to LTCH
                                             Medicare Providers.
------------------------------------------------------------------------
                 Category                               Costs
------------------------------------------------------------------------
Annualized Monetized Costs for LTCHs to     $2.97 million.
 Submit Quality Data.
------------------------------------------------------------------------

C. Part B Inpatient Hospital Services

    The following accounting statement shows the classification of 
the expenditures associated with our final policy to provide payment 
for additional Part B inpatient services as discussed in section XI. 
of the preamble in this final rule.

  TABLE VII--Accounting Statement: Classification of Estimated Medicare
  and Beneficiaries' Out-of-Pocket Expenditures for the 12-Month Timely
                       Filing Restriction Policy *
                      [In millions of 2013 dollars]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
           Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized              Units Discount Rate     Period Covered
 Transfers.
                              ------------------------------------------
                                        7%           3%  CYs 2013-2017.
                                     -$830        -$851  ...............
------------------------------------------------------------------------
           From/To                  Federal Government to Hospitals
------------------------------------------------------------------------
Annualized Monetized              Units Discount Rate     Period Covered
 Transfers.
                              ------------------------------------------
                                        7%           3%  CYs 2013-2017.

[[Page 51038]]

 
                                      -$42         -$43
------------------------------------------------------------------------
           From/To                     Beneficiaries to Hospitals
------------------------------------------------------------------------
* These amounts are based on the conversion to constant year dollars of
  the 12-month timely filing policy impact of this final rule.

V. 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 would 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.L. 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 2014 IPPS/LTCH PPS 
proposed rule, we solicited public comments on our estimates and 
analysis of the impact of our proposals on those small entities. Any 
public comments that we received and our responses are presented 
throughout this final rule.

VI. 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 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 
final policy changes under the IPPS for operating costs.)

VII. 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 2013, that threshold level is approximately $141 
million. This final rule will not mandate any requirements for 
State, local, or tribal governments, nor will it affect private 
sector costs.

VIII. 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 rate for SCHs, and the 
rate-of-increase limits for certain hospitals excluded from the 
IPPS, as well as LTCHs. In prior years, we have made a 
recommendation in the IPPS proposed rule and final rule for the 
update factors for the payment rates for IRFs and IPFs. However, for 
FY 2014, we plan to include the Secretary's recommendation for the 
update factors for IRFs and IPFs in separate Federal Register 
documents at the time that we announce the annual updates for IRFs 
and IPFs. We also discuss our response to MedPAC's recommended 
update factors for inpatient hospital services.

II. Inpatient Hospital Update for FY 2014

A. FY 2014 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 2014 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 data 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 0.3 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 2014 adjustment of 0.3 percentage point may result in 
the applicable percentage increase being less than zero.
    We note that, in compliance with section 404 of the MMA, in 
section IV. of this final rule, we are replacing the FY 2006-based 
IPPS operating and capital market baskets with revised and rebased 
FY 2010-based IPPS operating and capital market baskets for FY 2014. 
In accordance with section 1886(b)(3)(B) of the Act, as amended by 
section 3401(a) of the Affordable Care Act, in section V.A.1. of the 
preamble of the FY 2014 IPPS/LTCH PPS proposed rule, we proposed a 
multifactor productivity (MFP) adjustment (the 10-year moving 
average of MFP for the period ending FY 2014) of 0.4 percent. 
Therefore, based on IHS Global Insight Inc.'s (IGI's) first quarter 
2013 forecast of the proposed FY 2010-based IPPS market basket, we 
proposed an applicable percentage increase to the FY 2013 operating 
standardized amount of 1.8 percent (that is, the proposed FY 2014 
estimate of the market basket rate-of-increase of 2.5 percent less 
an adjustment of 0.4 percentage point for economy-wide productivity 
(MFP) and less 0.3 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 -0.2 
percent (that is, the FY 2014 estimate of the market basket rate-of-
increase of 2.5 percent less 2.0 percentage points for failure to 
submit quality data, less an adjustment of 0.4 percentage point for 
MFP, and less an additional adjustment of 0.3 percentage point). We 
also proposed that if

[[Page 51039]]

more recent data become 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 2014 market 
basket update and MFP adjustment in the final rule.
    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, 
in section V.A.1. of the preamble of this final rule, we are making 
an MFP adjustment (the 10-year moving average of MFP for the period 
ending FY 2014) of 0.5 percent. Based on IHS Global Insight Inc.'s 
(IGI's) second quarter 2013 forecast of the FY 2010-based IPPS 
market basket, we are making an applicable percentage increase to 
the FY 2013 operating standardized amount of 1.7 percent (that is, 
the FY 2014 estimate of the market basket rate-of-increase of 2.5 
percent less an adjustment of 0.5 percentage point for MFP and less 
0.3 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 -0.3 percent (that 
is, the FY 2014 estimate of the market basket rate-of-increase of 
2.5 percent less 2.0 percentage points for failure to submit quality 
data, less an adjustment of 0.5 percentage point for MFP, and less 
an additional adjustment of 0.3 percentage point).

B. Update for SCHs for FY 2014

    Section 1886(b)(3)(B)(iv) of the Act provides that the FY 2014 
applicable percentage increase in the hospital-specific rate for 
SCHs 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 rate for SCHs 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, we are making an 
applicable percentage increase to the hospital-specific rate 
applicable to SCHs of 1.7 percent for hospitals that submit quality 
data or -0.3 percent for hospitals that fail to submit quality data.

C. FY 2014 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, we are making an applicable percentage increase 
to the Puerto Rico-specific standardized amount of 1.7 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 the 
provisions of Sec.  413.40, which also use section 1886(b)(3)(B)(ii) 
of the Act to update the percentage increase in the rate-of-increase 
limits.
    Currently, children's hospitals, PPS-excluded cancer hospitals, 
and RNHCIs are among the remaining three types of hospitals still 
paid under the reasonable cost methodology, subject to the rate-of-
increase limits. In this final rule, for FY 2014 and subsequent 
fiscal years, the rate-of-increase percentage applicable to the 
target amount for children's hospitals, PPS-excluded cancer 
hospitals, and RNHCIs is the percentage increase in the revised and 
rebased FY 2010-based IPPS operating market basket. Accordingly, the 
FY 2014 rate-of-increase percentage that will be applied to the 
target amount for cancer hospitals, children's hospitals, and RNHCIs 
is the FY 2014 percentage increase in the revised and rebased FY 
2010-based IPPS operating market basket. For this final rule, the 
current estimate of the FY 2014 IPPS operating market basket 
percentage increase is 2.5 percent.

E. Update for LTCHs for FY 2014

    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.
    As discussed in section V.A. of the Addendum to this final rule, 
we are establishing an update to the LTCH PPS standard Federal rate 
for FY 2014 based on the full LTCH PPS market basket increase 
estimate (for this final rule, estimated to be 2.5 percent), subject 
to an adjustment based on changes in economy-wide productivity and 
an additional reduction required by sections 1886(m)(3)(A)(ii) and 
(m)(4)(D) of the Act, provided the LTCH submits quality data in 
accordance with section 1886(m)(5)(C) of the act and our rules. 
Beginning in FY 2014, in accordance with the LTCHQR Program under 
section 1886(m)(5) of the Act, we are reducing the annual update to 
the LTCH PPS standard Federal rate by 2.0 percentage points for 
failure of a LTCH to submit quality data. The MFP adjustment 
described in section 1886(b)(3)(B)(xi)(ii) of the Act is currently 
estimated to be 0.5 percent for FY 2014. In addition, section 
1886(m)(3)(A)(ii) of the Act requires that any annual update for FY 
2014 be reduced by the ``other adjustment'' at section 1886(m)(4)(D) 
of the Act, which is 0.3 percentage point. Therefore, based on IGI's 
second quarter 2013 forecast of the FY 2014 market basket increase, 
we are making an annual update to the LTCH PPS standard Federal rate 
of 1.7 percent (that is, the current FY 2014 estimate of the market 
basket rate-of-increase of 2.5 percent less an adjustment of 0.5 
percentage point for MFP and less 0.3 percentage point), provided 
the LTCH submits quality data in accordance with the LTCHQR Program 
under section 1886(m)(5)(C) of the Act. Accordingly, we are applying 
an update factor of 1.017 in determining the LTCH PPS standard 
Federal rate for FY 2014 provided the LTCH submits quality data in 
accordance with section 1886(m)(5)(C) of the Act and our rules. For 
LTCHs that fail to submit quality data, we are making an annual 
update to the LTCH PPS standard Federal rate of -0.3 percent (that 
is, the FY 2014 estimate of the market basket rate-of increase of 
2.5 percent less an adjustment of 0.5 percentage point for MFP, less 
an additional adjustment of 0.3 percentage point, and less 2.0 
percentage points for failure to submit quality data) by applying an 
update factor of 0.997 in determining the LTCH PPS standard Federal 
rate for FY 2014. Furthermore, we are making an adjustment for the 
second year of the 3-year phase-in of the one-time prospective 
adjustment to the standard Federal rate under Sec.  412.523(d)(3) by 
applying a factor of 0.98734 (or approximately -1.3 percent) in FY 
2014, consistent with current law.

III. Secretary's Recommendations

    MedPAC is recommending an inpatient hospital update equal to one 
percent for FY 2014. 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 1.7 
percent (that is, the FY 2014 estimate of the market basket rate-of-
increase of 2.5 percent less an adjustment of 0.5 percentage point 
for MFP and less 0.3 percentage point). We are recommending that the 
same applicable percentage increase apply to SCHs 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 certain other types of hospitals 
excluded from the IPPS. Consistent with our policies for these 
facilities, we are recommending an update to the target amounts for 
children's hospitals, cancer hospitals, and RNHCIs of 2.5 percent.
    For FY 2014, consistent with policy set forth in section VIII. 
of the preamble of this final rule, we are recommending an update of 
1.7 percent (that is, the current FY 2014 estimate of the market 
basket rate-of-increase

[[Page 51040]]

of 2.5 percent less an adjustment of 0.5 percentage point for MFP 
and less 0.3 percentage point) to the LTCH PPS standard Federal 
rate.

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating 
Payments in Traditional Medicare

    In its March 2013 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 1.0 percent. MedPAC expects 
Medicare margins to remain low in 2013. At the same time, 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 use the difference between the increase of 
the applicable percentage increase under the IPPS for FY 2014 and 
MedPAC's recommendation of a 1.0 percent update to gradually recover 
past overpayments due to documentation and coding changes.
    Response: With regard to MedPAC's recommendation of an update to 
the hospital inpatient rates equal to 1 percent, for FY 2014, 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 2014 applicable percentage increase. 
Therefore, we are making an applicable percentage increase for FY 
2014 of 1.7 percent, provided the hospital submits quality data, 
consistent with these statutory requirements.
    With regard to MedPAC's recommendation that Congress should 
require the Secretary to use the difference between the increase of 
the applicable percentage increase under the IPPS for FY 2014 and 
MedPAC's recommendation of a 1.0 percent update to gradually recover 
past overpayments due to documentation and coding changes, we refer 
readers to section II.D. of the preamble of this final rule for a 
complete discussion of the FY 2014 documentation and coding 
adjustment. We note that section 631 of the ATRA amended section 
7(b)(1)(B) of Public Law 110-90 to require the Secretary to make a 
recoupment totaling $11 billion by 2017. This adjustment represents 
the amount of the increase in aggregate payments as a result of not 
completing the prospective adjustment authorized under section 
7(b)(1)(A) of Public Law 110-90 until FY 2013. Our actuaries 
estimate that if CMS were to fully account for the $11 billion 
recoupment required by section 631 of the ATRA in FY 2014, a -9.3 
percent adjustment to the standardized amount would be necessary. 
MedPAC estimates that a -2.4 percent adjustment made in FY 2014, and 
not removed until FY 2018, also would recover the required 
recoupment amount. It is often our practice to delay or phase in 
rate adjustments over more than 1 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, we are making a 
-0.8 percent adjustment to the standardized amount in FY 2014.
    We also 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.

[FR Doc. 2013-18956 Filed 8-2-13; 4:15 pm]
BILLING CODE 4120-01-P